| x | No excessive perquisites. | ✓ | RequireImplemented our robust shareholder outreach program, which we undertook in response to our 2016 say-on-pay vote to solicit investor feedback on compensation plan design and disclosure and which we will continue in connection with this Annual Meeting. | x | No hedging or pledging of the Company’s common stock. | | ✓ | Amended our Chief Executive Officer’s employment agreement to require a “double trigger” for the payment of change-in-control payments under our Chief Executive Officer’s employment agreement,to him, meaning that payments will not be triggered without a qualifying termination following a change in control.control, and to provide that his change in control payment would be based on the average of the preceding three years’ actual bonuses earned. | x | No option repricing or repurchases of underwater options without shareholder approval. |
The Company’s 2017 Performance
The Company’s financial results for 2017 reflect the impact of multiple severe weather events in Florida including Hurricane Irma, the largest Category Five storm in the Atlantic Ocean in more than a decade, and challenges in the Company’s non-core operations. The Company took action to improve its underwriting profitability during 2017 and believes it is well positioned to increase shareholder value moving forward. The significant accomplishments include:
| · | Total revenue increased 27.4% to $391.7 million driven by a 28% increase in homeowners, our core business line. |
| · | Net income attributable to the Company’s shareholders grew 687.1% to $8.0 million over the prior year. |
| · | Book value per share, excluding non-controlling interest, grew to $16.29 from $16.01 in 2016. |
| · | We maintained the Company’s dividend at $0.08. |
| · | The Company mitigated the impact of handling inflated costs of homeowners claims related to assignment of benefits through expense control and rate increases in the Florida market. |
| · | The Company re-focused its resources on the Florida homeowners insurance market and announced its exit from the unprofitable auto insurance and the commercial general liability business lines. |
| · | The Company completed the acquisition of Monarch National, its joint venture operations, supporting its diversification strategy in the Florida market. |
✓ | Compensation Committee composed solely· | The Company continued its expansion outside of independent directors, advised by an independent compensation consultant. |
What We Do Not Do
û | No tax gross-ups on perquisites.Florida, and now also writes homeowners insurance in Alabama, Louisiana, South Carolina and Texas. |
û | No change-in-control excise tax gross-ups.· | The Company continued to develop its broad agent network and partnerships within the homeowners insurance market by expanding written policies including our agreements with Allstate and GEICO. |
û | No excessive perquisites. |
û | No hedging or pledging of the Company’s common stock. |
The Company’s 2015 Performance
The Company’s financial results were strong for 2015, reflecting achievement of important Company goals and resulting in increased shareholder value:
| · | 32.9% increase in Florida homeowners’ policies to approximately 243,000 and a 41% increase in our market share; |
| · | 30.9% increase in gross written premiums to $493.8 million; |
| · | 24.5% increase in total revenues to $249.9 million; |
| · | 13.8% increase in pre-tax net income to $65.2 million; |
| · | 9.9% increase in net income attributable to the Company’s shareholders to $40.9 million; |
| · | 28.6% increase in book value per share, including non-controlling interest, to $18.17; |
| · | Operating expenses as a percentage of total revenue, excluding start-up costs relating to the organization of Monarch National Insurance Company (“Monarch”), remaining flat even with the Company’s growth; |
| · | Continued development of our partnerships to expand the policies we write, including our agreement with Allstate; |
| · | Completion of Monarch’s organization and its approval to begin writing homeowners’ insurance in Florida; and |
| · | Increases in the Company’s dividend from $0.04 per share to $0.05 per share beginning December 1, 2015, with a further increase to $0.06 per share beginning June 1, 2016. |
These 2015 accomplishments followed another extremely successful year in 2014, in which the Company achieved a 57% increase in Florida homeowners' policy count to 182,557, a 55% increase in gross written premiums to $377.2 million, a 192% increase in net income to $37.2 million, and a 42% increase in book value per share to $14.13.
Therefore, in reviewing our Named Executive Officers’ compensation and incentive programs for 2015, the Compensation Committee considered the Company’s significant achievements in 2015, which continued the positive trends in 2014. The Compensation Committee also took into account each Named Executive Officer’s contributions to these achievements, his role in the Company’s goals and plans for 2016, his experience and knowledge, and his tenure with the Company. The Compensation Committee believes that the objectives of the Company’s compensation programs were met and the Company’s compensation programs appropriately compensated our Named Executive Officers for their performance in 2015.
Results of Our Evaluations
The following table summarizes the Compensation Committee’s 20152017 compensation decisions for our Named Executive Officers, consistent with how the Compensation Committee views total compensation. The Compensation Committee reached these compensation decisions based on its evaluation of performance relative to the incentive criteria established at the beginning of 20152017 as described below. For comparative purposes, the table also presents 20142016 and 20132015 compensation decisions for our Named Executive Officers. While the table below summarizes how the Compensation Committee views compensation, it is not a substitute for the tables and disclosures required by the SEC’s rules, which begin on page 26.32. Further detail on how individual pay decisions were made and descriptions of the elements of compensation can be found below following this table.
Named Executive Officer | Year | | Base Salary Rate | | | Annual Incentive Awards | | | Long-term Incentive Awards | | | Total Compensation | | | Michael H. Braun, CEO and President | 2015 | | $ | 600,000 | | | $ | 1,200,000 | | | $ | 1,200,000 | | | $ | 3,000,000 | | | 2014 | | $ | 475,000 | | | $ | 950,000 | | | $ | 1,293,000 | | | $ | 2,693,300 | | | 2013 | | $ | 350,000 | | | $ | 700,000 | | | $ | 2,460,100 | | | $ | 3,510,100 | | | Peter J. Prygelski III, CFO & Treasurer | 2015 | | $ | 325,000 | | | $ | 487,500 | | | $ | 243,750 | | | $ | 1,056,250 | | | 2014 | | $ | 300,000 | | | $ | 450,000 | | | $ | 0 | | | $ | 750,000 | | | 2013 | | $ | 250,000 | | | $ | 350,000 | | | $ | 383,700 | | | $ | 983,700 | |
| | Named Executive Officer | Year | | Base Salary Rate | | | Annual Incentive Awards | | | Long-Term Incentive Awards | | | Total Compensation | | | | Michael H. Braun, CEO and President (1) | 2017 | | $ | 1,000,000 | | | $ | 698,333 | | | $ | 1,250,000 | | | $ | 1,000,000 | | | 2016 | | $ | 1,000,000 | | | $ | 0 | | | $ | 0 | | | $ | 1,000,000 | | | 2015 | | $ | 600,000 | | | $ | 1,200,000 | | | $ | 1,200,000 | | | $ | 3,000,000 | | | | Ronald A. Jordan, CFO (2) | 2017 | | $ | 275,000 | | | $ | 0 | | | $ | 151,500 | | | $ | 275,000 | | | 2016 | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | 2015 | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | Erick A. Fernandez, CAO and Treasurer (3) | 2017 | | $ | 212,000 | | | $ | 40,000 | | | $ | 0 | | | $ | 252,000 | | | 2016 | | $ | 212,000 | | | $ | 40,000 | | | $ | 63,228 | | | $ | 305,228 | | | 2015 | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
19(1) Of the amount noted in long-term incentive awards for 2015, $600,000 was paid in cash and $600,000 was granted as restricted stock. The annual incentive award was paid in 2018 for short-term performance goals met in 2017. The 2017 long-term incentive award of 68,530 shares of restricted stock was granted in 2017 for performance-based goals to be met over a three-year period from 2017 to 2019, of which certain goals were not met in 2017, resulting in the forfeiture of 15,229 shares from this grant. The annual incentive award for 2017 was also subject to the Company achieving a minimum threshold of net income for 2017, which was achieved.
(2) Mr. Jordan joined the Company in April 2017. Mr. Jordan received $100,000 for relocation expenses in 2017 and a grant of 10,000 shares of restricted stock as part of the terms of his employment with the Company.$40,000 for 2016 and 2017. The long-term incentive award consists of restricted stock vesting over three years that was granted to him also prior to his appointment as Interim Chief Financial Officer.
Shareholder Outreach and “Say-on-Pay”
Our lastAt our advisory shareholder vote on executive compensation occurred in 2013, at which time our shareholders approved2017, our say-on-pay proposal byreceived the affirmative vote of 69%88.6% of the shares voted on the proposal. In addition, our director nominated for re-election atThis was a significant improvement over the 2015 annual meeting, Richard W. Wilcox Jr., received votes for re-election from 65.9%results of the shares voted at2016 say-on-pay vote, and reflects the meeting. The Compensation Committee has soughtCommittee’s meaningful efforts during 2017 to seek and receivedreceive feedback and guidance from shareholders and others regarding the Company’s executive compensation practices. These efforts are designed to better understand and address investor concerns, while continuing to evolve our compensation practices in a way that both meets the Board’s compensation goals and benefits our shareholders.
Outreach Process. The Compensation Committee discussed the results of the 2016 say-on-pay vote at its meetings with a view to increasinginvestors following the approval of this year’s say-on-pay proposal2016 annual shareholders meeting, and increasing the support for our nominees for re-election to the Board. With that feedback and guidance in mind, and being cognizantdirected that the Company hasengage in recent years grown substantially, both in revenues and market capitalization,a comprehensive outreach program that went beyond its ordinary-course investor relations program. The outreach process was led by the Chairman of our Compensation Committee, has undertaken a comprehensive reviewRichard W. Wilcox Jr., who participated in all discussions with investors. Other participants in our outreach process included our Corporate Secretary and, as necessary or appropriate, outside counsel, our independent compensation consulting firm, and MacKenzie Partners, our proxy solicitation firm. The Compensation Committee was given regular updates on investor feedback during these discussions.
Extent of Outreach. During the course of our outreach during 2017, we contacted all of the Company’s top 30 shareholders, representing approximately 62% of our outstanding common stock. We received responses from and engaged in dialogue with seven of these shareholders, each of which owned at least 0.3% of our outstanding shares. We will continue this outreach process during the months preceding our 2018 annual meeting. We also held discussions with the major proxy advisory firms during 2017 and 2018 to learn more about their perspectives, policies and evaluation of our executive compensation program. What We Heard:
The Compensation Committee carefully considered the shareholder feedback and guidance it received in 2017 and undertook a comprehensive review of, and made several positive changes to, our executive compensation program for 2017 and 2018.
| ·What We Heard | | How We did not adequatelyResponded | | § | The metrics used to determine awards under the short and long-term incentive plans should be different from one another and closely tied to Company performance, and Compensation Committee should minimize discretionary payouts. | § | The Compensation Committee eliminated discretionary payouts from our Chief Executive Officer’s incentive compensation. For 2017, the Compensation Committee approved a new formula-based short and long-term incentive plan structure for evaluating our Chief Executive Officer’s performance beginning in 2017, with 50% of his incentive award based on annual financial goals that reflect the Company’s financial and operating performance on a year-to-year basis, and 50% based on long-term financial goals that reflect the growth realized by the Company’s shareholders over a more extended horizon. This incentive structure continues in 2018. | | § | Our historical reliance on time-based vesting of equity awards should be reduced, with the emphasis instead on performance-based vesting of equity. | § | Beginning in 2017, a portion of our Chief Executive Officer’s awards granted under the long-term incentive plan were granted 100% in the form of performance-based equity. | | § | Awards made under the long-term incentive plan should be granted predominantly in the form of equity, rather than cash. | | | | | | | | § | The Company should clearly disclose the performance metrics, goals and weighting that were considered when determining our Named Executive Officers’ incentive compensation. |
compensation payouts. | ·§ | There should be a greater emphasis on performance-based equity incentive awards, as opposed to only time-based vesting. |
| · | We should adopt a clawback policy to recover compensation in the event of a restatement of the Company’s financial statements. |
| · | We should adopt stock ownership guidelines and holding requirements until stock ownership guidelines are met. |
| · | The Compensation Committee has approved a new formula-based structure for evaluating our Named Executive Officers’ annual performance beginning in 2016. Payouts will be based on the following: pre-tax income (45% weight), return on equity (45% weight), and executive-specific goals (10%). The pre-tax income and return on equity components have specified performance levels that will result in threshold, target and maximum payouts. This structure increases the weight on financial measures to 90% from 75% under our prior structure. |
| · | The Compensation Committee has approved the introduction of performance shares for 25% of the equity awards that will be granted for 2016 performance in our Named Executive Officers’ long-term incentive program. The performance shares will vest at the end of a three-year performance period based on actual results relative to threshold, target and maximum performance goals established at the time of grant. The Committee intends to tie the performance shares to goals based on growth in shareholder value, such as increases in book value per share. |
| · | The total compensation packages of our Named Executive Officers were reconfigured so as to avoid the need for one-time awards to remain in line with the Company’s peer group. |
| · | We have substantially revamped and restructured our Compensation Discussion and Analysis to make theprovide a more detailed and transparent presentation of the alignment between pay and performance. Although the Company does not provide earnings guidance, and accordingly has not disclosed the specific measurement levels for the performance metrics, we have expanded our disclosures to describe how we makethe measurement levels were determined. | | § | The Company should consider amending its executive compensation decisions cleareremployment agreement(s) from a “single-trigger” for the payment of change of control bonus to a “double-trigger” for payment. | § | We amended our Chief Executive Officer’s employment agreement to provide for a “double-trigger” for payment of his change of control bonus and more detailed.to modify the calculation of that bonus to be based on the average of the Chief Executive Officer’s actual bonuses received for the three years prior to the change of control. |
| · | The Board approved a clawback policy pursuant to which the Company will have the right to recover cash or equity incentive-based compensation granted to our Named Executive Officers during the preceding three fiscal years should our financial statements require restatement as a result of knowing violation of SEC rules and regulations, GAAP, other applicable legal or regulatory requirements, or Company policy by a Named Executive Officer. |
24
Evaluation Process
| · | The Board approved stock ownership and retention guidelines, pursuant to which our Chief Executive Officer is required to hold shares of the Company’s common stock with a value of at least six times his annual salary rate, and our Chief Financial Officer is required to hold shares with a value of at least three times his annual salary rate. The guidelines further provide that the Named Executive Officers should achieve the guideline amounts within five years of the policy’s adoption and, until the guideline amounts are achieved, the Named Executive Officers must retain 66-2/3% of any shares received as equity grants from the Company, net of shares withheld or sold to pay taxes. |
| · | The Board implemented a policy prohibiting hedging or pledging the Company’s common stock, without exception.
|
| · | The Board has approved increasing the frequency of the advisory shareholder vote on executive compensation to annually. |
Evaluation Process and Update of Peer Group
The Compensation Committee conducts an annual review of the aggregate leveltotal compensation of our executive officers, executive compensation, as well as the mix of elements used to compensate our Named Executive Officers. This review is based in part on an analysis of feedback from shareholders and current best practices in executive compensation and in part on a survey of executive compensation paid by various comparable publicly traded property and casualty insurance companies as reported in each company’s proxy statement. In evaluating executive compensation programs of peer companies, the Compensation Committee considers both a group of direct peers and a broader group of peers.
For 2015,2017, our direct peer group encompassed publicly traded companies that compete with us in the Florida homeowners’ insurance market:market, a market with unique performance characteristics and competitive factors:
- Heritage Insurance Holdings, Inc. (NYSE: HRTG), - HCI Group, Inc. (NYSE: HCI), - United Insurance Holdings Corp. (NASDAQ: UIHC) and - Universal Insurance Holdings, Inc. (NYSE: UVE). The Compensation Committee also reviewed survey data reflecting both
This direct peer group remains the same for 2018.
In addition to the four Florida-based insurance industry and general industry pay practices.companies listed above, the Company included the following companies in its peer group for comparison purposes for 2017:
For the 2015 fiscal year,- Safety Insurance Group Inc. (NASDAQ: SAFT) - Donegal Group Inc. (NASDAQ: DGICA) - Greenlight Capital Re Ltd. (NASDAQ: GLRE) - Third Point Reinsurance Ltd. (NYSE: TPRE) - Hallmark Financial Services (NASDAQ: HALL) - First Acceptance Corp. (NYSE: FAC) - Atlas Financial Holdings Inc. (NASDAQ: AFH) - RLI Corp. (NYSE: RLI) - EMC Insurance Group Inc. (NASDAQ: EMCI) - Baldwin & Lyons (NASDAQ: BWINB) - Atlantic American Corp. (NASDAQ: AAME)
These additional peers provide the Compensation Committee engaged Meridian, an independent executivewith a broader perspective of compensation consulting firm, to reviewpractices among relevant insurance companies. The Committee assessed the structure and competitiveness of the Company’s executive and director compensation for 2015. Meridian provides no other servicesprogram in comparison to the Company other than those directly toentire peer group, as well as the Compensation Committee relating to executive and director compensation. Meridian attends meetingssubset of the Compensation Committee atCompany’s direct peers listed above who are the request ofCompany’s primary publicly traded competitors in the committee, meets with the Compensation Committee in executive sessions without the presence of management, and communicates with the Chairman of the Compensation Committee with respect to emerging issues.Florida homeowners’ insurance market.
We also consider the industry knowledge and experience of our committeeCommittee members to be an important component of our compensation review process. Our committeeCommittee members each have substantial management experience in running businesses in the insurance, financial services and legal services industries, many of which have substantial management teams. As a result, their personal experience extends to developing and implementing management compensation and incentive programs, enabling our committeeCommittee members to use that experience when reviewing the Company’s executive compensation programs and working with MeridianMacKenzie Partners to make appropriate updates.
Meridian was providedThe Compensation Committee has worked with informationcompensation consultants in prior years, and also regularly reviews internally compiled data about the compensation practices of our Named Executive Officers’ historical compensation andcompetitors. For the Company’s financial results, and was provided copies of their employment agreements. Meridian then delivered to2017 fiscal year, the Compensation Committee a detailed report comparingalso received assistance from MacKenzie Partners, which had been retained to assist the Board in updating the Company’s currentcorporate governance practices generally, assist with a review and update of the Company’s executive compensation practices, and assist with the Company’s shareholder engagement program to those comparable companies, together with recommendations for future updates.2017. The Compensation Committee, on multiple occasions, met with or spoke with a representative of MeridianMacKenzie Partners to review and discuss Meridian’s findingsMacKenzie Partner’s experience and recommendations. The updates to our executive compensation programs described below reflect, to a significant degree, the adoptionMacKenzie Partners participated in meetings of Meridian’s recommendations by the Compensation Committee at the request of the committee, met with the Compensation Committee in executive sessions without the presence of management, and communicated with the Board.Chairman of the Compensation Committee with respect to emerging issues. The Compensation Committee may use the services of Meridian or other comparable companiesconsultants in the future to assist it in providing a fair and competitive compensation plan for its executives.
During 2015, with the assistance of Meridian, the Compensation Committee also updated the peer group used for comparison purposes when analyzing the Company’s executive compensation programs. In addition to the four insurance companies listed above, which the Company considers its direct peer group, the Company included the following companies in its peer group for comparison purposes:
– Safety Insurance Group Inc. (NASDAQ: SAFT)
– Donegal Group Inc. (NASDAQ: DGICA)
– Greenlight Capital Re Ltd. (NASDAQ: GLRE)
– Third Point Reinsurance Ltd. (NYSE: TPRE)
– Hallmark Financial Services (NASDAQ: HALL)
– First Acceptance Corp. (NYSE: FAC)
– Atlas Financial Holdings Inc. (NASDAQ: AFH)
– RLI Corp. (NYSE: RLI)
– EMC Insurance Group Inc. (NASDAQ: EMCI)
– Baldwin & Lyons (NASDAQ: BWINB)
– Atlantic American Corp. (NASDAQ: AAME)
These additional peers were included to provide the Compensation Committee with a broader perspective of compensation practices among relevant insurance companies. The committee assessed the competitiveness of our compensation program in comparison to the entire peer group, as well as the subset of our direct peers who are competitors in the Florida homeowners’ insurance market.
Elements of Compensation
The Compensation Committee has been committed to updating the Company’s executive compensation programs to reflect the Company’s growth and the evolution of best practices.practices, and to reflect the feedback received as a result of our outreach to our largest shareholders. In that regard, the committee hasCompensation Committee approved updates toin 2016 and 2017 a significant revamp of the Company’s compensation practices, as described above. For 2015,in particular the incentive compensation of the Company’s Chief Executive Officer and President. The Company’s executive compensation programs for its Named Executive Officers consistedconsist of elements described below.
Base Salary. The Compensation Committee annually reviews the base salaries of the Named Executive Officers, which were established initially in their respective employment agreements. Subsequent increases in their base salaries have been approved by the Compensation Committee after consideration ofand considers a number of factors, which includesuch as each Named Executive Officer’s level of responsibility, performance during the prior fiscal year (with respect to specific areas of responsibility and on an overall basis), past and present contributions to and achievement of Company goals, historical compensation levels of the Named Executive Officer, and the Company’s financial condition and results of operations. The
Because of the unique performance characteristics and competitive factors in the Florida homeowners’ insurance industry, the Compensation Committee also considers the median base salary levels for executives in similar positions with similar responsibilities at companies of comparable size in the insurance and financial services industries when reviewing our Named Executive Officers’ base salaries. That review indicated that Mr. Braun’s base salary has been below the median forbelieves comparing the Company’s peer group and lowest among ourexecutive compensation to that of its direct peer group of Florida-based insurers, Heritage Insurance Holdings, Inc. (NYSE: HRTG), HCI Group, Inc. (NYSE: HCI), United Insurance Holdings Corp. (NASDAQ: UIHC) and Mr. Prygelski’sUniversal Insurance Holdings, Inc. (NYSE: UVE), provides the most meaningful insights into executive compensation. The unique factors that strongly influence the financial results of the Florida homeowners’ insurers include, among other things: the significance and complexities of exposure management, the potential occurrence of one or more severe hurricanes that can materially affect financial performance and has periodically driven national competitors from the market, the existence and large presence with the Florida market of a state-controlled insurer-of-last-resort in Citizens Property Insurance Corporation (“Citizens”) and the extent to which Citizens is seeking or reducing policies at any time and the market impact of fluctuations in its risk appetite, the significant percentage of properties in high-risk coastal areas, and the litigiousness of the Florida market. Accordingly, the Compensation Committee’s analyses for 2016 and 2017 focused significantly on our Chief Executive Officer’s base salary has been belowas compared to the medianannual base salaries of the Chief Executive Officers of our Florida-based direct peer group.group, as described in the table below:
The Compensation Committee reviewed the compensation analysis report prepared by Meridian and, based on the factors described above, the Compensation Committee approved increases for fiscal 2015 to Mr. Braun’s base salary to $600,000 and to Mr. Prygelski’s base salary to $325,000.
Incentive Compensation Programs. The Company’s incentive programs comprise an annual bonus component and a long-term incentive component.| | Company | | 2016 Annual CEO Salary (A) | | | 2017 Annual CEO Salary (B) | | | | Universal Insurance Holdings, Inc. | | $ | 2,306,456 | | | $ | 2,217,500 | | | | Heritage Insurance Holdings, Inc. | | $ | 2,000,000 | | | $ | 2,100,000 | | | | United Insurance Holdings Corp. | | $ | 966,667 | | | $ | 1,000,000 | | | | Federated National Holding Company | | $ | 993,846 | | | $ | 1,000,000 | | | | HCI Group, Inc. | | $ | 934,479 | | | $ | 950,000 | | | | Median (excluding FNHC) | | $ | 1,483,334 | | | $ | 1,550,000 | |
| (A) | As reported in each company’s summary compensation table. |
| (B) | As reported in each company’s narrative proxy statement disclosures. |
The data from the table above enabled the Compensation Committee to measure our Chief Executive Officer’s base salary against the base salary levels for the chief executive officers of our Florida-based direct peer group. For 2017, based on the Company’s results for 2016 and a comparison of Mr. Braun’s salary to that of the direct peer group, Mr. Braun’s base salary remained the same. The Compensation Committee also determined that Mr. Braun’s salary should remain the same for 2018.
Our Chief Financial Officer’s base salary for 2017 was based on the Company’s analysis of market rates. For 2018, our Chief Financial Officer’s base salary was increased to $290,000 and our Chief Accounting Officer’s base salary remains at $212,000.
Incentive Compensation. Consistent with the Company’s pay-for-performance philosophy of compensating our Named Executive Officers for the Company’s achievements for the prior year and their roles in those achievements, and reflecting the feedback received from our outreach to our largest shareholders, in 2017 the Compensation Committee determined to award annual performance bonuses tocompletely revamped the incentive compensation of our Named Executive Officers for fiscal 2015. These annual bonuses may be paid either in cash or restricted shares, or a combination of both, at the election of the NamedChief Executive Officer. Any restricted shares issued are subject to vesting one year following the dateAs a result of the award. In conjunction with the annual bonuses,this revamp, Mr. Braun’s incentive compensation for 2017 was entirely performance-based and any discretionary components were eliminated. This revamped compensation structure remains in place for our Chief Executive Officer for 2018 and has been implemented for our Chief Financial Officer. As part of this revamp, the Compensation Committee makes userequired for the annual bonus that the Company’s net income achieve a specified minimum threshold, in addition to the performance criteria described below.
For 2017, 50% of Mr. Braun’s performance-based incentive compensation consisted of an annual bonus payable in cash based in equal parts on increasing gross revenues, controlling expenses and targeted EBITDA. The Compensation Committee determined that these annual financial and operating metrics selected for the annual incentive plan appropriately reflected the important measurements of the Company’s results of operations on a year-to-year basis, and provided incentives to grow the Company’s business in a cost-effective way.
The remaining 50% of Mr. Braun’s 2017 incentive compensation consisted of a long-term incentive bonuses. We believe thatbonus payable in equity, based in equal parts on return on equity (“ROE”), increased book value and relative total shareholder return over three years (“Relative TSR”). The ROE and increase in book value metrics are measured over successive one-year performance periods (but the goals would not be modified from period to period), and the equity granted vests 1/3 annually beginning one year after the grant date.
The metrics selected by the Compensation Committee for the 2017 long-term performance is achieved throughincentive plan are appropriate measures of the Company’s success over a culture that encourages a focuslonger time horizon, with particular emphasis on the achievementmeasurements that are meaningful to the Company’s shareholders and relevant to the Company’s long-term business strategy and also contemplate the unique aspects of long-term goals by our management team, including our Named Executive Officers, by the useCompany’s business, in particular the material impact of long-term equity-based awards. Our equity plans have been establishedhurricanes and other severe weather events that are inherently difficult to provide certain of our employees, including our Named Executive Officers, with incentives to help align those employees’ interests with the interests of our shareholders, without encouraging unnecessary or excessive risk.predict during any one year. The Compensation Committee believes that the useannual measurement of equity-based awardsthe ROE and increase in book value metrics provides an appropriate means of measuring long-term performance in an industry where external events that can have a material impact on the Company’s financial and operational results (i.e., hurricanes) occur during annual intervals.
The Compensation Committee combined the ROE and increase in book value metrics with longera Relative TSR metric measured over a three-year performance period, with the equity cliff vesting periods, typically five years, offers an additional methodat the end of the three-year performance period based on the Company’s performance relative to achieving our compensation goals. Our stock incentive plans have historically providedits direct peer group of Florida-based homeowners’ insurers. For the principal means by which our executive officers acquire equity in the Company. We expect to continue to provide a portion of total compensation to our Named Executive Officers through our stock incentive plan. To date,Relative TSR metric, the Compensation Committee has made awards subject onlydetermined that the most appropriate comparison of the Company’s performance would be to time vesting; beginningthis direct peer group of Florida-based homeowners’ insurers because of the unique competitive aspects of the Florida homeowners’ insurance market and because external factors such as hurricanes would likely impact all of the members of the direct peer group in the 2016 fiscal year, thea more consistent way. The Compensation Committee has approvedbelieves as well that the use of futureCompany’s performance vesting for 25% ofmeasures are appropriate when compared to the Named Executive Officers’ long-term equity awards.Company’s broader peer group.
