The Board adopted the most restrictive definition of “independence” when appointing the current members of its Compensation and Nominating committees.
The Board believes that these steps represent a good faith effort to addressrespond to the commentsfeedback received as a result of its shareholder outreach and represent meaningful steps to align its corporate governance practices with the interests of its shareholders and current best practices. As is our standard practice, we will continue to engage with our shareholders and will take feedback we receive from them into account as we evolve our corporate governance practices according to the needs of our business.
Leadership Structure
The Chairman of the Board is elected by the members of the Board and typically presides at all meetings of the Board. Bruce F. Simberg currently serves as our Chairman, a position he has held since 1998 other than a brief hiatusthe period from March 2015 to January 2016. Richard W. Wilcox Jr., an independent member of the Board since 2003, served aswas named the Board’s Lead Independent Director during that hiatusMr. Simberg’s absence from the Chairman position, and continues to hold that position in recognition of his significant knowledge of the Company’s history, growth and operations.operations and his contributions, along with those of Mr. Simberg, to the oversight of the Company. The responsibilities of the Company’s Chairman of the Board are: (i) presiding at all meetings of the Board (with the Lead Independent Director presiding at meetings where the Chairman is not present), including presiding at executive sessions of the Board (without management present) at every regularly scheduled Board meeting, (ii) serving as a liaison between management and the independent directors, (iii) providing input regarding meeting agendas, time schedules and other information provided to the Board, and (iv) being available for direct communication and consultation with major shareholders, as appropriate, upon request.shareholders. Our Chairman also has the authority to call meetings of the independent directors. The Chief Executive Officer is currently the only member of management on the Board.
The Company believes that its Board as a whole should encompass a diverse range of talents, skills, perspectives, experiences, and experiences,tenure on the Board, enabling itthe Board to provide sound guidance with respect to the Company's operations and interests. The Company's policy is to have at least a majority of directors qualify as independent as defined by the listing and maintenance rules of The Nasdaq Stock Market (the “Nasdaq Rules”). The Nominating Committee identifies candidates for election to the Board of Directors; reviews their skills, characteristics and experience; and recommends nominees for director to the Board for approval. The Nominating Committee's Charter provides that the Board of Directors as a whole should be balanced and diverse, and consist of individuals with various and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise and local or community ties. Minimum individual requirements include strength of character, mature judgment, familiarity with the Company's business and industry, independence of thought and an ability to work collegially.colleially. The Board believes that the qualifications of the directors, as set forth in their biographies above provide them with the qualifications and skills to serve as a director of our Company.
Board Self-Assessment Process
The Board believes that ongoing self-assessment is important to strengthening its performance and fulfilling its role on behalf of the Company’s shareholders. To that end, the Board conducts an annual evaluation process that begins by asking each Board member to complete a comprehensive evaluation form that addresses the Board’s overall performance and a self-evaluation of the individual director’s performance. Overall Board performance is evaluated based on, among other things, the conduct of Board meetings, the composition of the Board, the quality of information provided to the Board, Board effectiveness, and access to management. Individual performance is evaluated to determine, among other things, whether the director continues to be able to devote the necessary time to Board and committee matters, whether the director’s skills are best utilized, and whether the director contributes to Board decision making. In addition, the Audit Committee conducts an annual evaluation of its performance, including a review of the effectiveness of its processes, the composition of the Committee, the Committee’s interactions with management and the Company’s auditors, and the Committee members’ understanding of the Company’s risks, controls and compliance. These evaluation forms are reviewed by the Chairman of the Board or the Audit Committee, and by the entire Board or Audit Committee, and are discussed in detail at a Board or Audit Committee meeting, as applicable.
Board Continuing Education
The Company encourages its directors to remain current in corporate governance, compliance and industry topics facing publicly traded insurance companies such as the Company. In that regard, the Company provides directors with the opportunity to attend seminars and conferences on director education, board leadership, current issues facing the insurance industry generally and the Florida and coastal insurance marketmarkets in particular, governance, risk management and other subjects of interest to Board members and relevant to the Company. Certain of our directors also obtain significant continuing education relevant to the Company in connection with their professional licenses and certifications in accounting, finance and law.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines, which have updated, consolidated and memorialized the corporate governance practices followed by the Board and the Company. Among other things, the guidelines address the following matters relating to the Board and its committees:
| · | Director qualifications generally and guidelines on the composition of the Board and its committees; |
| · | Director responsibilities and the standards for carrying out such responsibilities; |
| · | Board membership criteria; |
| · | Board committee requirements; |
| · | Director access to management and independent advisors; |
| · | Director orientation and continuing education requirements; and |
| · | CEO evaluation, management succession and CEOChief Executive Officer evaluation, management succession and Chief Executive Officer compensation. |
The Corporate Governance Guidelines are reviewed at least annually by the Board.