In early 2015, the Compensation Committee established incentive opportunities for our Named Executive Officers. For Mr. Braun, both the annual and long-term incentive targets were set at 100% of his salary. For Mr. Prygelski, the annual incentive target was set at 75% of salary and the long-term incentive target was set at 37.5% of salary. (The bonuses based on these targets are referred to as the “Target Bonuses.”) Both the annual and long-term incentive targets could pay up to 200% of target for extraordinary performance (the “Extraordinary Bonuses”).
The Compensation Committee determined that the 2015 incentives would be based onspecific measurement levels for 2017 for the chosen performance metrics by extrapolating each metric’s target level from the Company’s recent actual performance results with a combination of pre-tax net income, return on equity, operating expenses as a percentage of total revenue, and a discretionary assessmentfactor for growth of the Company. The Committee also considered the Company’s projected and longer-term historic performance, as well as that of the Named Executive Officer’s performance. The committee established “target”direct peer group of Florida-based homeowners’ insurers and “extraordinary” performance goalsof the property and casualty insurance industry generally, when determining the target levels for each financial measure, but retained discretion to determine the final payout. When crafting these performance goals, the Compensation Committee aimed for target-level goals that would be challenging but reasonably attainable if the Company remained on budget and no weather events occurred other than as projected. The extraordinary-level goals were intended to reward Company achievements significantly above expectations for the year. | · | For the annual and long-term Target Bonuses, the performance goals and weighting of each goal towards the total bonus amounts were: pre-tax net income (excluding investment gains and losses) of $63.4 million (25% weight), return on equity (excluding investment gains and losses) of 15% (25% weight) and operating expenses as a percentage of total revenue of 38% (25% weight). |
| · | For the annual and long-term Extraordinary Bonuses, the performance goals and weighting of each goal towards the total bonus amounts were: pre-tax net income (excluding investment gains and losses) of $69.7 million (25% weight), return on equity (excluding investment gains and losses) of 25% (25% weight) and operating expenses as a percentage of total revenue of 32% (25% weight). |
| · | For 2015, the Company achieved pre-tax net income (excluding investment gains and losses) of $62.3 million, slightly below the Target Bonus goal; return on equity (excluding investment gains and losses) of 18.4%, well above the Target Bonus goal and slightly below the Extraordinary Bonus goal; and operating expenses as a percentage of total revenue of 31.6%, which was better than both the Target Bonus and Extraordinary Bonus goals. |
| · | The Compensation Committee retained discretion as to 25% of the annual and long-term bonus amounts. The factors that the Compensation Committee considered when determining the discretionary portion of the bonuses included how closely or not the bonus goals were met, an assessment of the Named Executive Officer’s performance for the year, and the Company’s overall accomplishments for the year. The committee noted that the Company’s net income for 2015 had been impacted by one-time expenses associated with the successful resolution of the consent order with the Florida Office of Insurance Regulation. In addition, the committee determined that the achievements of the Named Executive Officers during 2015 were significant. These achievements included the start-up of Monarch’s operations and progress toward achieving Monarch’s business plan and building the infrastructure needed to continue the Company’s growth while also taking steps to address emerging issues in the Florida homeowners’ insurance market such as increased abuses with assignments of benefits. |
metric. The target levels of the metrics are intended to incentivize our Chief Executive Officer to direct the Company’s continued growth in a reasonable and efficient manner, while the maximum levels are intended to reward extraordinary accomplishments. The threshold levels reflect that, while the Company’s results can be severely impacted by events completely beyond the Company’s control, the Company’s ability to manage its exposure, effectively structure its reinsurance program and take other steps to improve expense control can mitigate the impact of those events.
For 2017, the Company’s performance as compared to the metrics used in our Chief Executive Officer’s annual bonus plan was as follows:
| · | Revenue growth was 27.5%, which exceeded the maximum level of 20%; |
| · | Based onExpense control was 40.4%, which substantially achieved the above accomplishments, which the Compensation Committee believes represent overall extraordinary performance by the Named Executive Officers, the Compensation Committee determined to award Mr. Braun’starget level of 40.0%; and Mr. Prygelski’s annual and long-term incentive bonuses at the Extraordinary Bonus levels. |
| · | EBITDA was $9 million, which was below the minimum. |
For fiscal 2015,As a result, for 2017, Mr. Braun received a cash bonus under the annual plan of $698,333.
The Company’s performance as compared to the metrics used in our Chief Executive Officer’s long-term bonus plan was awarded anas follows:
| · | ROE was (3.0%), which was below the minimum; |
| · | Increase in book value was 1.7%, which was below the minimum; and |
| · | The Relative TSR metric will not be determined for two more years. |
As a result, Mr. Braun forfeited 15,229 performance-based shares that had been granted under the long-term plan.
For 2018, the Compensation Committee maintained substantially similar metrics for our Chief Executive Officer’s annual and long-term bonuses except that the ROE metric was moved to the annual bonus from the long-term bonus and that the revenue growth metric was moved to the long-term bonus from the annual bonus. The Compensation Committee chose to switch the location of $1,200,000,the ROE and Mr. Prygelski was awardedrevenue growth goals within the bonus plan to better align the Company’s short-term and long-term goals. The Compensation Committee considers ROE to be an important component of the valuation of our Company and therefore emphasized it more by moving it to the annual bonus of $487,500. Each electedincentive bonus. The Compensation Committee believes that this change is consistent with the view that annual incentive bonuses should be based on actions with a more immediate focus, such as expense control, return on equity and EBITDA, while long-term incentive bonuses should be based on shareholder return, growth in book value, and growth in revenue. Revenue growth is important to receive payment of this bonus, which was paid in 2016, in cash. For fiscal 2015, Mr. Braun was awarded athe Company‘s long-term objectives and moving it to the long-term incentive bonus recognizes that initiatives to grow revenues have a longer horizon to implement and to realize the resulting benefits. With the changes made to the 2018 plan, the Compensation Committee believes the incentive plan appropriately balances our Chief Executive Officer’s focus on both the short-term and long-term success of $1,200,000,the Company.
The Compensation Committee also considered that Mr. Braun will receive no increase in base salary for 2018 when determining the minimum, target and maximum percentages of which $600,000 was paidbase salary for his 2018 incentive compensation plan. In addition, the Compensation Committee believes that our Chief Executive Officer’s prospective maximum payout under his annual and long-term incentive compensation plan for 2018 as compared to the most recent incentive compensation reported by the Company’s Florida-based direct peer group demonstrates that Mr. Braun’s maximum potential payout is well within the range of the actual awards made by the Company’s direct peer group. The Compensation Committee believes that the Company’s performance measures, as amended, are appropriate when compared to the Company’s broader peer group as well.
The total payout for both the annual and long-term incentive bonuses on a combined basis will be based on Mr. Braun’s base salary of $1,000,000 for 2018, at the threshold, target and maximum payout factors indicated in the table below. No payouts will be made under the annual incentive plan unless the Company’s 2018 net income is above a minimum threshold pre-determined by the Compensation Committee. | 2018 Annual Incentive Plan: | | | | | Incentive Plan Payout Factors | | | | | | | | | | | | | | | | | Performance Metrics | | Weight | | | Threshold | | | Target | | | Maximum | | | Return on Equity | | | 0.167 | | | | 1.00 | (a) | | | 1.75 | (b) | | | 2.50 | (c) | | Expense Control | | | 0.167 | | | | 1.00 | (a) | | | 1.75 | (b) | | | 2.50 | (c) | | EBITDA | | | 0.167 | | | | 1.00 | (a) | | | 1.75 | (b) | | | 2.50 | (c) |
| 2018 Long-Term Incentive Plan: | | | | | Incentive Plan Payout Factors | | | | | | | | | | | | | | | | | Performance Metrics | | Weight | | | Threshold | | | Target | | | Maximum | | | Increase in Gross Revenues | | | 0.167 | | | | 1.00 | (a) | | | 1.75 | (b) | | | 2.50 | (c) | | Increase in Book Value | | | 0.167 | | | | 1.00 | (a) | | | 1.75 | (b) | | | 2.50 | (c) | | Relative TSR (3-Year) | | | 0.167 | | | | 1.00 | (a) | | | 1.75 | (b) | | | 2.50 | (c) | | Grand Total | | | 1.000 | | | | $1.00 | M | | | $1.75 | M | | | $2.50 | M |
| (a) | = Potential payout for this metric at threshold equals $1.00 million x 1.00 x 0.167 (1/6 weight) |
| (b) | = Potential payout for this metric at target equals $1.00 million x 1.75 x 0.167 (1/6 weight) |
| (c) | = Potential payout for this metric at maximum equals $1.00 million x 2.50 x 0.167 (1/6 weight) |
The Company does not provide earnings guidance, and accordingly has not disclosed the specific measurement points for the performance metrics. After performance for the 2018 fiscal year has been determined, the Company intends to disclose its results with respect to these performance metrics in its 2019 proxy statement.
Ronald A. Jordan, who became our Chief Financial Officer in 2017, received an annual base salary of $275,000 and a relocation reimbursement of $100,000. He also received a grant of 10,000 shares of restricted stock and $600,000vesting over five years. He was paid in cash to permit Mr. Braun to avoid selling shares to pay taxes resulting from the vesting of prior awards. Historically, Mr. Braun has electedalso entitled to receive the vast majorityfor 2017 an annual bonus, payable in stock and cash, with a target of incentive compensation in restricted stock with additional vesting requirements. The Committee elected to pay a higher percentage50% of his incentivesbase salary and a maximum range of 100% of his base salary subject to performance criteria. Although the Company did not meet the performance criteria for 2017, the Compensation Committee determined that Mr. Jordan contributed extraordinary efforts since joining the Company to the Company’s accomplishments in 2017, such as the Company’s $45 million debt offering and the related purchase of the joint venture interests in Monarch National Insurance Company. Therefore, the Compensation Committee determined to award Mr. Jordan a cash bonus of $100,000 for 2017.
For 2018, Mr. Jordan’s base salary is $290,000. His incentive bonus for 2018 will be based on the same annual and long-term metrics as for our Chief Executive Officer with the same relative weightings, and will be payable in cash for 2015 to allow Mr. Braun to pay taxes resulting from these historical awards without needing to sell shares. This did not increase the amount of hisannual bonus and was not a tax-gross up. Mr. Prygelski was awarded ain stock for the long-term bonus. The total payout for both the annual and long-term incentive bonuses on a combined basis will be based on a target level of 75% of Mr. Jordan’s base salary of $290,000. The minimum payout will be 37.5% of base salary and the maximum payout will be 112.5% of base salary, on a combined basis. No payouts will be made under the annual incentive plan unless the Company’s 2018 net income is above a minimum threshold pre-determined by the Compensation Committee.
Erick A. Fernandez, our Chief Accounting Officer, received during 2017 a bonus of $243,750 paid$40,000 pursuant to a bonus agreement entered into with him when he joined the Company entitling him to a quarterly bonus equal to 0.060% of net income as reported in sharesthe Company’s Form 10-Q, with a minimum bonus for 2017 of restricted stock. In each case,$40,000. For 2018, Mr. Fernandez’s base salary remains at $212,000. His incentive bonus for 2018 will be based on five performance metrics, and will be payable in cash. His bonus will be based on a target level of $75,000, and the sharesminimum payout will be $37,500 and the maximum payout will be $150,000. 29
Our 2012 Stock Incentive Plan, which was adopted by the Board of Directors and approved by our shareholders in 2012, authorizes us to grant a variety of equity incentive awards, such as incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units, and performance shares to officers, directors and executive, managerial, administrative and professional employees of the Company and its subsidiaries. Awards may be granted singly, in combination, or in tandem. Our Compensation Committee is the administrator of the equity plans. The Compensation Committee reviews and approves equity awards to executive officers based upon a review of competitive compensation data, its assessment of individual performance, and retention considerations, as well as a review of the individual’s existing share and option holdings. Equity grants have been made at the discretion of the Compensation Committee and/or executive management members, who have been granted limited authority by the Compensation Committee. To date, only restricted stock has been granted under the 2012 Stock Incentive Plan. Update The Board has adopted a policy prohibiting repricing of Compensation Programsstock options and prohibiting cash buyouts of underwater options, and is proposing an amendment to the 2012 Plan implementing these policies, as well as a minimum vesting requirement, for 2016. Reflecting the feedback received from shareholders and the input and guidance from Meridian, while also acknowledgingapproval by the Company’s significant growth since the last advisory shareholder vote on executive compensation, the Compensation Committee approved updates to the Company’s executive compensation programs for 2016 and later.shareholders.
| · | A review of current median base salary levels for executives in similar positions at companies of comparable size in the insurance and financial services industries indicated that Mr. Braun’s base salary remained below the median for the Company’s peer group and the lowest of the direct peers. Therefore, effective January 1, 2016, Mr. Braun’s annual base salary was increased to $1,000,000 and Mr. Prygelski’s annual base salary remained $325,000, reflecting this most recent review and consideration of the factors described above under the caption “Elements of Compensation—Base Salary.” In recognition of the increased base salary, the Compensation Committee reduced the target percentage of salary for Mr. Braun’s incentive opportunities. The base salary for the Company’s Interim Chief Financial Officer, who assumed this position in June 2016, was increased to $212,000 effective with his promotion to that position. |
| · | The Compensation Committee approved an incentive bonus structure for our Named Executive Officers whereby all bonuses awarded will be paid 50% in cash and 50% in the Company’s common stock. This allocation between cash and equity is intended to provide an appropriate balance between immediate rewards for past performance and longer-term rewards based, in part, on forward-looking performance. |
| · | Of the equity portion, 75% will time vest over five years and 25% will be granted as performance shares with performance vesting criteria that will be evaluated over three years. The Compensation Committee will develop threshold, target and maximum performance levels for determining payouts of the performance shares, based on metrics that will reflect the growth in shareholder value, such as increases in book value per share. |
| · | The Named Executive Officers will have the option of electing to be paid in fully vested shares in lieu of the cash portion of the performance bonuses. |
| · | The formula for the initial determination of the incentive bonus amounts will be based on the following criteria: pre-tax income (45% weight), return on equity (45% weight), and executive-specific goals (10% weight). Bonuses will still be based on a percentage of each Named Executive Officer’s base salary. |
| · | The executive-specific goals for Mr. Braun include increasing the Company’s market share in Florida, expanding the Company’s marketing relationships, and expanding the Company’s product lines. The executive-specific goals for the Company’s Interim Chief Financial Officer, who assumed this position in June 2016, are being determined and are expected to include satisfactory internal and external audit results, expense control, and management of the Company’s investment portfolio. |
| · | This update of the total compensation packages of our Named Executive Officers is also intended to avoid the need for one-time awards to remain in line with the Company’s peer group, which has occurred in the past because of the Company’s historically low executive compensation levels relative to its peers. |
Other Employee Benefit Plans. Our employees, including our Named Executive Officers, are entitled to various employee benefits. These benefits include medical and dental care plans; flexible benefit accounts; life, accidental death and dismemberment and disability insurance; a 401(k) plan; and paid vacation.
Under our 401(k) plan, the Company matches 100% of the first 6% of participant elective contributions. For fiscal 2015,contributions and, from time to time, the Board of Directors approved aapproves an additional discretionary profit sharing contribution. No additional contribution in the amount of 1% of each eligible employee’s 2015 annual taxable compensation (excluding restricted stock vesting and stock option exercises), into the employee’s account with the Company’s 401(k) plan on a pretax basis. The maximum discretionary profit sharing contribution is $4,115was approved for any employee with wages in excess of $265,000. The amount allocated to each employee will vest over a five-year period from the date of hire. Employees who were eligible for this grant were employees who were eligible to participate in the Company’s 401(k) plan and employed with the Company as of December 31, 2015 and worked at least 1,000 hours during the 2015 calendar year, and included both of our Named Executive Officers.2017. The Board of Directors currently intends to review the Company’s financial results annually to determine whether to approve a discretionary profit sharing contribution in any future years.
Other Compensation. At the present time, we do not offer pension benefits or, except as described above, other forms of deferred compensation plans. The Compensation Committee periodically reviews the overall employment packages and benefits offered to the Company’s Name Executive Officers. ConsistentAs part of that review, Mr. Braun’s employment agreement with the Company’s compensation philosophy,Company was amended in February 2017 to eliminate the 100% coverage of his health insurance premiums, with his employee contribution to be the same as all other Company employees. The Compensation Committee believes thesethat the benefits and perquisites offered to the Named Executive Officers are currently set at competitive levels for comparable companies, requiring no further changes at this time. The Compensation Committee may, however, at its discretion, modify or increase the Named Executive Officers’ executive benefits and perquisites, if it deems it appropriate or advisable.
Clawback Policy. In April 2016, the The Board has adopted a clawback policy applicable to our Named Executive Officers and other current or former executive officers of the Company. Pursuant to this policy, the Company will have the right, in appropriate circumstances as determined by the Board in its sole discretion, to seek to recover all or any part of the cash or equity incentive-based compensation granted to our Named Executive Officers or such other executive officers during the three fiscal years preceding the date on which the Company is required to prepare an accounting restatement to correct a material error, if the restatement is required because of a knowing violation of SEC rules and regulations, GAAP, other applicable legal or regulatory requirements, or Company policy by a Named Executive Officer or such other executive officer. Incentive-based compensation subject to the policy includes any cash or equity compensation granted, earned or vested based wholly or in part on the attainment of a financial reporting measure. Financial reporting measures include measures that are based on accounting principles used in preparing the Company’s financial statements, measures that are derived from information in the Company’s financial statements, and stock price and total shareholder return. The Board will have the discretion to forgo such recovery if it determines that seeking such recovery would be unreasonable or not in the Company’s best interests.
Stock Ownership and Retention Guidelines. The Board also approved in April 2016has implemented stock ownership guidelines applicable to our Named Executive Officers. Under these guidelines, our Chief Executive Officer is required to hold shares of the Company��sCompany’s common stock with a value of at least six times his annual salary rate, and our Chief Financial Officer is required to hold shares with a value of at least three times his annual salary rate. The guidelines further provide that the Named Executive Officers should achieve the guideline amounts within five years of becoming subject to the policy and, until the guideline amounts are achieved, the Named Executive Officers must retain 66-2/3% of any shares received as equity grants from the Company, net of shares withheld or sold to pay taxes. The Board also prohibited hedging or pledging the Company’s common stock, without exception. Tax Considerations. UnderPrior to 2018, Section 162(m) of the Internal Revenue Code of 1986, as amended, provided that the federal income tax deductibility of compensation paid to our Named Executive Officers may be limited to the extent that compensation to a Named Executive Officer exceeds $1.0 million in any year. The Company can deduct compensationCompensation in excess of that amount could be deducted if it qualifiesqualified as “performance-based compensation” under Section 162(m). Among other things,The deductibility of compensation qualifies as performance-based for purposes of Section 162(m) ifexceeding $1.0 million was eliminated in the compensation is approved by shareholders or awarded under a plan approved by shareholders. Although the Compensation Committee considers the desirability of limiting our non-deductible expenses when it makes compensation decisions, the committee believestax reform legislation adopted in maintaining the flexibility and competitive effectiveness of the executive compensation program. Tax deductibility, while an important consideration, is analyzed as one component of the overall program. late 2017.
Compensation Committee Report
The Compensation Committee of the Company has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s SEC filings, including its proxy statement for the 20162018 Annual Meeting of Shareholders.
Respectfully Submitted April 28, 2016, as updated July 14, 20162, 2018
/s/ Richard W. Wilcox Jr., Chairman /s/ Jenifer G. Kimbrough /s/ Thomas A. Rogers /s/ Bruce F. Simberg
Summary Compensation Table
The following table sets forth information regarding compensation earned by, awarded to or paid to our Named Executive Officers for the years indicated:
Name and Principal Position | Year | | Salary | | | Bonus (1) | | | Stock Awards | | | Option Awards | | | Non-Equity Incentive Plan Compensation (2) | | | Nonqualified Deferred Compensation Earnings | | | All Other Compensation (3) | | | Total | | Michael H. Braun Chief Executive Officer, President | 2017 | | $ | 1,000,000 | | | $ | -- | | | $ | 1,250,000(4 | ) | | | -- | | | $ | 698,333 | | | | -- | | | $ | 16,200 | | | $ | 2,964,533 | | | 2016 | | $ | 993,846 | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 35,093 | | | $ | 1,028,939 | | | 2015 | | $ | 617,308 | | | $ | 1,200,000 | | | $ | 600,000(5 | ) | | | -- | | | $ | 600,000 | | | | -- | | | $ | 37,951 | | | $ | 3,055,259 | | Ronald A. Jordan Chief Financial Officer | 2017 | | $ | 190,419 | | | $ | 100,000 | | | $ | 151,500 | | | | -- | | | | -- | | | | -- | | | $ | 103,219 | (6) | | $ | 545,138 | | | 2016 | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | 2015 | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | Erick A. Fernandez Chief Accounting Officer, Treasurer (7) | 2017 | | $ | 212,000 | | | $ | 30,500 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 10,472 | | | $ | 252,972 | | | 2016 | | $ | 180,846 | | | $ | 40,000 | | | $ | 63,228 | | | | -- | | | | -- | | | | -- | | | $ | 8,131 | | | $ | 292,205 | | | 2015 | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
| Name and Principal Position | Year | | Salary | | | Bonus (1) | | | Stock Awards (1) | | | Option Awards | | | Non-Equity Incentive Plan Compensation (2) | | | Nonqualified Deferred Compensation Earnings | | | All Other Compensation (3) | | | Total | | Michael H. Braun Chief Executive Officer, President | 2015 | | $ | 617,308 | | | $ | 1,200,000 | | | $ | 600,000 | (4) | | | -- | | | $ | 600,000 | | | | -- | | | $ | 48,466 | | | $ | 3,065,774 | | | 2014 | | $ | 469,231 | | | | -- | (5) | | $ | 4,703,100 | (6) | | | -- | | | | -- | | | | -- | | | $ | 34,883 | | | $ | 5,207,214 | | | 2013 | | $ | 347,322 | | | | -- | (7) | | $ | 1,703,000 | (8) | | | -- | | | | -- | | | | -- | | | $ | 26,665 | | | $ | 2,076,987 | | Peter J. Prygelski III Chief Financial Officer, Treasurer (10) | 2015 | | $ | 336,346 | | | $ | 487,500 | | | $ | 243,750 | (4) | | | -- | | | | -- | | | | -- | | | $ | 51,358 | | | $ | 1,118,954 | | | 2014 | | $ | 297,638 | | | $ | 175,000 | | | $ | 658,700 | (9) | | | -- | | | | -- | | | | -- | | | $ | 39,572 | | | $ | 1,170,910 | | | 2013 | | $ | 249,182 | | | $ | 90,000 | | | $ | 761,500 | (11) | | | -- | | | | -- | | | | -- | | | $ | 30,737 | | | $ | 1,131,419 | |
| (1) | Reflects cash bonuses earned by the Named Executive Officer for the applicable fiscal year but that were paid in the following fiscal year. The amounts shown for the bonuses and stock awards in 2014 and 2013 have been updated to reflect the amounts awarded for those years but that were paid in the following fiscal year, and to remove amounts paid in those years that were awarded for the prior year. |
| (2) | Reflects cash awarded to the Named Executive Officer (a) as a long-term incentive bonus based on performance criteria for the applicable fiscal year but that was2015 and (b) as an annual incentive bonus based on performance criteria for 2017, each of which were paid in the following fiscal year. |
| (3) | See table "All Other Compensation" below for an itemized disclosure of this element of compensation. |
| (4) | Reflects long-term incentive award of 68,530 shares of restricted stock was granted in 2017 for performance-based goals to be met over a three-year period from 2017 to 2019, of which certain goals were not met in 2017, resulting in the forfeiture of 15,229 shares from this grant. The long-term incentive award for 2017 is also subject to the Company achieving a minimum threshold of net income each year from 2017 to 2019. |
| (5) | The nominal amounts remaining after calculation of bonusesawards as restricted stock which was based on the fair market value on the grant date of March 10, 2016, which was $19.16 per share, was paid in cash. |
(5)(6) | Mr. Braun elected to receive 100%This amount includes the amount of his 2014 performance bonus, whichrelocation expense that was paid in 2015, as restricted stock. The nominal amounts remaining after calculation of his bonus as restricted stock, based on the fair market value on the grant dates of March 10, 2015 and May 5, 2015, which were $28.79 and $25.86 per share, respectively, were paid in cash. |
(6) | Includes the performance bonus grants paid in 2015 for 2014 performance, as described in Note (5) above, and also includes grants made on September 9, 2014 and December 9, 2014, which were awarded to bring his total 2014 compensation more in line with the Company’s direct peer group. The shares granted in 2014 vest over a five-year period and were based on the fair market values of $25.58 and $26.18, respectively, per share on the grant dates.Mr. Jordan. |
| (7) | Mr. Braun elected to receive 100% of his 2013 performance bonus, whichFernandez was paid in 2014, as restricted stock. The nominal amount remaining after calculation of his bonus as restricted stock, which was based on the fair market value on the grant date of March 4, 2014 which was $15.91 per share, was paid in cash. |
(8) | Includes the 2013 performance bonus grant referenced in Note (7) above and a grant on August 5, 2013, which was awarded to bring his total compensation more in line with the Company’s direct peer group, vests over a five-year period and was based on the fair market value on the grant date which was $10.03 per share. |
(9) | Mr. Prygelski elected to receive a portion of his 2014 performance bonus, which was paid in 2015, as cash and the remaining portion as restricted stock. The nominal amount remaining after calculation of his bonus as restricted stock which was based on the fair market value on the grant date of March 10, 2015, which was $28.79 per share, was paid in cash. Also includes a grant on September 9, 2014, which was awarded to bring his total compensation more in line with the Company’s direct peer group, vests over a five-year period and was based on the fair market value on the grant date which was $25.58 per share. |
(10) | Mr. Prygelski resigned his positions asappointed Interim Chief Financial Officer Treasurerin June 2016 and a director of the Company on June 20, 2016.became Chief Accounting Officer in April 2017. |
(11) | Mr. Prygelski elected to receive a portion of his 2013 performance bonus, which was paid in 2014, as cash and the remaining portion as restricted stock. The nominal amount remaining after calculation of his bonus as restricted stock which was based on the fair market value on the grant date of March 4, 2014, which was $15.91 per share, was paid in cash. Also includes a grant on August 8, 2013, which was awarded to bring his total compensation more in line with the Company’s direct peer group, vests over a five-year period and was based on the fair market value on the grant date which was $10.03 per share. |
ALL OTHER COMPENSATION | Name | Year | | Auto | | Relocation Fees | | | Insurance Benefits (1) | | | Contribution to 401(k) Plan (2) | | | All Other Compensation Total | | | Michael H. Braun | 2017 | | $ | | (3) | | | -- | | | $ | (3 | ) | | $ | 16,200 | | | $ | 16,200 | | | 2016 | | $ | 3,817 | (3) | | | -- | | | $ | 11,261 | | | $ | 20,015 | | | $ | 35,093 | | | 2015 | | $ | 7,614 | | | | -- | | | $ | 10,407 | | | $ | 19,930 | | | $ | 37,951 | | | Ronald A. Jordan | 2017 | | | -- | | | $ | 100,000 | | | | -- | | | $ | 3,219 | | | $ | 103,219 | | | 2016 | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | 2015 | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | Erick A. Fernandez | 2017 | | | -- | | | | -- | | | | -- | | | $ | 10,472 | | | $ | 10,472 | | | 2016 | | | -- | | | | -- | | | | -- | | | $ | 8,131 | | | $ | 8,131 | | | 2015 | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
| Name | Year | | | Auto | | | Club Member Fees | | | Insurance Benefits (1) | | | Contribution to 401(k) Plan (2) | | | All Other Compensation Total | | | Michael H. Braun | 2015 | | | $ | 7,614 | | | | -- | | | $ | 20,922 | | | $ | 19,930 | | | $ | 48,466 | | | 2014 | | | $ | 7,998 | | | | -- | | | $ | 9,385 | | | $ | 17,500 | | | $ | 34,883 | | | 2013 | | | $ | 8,519 | | | | -- | | | $ | 9,221 | | | $ | 8,925 | | | $ | 26,665 | | | Peter J. Prygelski III | 2015 | | | $ | 6,231 | | | $ | 9,239 | | | $ | 15,958 | | | $ | 19,930 | | | $ | 51,358 | | | 2014 | | | $ | 6,000 | | | $ | 9,228 | | | $ | 6,844 | | | $ | 17,500 | | | $ | 39,572 | | | 2013 | | | $ | 6,000 | | | $ | 9,225 | | | $ | 6,716 | | | $ | 8,796 | | | $ | 30,737 | |
| (1) | Represents premiums for life, medical and dental insurance. |
| (2) | Represents matching contributions and a discretionary profit contribution made by the Company on behalf of the Named Executive Officers to the Company’s 401(k) plan. |
| (3) | Mr. Braun’s automobile allowance was eliminated in July 2016 and payment of 100% of his health insurance premiums was eliminated effective January 1, 2017. |
Michael H. Braun.Braun, Chief Executive Officer and President. We entered into a second amended and restated employment agreement with Michael H. Braun the Company’s Chief Executive Officer and President, effective as of January 18, 2012, which amendsamended and restatesrestated Mr. Braun’s prior employment agreement. In connection with the organization of Monarch National Insurance Company (“Monarch Insurance”), in 2015, the Company's Board of Directors approved a furtheran amendment to his employment agreement to extend the term of his employment agreement to four years from the date of the amendment with automatic extensions so that at all times the balance of the term is not less than two years unless sooner terminated as provided in the employment agreement. Under his agreement, Mr. Braun’s annual salary, which may be increased at any time during the term of the agreement, was increased to $1,000,000 effective January 1, 2016.2016 and remained at that amount for 2017. Mr. Braun is also entitled to receive such bonuses and increases as may be awarded by the Board of Directors. It also contains customary confidentiality and non-solicitation provisions. Mr. Braun’s agreement was further amended in July 2016 to eliminate a car allowance as a perquisite and to modify the definition of “Good Reason” so that the payments due to him following a “Change in Control” under the agreement will be payable only upon a “double-trigger.”“double-trigger” and in February 2017 to eliminate his full reimbursement for health insurance and to modify the calculation of his Change of Control bonus, as described below.
Mr. Braun is entitled to receive certain payments upon the termination of employment under certain circumstances as set forth in his agreement.agreement, as amended. If his employment is terminated by us without Cause (as defined in respectivehis agreement), we must make a lump sum payment to the executive equal to two years' base salary (the “Termination Severance”). In addition, all unvested stock options and any other equity awards held by him will become vested. If Mr. Braun’s employment with us is terminated for Cause or as a result of his death or disability, he will be entitled to his base salary prorated through the date of the termination and any benefits due him as may be provided under the applicable plan, program or arrangement.
The agreement also provides for payments to him if he is employed by us on the date on which a Change of Control occurs. Under the agreements, a “Change of Control” will be deemed to have occurred if: (i) any person, including a “group” as defined in Section 13(d)(3) of the Exchange Act, becomes the owner or beneficial owner of our securities having 50% (which was increased from 30% in the agreements in effect during 2011) or more of the combined voting power of our then-outstanding securities that may be voted for the election of our directors (other than as a result of an issuance of securities initiated by us, or open market purchases approved by our Board, as long as the majority of the Board approving the purchases is the majority at the time the purchases are made), or (ii) the persons who were our directors before such transactions shall cease to constitute a majority of our Board, or any successor to us, as the direct or indirect result of or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions. If, following a Change in Control, Mr. Braun’s employment is terminated by us (or any successor or subsidiary) without Cause or by the executive for Good Reason (as defined in the agreement as amended in July 2016)his agreement), we will make a lump sum payment to the executive in an amount equal to two times the sum of his base salary in effect immediately prior topreceding the Change of Control plus the average of his actual bonus for the three fiscal yearyears immediately preceding the Change of Control (the "Change of Control Severance"). Additionally, all unvested stock options and any other equity awards held by him will become vested and the Company will continue to provide Mr. Braun (and his family) with medical insurance for a period of two years after the date of such termination of employment at no cost and on the same terms and conditions as in effect on the date on which such termination of employment occurs. If Mr. Braun is terminated by us without Cause prior to a Change of Control, and a Change of Control occurs within six months following such termination, then in addition to the Termination Severance described above, he will be entitled to an additional lump sum payment in an amount equal to (i) the Change of Control Severance, less (ii) the Termination Severance.
As a condition to Mr. Braun’s entitlement to receive the base salary amounts and equity award acceleration referenced above, he is bound by the terms of an agreement that sets forth certain restrictive covenants. Pursuant to the non-competition provisions of this agreement, as amended, he is prohibited from working in the insurance industry in any territories where the Company has been doing business for a period of two years from the date on which he terminates employment with the Company for any reason (other than without cause). For a period of two years after his employment is terminated, he is also prohibited from soliciting, for himself or for any third person, any employees or former employees of the Company, unless the employees have not been employed by the Company for a period in excess of six months, and from disclosing any confidential information that he learned about the Company during his employment. In connection with the organization of Monarch Insurance in 2015, the Company's Board of Directors approved an amendment dated March 17, 2015 to thehis Amended and Restated Non-Competition, Non-Disclosure and Non-Solicitation Agreement dated as of August 5, 2013 with Mr. Braun (the "Restrictive Covenant Agreement") to permit him to hold his positions with Monarch Insurance and its parent companies (the “Monarch Entities”) while remaining employed by the Company. Mr. Braun's Restrictive Covenant Agreement was further amended to permit him to continue to hold his positions with the Monarch Entities if he is terminated without cause by the Company. In January 2018, the Company acquired the interests in Monarch Insurance’s parent held by the Company’s joint venture partners.
Ronald A. Jordan, Chief Financial Officer. Mr. Jordan became the Company’s Chief Financial Officer in April 2017. He is not currently a party to an employment agreement with the Company. For 2017, Mr. Jordan received an annual base salary of $275,000 and a relocation reimbursement of $100,000. He also received a grant of 10,000 shares of restricted stock vesting over five years. He was also entitled to receive for 2017 an annual bonus, which may be paid in stock and cash, with a target of 50% of his base salary and a maximum range of 100% of his base salary subject to performance criteria. Although the Company did not meet the performance criteria for 2017, the Compensation Committee determined that Mr. Jordan contributed extraordinary efforts since joining the Company to the Company’s accomplishments in 2017, such as the Company’s $45 million debt offering and the related purchase of the joint venture interests in Monarch National Insurance Company. Therefore, the Compensation Committee determined to award Mr. Jordan a cash bonus of $100,000 for 2017.
In connection with joining the Company, Mr. Jordan entered into a Change of Control Agreement dated as of April 17, 2017 with the Company (the “Jordan Change of Control Agreement”), which provides for certain payments to Mr. Jordan if he is employed by the Company on the date on which a Change of Control (as defined in the Jordan Change of Control Agreement) occurs. If, during the two-year period following a Change of Control, Mr. Jordan’s employment is terminated by the Company without Cause or by Mr. Jordan for Good Reason (each as defined in the Jordan Change of Control Agreement), he will be entitled to receive a lump sum payment equal to one year of his base salary in effect immediately prior to the Change of Control. Mr. Jordan is subject to the Company’s standard restrictive covenants applicable to its executive officers and is entitled to receive other benefits consistent with the other members of the Company’s management team.
Peter J. Prygelski III.Erick A. Fernandez, Chief Accounting Officer. Mr. Prygelski resigned his positions asFernandez was appointed Interim Chief Financial Officer and Treasurer of the Company onin June 20, 2016 and thereforebecame Chief Accounting Officer in April 2017. Mr. Fernandez is not party to an employment agreement with the employment-related provisions of his Second Amended and Restated Employment Agreement dated effective as of January 18, 2012 are deemed terminated. The confidentiality, non-competition and non-solicitation provisions remain in effect.Company. In connection with his resignation,joining the Company agreedin January 2016, Mr. Fernandez and the Company entered into a Bonus Agreement dated as of January 11, 2016 (the “Bonus Agreement”) and a Change of Control Agreement dated as of May 2, 2016 (the “Fernandez Change of Control Agreement”). For 2017, the Bonus Agreement provided for a bonus payable to pay him cash severanceMr. Fernandez on a quarterly basis equal to two years’0.060% of net income as reported in the Company’s Form 10-Q, with a minimum bonus of $40,000; for 2018, Mr. Fernandez is entitled only to an annual bonus as determined by the Compensation Committee. The Fernandez Change of Control Agreement provides for payments to Mr. Fernandez if he is employed by us on the date on which a Change of Control (as defined in the Fernandez Change of Control Agreement) occurs. If, during the one-year period following a Change in Control, Mr. Fernandez’s employment is terminated by us without Cause or by Mr. Fernandez for Good Reason (each as defined in the Fernandez Change of Control Agreement), he will be entitled to receive a lump sum payment equal to one year of his base salary or $650,000, payable bi-weekly over two years,in effect immediately prior to the Change of Control. Mr. Fernandez is subject to the Company’s standard restrictive covenants applicable to its executive officers and acceleratedis entitled to receive other benefits consistent with the vestingother members of approximately 66,500 unvested restricted shares.the Company’s management team.
Equity-Based Compensation
Grants of Plan Based Awards .The following table provides information regarding restricted stock granted to our Named Executive Officers during 20152017 under the Company’s Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”). All of the shares granted in 2015 to our Named Executive Officers related to the Named Executive Officers’ incentive bonuses for 2014 performance. GRANTS OF PLAN-BASED AWARDS
| Name | Grant Date | | All Other Equity Awards / Number of Securities Underlying Options | | | Exercise or Base Price of Equity Awards | | | Grant Date Fair Value of Equity Awards (1) | | | Michael H. Braun | 3/14/2017 | | | 68,530 | (2) | | | -- | | | $ | 1,249,987 | | | Ronald A. Jordan | 5/12/2017 | | | 10,000 | (3) | | | -- | | | $ | 151,500 | |
| Name | Grant Date | | All Other Equity Awards / Number of Securities Underlying Options | | | Exercise or Base Price of Equity Awards | | | Grant Date Fair Value of Equity Awards (1) | | | Michael H. Braun | 3/10/2015 | | | 32,997 | | | $ | 28.79 | | | $ | 949,984 | | | | 5/5/2015 | | | 50,000 | | | $ | 25.86 | | | $ | 1,293,000 | | | Peter J. Prygelski III | 3/10/2015 | | | 9,551 | | | $ | 28.79 | | | $ | 274,973 | |
| (1) | This amount reflects the aggregate grant date fair value computedof the shares granted. The grant date fair value is based on the closing price of the common stock at the applicable grant date. |
| (2) | Shares granted in accordance with FASB ASC Topic 718. Assumptions used in the calculation of this amount are included in Footnote 142017 for performance awards to be based on 2017 to 2019 performance. |
| (3) | Shares granted to Mr. Jordan for his appointment as the Company’s audited financial statements for fiscal year ended December 31, 2015.Chief Financial Officer |
29
Stock Incentive Plans Plan. Our 2012 Plan is administered by the Compensation Committee. The objectives of the 2012 Plan include attracting, motivating and retaining key personnel and promoting our success by linking the interests of our employees, directors and consultants with our success.
Awards may be made under the 2012 Plan in the form of (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) dividend equivalent rights, (e) restricted stock, (f) unrestricted stock, (g) restricted stock units, and (h) performance shares. No incentive stock option may be granted to a person who is not an employee of the Company or one of its subsidiaries on the date of grant. In addition, both incentive stock options and non-statutory stock options were granted under our 1998 and 2002 stock option plans. Bothplan. This plan has expired, although as of these plans have expired.December 31, 2017, 50,351 options remain outstanding under the 2002 plan.
Shares Available for Issuance.As of December 31, 2015, 367,0712017, 142,905 shares were remaining available for grantto be granted under the 2012 Plan.Plan and, as of the date of this proxy statement, 2,777 shares were available. As of December 31, 2015,2017, all shares of common stock authorized for issuance upon exercise of options granted under the 1998 plan and the 2002 plan have been issued or are issuable upon exercise of outstanding options. As of December 31, 2015, there were 174,633 shares of common stock issuable upon the exercise of outstanding and exercisable stock options under the 2002 plan. The shares to be delivered pursuant to awards will be made available, at the discretion of the Compensation Committee, from authorized but unissued shares or outstanding options or awards that expire or are cancelled. If shares covered by an option or award cease to be issuable for any reason, such number of shares will no longer count against the shares authorized under the plan and may again be granted under the 2012 Plan.
Vesting Schedule.Awards granted under the 2012 Plan typically vest in equal portions over three or five years. Awards granted under the 2012 Plans require that the recipient of a grant be continuously employed or otherwise provide services to us or our subsidiaries. Failure to be continuously employed or in another service relationship generally results in the forfeiture of awards not vested at the time the employment or other service relationship ends. Termination of a recipient’s employment or other service relationship for cause generally results in the forfeiture of all of the recipient’s unexercised awards.
Adjustments in Our Capital Structure. The number and kind of shares available for grants under our 2012 Plans and any outstanding awards under the plans, as well as the exercise price of outstanding options or awards, will be subject to adjustment by the Compensation Committee in the event of any merger, consolidation, reorganization, stock split, stock dividend or other event causing a capital adjustment affecting the number of outstanding shares of common stock. In the event of a business combination or in the event of a sale of all or substantially all of our assets, the committee may cash out some or all of the unexercised, vested options or awards under the plan, or allow some or all of the options or awards to remain outstanding, subject to certain conditions. Unless otherwise provided in individual option agreements, the vesting of outstanding options or awards will not accelerate in connection with a business combination or in the event of a sale of all or substantially all of our assets.
Administration. The Compensation Committee has full discretionary authority to determine all matters relating to awards granted under the2012 Plan, including the persons eligible to receive awards, the number of shares subject to each award, the exercise price of each option or award, if applicable, any vesting schedule, any acceleration of the vesting schedule and any extension of the exercise period. The committee has granted limited authority to executive management members to grant awards to eligible individuals.
Amendment and Termination. Our Board of Directors has authority to suspend, amend or terminate the 2012 Plan, except as would adversely affect participants’ rights to outstanding awards without their consent. The 2012 Plan was amended and restated in March 2013 to clarify the plan administrator’s authority to permit the vesting of unvested restricted shares in the event of the death of the grantee. As the plan administrator, our Committee has the authority to interpret the plans and options or awards granted under the stock plans and to make all other determinations necessary or advisable for plan administration.
Outstanding Equity Awards at Fiscal Year-End
Year-End.The following table summarizes the equity awards held by our Chief Executive Officer and President, Chief Financial Officer and our Chief FinancialAccounting Officer, as of December 31, 2015.2017.
| | Stock Option Awards | Restricted Stock Awards | | | Stock Option Awards | | Stock Option Awards | | Restricted Stock Awards | | | Name | Number of Securities Underlying Exercisable Options (#) | Number of Securities Underlying Unexercisable Options (#) | Option
Exercise
Price ($) | Option
Expiration
Date | Shares That Have Not Vested (#) | Market Value of Shares That Have Not Vested ($)(1) | Number of Unearned Shares, Units or Other Rights That Have Not Vested | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | Number of Securities Underlying Exercisable Options (#) | Number of Securities Underlying Unexercisable Options (#) | Option Exercise Price ($) | Option Expiration Date | | Shares That Have Not Vested (#) | | | Market Value of Shares That Have Not Vested ($)(1) | | | Number of Unearned Shares, Units or Other Rights That Have Not Vested | | | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | | Michael H. Braun | 15,000 | -- | 4.36 | 03/03/2020 (2) | | | | | | | | 20,000 | | | $ | 331,400 | | | | -- | | | | --(2 | ) | | | 10,000 | -- | 2.45 | 08/22/2021 (3) | | | | | | | | 18,000 | | | $ | 298,260 | | | | -- | | | | --(3 | ) | | | 15,000 | -- | 4.40 | 04/06/2022 (4) | | | | | | | | 20,000 | | | $ | 331,400 | | | | -- | | | | --(4 | ) | | | | | | | 8,333 | $246,323 | -- | -- (5) | | | | 10,999 | | | $ | 182,253 | | | | -- | | | | --(5 | ) | | | | | | | 60,000 | $1,773,600 | -- | -- (6) | | | | 30,000 | | | $ | 497,100 | | | | -- | | | | --(6 | ) | | | | | | | 29,331 | $867,024 | -- | --(7) | | | | 25,052 | | | $ | 415,112 | | | | -- | | | | --(7 | ) | | | | | | | 36,000 | $1,064,160 | -- | --(8) | | | | 68,530 | | | $ | 1,135,542 | | | | -- | | | | --(8 | ) | | | | | | | 40,000 | $1,182,400 | -- | --(9) | | | | | | | | 32,997 | $975,391 | -- | --(10) | | | | | | | | 50,000 | $1,478,000 | -- | --(11) | | | Peter J. Prygelski III | 15,000 | -- | 4.36 | 03/03/2020 (2) | | | | | | | | 10,000 | -- | 2.45 | 08/22/2021 (3) | | | | | | | | 15,000 | -- | 4.40 | 04/06/2022 (4) | | | | | | | | | | | | 5,000(12) | $147,800 | -- | -- (5) | | | | | | | | 30,000(12) | $886,800 | -- | -- (6) | | | | | | | | 10,894(12) | $322,027 | -- | --(7) | | | | | | | | 12,000(12) | $354,720 | -- | --(8) | | | | | | | | 9,551(12) | $282,328 | -- | --(10) | | | Ronald A. Jordan | | | | | 10,000 | | | $ | 165,700 | | | | | | | | --(9 | ) | | Erick A. Fernandez | | | | | 2,200 | | | $ | 36,454 | | | | -- | | | | --(10 | ) |
| (1) | Based on the market value of $29.56 per share of $16.57 on December 31, 2015.12/31/2017. |
| (2) | OptionsRestricted stock vested as to 100% of80% on 12/31/2017, the underlying shares on December 31, 2015.remaining 20% vest as follows: |
20% on 8/5/2018. | (3) | OptionsRestricted stock vested as to 100% of60% on 12/31/2017, the underlying shares on December 31, 2015.remaining 40% vest as follows: |
20% on 9/9/2018 and 20% on 9/9/2019. | (4) | OptionsRestricted stock vested as to 100% of60% on 12/31/2017, the underlying shares on December 31, 2015.remaining 40% vest as follows: |
20% on 12/9/2018 and 20% on 12/9/2019. | (5) | Restricted stock vested as to 50%66 2/3% on December 31, 2015,12/31/2017, the remaining 50%33 1/3% vest on 3/4/2016.as follows: |
33 1/3% on 3/10/2018. | (6) | Restricted stock vested as to 25%40% on December 31, 2015,12/31/2017, the remaining 75%60% vest as follows:
25% on 8/5/2016, 25% on 8/5/2017 and 25% on 8/5 2018. |
20% on 5/5/2018, 20% on 5/5/2019 and 20% on 5/5/20 | (7) | Restricted stock vested as to 33 1/3%20% on December 31, 2015,12/31/2017, the remaining 66 2/3% vest80% vests as follows:
33 1/3% on 3/4/2016 and 33 1/3% on 3/4/2017. |
20% on 3/10/2018, 20% on 3/10/2019, 20% on 3/10/2020 and 20% on 3/10/2021 | (8) | RestrictedA portion of this grant is performance-based restricted stock vested asthat cliff vests over a three-year period from 2017 to 20% on December 31, 2015,2019 and the remaining 80% vest as follows:
20%portion vests based on 9/9/2016, 20% on 9/9/performance achieved each year from 2017 20% on 9/9/2018 and 20% on 9/9/to 2019. |
| (9) | Restricted stock vestedvests as tofollows: 20% on December 31, 2015, the remaining 80% vest as follows:
5/12/18, 20% on 5/12/9/2016,19, 20% on 5/12/9/2017,20, 20% on 5/12/9/201821 and 20% on 5/12/9/2019.22 |
| (10) | Restricted stock vested as to 0% on December 31, 2015, the remaining 100% vest as follows:
33 1/3% on 3/10/2016, 33 1/12/31/2017, the remaining 66 2/3% on 3/10/2017 and 33 1/3% on 3/10/2018.vest as follows: |
(11) | Restricted stock vested as to 0% on December 31, 2015, the remaining 100% vest as follows:
20% on 5/5/2016, 20% on 5/5/2017, 20% on 5/5/2018, 20% on 5/5/2019 and 20% on 5/5/2020. 2018. |
33 1/3% on 3/10/18 and 33 1/3% on 3/10/19(12) | In connection with Mr. Prygelski’s resignation in June 2016, the Board approved vesting of these shares. |
Option Exercises and Stock Vested Vested.The following table sets forth certain information with respect to stock options exercised and restricted stock awards vested during calendar year 20152017 by the Namedour Chief Executive Officers. Officer, our Chief Financial Officer, and our Chief Accounting Officer.
| | Stock Option Awards | Restricted Stock Awards | | Stock Option Awards | | | Restricted Stock Awards | | Name | Shares acquired on Exercise (#) | Value Realized on Exercise ($) | Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | | Shares acquired on Exercise (#) | | | Value Realized on Exercise ($) | | | Shares Acquired on Vesting (#) | | | Value Realized on Vesting ($) | | | Michael H. Braun | -- | 8,333 | $242,657 | | | -- | | | | -- | | | | 20,000 | | | $ | 311,000 | | | | -- | 20,000 | $486,800 | | | -- | | | | -- | | | | 14,666 | | | $ | 308,426 | | | | -- | 14,666 | $427,074 | | | -- | | | | -- | | | | 9,000 | | | $ | 108,450 | | | | -- | 9,000 | $196,560 | | | -- | | | | -- | | | | 10,000 | | | $ | 136,900 | | | | -- | 10,000 | $293,200 | | | -- | | | | -- | | | | 10,999 | | | $ | 199,192 | | | Peter J. Prygelski III | -- | 5,000 | $145,600 | | | | -- | 10,000 | $243,400 | | | -- | | | | -- | | | | 10,000 | | | $ | 155,000 | | | | -- | 5,447 | $158,617 | | | -- | | | | -- | | | | 6,263 | | | $ | 113,423 | | | | -- | 3,000 | $65,520 | | | Ronald A. Jordan | | | | -- | | | | -- | | | | -- | | | | -- | | | Erick A. Fernandez | | | | -- | | | | -- | | | | 1,100 | | | $ | 19,921 | |
CEO Pay Ratio Disclosure
Under rules adopted pursuant to the Dodd-Frank Act of 2010, we have presented below the ratio of the annual total compensation of our median compensated employee, excluding our Chief Executive Officer, to the annual total compensation of our Chief Executive Officer.
We believe that the ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K of the SEC’s rules. The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, apply certain exclusions and make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Because other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios, the pay ratios reported by other companies may not be comparable to the pay ratio we have reported below.
We identified our median compensated employee from the 418 full-time and part-time workers who were included as employees on our payroll records as of December 31, 2017 based on base salary, bonus, commissions and equity, with conforming adjustments for employees who were hired during the year but did not work the full 12 months.
The 2017 annual total compensation as determined under Item 402 of Regulation S-K for our Chief Executive Officer was $2,964,533 as reported in the Summary Compensation Table included above. The 2017 annual total compensation as determined under Item 402 of Regulation S-K for our median employee was $57,241. The ratio of our CEO’s annual total compensation to our median employee’s total annual compensation for fiscal year 2017 is 52 to 1.
Compensation Committee Interlocks and Insider Participation
During fiscal 2015,2017, the Compensation Committee was responsible for overseeing executive compensation. The members of the Compensation Committee as of December 31, 20152017 were Richard W. Wilcox Jr. and, Jenifer G. Kimbrough.Kimbrough and Thomas A. Rogers. No member of the Compensation Committee was at any time during fiscal 20152017 or at any other time an officer or employee of the Company. Except for Bruce Simberg, noNo member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K of the SEC. No executive officer of the Company served on the board of directors or the compensation committee of any other entity that has or has had one or more executive officers who served as a member of the Board of Directors or the Compensation Committee of the Company during fiscal 2015.2017.
Cash Compensation
The Company’s policy is that only our non-employee directors receive annual cash compensationdirectors’ fees and reimbursement of actual out-of-pocket expenses in connection with their service on the Board. Members of our Board of Directors who are also executive officers doOur Chief Executive Officer does not receive any additional compensation for his service on the Board. We had six non-employee directors during 2017.
During 2015,2017, the non-employee directors received an annual retainer of $75,000,$78,750, payable in quarterly installments of $18,750 in January, April, and July and October. We had three non-employee directors until October 2015, when Mr. Rogers and Mr. Stewart joinedThis annual retainer is in lieu of per-meeting directors’ fees. The chairpersons of the Board bringing the total number of non-employee directors to five.
The Company does not currently pay per-meeting fees, but does pay to the non-employee chairperson ofand certain of the Board committees receive an additional annual fee for serving as chair. These annual fees are:chair, as follows: Chairman of the Board, $40,000; chairperson of the Audit Committee, $20,000; chairperson of the Investment Committee, $17,500; chairperson of the Compensation Committee, $15,000; and chairperson of Business DevelopmentStrategy Committee, $15,000. In April 2015, the Board also approved an annual fee of $20,000 for the Lead Independent Director, Richard W. Wilcox Jr. Because he also servedreceived a fee of $20,000 as the chair ofLead Director during 2017, and did not receive any compensation for serving as the Compensation Committee, for 2015 he received the Lead Independent Director fee in lieu of the fee for the chairchairperson of the Compensation Committee. These annual chair fees are also payable in quarterly installments in January, April, and July and October.
For 2018, the Board did not receive any increases in the annual retainer or chair fees.
In addition to the cash annual retainers and chair fees, our non-employee directors receive compensation for their service in the form of grants of restricted stock. The Board believes that providing at least 50%a substantial portion of the outsidenon-employee directors’ total compensation in the form of equity aligns the directors’ compensation with the interests of the Company’s shareholders. For 2015,In March 2018, the Board granted to Mrs. Young 6,138 shares of restricted stock that vest over five years in connection with her election to the Board. In March 2018, each non-employee director then on the Boardalso received a grant of $60,000 in4,297 shares of restricted stock that vests over three years. The Board requested in 2015 that Meridian conduct a review of$10,000 from the Board’s compensation of its non-employee directors. Meridian evaluatedannual grants for 2017, reflecting the Company’s outside director compensation relative to the peer group used for its evaluationimpact of the Company’s executive compensation (see “Compensation Discussiongrowth, strategic initiatives and Analysis”). This evaluation demonstrated thatoperating environment on the Board’s workload and were in lieu of any increase in cash directors’ fees. All of these equity grants were approved at a price per share equal to the greater of book value per share or the closing price of the Company’s outside director compensation was competitive with its peer group and, therefore, no changes were made for 2015 or 2016.common stock on the grant date.