Risk Oversight
The Board’s role in connection with risk oversight is to oversee and monitor the management of risk practiced by the Company’s management in the performance of their duties. The Board does this in a number of ways, principally through the oversight responsibility of committees of the Board, but also as part of the strategic planning process. For example, our Audit Committee oversees management of risks related to accounting, auditing and financial reporting, maintaining effective internal controls over financial reporting, and information security and technology risks. Our Nominating Committee oversees risk associated with corporate governance and the Company’s code of conduct, including compliance with listing standards for independent directors and conflicts of interest. Our Compensation Committee oversees the risk related to our executive compensation plans and arrangements and is responsible for reviewing and recommending our non-employee director compensation plans and arrangements. Our Investment Committee oversees the risks related to managing our investment portfolio. The full Board receives reports on a regular basis regarding each committee’s oversight from the chairperson of each committee when reporting on their committee’s actions at regular Board meetings, as well as overseeing the development and implementation of strategic initiatives.
Meetings and Committees of the Board of Directors
During 2016,2018, the Board of Directors held 11ten regular meetings, sevenfive special meetings and took actions by written consent on foursix occasions. During 2016,2018, no director attended fewer than 75% of the Board and committee meetings held during this period. The Board of Directors encourages, but does not require, its directors to attend the Company’s annual meeting. All of our directors attended our 20162018 annual meeting.
The Board has determined that the following continuingall of its directors and director candidates are independent pursuant to the Nasdaq Rules applicable to the Company: Bruce F. Simberg, Richard W. Wilcox Jr., Jenifer G. Kimbrough, William G. Stewart and Thomas A. Rogers. With Carl Dorf’s retirement atCompany, with the Annual Meeting, fiveexception of the six continuing directors will be independent.Company’s Chief Executive Officer. The Board has also used the stricter definition of “independence” utilized by shareholder advisory services in determining the members of the Compensation and Nominating committees in 2017, with the result that Mr. Simberg, whose law firm has provided a limited amount of legal services to the Company, will not serve on either committee insince 2017. The matters handled by the firm have been completed or are in the process of completion and the Company does not at this time anticipate retaining his firm for future matters. Please see “Certain Relationships and Related Transactions—Related Transactions” below for more information.
The independent directors of the Board meet in executive sessions without management present. These sessions, which generally occur at every regularly scheduled Board meeting, are led by the Chairman. Executive sessions allow the independent directors to discuss, among other issues, management performance and compensation.
To facilitate the Board’s oversight functions and to take advantage of the knowledge and experience of its members, the Board has created several standing committees. These committees, the Audit, Investment, Nominating, Compensation and Business DevelopmentStrategy committees, allow regular risk oversight and monitoring, and deeper analysis of issues before the Board. The Audit, Compensation, Investment and Nominating committees are composed exclusively of independent directors. The membership of the standing committees is reviewed from time to time, and specific committee assignments are proposed and appointed by the Board. Each committee holds regularly scheduled meetings and confers between regularly scheduled meetings as needed.
Charters for the Audit, Compensation and Nominating committees, and the Corporate Governance Guidelines, are available upon the Company’s website at www.FedNat.com and are also available in print to any shareholder upon request from our Corporate Secretary.
In connection with the Cooperation Agreement (please see “BoardRefreshment and Engagement with Shareholders” above), the Company has agreed that Mr. Michelson and Mr. Patterson will each be added to the Audit, Compensation and Nominating Committees.
Standing Board Committees
Audit Committee. As of December 31, 2016,2018, the Audit Committee was composed of Jenifer G. Kimbrough, who served as the Chair, Richard W. Wilcox Jr. and Carl Dorf.Roberta N. Young. Each member was determined to be “independent” as defined under the Nasdaq Rules applicable to the Company and SEC rules for Audit Committee membership. Ms. Kimbrough and Mrs. Young, who is aare Certified Public Accountant, wasAccountants, were designated as a “financial expert”experts” as that term is defined in the applicable rules and regulations of the Exchange Act based on hertheir understanding of U.S. generally accepted accounting principles (“GAAP”) and financial statements; hertheir ability to assess the general application of GAAP in connection with the accounting for estimates, accruals and reserves; hertheir experience preparing, auditing, analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more persons engaged in such activities; hertheir understanding of internal controls and procedures for financial reporting; and hertheir understanding of audit committee functions. The Audit Committee held four regular meetings in fiscal 20162018 and oneno special meeting.meetings. It is currently expected that the same Board members will constitute the Audit Committee for 2019.