Cash compensation paid to, and the dollar value of equity awards granted to, our non-employee directors in 20152017 are shown in the table below. NON-EMPLOYEE DIRECTORS' COMPENSATION SUMMARY
| Name | | Fees Earned or Paid in Cash | | | Equity (Restricted Stock) Awards (3) | | | Stock Option Awards (3) | | | Non-Equity Incentive Plan Compensation | | | Non-Qualified Deferred Compensation Earnings | | | All Other Compensation | | | Total | | | Carl Dorf | | $ | 92,500 | | | $ | 59,998 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 152,498 | | | Bruce F. Simberg | | $ | 62,500 | (2) | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 62,500 | | | Richard W. Wilcox Jr. | | $ | 90,000 | | | $ | 59,998 | | | | -- | | | | -- | | | | -- | | | $ | 686 | (1) | | $ | 150,684 | | | Jenifer G. Kimbrough | | $ | 95,000 | | | $ | 59,998 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 154,998 | | | Thomas A. Rogers | | $ | 18,750 | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 18,750 | | | William G. Stewart | | $ | 18,750 | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 18,750 | |
| Name | | Fees Earned or Paid in Cash | | | Equity (Restricted Stock) Awards (1) | | | Stock Option Awards (1) | | | Non-Equity Incentive Plan Compensation | | | Non-Qualified Deferred Compensation Earnings | | | All Other Compensation | | | Total | | | Jenifer G. Kimbrough | | $ | 98,563 | | | $ | 59,991 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 158,554 | | | Thomas A. Rogers | | $ | 93,375 | | | $ | 59,991 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 153,366 | | | Bruce F. Simberg | | $ | 119,313 | | | $ | 59,991 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 179,304 | | | William G. Stewart | | $ | 77,813 | | | $ | 59,991 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 137,804 | | | Richard W. Wilcox Jr | | $ | 98,563 | | | $ | 59,991 | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 158,554 | | | Roberta N. Young | | $ | 19,688 | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | $ | 19,688 | |
| (1) | Includes fair value for events attended by director in 2015. |
| (2) | Mr. Simberg resigned from the Board of Directors on March 4, 2015 for personal reasons but became a consultant to the Company for which he earned consulting fees. This amount includes his fees paid to him as a director for the first quarter in 2015 and his consulting fees for the last three quarters of 2015. He rejoined the Board in January 2016. |
| (3) | The following table provides certain additional information concerning the outstanding stock options and/or equity awards held by our non-employee directors as of the end of 2015:2017. |
| Name | | Total Stock Option/Equity Awards Outstanding at 2015 Fiscal Year End (Shares) | | | Stock Option / Equity Awards Granted During Fiscal Year 2015 (Shares) | | | Grant Date Fair Value of Equity Awards Granted During Fiscal Year 2015 ($) | | | Carl Dorf | | | 38,511 | (a) | | | 2,084 | | | $ | 59,998 | (b) | | Richard W. Wilcox Jr. | | | 13,511 | (c) | | | 2,084 | | | $ | 59,998 | (b) | | Jenifer G. Kimbrough | | | 28,511 | (d) | | | 2,084 | | | $ | 59,998 | (b) | | Thomas A. Rogers | | | -- | | | | -- | | | | -- | | | William G. Stewart | | | -- | | | | -- | | | | -- | | | Bruce F. Simberg | | | -- | | | | -- | | | | -- | |
| Name | | Total Stock Option/Equity Awards Outstanding at 2017 Fiscal Year End (Shares) | | | Stock Option / Equity Awards Granted During Fiscal Year 2017 (Shares) | | | Grant Date Fair Value of Equity Awards Granted During Fiscal Year 2017 ($) | | | Jenifer G. Kimbrough | | | 25,419 | (a) | | | 3,289 | | | $ | 59,991 | (b) | | Thomas A. Rogers | | | 9,900 | (c) | | | 3,289 | | | $ | 59,991 | (b) | | Bruce F. Simberg | | | 5,724 | (d) | | | 3,289 | | | $ | 59,991 | (b) | | William G. Stewart | | | 9,900 | (c) | | | 3,289 | | | $ | 59,991 | (b) | | Richard W. Wilcox Jr | | | 10,419 | (e) | | | 3,289 | | | $ | 59,991 | (b) | | Roberta N. Young | | | -- | | | | -- | | | | -- | |
| (a) | Includes 10,00015,000 fully vested options granted on 8/22/2011 with an exercise price of $2.45, vested 33 1/3% per year, and expire on 8/22/2021; 15,000 options granted on 4/6/April 6, 2012 with an exercise price of $4.40 vested 33 1/3% per year, and expire on 4/6/an expiration date of April 6, 2022; 1,3334,000 shares of restricted stock which originally vested 33 1/3% per year; 2,094began vesting over five years with an initial vest date of September 9, 2015; 695 shares of restricted stock which originally vested 33 1/3% per year; 8,000began vesting over three years with an initial vest date of March 10, 2016, 2,435 shares of restricted stock which originally vested 20% per year;began vesting over three years with an initial vest date of March 10, 2017 and 2,0843,289 shares of restricted stock which will begin vesting over three years with an initial vest 33 1/3% per year.date of March 14, 2018. |
| (b) | Based on the market value of $28.79$18.24 on March 10, 2015.14, 2017. |
| (c) | Includes 1,3332,435 shares of restricted stock which originally vested 33 1/3% per year; 2,194began vesting over three years with an initial vest date of March 10, 2017, 4,176 shares of restricted stock which originally vested 33 1/3% per year; 8,000began vesting over five years with an initial vest date of March 10, 2017 and 3,289 shares of restricted stock which originally vested 20% per year; and 2,084 shareswill begin vesting over three years with an initial vest date of restricted stock which vest 33 1/3% per year.March 14, 2018. |
| (d) | Includes 15,000 options granted on 4/6/2012 with an exercise price of $4.40, vested 33 1/3% per year, and expire on 4/6/2022; 1,3332,435 shares of restricted stock which originally vested 33 1/3% per year; 2,194began vesting over three years with an initial vest date of March 10, 2017 and 3,289 shares of restricted stock which originally vested 33 1/3% per year; 8,000will begin vesting over three years with an initial vest date of March 14, 2018. |
| (e) | 4,000 shares of restricted stock which originally vested 20% per year; and 2,084began vesting over five years with an initial vest date of September 9, 2015; 695 shares of restricted stock which began vesting over three years with an initial vest 33 1/3% per year.date of March 10, 2016, 2,435 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017 and 3,289 shares of restricted stock which will begin vesting over three years with an initial vest date of March 14, 2018. |
In March 2016, the Board granted to each of Mr. Rogers and Mr. Stewart $100,000 in shares of restricted stock that vest over five years in consideration of their joining the Board. All of the outside directors also received an annual grant of $70,000 in shares of restricted stock in March 2016 that vests over three years.
Director Stock Ownership and Retention Guidelines
The Board approved stock ownership and retention guidelines applicable to our directors. Under these guidelines, our outside, non-employee directors are each required to hold shares of the Company’s common stock with a value of at least four times the annual retainer. The guidelines further provide that the outside directors should achieve the guideline amounts within five years of the policy’s adoption and, until the guideline amounts are achieved, our directors must retain 66-2/3% of any shares received as equity grants from the Company, net of share withheld or sold to pay taxes. The Board also prohibited hedging orthe Company’s common stock and prohibited pledging the Company’s common stock without exception.except in limited circumstances as approved by the Board. All of our directors except for the Board members joining in 2015 and 2017 are in compliance with these guidelines; these three directors are still within the five-year transition period.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no family relationships between or among our executive officers and directors.
The following is a summary of transactions during 20142016 and 20152017 between the Company and its executive officers, directors, nominees for director, principal shareholders and other related parties involving amounts in excess of $120,000 or that the Company has chosen to voluntarily disclose.
Bruce F. Simberg, our Chairman of the Board, is a partner of the Hollywood,Fort Lauderdale, Florida law firm of Conroy Simberg, which renders legal services to the Company.specializes in insurance defense and coverage matters. The Company paid legal fees to Conroy Simberg for services rendered in the amount of approximately $6,538$72,198 and $26,286$0 in 20142016 and 2015,2017, respectively. We believe that the fees charged for services provided by Conroy Simberg areduring 2016 were on terms at least as favorable as those that we could securehave secured from a non-affiliated law firm. The firm has handled only a limited number of matters for the Company. Mr. Simberg has not been personally involved in any of the legal matters handled by the firm for the Company and he received de minimis direct personal benefit from the fees paid to the firm by the Company. The firm is no longer working any current matters for the Company and we do not, at this time, anticipate retaining the firm for future matters.
During 20142016 and 2015,2017, Michael H. Braun, the Company’s Chief Executive Officer and President, received the compensation described in "Executive Compensation" above. Mr. Braun’s brother received salary compensation of $137,412$165,647 and $148,917$150,473 for his services in 2016 and 2017, respectively as the Vice President of Accounting and Finance, in 2014 and 2015, respectively. We believe that the compensation provided to this individual is comparable to that paid by other companies in our industry and market for similar positions.
We have adopted a written policy that any transactions between the Company and executive officers, directors, principal shareholders or their affiliates take place on an arm’s-length basis and require the approval of a majority of our independent directors, as defined in the Nasdaq Rules.
The Board has determined that the following continuing directors are independent pursuant to the Nasdaq Rules applicable to the Company: Bruce F. Simberg, Carl Dorf, Richard W. Wilcox Jr., Jenifer G. Kimbrough, Thomas A. Rogers, and William G. Stewart.Stewart and Roberta N. Young. In making the independence determination with respect to Mr. Simberg, the Board considered the fact that Conroy Simberg has provided legal services to the Company during the past 19 years. Nevertheless, the fees paid by the Company in connection with the legal services provided by Conroy Simberg during the past three fiscal years dodid not exceed the amounts set forth in Nasdaq Rule 5605(a)(2)(D) and, therefore, the Board has determined that Mr. Simberg qualifies as an independent director under Nasdaq Rule 5605(a)(2).
PROPOSAL TWO: APPROVE A PROPOSAL TO CHANGE THE COMPANY'S NAME TO FEDNAT HOLDING COMPANY BY APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION
The Board of Directors has recommended that the Company's shareholders approve an amendment to the Company's Articles of Incorporation to change the Company's name to "FedNat Holding Company." A copy of the proposed Articles of Amendment to the Company’s Amended and Restated Articles of Incorporation is attached to this proxy statement as Annex A. Reasons for Name Change
Subject to shareholder approval, we are changing our name to “FedNat Holding Company.” In addition, subject to receipt of regulatory approval, we will be changing the name of our principal operating subsidiary, Federated National Insurance Company, to “FedNat Insurance Company.” We believe that these name changes provide us with a unified brand that is consistent with how our policyholders and agents refer to our company. The unified brand will allow us to streamline our marketing efforts and relay our vision to our shareholders, agents and policyholders.
These name changes enable us to use our federally registered trademark, “FEDNAT,” following the completion in February 2018 of the arbitration over our use of “FEDNAT” and the arbitrator’s determination that our registered mark did not infringe any alleged trademark rights of Federated Mutual Insurance Company (“Mutual”). We have been a party to a Co-Existence Agreement effective as of August 30, 2013 (the “Co-Existence Agreement”) with Mutual pursuant to which we agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to the Company and Federated National Insurance Company. In response to Mutual’s allegations that our use of the word “FED” as part of our federally registered “FEDNAT” trademark infringed on Mutual’s federal and common law trademark rights, in July 2016 we filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida seeking a declaration that our federally registered trademark “FEDNAT” does not infringe any alleged trademark rights of Mutual and that Mutual does not own any trademark rights to the name or mark “FED” in connection with insurance services outside of Owatonna, Minnesota. In response to Mutual’s demand for arbitration against us alleging a breach of the Co-Existence Agreement, on February 16, 2018 the arbitrator agreed that our “FEDNAT” trademark does not infringe on Mutual’s federal or common law trademark rights. As a result, we have begun the process of re-branding the Company to use the FEDNAT name. The arbitrator also required us to cease using the Federated National name within 90 days. Unless the Company is able to reach agreement with Mutual regarding the timing of the name change, the Company intends to challenge that portion of the arbitration award in federal court. Nevertheless, the Company is proceeding with the name change and rebranding to use the “FEDNAT” name. On March 14, 2018, the Board adopted a resolution approving an amendment to the Company’s Amended and Restated Articles of Incorporation to change the name of the Company to “FedNat Holding Company” and recommended that the amendment be submitted to shareholders for approval. The Board believes it is in the best interest of our Company to change its name to FedNat Holding Company and recommends the approval of the name change amendment to its shareholders.
Shareholder Action on the Name Change
Shareholders are being asked to approve the Articles of Amendment to the Company’s Amended and Restated Articles of Incorporation in substantially the form as set forth in Annex A.
Subject to and following shareholder approval of the amendment, we plan to cause the amendment to become effective by submitting Articles of Amendment to the Florida Secretary of State. The amendment will become effective upon filing with the Florida Secretary of State. The Board retains the right, without further shareholder action, to decide not to pursue the amendment at any time prior to it becoming effective.
We will continue to use the stock symbol “FNHC.” The name change to FedNat Holding Company will not affect the validity or transferability of any currently outstanding stock certificates and shareholders will not be requested to surrender for exchange any certificates held by them.
Required Vote for Approval
The amendment to the Company’s Amended and Restated Articles of Incorporation to change the name of our Company will be approved if the votes in favor of the amendment exceed the votes against the amendment. Broker “non-votes” and abstentions will count as neither votes for or against this proposal.
The Board of Directors unanimously recommends that you vote FOR the amendment to the Company's Articles of Incorporation changing the Company's name to "FEDNAT HOLDING COMPANY."
PROPOSAL THREE: APPROVE THE 2018 OMNIBUS INCENTIVE COMPENSATION PLAN
The Board is asking shareholders to approve The Federated National Holding Company 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”). On March 30, 2018, the Board unanimously approved the 2018 Plan, subject to shareholder approval and, accordingly, the Board directed that the 2018 Plan be submitted to the Company’s shareholders for approval at the Annual Meeting.
The 2018 Plan is a new equity compensation plan for our employees, non-employee directors, consultants and advisors. The 2018 Plan replaces the Federated National Holding Company Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”), which does not have sufficient shares available for continued equity awards to our employees, non-employee directors, consultants and advisors. No further awards will be made under the 2012 Plan if the 2018 Plan is approved by the shareholders. In addition, in April 2012, the 21st Century Holding Company 2002 Stock Option Plan, as amended, which was the predecessor plan to the 2012 Plan (the “2002 Plan”) expired and no awards were granted under the 2002 Plan after its expiration. The 2002 Plan will continue to govern the options granted thereunder. Furthermore, any shares subject to options outstanding under the 2002 Plan will not be added back into the share authorization of the 2018 Plan. Shareholder approval of the 2018 Plan is being sought in order to (i) meet NASDAQ listing requirements, (ii) establish a limit on annual compensation of non-employee directors, and (iii) allow for incentive stock options to meet the requirements of the Internal Revenue Code of 1986, as amended (the “Code”).
Determination of the Number of Shares Available for Awards under the 2018 Plan
If this Proposal 3 is approved by our shareholders at the Annual Meeting, subject to adjustments as described in the 2018 Plan, the maximum aggregate number of shares of our common stock that may be issued under the 2018 Plan will be 802,777, which is equal to the sum of (i) 800,000 shares of our common stock, plus (ii) 2,777 shares, which is the number of shares of our common stock reserved for issuance under the 2012 Plan that remain available as of March 31, 2018. In addition, the number of shares of common stock subject to outstanding awards under the 2012 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2012 Plan after the effective date of the 2018 Plan will be available for issuance under the 2018 Plan. The number in clause (ii) above will be reduced by any awards granted under the 2012 Plan between March 31, 2018 and the effective date of the 2018 Plan.
In determining the number of shares to be authorized for issuance under the 2018 Plan, the Board considered a number of factors, including the number of shares available under the 2012 Plan, our past share usage (burn rate), the number of shares needed for future awards, a dilution analysis, competitive data from relevant peer companies, the current and future accounting expenses associated with our equity award practices, and input from our shareholders.
Dilution Analysis. As of March 31, 2018, the Company’s capital structure consisted of 13,126,480 shares of common stock outstanding. As described above, 2,777 shares remain available for grant of awards under the 2012 Plan as of March 31, 2018. As of March 31, 2018, 50,351 shares are subject to outstanding options under the 2002 Plan and since April 2012, no awards were permitted to be granted under the 2002 Plan.
The proposed share authorization is a request for 800,000 new shares to be available for awards under the 2018 Plan. The table below shows our potential dilution (referred to as “overhang”) levels based on our fully diluted shares of common stock and our request for 800,000 shares to be available for awards under the 2018 Plan. The 800,000 new shares represent 5.7% of fully diluted shares of our common stock, including all shares that will be authorized under the 2018 Plan, as described in the table below. The Board believes that this number of shares of common stock under the 2018 Plan represents a reasonable amount of potential equity dilution, which will allow the Company to continue awarding equity awards, and that equity awards are an important component of the Company’s equity compensation program.
Potential Overhang with 800,000 Additional Shares Stock Options Outstanding as of March 31, 2018 (1) | | | 50,351 | | | Weighted Average Exercise Price of Stock Options Outstanding as of March 31, 2018 | | $ | 3.72 | | | Weighted Average Remaining Term of Stock Options Outstanding as of March 31, 2018 | | 3.5046 years | | Outstanding Restricted Stock Awards as of March 31, 2018 (1) | | | 384,100 | | Total Equity Awards Outstanding as of March 31, 2018 (1) | | | 434,451 | | Shares Available for Grant under the 2012 Plan as of March 31, 2018 (to be added to the 2018 Plan share reserve) (2) | | | 2,777 | | | New Shares Requested under the 2018 Plan | | | 800,000 | | Total Shares Requested under the 2018 Plan(3) | | | 802,777 | | | Total Potential Overhang under the 2018 Plan (and all predecessor and other equity compensation plans or agreements) | | | 853,128 | | | Shares of Common Stock Outstanding as of March 31, 2018 | | | 13,126,480 | | | Fully Diluted Shares of Common Stock | | | 13,979,608 | | | Potential Dilution of 800,000 shares as a Percentage of Fully Diluted Shares of Common Stock | | | 5.7 | % |
| (1) | Represents the number of outstanding awards under the 2012 Plan and the 2002 Plan. The number of shares subject to outstanding awards under the 2012 Plan that could again become available under the 2018 Plan is 384,100 shares. Any shares subject to options outstanding under the 2002 Plan will not be added into the share authorization of the 2018 Plan. |
| (2) | As of April 2012, no additional awards were granted under the 2002 Plan. No additional awards will be granted under the 2012 Plan as of the effective date of the 2018 Plan. |
| (3) | Total shares will be reduced by any grants made after March 31, 2018 under the 2012 Plan and prior to the effective date of the 2018 Plan. |
No additional grants will be made under the 2012 Plan if the 2018 Plan is approved by the shareholders. The Total Shares Requested in the foregoing table does not include shares subject to outstanding grants under the 2002 Plan. The Fully Diluted Shares of Common Stock in the foregoing table consist of the Shares of Common Stock Outstanding as of March 31, 2018, plus the Total Potential Overhang under the 2018 Plan (and all predecessor and other equity compensation plans or agreements), minus Outstanding Restricted Stock Awards, which are already included in the number of Shares of Common Stock Outstanding.
Based on our historic and projected future usage patterns, the Board estimates that these shares will be sufficient to provide awards under the 2018 Plan for approximately three to five years, although the number of grants awarded for any year could vary as the Compensation Committee deems appropriate. This is only an estimate, and circumstances could cause the share reserve to be used more quickly or more slowly. These circumstances include, but are not limited to, the future price of our common stock, the mix of cash, options and full value awards provided as long-term incentive compensation, grant amounts provided by our competitors, hiring activity, and promotions during the next few years.
The table below sets forth the following information regarding the awards granted under the 2012 Plan: (i) the burn rate for each of the last three calendar years and (ii) the average burn rate over the last three calendar years. The burn rate for a year has been calculated as follows:
| (i) | the sum of (x) all stock options granted in the applicable year, and (y) all full value awards granted in the applicable year, |
divided by | (ii) | the weighted average number of shares of common stock outstanding for the applicable year. |
Burn Rate
| Element | | 2017 | | | 2016 | | | 2015 | | | Full Value Stock Awards Granted | | | 106,454 | | | | 128,472 | | | | 116,140 | | | Stock Options Granted | | | 0 | | | | 0 | | | | 0 | | | Total Full Value Stock Awards and Stock Options Granted | | | 106,454 | | | | 128,472 | | | | 116,140 | | Weighted Average Shares of Common Stock Outstanding as of December 31 (1) | | | 13,250,000 | | | | 13,922,000 | | | | 13,997,000 | | | Burn Rate | | | 0.8 | % | | | 0.9 | % | | | 0.8 | % |
| (1) | Reflects fully diluted common shares outstanding as reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. |
The burn rate means that the Company used an annual average of 0.9% of the weighted average shares outstanding for awards granted over the past three years under the 2012 Plan.
The Board believes that the current number of shares that may be issued under the 2012 Plan is not sufficient in light of our compensation structure and strategy. Equity incentives form an integral part of the compensation paid to many of our employees, particularly those in positions of key importance. Equity incentives also are a major part of our non-employee director annual retainer compensation. The Board has concluded that our ability to attract, retain and motivate top quality employees, non-employee directors, and consultants and advisors is critical to our success and growth, and would be enhanced by our continued ability to make grants under the 2018 Plan. In addition, the Board believes that our interests and the interests of our shareholders will be advanced if the Company can continue to offer employees, non-employee directors and consultants and advisors the opportunity to acquire or increase their proprietary interests in the Company. The Board believes that adopting the 2018 Plan will ensure that the Company continues to have a sufficient number of shares with which to achieve our compensation strategy and to allow for growth.
The material terms of the 2018 Plan are summarized below. A copy of the full text of the 2018 Plan is attached to this proxy statement as Annex B. This summary of the 2018 Plan is not intended to be a complete description of the 2018 Plan and is qualified in its entirety by the actual text of the 2018 Plan to which reference is made.
Summary of the 2018 Plan
Purpose and Types of Grants. The purpose of the 2018 Plan is to attract and retain employees, non-employee directors and consultants, and advisors. The 2018 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights, other stock-based awards, and cash awards. The 2018 Plan is intended to provide an incentive to grantees to contribute to our economic success by aligning the economic interests of grantees with those of our shareholders.
Administration. The 2018 Plan will be administered by our Compensation Committee, and our Compensation Committee will determine all of the terms and conditions applicable to grants under the 2018 Plan. Our Compensation Committee will also determine who will receive grants under the 2018 Plan and the number of shares of common stock that will be subject to grants. Our Compensation Committee may delegate authority under the 2018 Plan to one or more subcommittees as it deems appropriate. Our Compensation Committee will consist of "non-employee directors" as defined under Rule 16b-3 promulgated under the Exchange Act and "independent directors," as determined in accordance with the independence standards established by the stock exchange on which our common stock is at the time primarily traded. Subject to compliance with applicable law and the applicable stock exchange rules, our Board of Directors, in its discretion, may perform any action of our Compensation Committee under the 2018 Plan. Subject to compliance with applicable law and applicable stock exchange requirements, the Compensation Committee (or our Board of Directors or a subcommittee, as applicable) may delegate all or part of its authority to our Chief Executive Officer, as it deems appropriate, with respect to grants to employees or consultants or advisors who are not executive officers or directors under Section 16 of the Exchange Act. Our Compensation Committee, our Board of Directors, any subcommittee or the Chief Executive Officer, as applicable, that has authority with respect to a specific grant will be referred to as "the Committee" in this description of the 2018 Plan. Shares Subject to the Plan. Subject to adjustment, the maximum aggregate number of shares of common stock that may be issued or transferred under the 2018 Plan is 802,777 shares, which is equal to the sum of (i) 800,000 shares of our common stock, plus (ii) 2,777 shares, which is the number of shares of our common stock reserved for issuance under the 2012 Plan that remain available as of March 31, 2018. In addition, the number of shares of common stock subject to outstanding awards under the 2012 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2012 Plan after the effective date of the 2018 Plan (not exceeding 384,100 shares) will be available for issuance under the 2018 Plan. The number in clause (ii) above will be reduced by any awards granted under the 2012 Plan between March 31, 2018 and the effective date of the 2018 Plan.
If any options or stock appreciation rights, including outstanding options and stock appreciation rights granted under our 2012 Plan, terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been exercised, or if any stock awards, stock units or other stock-based awards, including outstanding awards granted under our 2012 Plan, are forfeited, terminated, or otherwise not paid in full (including restricted stock awards granted under the 2012 Plan that are forfeited or terminated, or otherwise are not paid in full on or after the effective date of the 2018 Plan), the shares of our common stock subject to such grants will again be available for purposes of the 2018 Plan. Shares of our common stock that are surrendered in payment of the exercise price of an option or stock appreciation right will not be available for issuance under the 2018 Plan. Shares of our common stock that are withheld in satisfaction of the withholding taxes, or surrendered for the payment of taxes, incurred in connection with the issuance, vesting or exercise of any grant, or the issuance of our common stock will not be available for issuance under the 2018 Plan. When stock appreciation rights are granted, the full number of shares subject to the stock appreciation rights will be considered issued under the 2018 Plan regardless of the number of shares issued upon exercise of the stock appreciation rights. If we repurchase shares of our common stock on the open market with the proceeds from the exercise price we receive from options, the repurchased shares will not be available for issuance under the 2018 Plan. If any grants are paid in cash, and not in shares of our common stock, any shares of our common stock subject to such grants will also be available for future grants. In addition, shares of our common stock issued under grants made pursuant to assumption, substitution, or exchange of previously granted awards of a company that we acquire will not reduce the number of shares of our common stock available under the 2018 Plan. Available shares under a shareholder approved plan of an acquired company may be used for grants under the 2018 Plan and will not reduce the share reserve, subject to compliance with the applicable stock exchange and the Code.
The maximum number of shares of our common stock that may be subject to option, stock appreciation right, stock award stock unit and other stock-based grants made to employees, consultants and advisors under the 2018 Plan in any calendar year will not exceed 200,000 shares of our common stock in the aggregate. The maximum aggregate grant date value of shares of common stock subject to grants made to any non-employee member of our Board during any calendar year, including any cash fees earned for services rendered during the calendar year, will not exceed $600,000 in total value. In determining this dollar limit, the value of grants will be calculated based on the grant date fair value of the grants for financial reporting purposes. For grants that are made to newly hired employees on around the date of hire, the limit applicable to employees as described in this paragraph is doubled such that the maximum number of shares of our common stock that may be subject to a grant to a newly hired employee is 400,000 shares.
Adjustments. In connection with stock splits (reverse stock splits), stock dividends, recapitalizations, and certain other events affecting our common stock, the committee will make adjustments as it deems appropriate in the maximum number of shares of common stock reserved for issuance as grants or for which individuals may receive grants in any year; the number and kind of shares covered by outstanding grants; the kind of shares that may be issued or transferred under the 2018 Plan; the price per share or market value of any outstanding grants; the exercise price of options; the base amount of stock appreciation rights; and the performance goals or other terms; and conditions as the committee deems appropriate. Eligibility. All of our employees are eligible to receive grants under the 2018 Plan. In addition, our non-employee directors and consultants or advisors who perform services for us may receive grants under the 2018 Plan. Incentive stock options may be granted only to our employees.
As of March 31, 2018, approximately 373 employees, 6 non-employee directors and no consultants and/or advisors (other than our non-employee directors) are eligible to participate in the 2018 Plan. The Committee, in its discretion, selects the persons to whom awards may be granted, determines the type of awards, determines the times at which awards will be made, determines the number of shares subject to each such award (or the dollar value of certain performance awards), and determines the other terms and conditions relating to the awards. For this reason, it is not possible to determine the benefits or amounts that will be received by any particular person in the future.
Vesting. The Committee determines the vesting and exercisability terms of awards granted under the 2018 Plan. Under the 2018 Plan, no grant nor any portion of a grant will vest over a period that is less than one year from the date of grant. However, up to 5% of the shares reserved under the 2018 Plan as of the effective date of the 2018 Plan (subject to adjustment as set forth in the 2018 Plan) may be granted without regard to this minimum vesting requirement.
At the Committee’s discretion, performance goals for stock awards, stock units or other stock-based grants may be based on the attainment of specified levels of one or more objective performance goals established by the committee. If the Committee so determines, the vesting of any such award subject to performance goals may be subject to the achievement of one or more objective performance goals established by the committee, which shall be based on the attainment of specified levels of one or any combination of the following: cash flow; free cash flow; earnings (including gross margin, earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, adjusted earnings before interest, taxes, depreciation and amortization and net earnings); earnings per share; growth in earnings or earnings per share; book value growth; stock price; return on equity or average shareholder equity; total shareholder return or growth in total shareholder return either directly or in relation to a comparative group; return on capital; return on assets or net assets; revenue, growth in revenue or return on sales; sales; expense reduction or expense control; expense to revenue ratio; income, net income or adjusted net income; operating income, net operating income, adjusted operating income or net operating income after tax; operating profit or net operating profit; operating margin; gross profit margin; return on operating revenue or return on operating profit; regulatory filings; regulatory approvals, litigation and regulatory resolution goals; other operational, regulatory or departmental objectives; budget comparisons; growth in shareholder value relative to established indexes, or another peer group or peer group index; development and implementation of strategic plans and/or organizational restructuring goals; development and implementation of risk and crisis management programs; improvement in workforce diversity; compliance requirements and compliance relief; safety goals; productivity goals; workforce management and succession planning goals; economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); measures of customer satisfaction, employee satisfaction or staff development; development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Corporation’s revenue or profitability or enhance its customer base; merger and acquisitions; and other similar criteria consistent with the foregoing. Performance goals applicable to grants under the 2018 Plan may be established on an absolute or relative basis and may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments. Relative performance may be measured against a group of peer companies, a financial market index or other objective and quantifiable indices. Any performance goals that are financial metrics, may be determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP. Such performance goals also may be based solely by reference to our performance or the performance of a subsidiary, division, business segment or business unit of the Company, or based upon our performance relative to performance of other companies or upon comparisons of any of the indicators of our performance relative to performance of other companies. The Committee may also exclude charges related to an event or occurrence which the committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, unusual or infrequently occurring items, and other unusual or non-recurring charges, (b) an event either not directly related to our operations or not within the reasonable control of our management, or (c) the cumulative effects of tax or accounting changes in accordance with GAAP. Such performance goals (and any exclusions) shall be set by the Committee within 90 days of the beginning of the performance period or such other period, as determined by the Committee.
Options. Under the 2018 Plan, the Committee will determine the exercise price of the options granted and may grant options to purchase shares of common stock in such amounts as it determines. The Committee may grant options that are intended to qualify as incentive stock options under Section 422 of the Code, or non-qualified stock options, which are not intended to so qualify. Incentive stock options may only be granted to our employees. Anyone eligible to participate in the 2018 Plan may receive a grant of non-qualified stock options. The exercise price of a stock option granted under the 2018 Plan cannot be less than the fair market value of a share of our common stock on the date the option is granted. If an incentive stock option is granted to a 10% shareholder, the exercise price cannot be less than 110% of the fair market value of a share of our common stock on the date the option is granted. The aggregate number of shares of common stock that may be issued or transferred under the 2018 Plan pursuant to incentive stock options under Section 422 of the Code may not exceed 802,777 shares of common stock. The fair market value of our common stock is generally equal to the closing price for the common stock on the date the option is granted (or if there was no closing price on that date, on the last preceding date on which a closing price was reported).
The exercise price for any option is generally payable in cash. In certain circumstances as permitted by the committee, the exercise price may be paid by the surrender of shares of our common stock with an aggregate fair market value on the date the option is exercised equal to the exercise price; by payment through a broker in accordance with procedures established by the Federal Reserve Board; by withholding shares of common stock subject to the exercisable option which have a fair market value on the date of exercise equal to the aggregate exercise price; or by such other method as the committee approves.
The term of an option cannot exceed ten years from the date of grant, except that if an incentive stock option is granted to a 10% shareholder, the term cannot exceed five years from the date of grant. In the event that on the last day of the term of a non-qualified stock option, the exercise is prohibited by applicable law, including a prohibition on purchases or sales of our common stock under our insider trading policy, the term of the non-qualified option will be extended for a period of 30 days following the end of the legal prohibition, unless the Committee determines otherwise.
Except as provided in the grant instrument, an option may only be exercised while a grantee is employed by or providing service to us. The Committee will determine in the grant instrument under what circumstances and during what time periods a grantee may exercise an option after termination of employment.
Stock Appreciation Rights. Under the 2018 Plan, the Committee may grant stock appreciation rights, which may be granted separately or in tandem with any option. Stock appreciation rights granted with a non-qualified stock option may be granted either at the time the non-qualified stock option is granted or any time thereafter while the option remains outstanding. Stock appreciation rights granted with an incentive stock option may be granted only at the time the grant of the incentive stock option is made. The Committee will establish the base amount of the stock appreciation right at the time the stock appreciation right is granted, which will be equal to or greater than the fair market value of a share of our common stock as of the date of grant.
If a stock appreciation right is granted in tandem with an option, the number of stock appreciation rights that are exercisable during a specified period will not exceed the number of shares of our common stock that the grantee may purchase upon exercising the related option during such period. Upon exercising the related option, the related stock appreciation rights will terminate, and upon the exercise of a stock appreciation right, the related option will terminate to the extent of an equal number of shares of our common stock. Generally, stock appreciation rights may only be exercised while the grantee is employed by, or providing services to, us. When a grantee exercises a stock appreciation right, the grantee will receive the excess of the fair market value of the underlying common stock over the base amount of the stock appreciation right. The appreciation of a stock appreciation right will be paid in shares of our common stock, cash or both. The term of a stock appreciation right cannot exceed ten years from the date of grant. In the event that on the last day of the term of a stock appreciation right, the exercise is prohibited by applicable law, including a prohibition on purchases or sales of our common stock under our insider trading policy, the term of the stock appreciation right will be extended for a period of 30 days following the end of the legal prohibition, unless the Committee determines otherwise.
Stock Awards. Under the 2018 Plan, the Committee may grant stock awards. A stock award is an award of our common stock that may be subject to restrictions as the Committee determines. The restrictions, if any, may lapse over a specified period of employment or based on the satisfaction of pre-established criteria, in installments or otherwise, as the Committee may determine. Except to the extent restricted under the grant instrument relating to the stock award, a grantee will have all of the rights of a shareholder as to those shares, including the right to vote and the right to receive dividends or distributions on the shares. Dividends with respect to stock awards that vest based on performance shall vest if and to the extent that the underlying stock award vests, as determined by the Committee. All unvested stock awards are forfeited if the grantee's employment or service is terminated for any reason, unless the Committee determines otherwise.
Stock Units. Under the 2018 Plan, the Committee may grant restricted stock units to anyone eligible to participate in the 2018 Plan. Restricted stock units are phantom units that represent shares of our common stock. Stock units become payable on terms and conditions determined by the Committee and will be payable in cash or shares of our stock as determined by the Committee. All unvested restricted stock units are forfeited if the grantee's employment or service is terminated for any reason, unless the Committee determines otherwise.
Cash Awards. Under the 2018 Plan, the Committee may grant cash awards to our employees who are executives or other key employees. The Committee will determine which employees will receive cash awards and the terms and conditions applicable to each cash award, including the criteria for vesting, attainment of the specified performance goals and payment.
Other Stock-Based Awards. Under the 2018 Plan, the Committee may grant other types of awards that are based on, measured by, or payable to, anyone eligible to participate in the 2018 Plan in shares of our common stock. The Committee will determine the terms and conditions of such awards. Other stock-based awards may be payable in cash, shares of our common stock, or a combination of the two.
Dividend Equivalents. Under the 2018 Plan, the Committee may grant dividend equivalents in connection with grants of stock units or other stock-based awards made under the 2018 Plan. Dividend equivalents entitle the grantee to receive amounts equal to ordinary dividends that are paid on the shares underlying a grant while the grant is outstanding. The Committee will determine whether dividend equivalents will be paid currently or accrued as contingent cash obligations. Dividend equivalents may be paid in cash, in shares of our common stock, or in a combination of the two. The Committee will determine the terms and conditions of the dividend equivalent grants, including whether the grants are payable upon the achievement of specific performance goals. Dividend equivalents with respect to stock units or other stock-based awards that vest based on performance shall vest and be paid only if and to the extent that the underlying stock units or other stock-based awards vest and are paid as determined by the Committee.
Change in Control. If we experience a change in control where we are not the surviving corporation (or survive only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding grants that are not exercised or paid at the time of the change in control will be assumed by, or replaced with grants that have comparable terms by, the surviving corporation (or a parent or subsidiary of the surviving corporation). Unless a grant instrument provides otherwise, if a grantee's employment is terminated by the surviving corporation without cause (as defined in the 2018 Plan) upon or within 12 months following a change in control, the grantee's outstanding grants will fully vest as of the date of termination; provided that if the vesting of any grants is based, in whole or in part, on performance, the applicable grant instrument will specify how the portion of the grant that becomes vested upon a termination following a change in control will be calculated. If there is a change in control and all outstanding grants are not assumed by, or replaced with grants that have comparable terms by, the surviving corporation, the Committee may take any of the following action without the consent of any grantee:
| · | determine that outstanding options and stock appreciation rights will accelerate and become fully exercisable and the restrictions and conditions on outstanding stock awards, stock units, cash awards, and dividend equivalents immediately lapse; |
| · | pay grantees, in an amount and form determined by the Committee, in settlement of outstanding stock units, cash awards, or dividend equivalents; |
| · | require that grantees surrender their outstanding stock options, stock appreciation rights or any other exercisable grant, in exchange for a payment by us, in cash or shares of our common stock, equal to the difference between the exercise price and the fair market value of the underlying shares of common stock; provided, however, if the per share fair market value of the common stock does not exceed the per share stock option exercise price or stock appreciation right base amount, as applicable, we will not be required to make any payment to the grantee upon surrender of the stock option or stock appreciation right; or |
| · | after giving grantees an opportunity to exercise all of their outstanding stock options and stock appreciation rights, terminate any unexercised stock options and stock appreciation rights on the date determined by our Compensation Committee. |
In general terms, a change in control under the 2018 Plan occurs if:
| · | a person, entity or affiliated group, other than entities which the Chairman of our Board directly or indirectly controls, acquires more than 50% of our then outstanding voting securities; |
| · | we merge into another entity unless the holders of our voting shares immediately prior to the merger have at least 50% of the combined voting power of the securities in the merged entity or its parent; |
| · | we sell or dispose of all or substantially all of our assets unless the sale is to one of our subsidiaries and does not involve a change in our equity holdings or to an entity this is directly or indirectly controlled by the Chairman of our Board; |
| · | our shareholders approve a plan of complete liquidation or dissolution; or |
| · | a majority of the members of our Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the incumbent directors. |
Deferrals. The Committee may permit or require grantees to defer receipt of the payment of cash or the delivery of shares of common stock that would otherwise be due to the grantee in connection with a grant under the 2018 Plan. The Committee will establish the rules and procedures applicable to any such deferrals, consistent with the requirements of Section 409A of the Code.
Withholding. All grants under the 2018 Plan are subject to applicable U.S. federal (including FICA), state and local, foreign, or other tax withholding requirements. We may require grantees or other persons receiving grants or exercising grants to pay an amount sufficient to satisfy such tax withholding requirements with respect to such grants, or we may deduct from other wages and compensation paid by us the amount of any withholding taxes due with respect to such grant.
The Committee may permit or require that our tax withholding obligation with respect to grants paid in our common stock will paid by having shares withheld up to an amount that does not exceed the grantee's minimum applicable withholding tax rate for United States federal (including FICA), state and local tax liabilities, or as otherwise determined by the Committee. In addition, the Committee may, in its discretion, and subject to such rules as the Committee may adopt, allow grantees to elect to have such share withholding applied to all or a portion of the tax withholding obligation arising in connection with any particular grant. Transferability. Except as permitted by the Committee with respect to non-qualified stock options, only a grantee may exercise rights under a grant during the grantee's lifetime. Upon death, the personal representative or other person entitled to succeed to the rights of the grantee may exercise such rights. A grantee cannot transfer those rights except by will or by the laws of descent and distribution or, with respect to grants other than incentive stock options, pursuant to a domestic relations order. The Committee may provide in a grant instrument that a grantee may transfer non-qualified stock options to family members, or one or more trusts or other entities for the benefit of or owned by family members, consistent with applicable securities laws.
Amendment; Termination. Our Board of Directors may amend or terminate the 2018 Plan at any time, except that our shareholders must approve an amendment if such approval is required in order to comply with the Code, applicable laws, or applicable stock exchange requirements. Unless terminated sooner by our Board of Directors or extended with shareholder approval, the 2018 Plan will terminate on the day immediately preceding the tenth anniversary of the effective date of the 2018 Plan.
Shareholder approval is required to amend the terms of outstanding options or stock appreciation rights or reduce the exercise price or base price of options or stock appreciation rights, respectively, cancel outstanding options or stock appreciation rights in exchange for options or stock appreciation rights with an exercise price or base price, as applicable, that is (1) less than the exercise price or base price of the original options or stock appreciation rights or (2) above the current stock price in exchange for cash or other securities. However, such shareholder approval is not required in connection with certain corporate transactions or other actions with respect to our securities, such as a stock split, extraordinary cash dividend, recapitalization, change in control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of our common stock.
Establishment of Sub-Plans. Our Board of Directors may, from time to time, establish one or more sub-plans under the 2018 Plan to satisfy applicable blue sky, securities, or tax laws of various jurisdictions. Our Board of Directors may establish such sub-plans by adopting supplements to the 2018 Plan setting forth limitations on the Committee's discretion and such additional terms and conditions not otherwise inconsistent with the 2018 Plan as our Board of Directors will deem necessary or desirable. All such supplements will be deemed part of the 2018 Plan, but each supplement will only apply to grantees within the affected jurisdiction.
Clawback. Subject to applicable law, the Committee may provide in any grant instrument that if a grantee breaches any restrictive covenant agreement between the grantee and us, or otherwise engages in activities that constitute cause either while employed by, or providing services to, us or within a specified period of time thereafter, all grants held by the grantee will terminate, and we may rescind any exercise of an option or stock appreciation right and the vesting of any other grant and delivery of shares upon such exercise or vesting, as applicable on such terms as the Committee will determine, including the right to require that in the event of any rescission:
| · | the grantee must return the shares received upon the exercise of any option or stock appreciation right or the vesting and payment of any other grants; or |
| · | if the grantee no longer owns the shares, the grantee must pay to us the amount of any gain realized or payment received as a result of any sale or other disposition of the shares (if the grantee transferred the shares by gift or without consideration, then the fair market value of the shares on the date of the breach of the restrictive covenant agreement or activity constituting cause), net of the price originally paid by the grantee for the shares. |
The Committee may also provide for clawbacks pursuant to a clawback policy, which our Board of Directors has adopted and may amend from time to time. Payment by the grantee will be made in such manner and on such terms and conditions as may be required by the Committee. We will be entitled to set off against the amount of any such payment any amounts that we otherwise owe to the grantee. Federal Income Tax Consequences
The following discussion summarizes certain federal income tax considerations of awards under the Plan. However, it does not purport to be complete and does not describe the state, local or foreign tax considerations or the consequences for any particular individual.
Stock Options. A grantee does not realize ordinary income on the grant of a stock option. Upon exercise of a non-qualified stock option, the grantee will realize ordinary income equal to the excess of the fair market value of the shares of common stock over the option exercise price. The cost basis of the shares acquired for capital gain treatment is their fair market value at the time of exercise. Upon exercise of an incentive stock option, the excess of the fair market value of the shares of common stock acquired over the option exercise price will be an item of tax preference to the grantee, which may be subject to an alternative minimum tax for the year of exercise. If no disposition of the shares is made within two years from the date of granting of the incentive stock option or within one year after the transfer of the shares to the grantee, the grantee does not realize taxable income as a result of exercising the incentive stock option; the tax basis of the shares received for capital gain treatment is the option exercise price; any gain or loss realized on the sale of the shares is long-term capital gain or loss. If the grantee disposes of the shares within the two-year or one-year periods referred to above, the grantee will realize ordinary income at that time in an amount equal to the excess of the fair market value of the shares at the time of exercise (or the net proceeds of disposition, if less) over the option exercise price. For capital gain treatment on such a disposition, the tax basis of the shares will be their fair market value at the time of exercise.
Stock Appreciation Rights. No ordinary income will be realized by a grantee in connection with the grant of a SAR. When the SAR is exercised, the grantee will realize ordinary income in an amount equal to the sum of the amount of any cash received and the fair market value of the shares of common stock or other property received upon the exercise.
Restricted Stock, Performance and Restricted Stock Unit Awards. The grantee will not realize ordinary income on the grant of a restricted stock award (or a performance award if the shares of common stock are issued on grant), but will realize ordinary income when the shares subject to the award become vested in an amount equal to the excess of (i) the fair market value of the shares on the vesting date over (ii) the purchase price, if any, paid for the shares. The grantee may, however, elect under Section 83(b) of the Code to include as ordinary income in the year the shares are granted an amount equal to the excess of (i) the fair market value of the shares on the date of issuance, over (ii) the purchase price, if any, paid for the shares. If the Section 83(b) election is made, the grantee will not realize any additional taxable income when the shares become vested.
The grantee will not realize ordinary income on the grant of a restricted stock unit award (or a performance award under which shares of common stock are not issued on grant), but will realize ordinary income when the shares subject to the award are issued to the grantee after they become vested. The amount of ordinary income will be equal to the excess of (i) the fair market value of the shares on the date they are issued over (ii) the purchase price, if any, paid for the award.
Upon disposition of shares of common stock acquired under a restricted stock award, performance award or restricted stock unit award, the grantee will realize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for the shares plus any amount realized as ordinary income upon grant (or vesting) of the shares.
Company Tax Deduction
Prior to 2018, Section 162(m) of the Internal Revenue Code imposed a $1 million limit on the amount a public company may deduct for compensation paid to a company’s chief executive officer or any of the company’s three other most highly compensated executive officers (other than the chief financial officer) who are employed as of the end of the year. This limitation did not apply to compensation that meets the tax code requirements for “qualified performance-based” compensation (i.e., compensation paid only if the individual’s performance meets pre-established objective goals based on performance criteria approved by shareholders, including stock options). The performance-based compensation exemption and the exemption of the chief financial officer from Section 162(m)’s deduction limit have been repealed, among other changes, effective for taxable years beginning after December 31, 2017, such that awards paid to our covered executive officers (including our chief executive officer) in excess of $1 million will not be deductible in future years, unless it qualifies for transition relief applicable to certain arrangements that were in effect as of November 2, 2017 and are not materially modified thereafter.
As in prior years, while deductibility of executive compensation for federal income tax purposes is among the factors the Committee considers when structuring our executive compensation arrangements, it is not the sole or primary factor considered. We retain the flexibility to authorize compensation that may not be deductible if we believe it is in the best interests of the Company.
New Plan Benefits under the 2018 Plan
Future benefits under the 2018 Plan generally will be granted at the discretion of the Compensation Committee and are therefore not currently determinable.
The table below shows, as to each of the Company’s executive officers named in the Summary Compensation Table of this proxy statement and the various indicated individuals and groups, the awards granted between January 1, 2017 and December 31, 2017 under the 2012 Plan. As of March 29, 2018, the closing price of the common stock as reported on NASDAQ was $15.77 per share.
| Name | Title | Stock Awards (1) | | Michael H. Braun | CEO & President | 68,530 | | Ronald A. Jordan | CFO | 10,000 | | Erick A. Fernandez | CAO | 0 | | All current executive officers as a group (3 persons) | | 78,530 | | All current directors who are not executive officers as a group (6 persons) | | 16,445 | All employees, including current officers who are not executive officers, as a group (40 persons) | | 8,190 |
| (1) | Represents the number of shares subject to restricted stock awards granted in 2017 under the 2012 Plan. See the 2017 Grant of Plan Based Awards Table for details of the restricted stock awards granted to the Named Executive Officers. |
Vote Required for Approval
The Company’s 2018 Omnibus Incentive Compensation Plan will be approved if the votes in favor of the proposal to approve the 2018 Plan exceed the votes against the proposal. Broker “non-votes” and abstentions will count as neither votes for or against this proposal.
The Board of Directors unanimously recommends a vote FOR approval of the 2018 Omnibus Incentive Compensation Plan. PROPOSAL TWO:FOUR: ADVISORY (NON-BINDING) VOTE APPROVING EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) enables the Company’s shareholders to vote to approve, on an advisory, (non-binding)non-binding basis, the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement.
As we describe in the Compensation Discussion and Analysis section and the accompanying compensation tables and narrative discussion contained in this proxy statement, we have designed our executive compensation programs to drive our long-term success and increase shareholder value. We utilizeuse our executive compensation programs to provide compensation that will (i) attract and retain executive talent, (ii) encourage our executive officers to perform at their highest levels by directly linking a material portion of their total compensation with key Company financial and operational performance objectives, and (iii) directly align our executive compensation with shareholders’ interests through the grants of equity-based incentive awards.
Our Compensation Committee has overseen the development and implementation of our executive compensation programs using these core compensation principles as a guide. Our Compensation Committee also routinely reviews, evaluates and updates our executive compensation programs as needed to ensure that we continue to provide competitive compensation that motivates our Named Executive Officers to perform at their highest levels while simultaneously increasing long-term shareholder value.
The Company believes theWe believe our focus on sound, profitable growth, coupled with providing excellent service to agents and our insureds and controlling expenses, best serves the interests of itsour shareholders. Please read the “Compensation Discussion and Analysis” beginning on page 1921 for additional details about the Company’s executive compensation programs, including information about the fiscal year 20152017 compensation of the Company’s Named Executive Officers.
This non-binding say-on-pay vote gives you, as a shareholder, the opportunity to express your approval or disapproval of the compensation of our Named Executive Officers that is disclosed in this proxy statement by voting for or against the following resolution (or by abstaining with respect to the resolution):
“RESOLVED, that the shareholders of Federated National Holding Company approve, on an advisory basis, the compensation of the executive officers named in this proxy statement as described under “Executive Compensation,” including the Compensation Discussion and Analysis and related tabular and narrative disclosure, contained in this proxy statement.”
Because your vote is advisory, it will not be binding on either the Board of Directors or the Company. However, ourOur Compensation Committee, however, will take into account the outcome of the shareholder vote on this proposal when considering future executive compensation decisions and arrangements.
The Board of Directors unanimously recommends that you vote “FOR”FOR Proposal 24 to approve, on an advisory basis, the Company’s executive compensation.
PROPOSAL THREE: ADVISORY (NON-BINDING) VOTE TO DETERMINETHE FREQUENCY OF THE ADVISORY VOTE ON THE COMPANY’S EXECUTIVE COMPENSATION
The Dodd-Frank Act also enables the Company’s shareholders to indicate how frequently the Company should seek an advisory vote on the compensation of the Company’s Named Executive Officers, such as Proposal 2 above. By voting on this Proposal 3, shareholders may indicate whether they would prefer an advisory vote on Named Executive Officer compensation once every year, every two years or every three years.
After careful consideration of this proposal, the Company’s Board of Directors has determined that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for the Company at this time, and therefore the Board recommends that you vote for a one-year interval for the advisory vote on executive compensation.
In formulating its recommendation, the Board considered that the Company’s executive compensation policies are designed to promote a long-term connection between pay and performance and an advisory vote on executive compensation every year will allow the Company’s shareholders to provide direct input on the Company’s long-term compensation philosophy, policies and practices. The Company understands that shareholders may have different views as to what is the best approach for the Company and looks forward to hearing from shareholders on this proposal.
You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting when you vote in response to the resolution set forth below.
“RESOLVED, that the option of once every one year, two years, or three years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold a shareholder vote to approve the compensation of the named executive officers in this proxy statement as described under “Executive Compensation,” including the Compensation Discussion and Analysis and related tabular and narrative disclosure, contained in this proxy statement.”
The option of one year, two years or three years that receives the highest number of votes cast by shareholders will be the frequency for the advisory vote on executive compensation that has been selected by shareholders. Shareholders are not voting to approve or disapprove of the Board’s recommendation. Because this vote is advisory and not binding on the Board of Directors or the Company in any way, the Board may decide that it is in the best interests of the Company’s shareholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by the Company’s shareholders and may vary its practice based on factors such as discussions with shareholders and the adoption of material changes to the Company’s compensation programs.
The Board of Directors recommends that shareholders select “ONE YEAR” on Proposal 3 recommending, on an advisory basis, the frequency of advisory votes on executive compensation.
PROPOSAL FOUR: APPROVE AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS TO ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS
The Board of Directors has recommended that the Company's shareholders approve an amendment to the Company's Articles of Incorporation and Bylaws to eliminate supermajority voting provisions contained in the Articles of Incorporation and Bylaws as described below. A copy of the proposed amendments to the Company’s Articles of Incorporation and Bylaws are attached to this proxy statement as Annex A and Annex B.
Currently, our Articles of Incorporation and Bylaws require the affirmative vote of the holders of at least 66-2/3% of the voting power of all then-outstanding shares of the Company’s capital stock entitled to vote to amend certain provisions of the Articles of Incorporation and Bylaws.
In the Articles of Incorporation, those provisions are:
Article VII (Special meetings of shareholders)
Article VIII (No shareholder action without a meeting)
In the Bylaws, those provisions are:
Article II, Section 2 (Who can call special meetings of shareholders)
Article II, Section 9 (No action by shareholders without a meeting)
Article II, Section 10 (Advance notice of the intention to make a proposal at the meeting)
Article X (Amendments to the Bylaws)
Each of these provisions in the Articles of Incorporation and Bylaws require the affirmative vote of the holders of at least 66-2/3% of the voting power of all then-outstanding shares of the Company’s capital stock entitled to vote for the shareholders to adopt, amend or repeal any of these provisions (collectively, the “Supermajority Voting Provisions”).
In recent years, shareholders of many public companies have requested the complete elimination of the supermajority voting standard for shareholder actions, and a number of companies have effected such changes. Our Board recognizes that the 66-2/3% voting threshold for certain amendments to our Articles of Incorporation, or for changes to Bylaws initiated by shareholders, is high and increasingly disfavored for public companies, as they pose a challenging threshold for shareholders to effect certain changes provided for under state corporate law.
For this reason, the Board determined that it is in the best interests of the Company and its shareholders to eliminate the Supermajority Voting Provisions in the Articles of Incorporation and Bylaws and replace them with a requirement that these provisions may be amended by the vote of a majority of shares outstanding. The majority of shares outstanding voting standard is a higher standard than the standard required by the Florida Business Corporation Act, which would permit amendments to be approved by a majority of votes cast. Nevertheless, the Board believes that replacing the Supermajority Voting Provisions with a majority of shares outstanding voting standard will permit the Company’s shareholders to have greater influence over the Company’s governance and align the Company’s policy with recognized corporate governance best practices. Accordingly, the Board is recommending that the shareholders vote in favor of this proposal.
Amendment of Articles of Incorporation and Bylaws
The proposed amendments to our Articles of Incorporation and Bylaws that would replace the Supermajority Voting Provisions with a majority of shares outstanding voting standard are set forth in Annex A and Annex B. Approval of this proposal would result in the amendment of all of the Supermajority Voting Provisions.
If the proposed amendments are approved and adopted by our shareholders, our Board will amend our Articles of Incorporation to reflect the revisions as set forth in Annex A. Such amendments will be effective upon filing with the Secretary of State of the State of Florida, which will occur promptly after the Annual Meeting. If the proposed amendments are not approved and adopted by our shareholders, the Supermajority Voting Provisions in the Articles of Incorporation will remain in effect.
In addition, if the proposed amendments to the Bylaws are approved and adopted by our shareholders, the Company will amend its Bylaws to reflect the revisions as set forth in Annex B. If the proposed amendments are not approved and adopted by our shareholders, the Supermajority Voting Provisions in the Bylaws will remain in effect.
Approval of this proposal requires the affirmative vote of the holders of 66-2/3% of the outstanding shares of common stock entitled to vote. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” this proposal.
Recommendation
The Board of Directors recommends that you vote FOR the amendment to the Company's Articles of Incorporation and Bylaws replacing the Supermajority Voting Provisions with a Majority Voting Standard.
PROPOSAL FIVE: APPROVE AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS TO REDUCE THE PERCENTAGE OF OUTSTANDING SHARES REQUIRED TO CALL A SPECIAL MEETING
The Board of Directors has recommended that the Company's shareholders approve amendments to the Company's Articles of Incorporation and Bylaws to reduce the percentage of outstanding shares required to call a special meeting, as described below. A copy of the proposed amendments to the Company’s Articles of Incorporation and Bylaws are attached to this proxy statement as Annex C.
Currently, our Articles of Incorporation and Bylaws require the vote of 33% of the outstanding shares of our capital stock to call special meetings of the shareholders of the Company. Special meetings of the shareholders may also be called by a majority of the members of the Board or the Chairman of the Board. The ability of any other person or persons to call a special meeting of the shareholders of the Company is specifically denied in both the Articles of Incorporation and Bylaws.
In reviewing the Company’s corporate governance policies and following discussions with many of our shareholders, our Board determined that it was appropriate in certain circumstances to provide our shareholders with a more enhanced right to call a special meeting and bring to a vote those matters that are of interest to our shareholders and properly brought before such a meeting. The proposed amendments to our Articles of Incorporation and Bylaws would expand the persons who may call a special meeting to include one or more shareholders holding, in the aggregate, a “net long position” (as defined below) in shares representing at least 25% of the outstanding shares.
While the Board recognizes that providing for a shareholder right to call special meetings is consistent with corporate governance best practices, the Board also believes that special meetings of shareholders should be extraordinary events that are held only when fiduciary obligations or strategic concerns require that the matters to be addressed not be delayed until the next annual meeting. Moreover, because special meetings are expensive and time-consuming for the Company and potentially disruptive to its normal business operations, the Board believes that a small percentage of shareholders should not be entitled to utilize the right to call a special meeting for their own interests, which may not be shared by the majority of the Company’s shareholders. Finally, as described in this proxy statement under the caption “Shareholder Matters—Shareholder Communication with the Board,” the Company has an established process by which shareholders may communicate directly with the Board, including the non-management directors, throughout the year on any topics of interest to shareholders. In light of these considerations, the Board believes that a reasonable balance among complying with corporate governance best practices, enhancing shareholder rights and adequately protecting the long-term interests of the Company and its shareholders is achieved by proposing a “net long position” threshold of 25%, along with certain procedural requirements and limitations, for shareholders to call a special meeting. The net long position requirement similarly protects against a meeting being called by shareholders whose interests are transitory or are otherwise not aligned with other shareholders’ interests in the long-term economic prospects of the Company. A shareholder’s “net long position” is generally defined as the number of shares of common stock in which the shareholder holds a positive (also known as “long”) economic interest, reduced by the number of shares of common stock in which the shareholder holds a negative (also known as “short”) economic interest.
Amendments to Articles of Incorporation and Bylaws
The proposed amendments to our Articles of Incorporation and Bylaws that would allow persons holding, in the aggregate, a net-long position in shares representing at least 25% of the outstanding shares (the “Special Meeting Amendments”) to call special meetings of shareholders are set forth in Annex C.
If the proposed amendments are approved and adopted by our shareholders, our Board will amend our Articles of Incorporation to reflect the revisions as set forth in Annex C. Such amendment will be effective upon filing with the Secretary of State of the State of Florida, which will occur promptly after the Annual Meeting. If the proposed amendments are not approved and adopted by our shareholders, shareholders will only have the ability to call a special meeting of the shareholders with the approval of 33% of the outstanding shares.
In addition, if the proposed amendments are approved and adopted by our shareholders, the Company will amend its Bylaws to reflect the revisions as set forth in Annex C. If the proposed amendments are not approved and adopted by our shareholders, shareholders will only have the ability to call a special meeting of the shareholders with the approval of 33% of the outstanding shares.
Bylaw Limitations and Procedures
The Board approved corresponding amendments to its Bylaws, which would only become effective upon shareholder approval of the Special Meeting Amendments, as set forth in Annex C. The Bylaw amendments would impose certain procedural requirements on shareholders requesting a special meeting (including the provision of the same information required for shareholder proposals at annual meetings under our advance notice Bylaw provisions). The Bylaw amendments would also impose qualifications designed to prevent duplicative and unnecessary meetings by eliminating proposals that, as determined by the Board:
· | are not proper subjects for shareholder action under, or involve a violation of, applicable law; |
· | are received during the period beginning 120 days prior to the anniversary of the prior annual meeting of shareholders and ending on the date of the next annual meeting of shareholders; |
· | are substantially similar to another proposal, other than the election or removal of directors, that was presented at a meeting of shareholders held within the prior 12 months; |
· | relate to the election or removal of directors, and the election or removal of directors was presented at an annual or special meeting of shareholders held within 120 days prior to the date the special meeting request was delivered; |
· | are substantially similar to another proposal, including the election or removal of directors, that is included in the Company’s notice as an item of business to be brought before a shareholder meeting that has been called but not yet held or that is called for a date within 120 days of the receipt of the request; |
· | are made in a manner that violates Regulation 14A under the Exchange Act; or |
· | are presented by a shareholder that has violated the reporting requirements of Section 13 of the Exchange Act. |
The Bylaw amendment would provide that a special meeting must be called within 120 days after the receipt by the Company’s Corporate Secretary of valid requests by holders of the requisite number of shares.
The Company’s advance notice provisions set forth in Article II, Section 10 of the Bylaws and the advance notice provisions regarding the nomination of directors set forth in Article III, Section 13 of the Bylaws would remain intact.
Required Vote
Approval of this proposal requires the affirmative vote of the holders of 66-2/3% of the outstanding shares of common stock entitled to vote. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” this proposal.
The Board of Directors recommends that you vote FOR the amendment to the Company's Articles of Incorporation and Bylaws reducing the percentage of outstanding shares required to call a special meeting.
REPORT OF THE AUDIT COMMITTEE
This report shall not be deemed incorporated by reference by a general statement incorporating by reference this proxy statement into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
The preparation and completion of the Company’s consolidated financial statements and SEC reports hasrequires efforts by three parts.parties. The Company’s management team is responsible for the Company’s internal controls and the financial reporting. The Company’s independent auditors are responsible for performing the independent audit of the Company’s consolidated financial statements in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and to issue its report on our financial statements. The Audit Committee of the Board, which is one of the Board’s standing committees, is responsible for monitoring and overseeing these processes.
Our Audit Committee currently consists of three non-employee directors, Jenifer G. Kimbrough, Richard W. Wilcox Jr. and Carl Dorf,Roberta N. Young, each of whom the Board has determined to be an independent director as defined in the Nasdaq Rules. The Audit Committee operates under a written charter adopted by the Board, which is available at www.fednat.comwww.FedNat.com under the “Investors” tab and the link “Corporate Governance.”
At each of the Audit Committee’s regularly scheduled meetings during 2015,2017, the Audit Committee met with the senior members of the Company’s financial reporting and accounting group and the independent auditors. The Audit Committee’s agenda is established by the chair in consultation with the Company’s Chief Financial Officer. The Audit Committee also met with the Company’s independent auditors in private sessions at certain of its meetings, and also separately with the Company’s head of internal audit, without other management representation, to discuss financial management, accounting and internal control issues. The Audit Committee has reviewed and discussed with management and the Company’s independent auditors the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015,2017, including a discussion of the acceptability and quality of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with GAAP. The Audit Committee discussed, with the independent auditors, matters required to be discussed by the Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, as adopted by the Public Company Accounting Oversight Board (the “PCAOB”)PCAOB in Rule 3200T.
The Company’s independent auditors also provided to the Audit Committee the written disclosures and the letter required by the applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence. The Committee discussed with the independent auditors the firm’s independence and considered whether the non-audit services provided by the independent auditors are compatible with maintaining their independence.
Based on the Audit Committee’s discussions with management and the independent auditors, and the Audit Committee’s review of the representation of management and the report of the independent auditors to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.2017.
Respectfully Submitted July 14, 2016April 2, 2018
/s/ Jenifer G. Kimbrough, Chairman /s/ Carl Dorf
/s/ Richard W. Wilcox Jr. /s/ Roberta N. Young
PROPOSAL SIX:FIVE: RATIFICATION OF SELECTION OF AUDITORS
The Audit Committee, which is responsible for the appointment, compensation and oversight of our independent auditors, has engaged Ernst & Young LLP (“E&Y”) as independent auditors to audit our consolidated financial statements for the year ending December 31, 2016.2018. As a matter of good corporate governance, we are requesting that shareholders ratify the Audit Committee’s appointment of E&Y as independent auditors. If shareholders do not ratify the appointment of E&Y, the Audit Committee will reevaluate the appointment, but may retain such independent auditor. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. Representatives of E&Y will be present at the Annual Meeting and will have the opportunity to make a statement and be available to respond to appropriate questions by shareholders.
Change in Independent Registered Public Accounting FirmDismissal of Goldstein Schechter Koch. On July 15, 2015, the Audit Committee of the Board of Directors approved the dismissal of Goldstein Schechter Koch (“GSK”) as the Company’s independent registered public accounting firm, effective July 15, 2015.
GSK previously audited the Company’s consolidated financial statements for the fiscal years ended December 31, 2014 and December 31, 2013. GSK’s reports on the consolidated financial statements of the Company for the fiscal years ended December 31, 2014 and December 31, 2013 did not contain an adverse opinion nor a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2014 and December 31, 2013, and through the subsequent interim period ended July 15, 2015, the Company had no disagreement with GSK on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Goldstein Schechter Koch, would have caused GSK to make a reference to the subject matter of the disagreements in connection with its reports on the consolidated financial statements for the fiscal years ended December 31, 2014 and December 31, 2013 and there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.
Engagement of E&Y. On July 15, 2015, the Audit Committee approved the engagement of E&Y as the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2015, effective July 15, 2015. The engagement of E&Y was ratified by the shareholders at the 2015 annual meeting. During the fiscal years ended December 31, 2014 and December 31, 2013, and through the subsequent interim period ended July 15, 2015, neither the Company nor anyone on its behalf has consulted with E&Y regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that E&Y concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
The following table sets forth the aggregateshows fees billed to the Companythat we paid (or accrued) for the fiscal years ended December 31, 2015 and 2014professional services rendered by E&Y for fiscal 2017 and GSK:2016.
43| | Year Ended December 31, | | | | | | 2017 | | | | 2016 | | | Audit Fees (1) | | $ | 1,129,000 | | | $ | 882,522 | | | Audit-Related Fees (2) | | | 121,553 | | | | 22,055 | | | Tax fees (3) | | | 154,152 | | | | 205,820 | | | Total | | $ | 1,404,705 | | | $ | 1,110,397 | |
| | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Audit fees (1) | | $ | 1,299,760 | (2) | | $ | 568,519 | (3) | | Audit-related fees (4) | | | 6,425 | (5) | | | 31,040 | (3) | | Tax fees (5) | | | - | | | | - | | | All other fees (6) | | | - | | | | - | | | Total | | $ | 1,306,185 | (2) | | $ | 599,559 | (3) |
| (1) | Audit fees consisted of audit work performed in the preparation of financial statements, as well as work generally only the independent auditor can reasonably be expected to provide, such as statutory audits. |
| (2) | Represent $0.9 million for fees billed by E&Y and $0.4 million for fees billed by GSK. |
(3) | Represent fees billed by GSK. |
(4) | Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit fees.” |
(5)(3) | Tax fees consist of fees billed for professional services rendered for tax compliance, tax advice, and tax planning. These services include assistance regarding federal, state, and international tax compliance, acquisitions and international tax planning. |
(6) | All other fees consist of fees for products and services other than the services reported above. |
Our Audit Committee requires that management obtain the prior approval of the Audit Committee for all audit and permissible non-audited services to be provided by E&Y. The Audit Committee considers and approves at each meeting, as needed, anticipated audit and permissible non-audit services to be provided by E&Y during the year and estimated fees. The Audit Committee Chairman may approve permissible non-audit services with subsequent notification to the full Audit Committee. All such services rendered to us by E&Y in 20152017 were pre-approved in accordance with these procedures.
The Company’s independent auditors for the 2017 fiscal year, E&Y, has advised the Company that neither it, nor any of its members, has any direct financial interest in the Company as a promoter, underwriter, voting trustee, Director, Executive Officerdirector, officer or employee. All professional services rendered by E&Y and GSK during the fiscal year ended December 31, 20152017 were furnished at customary rates and were performed by full-time, permanent employees.
Vote Required and Recommendation
The selection of E&Y as our independent certified public accountants for the 20162018 fiscal year will be ratified if the affirmative votevotes in favor of the holders of a majority ofproposal exceed the shares ofvotes against the Company’s common stock present in person or by proxy at the Annual Meetingproposal. Abstentions will count as neither votes for ratification. Abstentions will be counted as present at the Annual Meeting for purposes ofor against this matter and will have the effect of a vote against the ratification of the appointment of E&Y as independent auditors.proposal.
The Board of Directors unanimously recommends a vote “FOR”FOR ratification of the appointment of Ernst & Young LLP as the Company’s independent auditors for the 20162018 fiscal year.
Shareholder Communications with the Board
Any shareholder may communicate by mail with the Board or individual directors by contacting the Company’s Corporate Secretary, Federated National Holding Company, 14050 N.W. 14 Street, Suite 180, Sunrise, Florida 33323 or via our website at www.FedNat.com. The Board has instructed the Corporate Secretary to review this correspondence and determine, in his or her discretion, whether matters submitted are appropriate for Board consideration. The Corporate Secretary may also forward certain communications elsewhere in the Company for review and possible response. In particular, communications such as customer or commercial inquiries or complaints, job inquiries, surveys and business solicitations or advertisements or patently offensive or otherwise inappropriate material will not be forwarded to the Board. Shareholder Proposals for Inclusion in 20172019 Proxy Statement
Pursuant to Rule 14a-8 of the SEC’s proxy rules, a shareholder intending to present a proposal to be included in the proxy statement for our 20172019 Annual Meeting of Shareholders must deliver a proposal in writing to our principal executive offices no later than March 28, 2017December 21, 2018 (or a reasonable time before we begin to print and mail the proxy materials for the 20172019 annual meeting, if we change the date of the 20172019 annual meeting more than 30 days from the date of this year’s Annual Meeting). Proposals should be addressed to: Corporate Secretary, Federated National Holding Company, 14050 N.W. 14 Street, Suite 180, Sunrise, Florida 33323. Proposals of shareholders must also comply with the SEC’s rules regarding the inclusion of shareholder proposals in proxy materials, and we may omit any proposal from our proxy materials that does not comply with the SEC’s rules.
Other Shareholder Proposals for Presentation at 20172019 Annual Meeting
Shareholder proposals intended to be presented at, but not included in the proxy materials for, our 20172019 Annual Meeting of Shareholders, including director nominations for election to our Board, must be timely received by us in writing at our principal executive offices, addressed to the Corporate Secretary of the Company as indicated above. Under the Company’s Bylaws, to be timely, a shareholder’s notice must be delivered to or mailed and received at the Company’s principal executive offices not less than 60 days, nor more than 90 days, prior to the meeting. If we give less than 70 days’ notice or prior public disclosure of the meeting date, however, notice by a shareholder will be timely given if received by the Company not later than the close of business on the tenth day following either the date we publicly announce the date of our annual meeting or the date of mailing of the notice of the meeting, whichever occurs first. A shareholder’s notice to the Corporate Secretary must set forth as to each matter the shareholder proposes to bring before the annual meeting:
| · | A brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, |
A brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting,
| · | The name and record address of the shareholder proposing such business, |
The name and record address of the shareholder proposing such business,
| · | The class and number of shares beneficially owned by the shareholder, and |
The class and number of shares beneficially owned by the shareholder, and
| · | Any material interest of the shareholder in such business. |
Any material interest of the shareholder in such business.
The SEC’s rules permit our management to vote proxies on a proposal presented by a shareholder as described above, in the discretion of the persons named as proxy, if:
| · | We receive timely notice of the proposal and advise our shareholders in that year’s proxy materials of the nature of the matter and how management intends to vote on the matter; or |
We receive timely notice of the proposal and advise our shareholders in that year’s proxy materials of the nature of the matter and how management intends to vote on the matter; or
| · | We do not receive timely notice of the proposal in compliance with our Bylaws. |
We do not receive timely notice of the proposal in compliance with our Bylaws.
The Board knows of no other business to be brought before the Annual Meeting. If, however, any other business should properly come before the Annual Meeting, the persons named in the accompanying proxy will, to the extent permitted by applicable law, vote proxies in their discretion as they may deem appropriate, unless they are directed by a proxy to do otherwise. HOUSEHOLDING OF ANNUAL DISCLOSURE DOCUMENTS
As permitted by the Exchange Act, only one copy of this proxy statement is being delivered to shareholders residing at the same address and holding 1,000 shares or more, unless those shareholders have notified us of their desire to receive multiple copies of the proxy statement.
Shareholders residing at the same address who currently receive only one copy of the proxy statement and who would like to receive an additional copy of the proxy statement for this Annual Meeting or in the future may contact our Corporate Secretary by phone at (800) 293-2532 or by mail to our Corporate Secretary, 14050 N.W. 14 Street, Suite 180, Sunrise, Florida 33323.
By Order of the Board of Directors REBECCA L. SANCHEZ, Corporate Secretary Sunrise, Florida July 26, 2016April 20, 2018
Proposed AmendmentsARTICLES OF AMENDMENT
TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF FEDERATED NATIONAL HOLDING COMPANY (Document No. S36299) Pursuant to the provisions of Section 607.1006, Florida Statutes, FEDERATED NATIONAL HOLDING COMPANY, a Florida corporation (the “Company”), adopts the following Articles of IncorporationAmendment to Remove Supermajority Voting Requirements * ARTICLE V - BOARD OF DIRECTORS
...
E. Amendments. Notwithstanding anything contained in these Articles of Incorporation to the contrary, this Article V shall not be altered, amended or repealed except by an affirmative vote of at least a majoritytwo-thirds of the outstanding shares of capital stock of the Company entitled to vote for the election of directors.
ARTICLE VII - SPECIAL MEETINGS OF SHAREHOLDERS
Except as otherwise required by law and subject to the rights of the holders of the Preferred Stock, special meetings of shareholders of the Company may be called only by (i) the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, (ii) the Company's Chief Executive Officer or (iii) the holders of at least one-third of the outstanding shares of capital stock of the Company. Notwithstanding anything contained in theseits Amended and Restated Articles of Incorporation to the contrary, this Article VII shall not be altered, amended or repealed except by an affirmative vote of at least two-thirds
| FIRST: | Article I of the Company’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows: |
“a majorityARTICLE I - NAME of the outstanding shares of capital stock
The name of the Company entitled to vote at a shareholders' meeting dulyis FEDNAT HOLDING COMPANY (hereinafter called for such purpose.the “Company”).”
ARTICLE VIII - NO SHAREHOLDER ACTION WITHOUT A MEETING| SECOND: | Except as hereby expressly amended, the Amended and Restated Articles of Incorporation of the Company shall remain the same. |
Any action required or permitted| THIRD: | The foregoing amendment was approved by the shareholders of the Company on May 31, 2018. The number of votes cast for the amendment was sufficient for approval. There were no voting groups entitled to vote separately on the amendment. |
IN WITNESS WHEREOF, the Company has caused these Articles of Amendment to be takensigned by the shareholdersa duly authorized officer of the Company shall be taken at a duly called annual or special meeting of such holders and may not be taken by any consent in writing by such holders. Notwithstanding anything contained in these Amended and Restated Articles of Incorporation to the contrary, this Article VIII shall not be altered, amended or repealed except by an affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stock of the Company entitled to vote at a shareholders' meeting duly called for such purpose.on June ___, 2018. ARTICLE X - BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the Bylaws or any part hereof. Certain provisions of the Bylaws, as stated therein, may not be altered, amended or repealed except by the affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stock of the Company entitled to vote at a shareholders' meeting duly called for such purpose. Except for such provisions requiring a two-thirdsa majority vote to alter, amend or repeal, the Bylaws may be altered, amended or repealed, and new bylaws may be adopted, by the shareholders upon the affirmative vote of at least a majority of the outstanding shares of capital stock of the Company entitled to vote at a shareholders' meeting duly called for such purpose.
Notwithstanding anything contained in these Amended and Restated Articles of Incorporation to the contrary, this Article X shall not be altered, amended or repealed except by an affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stock of the Company entitled to vote at a shareholders' meeting duly called for such purpose.
| · | Does not reflect the changes to Article VII that would result if Proposal 5 is approved by the shareholders; please see Annex C for those changes. |
Proposed Amendments to Bylaws to Remove Supermajority Voting Provisions *FEDERATED NATIONAL HOLDING COMPANY
ARTICLE II2018 OMNIBUS INCENTIVE COMPENSATION PLAN
Meetings of Shareholders
...
Section 2.Effective as of the Effective Date (as defined below), the Federated National Holding Company 2018 Omnibus Incentive Compensation Plan (the “Special MeetingsPlan. Except”) is hereby established as otherwise required by law and subjecta successor to the rightsFederated National Holding Company Amended and Restated 2012 Stock Incentive Plan (the “Prior Plan”). No additional grants shall be made under the Prior Plan on and after the Effective Date. Outstanding grants under the Prior Plan shall continue in effect according to their terms, and the shares with respect to outstanding grants under the Prior Plan shall be issued or transferred under the Prior Plan.
The purpose of the holdersPlan is to provide employees of the Preferred Stock, special meetings of shareholders ofFederated National Holding Company (the “Company”) and its subsidiaries, certain consultants and advisors who perform services for the Company may be called only by (i) the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, (ii) the Company’s Chief Executive Officer or (iii) the holders of at least one-third of the outstanding shares of capital stock of the Company. Special meetings of shareholders may be held at such timeits subsidiaries, and date, and at such place, within or without the State of Florida, as shall be designated by the Board of Directors and set forth in the notice of meeting required pursuant to Section 3 of this Article. Notwithstanding anything contained in these Bylaws to the contrary, this Article II, Section 2 shall not be altered, amended or repealed except by an affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stock of the Company entitled to vote at a shareholders’ meeting duly called for such purpose. Only such business as is set forth in the notice of a special meeting may be transacted at such Special Meeting. ...
Section 9.No Shareholder Action Without a Meeting. Any action required or permitted to be taken by the shareholders of the Company shall be taken at a duly called annual or special meeting of such holders and may not be taken by any consent in writing by such holders. Notwithstanding anything contained in these Bylaws to the contrary, this Article II, Section 9 shall not be altered, amended or repealed except by an affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stock of the Company entitled to vote at a shareholders’ meeting duly called for such purpose.
Section 10.Advance Notice of Shareholder Proposed Business at Annual Meeting. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the directionnon-employee members of the Board of Directors (b) otherwise properly brought beforeof the meeting by or atCompany with the directionopportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units, other stock-based awards, and cash awards.
The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefitting the Company’s stockholders, and will align the economic interests of the participants with those of the stockholders.
Section 1. Definitions
The following terms shall have the meanings set forth below for purposes of the Plan:
(a)“Board” shall mean the Board of Directors of the Company.
(b)“Cash Award” shall mean a cash incentive payment awarded under the Plan as described under Section 11.
(c)“Cause” shall have the meaning given to that term in any written employment agreement, offer letter or (c)severance agreement between the Employer and the Grantee, or if no such agreement exists or if such term is not defined therein, and unless otherwise properly brought beforedefined in the meetingGrant Instrument, Cause shall mean a finding by a shareholder. In additionthe Committee of (i) any failure by the Grantee to perform substantially the Grantee’s employment duties; (ii) any excessive unauthorized absenteeism by the Grantee; (iii) any refusal by the Grantee to obey the lawful orders of the Board or any other applicable requirements, for businessperson or the Committee to whom the Grantee reports; (iv) any act or omission by the Grantee that is or may be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writinginjurious to the Secretary ofCompany, monetarily or otherwise; (v) any act by the Company. To be timely, a shareholder’s notice must be delivered to or mailed and received atGrantee that is inconsistent with the principal executive officesbest interests of the Company not less than 60 days nor more than 90 days prior toand its subsidiaries and affiliates; (vi) the meeting; provided, however, that in the event that less than 70 days’ notice or prior public disclosureGrantee’s material violation of any of the date ofCompany’s policies, including, without limitation, those policies relating to discrimination or sexual harassment; (vii) the meeting is given or made to shareholders, notice byGrantee’s unauthorized (a) removal from the shareholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A shareholder’s notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of sharespremises of the Company which are beneficially owned byor a subsidiary or an affiliate of any document (in any medium or form) relating to the shareholder, and (iv) any material interestCompany or a subsidiary or an affiliate or the customers or clients of the shareholder in such business.Company or a subsidiary or an affiliate or (b) disclosure to any person or entity of any of the Company’s, or its subsidiaries or affiliates’ confidential or proprietary information; (viii) the Grantee’s commission of any felony, or any other crime involving moral turpitude; and (ix) the Grantee’s commission of any act involving dishonesty or fraud. Notwithstanding anythingAny rights the Employer may have hereunder in respect of the Bylawsevents giving rise to cause shall be in addition to the contrary, no businessrights the Employer may have under any other agreement with a Grantee or at law or in equity. Any determination of whether a Grantee’s employment is (or is deemed to have been) terminated for Cause shall he conducted atbe made by the annual meeting exceptCommittee in accordance withits discretion, which determination shall be final, binding and conclusive on all parties. If, subsequent to a Grantee’s termination of employment without Cause, it is discovered that the proceduresGrantee’s employment could have been terminated for Cause, the Committee may deem such Grantee’s employment to have been terminated for Cause. A Grantee’s termination of employment for Cause shall be effective as of the date of the occurrence of the event giving rise to Cause, regardless of when the determination of Cause is made.
(d)“CEO” shall mean the Chief Executive Officer of the Company.
(e)Unless otherwise set forth in this Article II, Section 10; provided, however, that nothinga Grant Instrument, a “Change in this Article II, Section 10,Control” shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting in accordance with said procedure.have occurred if:
The(i) Any “person” or “group” (as such terms are used in sections 13(d) and 14(d) of the Exchange Act), other than entities which the Chairman of an annual meeting shall, if the facts warrant, determine and declare toBoard directly or indirectly controls (as defined in Rule 12b-2 under the meetingExchange Act) becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the voting power of the then outstanding securities of the Company; provided that business was not properly brought before the meeting in accordance with the provisionsa Change of this Article II, Section 10, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meetingControl shall not be transacted.
Notwithstanding anything containeddeemed to occur as a result of a transaction in which the Bylaws toCompany becomes a subsidiary of another corporation and in which the contrary, this Article II, Section 10 shall not be altered, amended or repealed except by an affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stockstockholders of the Company, immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the parent corporation would be entitled to vote thereon.in the election of directors.
ARTICLE III
Directors
...
Section 14.Amendments. Notwithstanding anything contained in the Bylaws to the contrary, this Article III shall not be altered, amended(ii) The consummation of (A) a merger or repealed except by an affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stockconsolidation of the Company entitled to vote thereon.
ARTICLE X
Amendment
The Board of Directors shall havewith another corporation where, immediately after the power to adopt, amendmerger or repealconsolidation, the Bylaws or any part hereof. Certain provisions of the Bylaws, as stated herein, may not be altered, amended or repealed except by the affirmative vote of at least two-thirdsa majority of the outstanding shares of capital stockstockholders of the Company, entitledimmediately prior to vote at a shareholders’ meeting duly called forthe merger or consolidation, will not beneficially own, in substantially the same proportion as ownership immediately prior to the merger or consolidation, shares entitling such purpose. Except for such provisions requiring a two-thirdsmajority votestockholders to alter, amend or repeal, the Bylaws may be altered, amended or repealed, and new bylaws may be adopted, by the shareholders upon the affirmative votemore than 50% of at least a majorityall votes to which all stockholders of the outstanding sharessurviving corporation would be entitled in the election of capital stockdirectors or (B) a sale or other disposition of all or substantially all of the assets of the Company entitled to vote at a shareholders’ meeting duly called forperson other than such purpose. Notwithstanding anything contained in these Bylawsa sale to the contrary, this Article X shall not be altered, amended or repealed except by an affirmative vote of at least two-thirdsmajority of the outstanding shares of capital stocksubsidiary of the Company entitledwhich does not involve a change in the equity holdings of the Company or to vote at a shareholders’ meeting duly called for such purpose.an entity which the Chairman directly or indirectly controls.
* Does not reflect the changes to Article II, Section 2 that would result if Proposal 5 is approved by the shareholders; please see Annex C for those changes.
Proposed Amendments to Articles of Incorporation and Bylaws to Reduce Percentage Required to Call Special Meetings of Shareholders *
Proposed amendment to Articles of Incorporation:
ARTICLE VII - SPECIAL MEETINGS OF SHAREHOLDERS
Except as otherwise required by law and subject to(iii) A change in the rightscomposition of the holdersBoard over a period of the Preferred Stock, special meetings of shareholders of the Company may be called only by (i) the Board of Directors pursuant to a resolution approved by12 consecutive months or less such that a majority of the entire Board members ceases, by reason of Directors, (ii)one or more contested elections, or threatened election contests, for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the Company's Chief Executive Officerbeginning of such period or (iii) (B) whose election by the holdersBoard or nomination for election by the Company’s stockholders was approved during such period by a vote of at least one-thirda majority of the outstanding shares of capital stock of the Companyholders of recordBoard members described in clause (A) who hold,were still in the aggregate, a net long position (as defined in the Bylaws of the Company) in shares representing at least twenty-five percent (25%) of the outstanding shares of the Company (the “Requisite Percentage”)office at the time the special meeting is called and who continue to holdBoard approved such Requisite Percentage throughelection or nomination.
(iv) The approval by the date of such special meeting of the shareholdersstockholders of the Company subject to and in compliance with the procedures and other requirements as provided in the Bylawsof a plan of complete dissolution or liquidation of the Company.
Notwithstanding anything contained in these Amended and Restated Articles of Incorporationthe foregoing, if a Grant constitutes deferred compensation subject to the contrary, this Article VII shall not be altered, amended or repealed except by an affirmative vote of at least two-thirdssection 409A of the outstanding sharesCode and the Grant provides for payment upon a Change in Control, then no Change in Control shall be deemed to have occurred upon an event described in items (i) – (iv) above unless the event would also constitute a change in ownership or effective control of, capitalor a change in the ownership of a substantial portion of the assets of, the Company under section 409A of the Code.
(f) “Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
(g)“Committee” shall mean the Compensation Committee of the Board or another committee appointed by the Board to administer the Plan. The Committee shall also consist of directors who are “non-employee directors” as defined under Rule 16b-3 promulgated under the Exchange Act and “independent directors,” as determined in accordance with the independence standards established by the stock exchange on which the Common Stock is at the time primarily traded.
(h)“Common Stock” shall mean common stock of the Company entitled to vote at a shareholders' meeting duly called for such purpose.
Proposed amendment to Bylaws:
ARTICLE II
Meetings of ShareholdersCompany.
Section 2.(i) “Special MeetingsCompany. Except as otherwise required by law” shall mean Federated National Holding Company, Inc. and subject to the rights of the holders of the Preferred Stock, special meetings of shareholders of the Company may be called only by (i) the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, (ii) the Company’s Chief Executive Officer or (iii) shall include its successors.
the holders of at least one-third of the outstanding shares of capital stock of the Companyholders of record who hold, in the aggregate, a net long position (as defined below) in shares representing at least twenty-five percent (25%) of the outstanding shares of the Company (the “Requisite Percentage”) at the time the special meeting is called and who continue to hold such Requisite Percentage through the date of such special meeting of the shareholders of the Company, subject to and in compliance with the procedures and other requirements as provided herein.Disability Special meetings of shareholders may be held at such time and date, and at such place, within” or without the State of Florida, as“Disabled” shall be designated by the Board of Directors andmean, unless otherwise set forth in the noticeGrant Instrument, a Grantee’s becoming disabled within the meaning of meeting required pursuant to Section 3 of this Article. Notwithstanding anything contained in these Bylawsthe Employer’s long-term disability plan applicable to the contrary, this Article II, Section 2 shall not be altered, amendedGrantee, or, repealed except by an affirmative vote of at least two-thirdsif there is no such plan, a physical or mental condition that prevents the Grantee from performing the essential functions of the outstandingGrantee’s position (with or without reasonable accommodation) for a period of six consecutive months.
(k)“Dividend Equivalent” shall mean an amount determined by multiplying the number of shares of capital stock ofCommon Stock subject to a Stock Unit or Other Stock-Based Award by the per-share cash dividend paid by the Company entitled to vote at a shareholders’ meeting duly called for such purpose. Only such business as is set forth inon its outstanding Common Stock, or the notice of a special meeting may be transacted at such Special Meeting.
(a) In order for a special meeting to be called upon shareholder request (“Shareholder Requested Special Meeting”), one or more requests for a special meeting (each, a “Special Meeting Request” and, collectively, the “Special Meeting Requests”), must be signed by Proposing Persons that have a combined Net Long Position of at least the Requisite Percentage. In determining whether a Shareholder Requested Special Meeting has been properly requested by Proposing Persons that have a combined Net Long Position of at least the Requisite Percentage, multiple Special Meeting Requests delivered to the Secretary will be considered together if (i) each Special Meeting Request generally identifies the same purpose or purposes of the Shareholder Requested Special Meeting and generally the same matters proposed to be acted on at such meeting (in each case as determined in good faith by the Board of Directors), and (ii) such Special Meeting Requests have been dated and delivered to the Secretary within thirty (30) days of the earliest dated Special Meeting Request. Additionally, the Special Meeting Request(s) shall provide in reasonable detail, the following:
(1) As to each Proposing Person, (w) the name and address of such Proposing Person (including, if applicable, the name and address as they appear on the Company’s books), (x) reasonable evidence demonstrating the Proposing Person’s Net Long Position, (y) a representation that such Proposing Person intends to hold a Net Long Position of at least the Requisite Percentage through the date of the Shareholder Requested Special Meeting, and (z) an acknowledgment by the Proposing Person that any reduction in such Proposing Person’s Net Long Position with respect to which a Special Meeting Request relates following the delivery of such Special Meeting Request to the Secretary shall constitute a revocation of such Special Meeting Request to the extent such reduction results in such Proposing Person(s) no longer owning, together with all other deemed Proposing Persons pursuant to this clause at least the Requisite Percentage (provided that the changeper-share Fair Market Value of any right to acquire capital share into such capital share will not be considered a reduction);dividend paid on its outstanding Common Stock in consideration other than cash. If interest is credited on accumulated divided equivalents, the term “Dividend Equivalent” shall include the accrued interest.
(l)“(2) AsEffective Date” shall mean the May 31, 2018, provided stockholder approval of the Plan is received on such date.
(m)“Employee” shall mean an employee of the Employer (including an officer or director who is also an employee), but excluding any person who is classified by the Employer as a “contractor” or “consultant,” no matter how characterized by the Internal Revenue Service, other governmental agency or a court. Any change of characterization of an individual by the Internal Revenue Service or any court or government agency shall have no effect upon the classification of an individual as an Employee for purposes of this Plan, unless the Committee determines otherwise.
(n)“Employed by, or providing service to, the purposeEmployer” shall mean employment or service as an Employee, Key Advisor or member of the Board (so that, for purposes of exercising Options and SARs and satisfying conditions with respect to Stock Awards, Stock Units, Other Stock-Based Awards and Cash Awards, a Grantee shall not be considered to have terminated employment or service until the Shareholder Requested Special Meeting, a reasonably brief statementGrantee ceases to be an Employee, Key Advisor and member of the purpose or purposes ofBoard), unless the Shareholder Requested Special Meeting, the matter(s) proposed to be acted on at the Shareholder Requested Special Meeting and the reasons for conducting such business at the Shareholder Requested Special Meeting, and the text of any proposal or business to be considered at the Shareholder Requested Special Meeting (including the text of any resolutions proposed to be considered and, in the event that such business includesCommittee determines otherwise. If a proposal to amend the Articles of Incorporation or Bylaws, the language of the proposed amendment); and
(3) To the extent not duplicative of the information called for by Article II, Section 2, the information as would be required by Article II, Section 10 of these Bylaws, including, without
limitation, the information regarding any material interest of the Proposing Person in the matter(s) proposed to be acted on at the Shareholder Requested Special Meeting, all agreements, arrangements or understanding between or among any Proposing Person and any other record holder or beneficial owner of shares of any class or series of capital shareGrantee’s relationship is with a subsidiary of the Company and all information required by Article III, Section 13 with respectthat entity ceases to director nominations.
(4) For purposes of this Article II, Section 2, the following terms shall have the following meanings:
“Proposing Person” shall mean (x) each shareholder that isbe a beneficial owner or record owner that signs a Special Meeting Request pursuant to Article II, Section 2, (y) the beneficial owner or beneficial owners, if different, on whose behalf such Special Meeting Request is made, and (z) any other person with whom such shareholder or such beneficial owner (or any of their respective associates or other participants in such solicitation) is acting. For clarity, a shareholder may act as a Proposing Person under a voting arrangement or agreement or a proxy from another person which affords the Proposing Person the right to vote or direct the vote of shares of common sharesubsidiary of the Company, held beneficiallythe Grantee will be deemed to cease employment or service when the entity ceases to be a subsidiary of record by such other person.the Company, unless the Grantee transfers employment or service to an Employer.
(o)““Net Long Position”Employer” shall be determined with respect to each Proposing Person in accordance withmean the definition thereof set forth in Rule 14e-4 underCompany and its subsidiaries.
(p)“Exchange Act” shall mean the Securities Exchange Act of 1934, (the “Exchange Act”), provided that (x) for purposesas amended.
(q)“Exercise Price” shall mean the per share price at which shares of such definition, in determining such Proposing Person’s “short position,” the reference in such Rule to “the date the tender offer is first publicly announced or otherwise made knownCommon Stock may be purchased under an Option, as designated by the bidder toCommittee.
(r)“Fair Market Value” shall mean:
(i) If the holders ofCommon Stock is publicly traded, the security to be acquired”Fair Market Value per share shall be determined as follows: (A) if the date of the relevant Special Meeting Request and the reference to the “highest tender offer price or stated amount of the consideration offeredprincipal trading market for the subject security” shall refer toCommon Stock is a national securities exchange, the closing sales price of the Company’s common shareduring regular trading hours on the Nasdaq Share Marketrelevant date or, if there were no trades on suchthat date, (or,the latest preceding date upon which a sale was reported, or (B) if such datethe Common Stock is not principally traded on any such exchange, the last reported sale price of a share of Common Stock during regular trading day,hours on the next succeeding trading day) and (y) the net long position of such Proposing Person shall be reducedrelevant date, as reported by the number of sharesOTC Bulletin Board.
(ii) If the Common Stock is not publicly traded or, if publicly traded, is not subject to reported transactions as to which such Proposing Person does not, or will not, haveset forth above, the right to vote or direct the vote at the special meeting of shareholders or as to which such Proposing Person has entered into any derivative or other agreement, arrangement or understanding that hedges or transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of such shares. Whether the Proposing Person has complied with the requirements of this definitionFair Market Value per share shall be determined in good faith by the Board, which determination shall be conclusive and binding onCommittee through any reasonable valuation method authorized under the Company and the shareholders.Code.
(b) Notwithstanding anything(iii) If a Grant is made effective on the date that the registration statement for the initial public offering of the Common Stock is declared effective by the Securities and Exchange Commission and the Common Stock is priced for the initial public offering of such Common Stock, then the Fair Market Value per share shall be equal to the contraryper share price of Common Stock offered to the public in this Article II, Section 2:such initial public offering.
(s) “(1) The SecretaryGAAP” shall not accept,mean United States Generally Accepted Accounting Principles.
(t) “Grant” shall mean an Option, SAR, Stock Award, Stock Unit, Other Stock-Based Award or Cash Award granted under the Plan.
(u) “Grantee” shall mean an Employee, Key Advisor or Non-Employee Director designated by the Committee to participate in the Plan.
(v) “Grant Instrument” shall mean the written agreement that sets forth the terms and conditions of a Grant, including all amendments thereto.
(w)“Incentive Stock Option” shall consider ineffective, a Special Meeting Request if (u) such Special Meeting Request does not comply with Article VIImean an Option that is intended to meet the requirements of an incentive stock option under section 422 of the Company’s ArticlesCode.
(x)“Key Advisor” shall mean a consultant or advisor of Incorporation and these Bylaws, or relates tothe Employer.
(y)“Non-Employee Director” shall mean a member of the Board who is not an item of businessEmployee.
(z)“Nonqualified Stock Option” shall mean an Option that is not a proper subject for shareholder actionintended to be taxed as an incentive stock option under applicable law, (v) the Special Meeting Request is received by the Company during the period commencing one hundred twenty (120) days prior to the first anniversarysection 422 of the date of the immediately preceding annual meeting of shareholders and ending on the date of the final adjournment of the next annual meeting of shareholders, (w) an identical or substantially similar item (a “Similar Item”) to that included in the Special Meeting Request was presented at any meeting of shareholders held within one (1) year prior to receipt by the Company of such Special Meeting Request, (x) a Similar Item, including the election or removal of directors, is already included in the Company’s notice as an item of business to be brought before a meeting of the shareholders that has been called but not yet held, (y) such Special Meeting Request was made in a manner that involved a violation of Regulation 14A under the Exchange Act, or other applicable law or (z) such Special Meeting Request is presented by a shareholder that has violated the reporting requirements of Section 13 of the Exchange Act. For purposes hereof, a Similar Item will not include the proposal for an election or removal of one or more directors, unless such proposal was presented at an annual meeting of the shareholders or special meeting of the shareholders which was held within one hundred twenty (120) days of the Secretary’s receipt of the Special Meeting Request.Code.
(aa)“(2) Business transacted at any Shareholder Requested Special MeetingOption” shall be limitedmean an option to the purpose statedpurchase shares of Common Stock, as described in the valid Special Meeting Request: provided however, that nothing shall prohibit the Board of Directors from submitting matters to the shareholders at any Shareholder Requested Special Meeting or other shareholder submitting nominations under Article III, Section 13 if such Shareholder Requested Special Meeting includes the election of directors.6.
(bb) “(3) Any Proposing Person may revoke a Special Meeting RequestOther Stock-Based Award” shall mean any Grant based on, measured by written revocation delivered to, or mailed and received by, the Secretary at any time prior to the date of the Shareholder Requested Special Meeting. In the event any revocation(s) are received by the Secretary after the Secretary’s receipt of a valid Special Meeting Request(s) from Proposing Persons holding the Requisite Percentagepayable in Common Stock (other than an Option, Stock Unit, Stock Award, or any Special Meeting Request is deemed to be revoked, andSAR), as a result of such revocation(s), there no longer are valid unrevoked Special Meeting Request(s) from Proposing Persons holding the Requisite Percentage, the Board of Directors shall have the discretion to determine whether or not to proceed with the Shareholder Requested Special Meeting.described in Section 10.
(4) Notwithstanding anything in these Bylaws to the contrary, the Secretary shall not be required to call a special meeting except in accordance with Article VIII of the Articles of Incorporation and this Article II, Section 2. In addition to the requirements of this Article II, Section 2, each Proposing Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any Special Meeting Request.
(cc)“(c) In connection withPerformance Goals” shall mean performance goals based on one or more of the following criteria: cash flow; free cash flow; earnings (including gross margin, earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, adjusted earnings before interest, taxes, depreciation and amortization and net earnings); earnings per share; growth in earnings or earnings per share; book value growth; stock price; return on equity or average stockholder equity; total stockholder return or growth in total stockholder return either directly or in relation to a Shareholder Requested Special Meeting calledcomparative group; return on capital; return on assets or net assets; revenue, growth in accordance with this Article II, Section 2, each Proposing Person that signedrevenue or return on sales; sales; expense reduction or expense control; expense to revenue ratio; income, net income or adjusted net income; operating income, net operating income, adjusted operating income or net operating income after tax; operating profit or net operating profit; operating margin; gross profit margin; return on operating revenue or return on operating profit; regulatory filings; regulatory approvals, litigation and delivered a Special Meeting Request shall further updateregulatory resolution goals; other operational, regulatory or departmental objectives; budget comparisons; growth in stockholder value relative to established indexes, or another peer group or peer group index; development and supplement the information previously provided to the Companyimplementation of strategic plans and/or organizational restructuring goals; development and implementation of risk and crisis management programs; improvement in connection with such request, if necessary, so that the information provided orworkforce diversity; compliance requirements and compliance relief; safety goals; productivity goals; workforce management and succession planning goals; economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to be provided in such request pursuantdetermine economic value added performance measures); measures of customer satisfaction, employee satisfaction or staff development; development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to this Article II, Section 2enhance the Corporation’s revenue or profitability or enhance its customer base; merger and acquisitions; and other similar criteria consistent with the foregoing. Performance goals applicable to a Grant shall be true and correct as of the record date for notice of the Shareholder Requested Special Meeting and as of the date that is ten (10) business days prior to the Shareholder Requested Special Meeting or any adjournment or postponement thereof. Such update and supplement shall be delivered to, or mailed and receiveddetermined by the Secretary at the principal executive officesCommittee, and may be established on an absolute or relative basis and may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments. Relative performance may be measured against a group of the Company not later than five (5) business days after the record date for notice of the special meeting (in the case of the updatepeer companies, a financial market index or other objective and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the special meeting or any adjournment or postponement thereof. As used herein, the term “business day”quantifiable indices.
(dd)“Plan” shall mean any day that is not a Saturday or Sunday or a day on which banksthis Federated National Holding Company 2018 Omnibus Incentive Compensation Plan, as in the city of the Company’s principal place of business are required or permittedeffect from time to close.time.
(ee)“(d) The SecretaryPrior Plan” shall cause notice to bemean Federated National Holding Company Amended and Restated 2012 Stock Incentive Plan.
(ff)“Restriction Period” shall have the meaning given to the shareholders entitled to vote,that term in accordance with the provisionsSection 7(a).
(gg)“SAR” shall mean a stock appreciation right, as described in Section 9.
(hh) “Stock Award” shall mean an award of Article II of these Bylaws, that a Shareholder Requested Special Meeting will be held not more than one hundred twenty (120) days after receiptCommon Stock, as described in Section 7.
(ii)“Stock Unit” shall mean an award of a Special Meeting Request properly madephantom unit representing a share of Common Stock, as described in accordance with Article VIII ofSection 8.
(jj)“Substitute Awards” shall have the Articles of Incorporation and these Bylaws.meaning given that term in Section 4(c).
* Does not reflect the changes that would result if Proposal 4 is approved by the shareholders; please see Annex A and Annex B for those changes.
Section 2. Administration (a) Committee. The Plan shall be administered and interpreted by the Committee. The Committee may delegate authority to one or more subcommittees, as it deems appropriate. Subject to compliance with applicable law and the applicable stock exchange rules, the Board, of Directors recommends a vote FOR allin its discretion, may perform any action of the listed nominees. UsingCommittee hereunder. To the extent that the Board, the Committee, a black ink pen, mark your votessubcommittee or the CEO, as described below, administers the Plan, references in the Plan to the “Committee” shall be deemed to refer to the Board, the Committee or such subcommittee or the CEO.
(b) Delegation to CEO. Subject to compliance with an Xapplicable law and applicable stock exchange requirements, the Committee may delegate all or part of its authority and power to the CEO, as shown in this example. Please doit deems appropriate, with respect to Grants to Employees or Key Advisors who are not write outsideexecutive officers or directors under section 16 of the designated areas. X 02EKCB 1 U P X + Annual Meeting Proxy Card Exchange Act.
(c) Committee Authority. B Authorized Signatures — This section mustThe Committee shall have the sole authority to (i) determine the individuals to whom Grants shall be completed for your votemade under the Plan, (ii) determine the type, size, terms and conditions of the Grants to be counted. — Datemade to each such individual, (iii) determine the time when the Grants will be made and Sign Below Please date this proxythe duration of any applicable exercise or restriction period, including the criteria for exercisability and sign your name exactlythe acceleration of exercisability, (v) amend the terms of any previously issued Grant, subject to the provisions of Section 18 below, and (vi) deal with any other matters arising under the Plan.
(d) Committee Determinations. The Committee shall have full power and express discretionary authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it appears hereon. Where there is more than one owner, each should sign. When signingdeems necessary or advisable, in its sole discretion. The Committee’s interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as ana fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.
(e) Indemnification. No member of the Committee or the Board, and no employee of the Company shall be liable for any act or failure to act with respect to the Plan, except in circumstances involving his or her bad faith or willful misconduct, or for any act or failure to act hereunder by any other member of the Committee or employee or by any agent attorney, administrator, executor, guardian or trustee, please add your title as such. If executed by a corporation,to whom duties in connection with the proxy should be signed by a duly authorized officer who should indicate his office. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature withinadministration of this Plan have been delegated. The Company shall indemnify members of the box. Signature 2 — Please keep signature withinCommittee and the box. + IMPORTANT ANNUAL MEETING INFORMATION For Against Abstain 2. ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION 4. TO AMEND THE COMPANY’S ARTICLES OF INCORPORATION AND BYLAWS TO ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS 5. TO AMEND THE COMPANY’S ARTICLES OF INCORPORATION AND BYLAWS TO REDUCE THE PERCENTAGE OF OUTSTANDING SHARES REQUIRED TO CALL A SPECIAL MEETINGs 1 Year 2 Years 3 Years Abstain 3. ADVISORY VOTE TO APPROVE THE FREQUENCY OF THE ADVISORY VOTE ON THE COMPANY’S EXECUTIVE COMPENSATION ONCE EVERY 1, 2 OR 3 YEARS For Against Abstain For Against Abstain 6. TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2016 FISCAL YEAR Note: To transact such other business as may properly come before the Annual MeetingBoard and any adjournments or postponements thereof. 01 - Michael H. Braun Class I Directors: 02 - Jenifer G. Kimbrough 03 - Bruce F. Simberg Class II Directors: 04 - William G. Stewart A Proposal 1. ELECTION OF DIRECTORS For Against Abstain For Against Abstain For Against Abstain For Against Abstain 05 - Thomas A. Rogers Class III Directors: qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose oneagent of the voting methods outlined belowCommittee or the Board who is an employee of the Company or a subsidiary against any and all liabilities or expenses to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submittedwhich they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the InternetPlan, except in circumstances involving such person’s bad faith or telephone must be received by 11:59 p.m., EST, on September 12, 2016. Vote by Internet • Go to www.investorvote.com/FNHC • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone • Follow the instructions provided by the recorded messagewillful misconduct. 
(a)General. Grants under the Plan may consist of Options as described in Section 6, Stock Awards as described in Section 7, Stock Units as described in Section 8, SARs as described in Section 9, Other Stock-Based Awards as described in Section 10 and Cash Awards as described in Section 11. All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with this Plan as the Committee deems appropriate and as are specified in writing by the Committee to the individual in the Grant Instrument. All Grants shall be made conditional upon the Grantee’s acknowledgement, in writing or by acceptance of the Grant, that all decisions and determinations of the Committee shall be final and binding on the Grantee, his or her beneficiaries and any other person having or claiming an interest under such Grant. Grants under a particular Section of the Plan need not be uniform as among the Grantees.
(b) Minimum Vesting. No Grant or portion thereof shall vest over a period that is less than one year from the date of grant. Subject to adjustments made in accordance with Section 4(e) below, up to five percent (5%) of the shares of Common Stock subject to the share reserve set forth in Section 4(a) as of the Effective Date may be granted without regard to the minimum vesting requirement.
Section 4. Shares Subject to the Plan
(a)Shares Authorized. Subject to adjustment as described below in Section 4(d), the maximum aggregate number of shares of Common Stock that may be issued or transferred under the Plan shall be 802,777 shares, which is equal to the sum of the following: (i) 800,000 shares of Common Stock, plus (ii) 2,777 shares, which is the number of shares of Common Stock reserved for issuance under the Prior Plan that remain available for grant under the Prior Plan as of the March 31, 2018. In addition, and subject to adjustment as described below in Section 4(d), shares of Common Stock subject to outstanding grants under the Prior Plan that terminate, expire or are cancelled, forfeited, exchanged or surrendered without having been exercised, vested or paid in shares after the Effective Date shall be added to the share reserve under the Plan. The number of shares set forth in clause (ii) above will be reduced by the number of shares subject to Grants made under the Prior Plan after March 31, 2018 and before the Effective Date. The aggregate number of shares of Common Stock that may be issued or transferred under the Plan pursuant to Incentive Stock Options shall not exceed 802,777 shares of Common Stock. (b)Source of Shares; Share Counting. Shares issued or transferred under the Plan may be authorized but unissued shares of Common Stock or reacquired shares of Common Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent Options or SARs granted under the Plan terminate, expire or are canceled, forfeited, exchanged or surrendered without having been exercised, or if any Stock Awards, Stock Units, or Other Stock-Based Awards are forfeited, terminated or otherwise not paid in full (including restricted stock awards granted under the Prior Plan that are forfeited or terminated, or otherwise are not paid in full on or after the Effective Date), the shares subject to such Grants shall again be available for purposes of the Plan. Shares surrendered in payment of the Exercise Price of an Option shall not be available for re-issuance under the Plan. Shares of Common Stock withheld or surrendered for payment of taxes with respect to Grants (including with respect to restricted stock grants made under the Prior Plan that are paid on or after the Effective Date) shall not be available for re-issuance under the Plan. If SARs are granted, the full number of shares subject to the SARs shall be considered issued under the Plan, without regard to the number of shares issued upon exercise of the SARs. To the extent any Grants are paid in cash, and not in shares of Common Stock, any shares previously subject to such Grants shall again be available for issuance or transfer under the Plan. For the avoidance of doubt, if shares are repurchased by the Company on the open market with the proceeds of the Exercise Price of Options, such shares may not again be made available for issuance under the Plan
(c)Substitute Awards. Shares issued or transferred under Grants made pursuant to an assumption, substitution or exchange for previously granted awards of a company acquired by the Company in a transaction (“Substitute Awards”) shall not reduce the number of shares of Common Stock available under the Plan and available shares under a stockholder approved plan of an acquired company (as appropriately adjusted to reflect the transaction) may be used for Grants under the Plan and shall not reduce the Plan’s share reserve (subject to applicable stock exchange listing and Code requirements).
(d)Individual Limits. Subject to adjustment as described below in Section 4(e), the following Grant limitations shall apply:
(i) For Options, SARs, Stock Awards, Stock Units and Other Stock-Based Awards (whether payable in Common Stock, cash or a combination of the two), the maximum number of shares of Common Stock for which such Grants may be made to any Employee or Key Advisor in any calendar year shall not exceed 200,000 shares of Common Stock in the aggregate.
(ii)The maximum aggregate grant date value of shares of Common Stock subject to Grants granted to any Non-Employee Director during any calendar year, taken together with any cash fees earned by such Non-Employee Director for services rendered during the calendar year, shall not exceed $600,000 in total value. For purposes of this limit, the value of such Grants shall be calculated based on the grant date fair value of such Grants for financial reporting purposes.
(iii) Notwithstanding the foregoing, the individual limits described in subsections (i) shall be increased to two times the otherwise applicable limits with respect to Grants that are made on or around the date of hire to a newly hired Employee. (e)Adjustments. If there is any change in the number or kind of shares of Common Stock outstanding by reason of (i) a stock dividend, spinoff, recapitalization, stock split, reverse stock split or combination or exchange of shares, (ii) a merger, reorganization or consolidation, (iii) a reclassification or change in par value, or (iv) any other extraordinary or unusual event affecting the outstanding Common Stock as a class without the Company’s receipt of consideration, or if the value of outstanding shares of Common Stock is substantially reduced as a result of a spinoff or the Company’s payment of an extraordinary dividend or distribution, the maximum number and kind of shares of Common Stock available for issuance under the Plan, the maximum number and kind of shares of Common Stock for which any individual may receive Grants in any year, the kind and number of shares covered by outstanding Grants, the kind and number of shares issued and to be issued under the Plan, and the price per share or the applicable market value of such Grants shall be equitably adjusted by the Committee to reflect any increase or decrease in the number of, or change in the kind or value of, the issued shares of Common Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under the Plan and such outstanding Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. In addition, in the event of a Change in Control, the provisions of Section 13 of the Plan shall apply. Any adjustments to outstanding Grants shall be consistent with section 409A or 424 of the Code, to the extent applicable. Subject to Section 18(b) below, the adjustments of Grants under this Section 4(e) shall include adjustment of shares, Exercise Price of Stock Options, base amount of SARs, performance goals or other terms and conditions, as the Committee deems appropriate. The Committee shall have the sole discretion and authority to determine what appropriate adjustments shall be made and any adjustments determined by the Committee shall be final, binding and conclusive.
Section 5. Eligibility for Participation
(a)Eligible Persons. All Employees and Non-Employee Directors shall be eligible to participate in the Plan. Key Advisors shall be eligible to participate in the Plan if the Key Advisors render bona fide services to the Employer, the services are not in connection with the offer and sale of securities in a capital-raising transaction and the Key Advisors do not directly or indirectly promote or maintain a market for the Company’s securities.
(b) Selection of Grantees. The Committee shall select the Employees, Non-Employee Directors and Key Advisors to receive Grants and shall determine the number of shares of Common Stock subject to a particular Grant in such manner as the Committee determines.
Section 6. Options
The Committee may grant Options to an Employee, Non-Employee Director or Key Advisor upon such terms as the Committee deems appropriate. The following provisions are applicable to Options:
(a)Number of Shares. The Committee shall determine the number of shares of Common Stock that will be subject to each Grant of Options to Employees, Non-Employee Directors and Key Advisors.
(b)Type of Option and Exercise Price.
(i) The Committee may grant Incentive Stock Options or Nonqualified Stock Options or any combination of the two, all in accordance with the terms and conditions set forth herein. Incentive Stock Options may be granted only to employees of the Company or its parent or subsidiary corporations, as defined in section 424 of the Code. Nonqualified Stock Options may be granted to Employees, Non‑Employee Directors and Key Advisors. (ii) The Exercise Price of Common Stock subject to an Option shall be determined by the Committee and shall be equal to or greater than the Fair Market Value of a share of Common Stock on the date the Option is granted. However, an Incentive Stock Option may not be granted to an Employee who, at the time of grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary corporation of the Company, as defined in section 424 of the Code, unless the Exercise Price per share is not less than 110% of the Fair Market Value of a share of Common Stock on the date of grant.
(c)Option Term. The Committee shall determine the term of each Option. The term of any Option shall not exceed ten years from the date of grant. However, an Incentive Stock Option that is granted to an Employee who, at the time of grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary corporation of the Company, as defined in section 424 of the Code, may not have a term that exceeds five years from the date of grant. Notwithstanding the foregoing, in the event that on the last business day of the term of an Option (other than an Incentive Stock Option), the exercise of the Option is prohibited by applicable law, including a prohibition on purchases or sales of Common Stock under the Company’s insider trading policy, the term of the Option shall be extended for a period of 30 days following the end of the legal prohibition, unless the Committee determines otherwise.
(d)Exercisability of Options. Options shall become exercisable in accordance with such terms and conditions, consistent with the Plan, as may be determined by the Committee and specified in the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason.
(e) Grants to Non-Exempt Employees. Notwithstanding the foregoing, Options granted to persons who are non‑exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of grant (except that such Options may become exercisable, as determined by the Committee, upon the Grantee’s death, Disability or retirement, or upon a Change in Control or other circumstances permitted by applicable regulations).
(f) Termination of Employment or Service. Except as provided in the Grant Instrument, an Option may only be exercised while the Grantee is employed by, or providing services to, the Employer. The Committee shall determine in the Grant Instrument under what circumstances and during what time periods a Grantee may exercise an Option after termination of employment or service. (g)Exercise of Options. A Grantee may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company. The Grantee shall pay the Exercise Price for an Option as specified by the Committee (i) in cash or by check, (ii) unless the Committee determines otherwise, by delivering shares of Common Stock owned by the Grantee and having a Fair Market Value on the date of exercise at least equal to the Exercise Price or by attestation (on a form prescribed by the Committee) to ownership of shares of Common Stock having a Fair Market Value on the date of exercise at least equal to the Exercise Price, (iii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or (iv) by such other method as the Committee may approve. In addition, to the extent an Option is at the time exercisable for vested shares of Common Stock, all or any part of that vested portion may be surrendered to the Company for an appreciation distribution payable in shares of Common Stock with a Fair Market Value at the time of the Option surrender equal to the dollar amount by which the then Fair Market Value of the shares of Common Stock subject to the surrendered portion exceeds the aggregate Exercise Price payable for those shares (“net exercise”). Shares of Common Stock used to exercise an Option shall have been held by the Grantee for the requisite period of time necessary to avoid adverse accounting consequences to the Company with respect to the Option. Payment for the shares to be issued or transferred pursuant to the Option, and any required withholding taxes, must be received by the Company by the time specified by the Committee depending on the type of payment being made, but in all cases prior to the issuance or transfer of such shares.
(h) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide that, if the aggregate Fair Market Value of the Common Stock on the date of the grant with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, exceeds $100,000, then the Option, as to the excess, shall be treated as a Nonqualified Stock Option.
Section 7. Stock Awards
The Committee may issue or transfer shares of Common Stock to an Employee, Non‑Employee Director or Key Advisor under a Stock Award, upon such terms as the Committee deems appropriate. The following provisions are applicable to Stock Awards:
(a)General Requirements. Shares of Common Stock issued pursuant to Stock Awards may be issued for consideration or for no consideration, and subject to restrictions or no restrictions, as determined by the Committee. The Committee may, but shall not be required to, establish conditions under which restrictions on Stock Awards shall lapse over a period of time or according to such other criteria as the Committee deems appropriate, including, without limitation, restrictions based upon the achievement of specific performance goals. The period of time during which the Stock Awards will remain subject to restrictions will be designated in the Grant Instrument as the “Restriction Period.”
(b)Number of Shares. The Committee shall determine the number of shares of Common Stock to be issued or transferred pursuant to a Stock Award and the restrictions applicable to such shares. (c)Requirement of Employment or Service. If the Grantee ceases to be employed by, or provide service to, the Employer during a period designated in the Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Stock Award shall terminate as to all shares covered by the Grant as to which the restrictions have not lapsed, and those shares of Common Stock must be immediately returned to the Company. The Committee may, however, provide for complete or partial exceptions to this requirement as it deems appropriate.
(d)Restrictions on Transfer and Legend on Stock Certificate. During the Restriction Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of a Stock Award except under Section 16 below. Unless otherwise determined by the Committee, the Company will retain possession of certificates for shares of Stock Awards until all restrictions on such shares have lapsed. Each certificate for a Stock Award, unless held by the Company, shall contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Committee may determine that the Company will not issue certificates for Stock Awards until all restrictions on such shares have lapsed.
(e)Right to Vote and to Receive Dividends. Unless the Committee determines otherwise, during the Restriction Period, the Grantee shall have the right to vote shares of Stock Awards and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Committee, including, without limitation, the achievement of specific performance goals. Dividends with respect to Stock Awards that vest based on performance shall vest only if and to the extent that the underlying Stock Award vests, as determined by the Committee.
(f)Lapse of Restrictions. All restrictions imposed on Stock Awards shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions, if any, imposed by the Committee. The Committee may determine, as to any or all Stock Awards, that the restrictions shall lapse without regard to any Restriction Period.
Section 8. Stock Units
The Committee may grant Stock Units, each of which shall represent one hypothetical share of Common Stock, to an Employee, Non-Employee Director or Key Advisor upon such terms and conditions as the Committee deems appropriate. The following provisions are applicable to Stock Units: (a)Crediting of Units. Each Stock Unit shall represent the right of the Grantee to receive a share of Common Stock or an amount of cash based on the value of a share of Common Stock, if and when specified conditions are met. All Stock Units shall be credited to bookkeeping accounts established on the Company’s records for purposes of the Plan. (b) Terms of Stock Units. The Committee may grant Stock Units that vest and are payable if specified performance goals or other conditions are met, or under other circumstances. Stock Units may be paid at the end of a specified performance period or other period, or payment may be deferred to a date authorized by the Committee. The Committee may accelerate vesting or payment, as to any or all Stock Units at any time for any reason, provided such acceleration complies with section 409A of the Code. The Committee shall determine the number of Stock Units to be granted and the requirements applicable to such Stock Units.
(c)Requirement of Employment or Service. If the Grantee ceases to be employed by, or provide service to, the Employer prior to the vesting of Stock Units, or if other conditions established by the Committee are not met, the Grantee’s Stock Units shall be forfeited. The Committee may, however, provide for complete or partial exceptions to this requirement as it deems appropriate.
(d)Payment With Respect to Stock Units. Payments with respect to Stock Units shall be made in cash, Common Stock or any combination of the foregoing, as the Committee shall determine.
Section 9. Stock Appreciation Rights
The Committee may grant SARs to an Employee, Non‑Employee Director or Key Advisor separately or in tandem with any Option. The following provisions are applicable to SARs:
(a)General Requirements. The Committee may grant SARs to an Employee, Non‑Employee Director or Key Advisor separately or in tandem with any Option (for all or a portion of the applicable Option). Tandem SARs may be granted either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Stock Option, SARs may be granted only at the time of the grant of the Incentive Stock Option. The Committee shall establish the base amount of the SAR at the time the SAR is granted. The base amount of each SAR shall be equal to or greater than the Fair Market Value of a share of Common Stock as of the date of grant of the SAR. The term of any SAR shall not exceed ten years from the date of grant. Notwithstanding the foregoing, in the event that on the last business day of the term of a SAR, the exercise of the SAR is prohibited by applicable law, including a prohibition on purchases or sales of Common Stock under the Company’s insider trading policy, the term shall be extended for a period of 30 days following the end of the legal prohibition, unless the Committee determines otherwise.
(b)Tandem SARs. In the case of tandem SARs, the number of SARs granted to a Grantee that shall be exercisable during a specified period shall not exceed the number of shares of Common Stock that the Grantee may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Common Stock covered by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of shares of Common Stock. (c)Exercisability. An SAR shall be exercisable during the period specified by the Committee in the Grant Instrument and shall be subject to such vesting and other restrictions as may be specified in the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason. SARs may only be exercised while the Grantee is employed by, or providing service to, the Employer or during the applicable period after termination of employment or service as specified by the Committee. A tandem SAR shall be exercisable only during the period when the Option to which it is related is also exercisable.
(d)Grants to Non‑Exempt Employees. Notwithstanding the foregoing, SARs granted to persons who are non‑exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of grant (except that such SARs may become exercisable, as determined by the Committee, upon the Grantee’s death, Disability or retirement, or upon a Change in Control or other circumstances permitted by applicable regulations).
(e)Value of SARs. When a Grantee exercises SARs, the Grantee shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised. The stock appreciation for an SAR is the amount by which the Fair Market Value of the underlying Common Stock on the date of exercise of the SAR exceeds the base amount of the SAR as described in subsection (a).
(f) Form of Payment. The appreciation in an SAR shall be paid in shares of Common Stock, cash or any combination of the foregoing, as the Committee shall determine. For purposes of calculating the number of shares of Common Stock to be received, shares of Common Stock shall be valued at their Fair Market Value on the date of exercise of the SAR.
Section 10. Other Stock-Based Awards
The Committee may grant Other Stock-Based Awards, which are awards (other than those described in Sections 6, 7, 8 and 9 of the Plan) that are based on or measured by Common Stock, to any Employee, Non-Employee Director or Key Advisor, on such terms and conditions as the Committee shall determine. Other Stock-Based Awards may be awarded subject to the achievement of performance goals or other conditions and may be payable in cash, Common Stock or any combination of the foregoing, as the Committee shall determine.
Section 11. Cash Awards
The Committee may grant Cash Awards to Employees who are executive officers and other key employees of the Company. The Committee shall determine the terms and conditions applicable to Cash Awards, including the criteria for the vesting and payment of Cash Awards, which criteria may be based on attainment of specified performance goals or other conditions. Cash Awards shall be based on such measures as the Committee deems appropriate and need not relate to the value of shares of Common Stock.
Section 12. Dividend Equivalents
The Committee may grant Dividend Equivalents in connection with Stock Units or Other Stock-Based Awards. Dividend Equivalents may be paid currently or accrued as contingent cash obligations and may be payable in cash or shares of Common Stock, and upon such terms and conditions as the Committee shall determine. Dividend Equivalents with respect to Stock Units or Other Stock-Based Awards that vest based on performance shall vest and be paid only if and to the extent the underlying Stock Units or Other Stock-Based Awards vest and are paid, as determined by the Committee. Section 13. Consequences of a Change in Control
(a) Assumption of Outstanding Grants. Upon a Change in Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Grants that are not exercised or paid at the time of the Change in Control shall be assumed by, or replaced with grants that have comparable terms by, the surviving corporation (or a parent or subsidiary of the surviving corporation). After a Change in Control, references to the “Company” as they relate to employment matters shall include the successor employer in the transaction, subject to applicable law.
(b)Vesting Upon Certain Terminations of Employment. Unless the Grant Instrument provides otherwise, if a Grantee’s employment is terminated by the Employer without Cause upon or within 12 months following a Change in Control, the Grantee’s outstanding Grants shall become fully vested as of the date of such termination; provided that if the vesting of any such Grants is based, in whole or in part, on performance, the applicable Grant Instrument shall specify how the portion of the Grant that becomes vested pursuant to this Section 13(b) shall be calculated.
(c)Other Alternatives. In the event of a Change in Control, if any outstanding Grants are not assumed by, or replaced with grants that have comparable terms by, the surviving corporation (or a parent or subsidiary of the surviving corporation), the Committee may take any of the following actions with respect to any or all outstanding Grants, without the consent of any Grantee:(i) the Committee may determine that outstanding Stock Options and SARs shall automatically accelerate and become fully exercisable and the restrictions and conditions on outstanding Stock Awards, Stock Units, Cash Awards and Dividend Equivalents shall immediately lapse; (ii) the Committee may determine that Grantees shall receive a payment in settlement of outstanding Stock Units, Cash Awards or Dividend Equivalents, in such amount and form as may be determined by the Committee; (ii) the Committee may require that Grantees surrender their outstanding Stock Options and SARs in exchange for a payment by the Company, in cash or Common Stock as determined by the Committee, in an amount equal to the amount, if any, by which the then Fair Market Value of the shares of Common Stock subject to the Grantee’s unexercised Stock Options and SARs exceeds the Stock Option Exercise Price or SAR base amount, and (iii) after giving Grantees an opportunity to exercise all of their outstanding Stock Options and SARs, the Committee may terminate any or all unexercised Stock Options and SARs at such time as the Committee deems appropriate. Such surrender, termination or payment shall take place as of the date of the Change in Control or such other date as the Committee may specify. Without limiting the foregoing, if the per share Fair Market Value of the Common Stock does not exceed the per share Stock Option Exercise Price or SAR base amount, as applicable, the Company shall not be required to make any payment to the Grantee upon surrender of the Stock Option or SAR. Section 14. Deferrals
The Committee may permit or require a Grantee to defer receipt of the payment of cash or the delivery of shares that would otherwise be due to such Grantee in connection with any Grant. If any such deferral election is permitted or required, the Committee shall establish rules and procedures for such deferrals and may provide for interest or other earnings to be paid on such deferrals. The rules and procedures for any such deferrals shall be consistent with applicable requirements of section 409A of the Code.
Section 15. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject to applicable United States federal (including FICA), state and local, foreign country or other tax withholding requirements. The Employer may require that the Grantee or other person receiving Grants or exercising Grants pay to the Employer an amount sufficient to satisfy such tax withholding requirements with respect to such Grants, or the Employer may deduct from other wages and compensation paid by the Employer the amount of any withholding taxes due with respect to such Grants.
(b) Share Withholding. The Committee may permit or require the Employer’s tax withholding obligation with respect to Grants paid in Common Stock to be satisfied by having shares withheld up to an amount that does not exceed the Grantee’s applicable withholding tax rate for United States federal (including FICA), state and local tax liabilities. The Committee may, in its discretion, and subject to such rules as the Committee may adopt, allow Grantees to elect to have such share withholding applied to all or a portion of the tax withholding obligation arising in connection with any particular Grant. Unless the Committee determines otherwise, share withholding for taxes shall not exceed the Grantee’s minimum applicable tax withholding amount.
Section 16. Transferability of Grants
(a)Nontransferability of Grants. Except as described in subsection (b) below, only the Grantee may exercise rights under a Grant during the Grantee’s lifetime. A Grantee may not transfer those rights except (i) by will or by the laws of descent and distribution or (ii) with respect to Grants other than Incentive Stock Options, pursuant to a domestic relations order. When a Grantee dies, the personal representative or other person entitled to succeed to the rights of the Grantee may exercise such rights. Any such successor must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Grantee’s will or under the applicable laws of descent and distribution. (b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may transfer Nonqualified Stock Options to family members, or one or more trusts or other entities for the benefit of or owned by family members, consistent with the applicable securities laws, according to such terms as the Committee may determine; provided that the Grantee receives no consideration for the transfer of an Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer.
Section 17. Requirements for Issuance or Transfer of Shares
No Common Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Common Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant on the Grantee’s undertaking in writing to comply with such restrictions on his or her subsequent disposition of the shares of Common Stock as the Committee shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Common Stock issued or transferred under the Plan may be subject to such stop-transfer orders and other restrictions as the Committee deems appropriate to comply with applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.
Section 18. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time; provided, however, that the Board shall not amend the Plan without stockholder approval if such approval is required in order to comply with the Code or other applicable law, or to comply with applicable stock exchange requirements.
(b) No Repricing of Options or SARs. Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, distribution (whether in the form of cash, Common Stock, other securities or property), stock split, extraordinary cash dividend, recapitalization, change in control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of Common Stock or other securities, or similar transactions), the Company may not, without obtaining stockholder approval, (i) amend the terms of outstanding Stock Options or SARs to reduce the Exercise Price of such outstanding Stock Options or base price of such SARs, (ii) cancel outstanding Stock Options or SARs in exchange for Stock Options or SARs with an Exercise Price or base price, as applicable, that is less than the Exercise Price or base price of the original Stock Options or SARs or (iii) cancel outstanding Stock Options or SARs with an Exercise Price or base price, as applicable, above the current stock price in exchange for cash or other securities. (c)Termination of Plan. The Plan shall terminate on the day immediately preceding the tenth anniversary of its Effective Date, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders.
(d)Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents or unless the Committee acts under Section 19(f) below. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under Section 19(f) below or may be amended by agreement of the Company and the Grantee consistent with the Plan, provided that the Grantee’s consent is not required if any termination or amendment to the Grantee’s outstanding Grant does materially impair the rights or materially increase the obligations of the Grantee.
Section 19. Miscellaneous
(a)Grants in Connection with Corporate Transactions and Otherwise. Nothing contained in the Plan shall be construed to (i) limit the right of the Committee to make Grants under the Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees, or (ii) limit the right of the Company to grant stock options or make other awards outside of the Plan. The Committee may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company, in substitution for a stock option or stock awards grant made by such corporation. Notwithstanding anything in the Plan to the contrary, the Committee may establish such terms and conditions of the new Grants as it deems appropriate, including setting the Exercise Price of Options or the base price of SARs at a price necessary to retain for the Grantee the same economic value as the prior options or rights.
(b)Governing Document. The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.
(c) Funding of the Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under the Plan.
(d)Rights of Grantees. Nothing in the Plan shall entitle any Employee, Non‑Employee Director, Key Advisor or other person to any claim or right to receive a Grant under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employ of the Employer or any other employment rights. (e) No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan or any Grant. Except as otherwise provided under the Plan, the Committee shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(f)Compliance with Law.
(i) The Plan, the exercise of Options and SARs and the obligations of the Company to issue or transfer shares of Common Stock under Grants shall be subject to all applicable laws and regulations, and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that Incentive Stock Options comply with the applicable provisions of section 422 of the Code, and that, to the extent applicable, Grants comply with the requirements of section 409A of the Code. To the extent that any legal requirement of section 16 of the Exchange Act or section 422, or 409A of the Code as set forth in the Plan ceases to be required under section 16 of the Exchange Act or section 422 or 409A of the Code, that Plan provision shall cease to apply. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Committee may also adopt rules regarding the withholding of taxes on payments to Grantees. The Committee may, in its sole discretion, agree to limit its authority under this Section.
(ii) The Plan is intended to comply with the requirements of section 409A of the Code, to the extent applicable. Each Grant shall be construed and administered such that the Grant either (A) qualifies for an exemption from the requirements of section 409A of the Code or (B) satisfies the requirements of section 409A of the Code. If a Grant is subject to section 409A of the Code, (I) distributions shall only be made in a manner and upon an event permitted under section 409A of the Code, (II) payments to be made upon a termination of employment or service shall only be made upon a “separation from service” under section 409A of the Code, (III) unless the Grant specifies otherwise, each installment payment shall be treated as a separate payment for purposes of section 409A of the Code, and (IV) in no event shall a Grantee, directly or indirectly, designate the calendar year in which a distribution is made except in accordance with section 409A of the Code.
(iii) Any Grant that is subject to section 409A of the Code and that is to be distributed to a Key Employee (as defined below) upon separation from service shall be administered so that any distribution with respect to such Grant shall be postponed for six months following the date of the Grantee’s separation from service, if required by section 409A of the Code. If a distribution is delayed pursuant to section 409A of the Code, the distribution shall be paid within 15 days after the end of the six-month period. If the Grantee dies during such six-month period, any postponed amounts shall be paid within 90 days of the Grantee’s death. The determination of Key Employees, including the number and identity of persons considered Key Employees and the identification date, shall be made by the Committee or its delegate each year in accordance with section 416(i) of the Code and the “specified employee” requirements of section 409A of the Code. (iv) Notwithstanding anything in the Plan or any Grant agreement to the contrary, each Grantee shall be solely responsible for the tax consequences of Grants under the Plan, and in no event shall the Company or any subsidiary or affiliate of the Company have any responsibility or liability if a Grant does not meet any applicable requirements of section 409A of the Code. Although the Company intends to administer the Plan to prevent taxation under section 409A of the Code, the Company does not represent or warrant that the Plan or any Grant complies with any provision of federal, state, local or other tax law.
(g)Establishment of Subplans. The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to the Plan setting forth (i) such limitations on the Committee’s discretion under the Plan as the Board deems necessary or desirable and (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Grantees within the affected jurisdiction and the Employer shall not be required to provide copies of any supplement to Grantees in any jurisdiction that is not affected.
(h)Clawback Rights. Subject to the requirements of applicable law, the Committee may provide in any Grant Instrument that, if a Grantee breaches any restrictive covenant agreement between the Grantee and the Employer (which may be set forth in any Grant Instrument) or otherwise engages in activities that constitute Cause either while employed by, or providing service to, the Employer or within a specified period of time thereafter, all Grants held by the Grantee shall terminate, and the Company may rescind any exercise of an Option or SAR and the vesting of any other Grant and delivery of shares upon such exercise or vesting (including pursuant to dividends and Dividend Equivalents), as applicable on such terms as the Committee shall determine, including the right to require that in the event of any such rescission, (i) the Grantee shall return to the Company the shares received upon the exercise of any Option or SAR and/or the vesting and payment of any other Grant (including pursuant to dividends and Dividend Equivalents) or, (ii) if the Grantee no longer owns the shares, the Grantee shall pay to the Company the amount of any gain realized or payment received as a result of any sale or other disposition of the shares (or, in the event the Grantee transfers the shares by gift or otherwise without consideration, the Fair Market Value of the shares on the date of the breach of the restrictive covenant agreement (including a Grantee’s Grant Instrument containing restrictive covenants) or activity constituting Cause), net of the price originally paid by the Grantee for the shares. Payment by the Grantee shall be made in such manner and on such terms and conditions as may be required by the Committee. The Employer shall be entitled to set off against the amount of any such payment any amounts otherwise owed to the Grantee by the Employer. In addition, all Grants under the Plan shall be subject to any applicable clawback or recoupment policies, share trading policies and other policies that may be implemented by the Board from time to time.
(i)Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall be governed and construed by and determined in accordance with the laws of the State of Florida, without giving effect to the conflict of laws provisions thereof. REVOCABLE PROXY FEDERATED NATIONAL HOLDING COMPANY ANNUAL MEETING OF SHAREHOLDERS – SEPTEMBER 13, 2016 MAY 31, 2018
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael H. Braun and Bruce F. Simberg, acting individually, as Proxy(ies), each with full power to appoint a substitute, to represent and to vote, with all the powers the undersigned would have if personally present, all the shares of common stock, $.01 par value per share (the “Common Stock”), of Federated National Holding Company (the "Company") held of record by the undersigned on July 14, 2016April 2, 2018 at the Annual Meeting of Shareholders to be held on September 13, 2016May 31, 2018 or any adjournments or postponements thereof.
| Proposal 1. | TO ELECT THREE CLASS II DIRECTORS TO SERVE UNTIL OUR ANNUAL MEETING IN 2021 AND ONE CLASS III DIRECTOR TO SERVE UNTIL OUR ANNUAL MEETING IN 2020 |
| Bruce F. Simberg | | | | | | | ☐ For | ☐ Against | ☐ Abstain | | | | | Richard W. Wilcox Jr. | | | | | | | ☐ For | ☐ Against | ☐ Abstain | | | | | William G. Stewart | | | | | | | ☐ For | ☐ Against | ☐ Abstain | | | | | Roberta N. Young | | | | | | | ☐ For | ☐ Against | ☐ Abstain |
| Proposal 2. | TO CONSIDER AND VOTE UPON A PROPOSAL TO CHANGE THE COMPANY'S NAME TO FEDNAT HOLDING COMPANY BY APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION |
| Proposal 3. | TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE THE 2018 OMNIBUS INCENTIVE COMPENSATION PLAN |
| Proposal 4. | ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION |
| Proposal 5. | TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2018 FISCAL YEAR |
Note: To transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, the proxy will be voted FOR allthe nominees for director, FORin Proposal 2, FOR “1 Year” with respect to Proposal 3,1 and FOR Proposals 2, 3, 4 5 and 6.5. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournments or postponements thereof.
| | Dated: | | , 2018 | | | | | | | | | | | (Signature) | | (Signature) | |
PLEASE SIGN HERE
Please date this proxy and sign your name exactly as it appears hereon.
Where there is more than one owner, each should sign. When signing as an agent, attorney, administrator, executor, guardian or trustee, please add your title as such. If executed by a corporation, the proxy should be signed by a duly authorized officer who should indicate his office.
PLEASE DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES REVOCABLE PROXY — FEDERATED NATIONAL HOLDING COMPANY C Non-Voting Items Change of Address — Please print new address below. IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. + + qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
| 