Pursuant to its written charter, the duties and responsibilities of the Audit Committee include, but are not limited to, (a) the appointment of the independent certified public accountants and any termination of such engagement, (b) reviewing the plan and scope of independent audits, (c) reviewing significant accounting and reporting policies and operating controls, (d) having general responsibility for all related auditing and financial statement matters, and (e) reporting its recommendations and findings to the full Board of Directors. The Audit Committee pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed by the independent accountants, subject to the de minimisexceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the Audit Committee prior to the completion of the audit.
To ensure prompt handling of unexpected matters, the Audit Committee delegates to the Chair the authority to amend or modify the list of approved permissible non-audit services and fees. The Chair will report action taken to the Audit Committee at the next committee meeting. The Chief Financial Officer is responsible for tracking all independent auditor fees against the budget for such services and reports at least annually to the Audit Committee.
With the retirement of Carl Dorf following the Annual Meeting, the Board will select another member with the requisite knowledge of financial statements to serve on the Audit Committee.
Compensation Committee. As of December 31, 2016,2018, the Company’s Compensation Committee was composed of Jenifer G. Kimbrough, Bruce F. Simberg, Thomas A. Rogers and Richard W. Wilcox Jr. Each member is independent as defined by the Nasdaq Rules. The Compensation Committee performs the duties and responsibilities pursuant to its charter, which includes reviewing and approving the compensation of the Company's executive officers. Mr. Wilcox serves as the Chairman. During fiscal 2016,2018, the Compensation Committee held three regular meetings and one regularspecial meeting and eight special meetings.took action by written consent on one occasion. For 2017,2019, the members of the Compensation Committee are Jenifer G. Kimbrough, Thomas A. Rogers and Richard W. Wilcox Jr.
For the 2016 fiscal year, the Compensation Committee engaged the independent executive compensation consulting firm of Meridian Compensation Partners, LLC (“Meridian”) to review the structure and competitiveness of the Company’s executive and director compensation for 2016. Meridian provides no other services to the Company other than those directly to the Compensation Committee relating to executive and director compensation. Meridian attends meetings of the Compensation Committee at the request of 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.
The Compensation Committee Chairmanhas worked with compensation and certain Company officials furnished Meridian with information concerninggovernance consultants in prior years to assist the compensation of its executives and copies of their employment contracts. After review, Meridian providedBoard in updating the Compensation CommitteeCompany’s corporate governance practices generally, assist with a detailed report concerning its currentreview and futureupdate of the Company’s executive compensation program alongpractices, and assist with observations of comparable companies.the Company’s shareholder engagement program. The Compensation Committee met with a representativealso regularly reviews internally compiled data about the compensation practices of Meridian to review and discuss their findings and recommendations. The Compensation Committee may useour competitors. For the services2018 fiscal year, the Company engaged the firm of Meridian or other comparable companies in the futureMacKenzie Partners to assist it in providing a fairthe Board with research related to executive compensation practices and competitive compensation plan for its executives.our peers, and assist with the Company’s shareholder engagement program. MacKenzie Partners also provided proxy solicitation services to the Company.
Nominating Committee. As of December 31, 2016,2018, the Company’s Nominating Committee was composed of Jenifer G. Kimbrough, Carl Dorf, Richard W. Wilcox Jr., Bruce F. Simberg, Thomas A. Rogers, and William G. Stewart.Stewart and Roberta N. Young. Richard Wilcox serves as the committee chairperson. Each member is independent as defined by the Nasdaq Rules. During fiscal 2016,2018, the Nominating Committee held two regular meetings. For 2017, thetook actions by written consent on one occasion. The same Board members ofwill constitute the Nominating Committee have been Jenifer G. Kimbrough, Carl Dorf, Richard W. Wilcox Jr., Thomas A. Rogers and William G. Stewart.for 2019.
With Carl Dorf’s retirement to occur following the Annual Meeting, theThe Nominating Committee has begun the process of identifyingcontinues to identify qualified candidates for director.director positions. In recommending proposed nominees to the full Board, the Nominating Committee is charged with building and maintaining a Board that has an ideal mix of talent and experience to achieve the Company’s business objectives. In particular, the Nominating Committee considers all aspects
of a candidate’s qualifications in the context of the needs of the Company at that point in time with a view to creating a Board with a diversity of experience and perspectives. Among the qualifications, qualities and skills of a candidate considered important by the Nominating Committee is a person with strength of character, mature judgment, familiarity with the Company’s business and industry, independence of thought and an ability to work collegially. The Nominating Committee considers diversity, together with these other factors, when evaluating candidates, but does not have a specific policy in place with respect to diversity.
The Nominating Committee will consider candidates for director who are recommended by its members, by other Board members and by management of the Company and who have the experience and skill set best suited to benefit the Company and its shareholders. The Nominating Committee will consider nominees recommended by our shareholders if the shareholder submits the nomination in compliance with the advance notice, information and other requirements described in our bylaws and applicable securities laws. The Nominating Committee evaluates director candidates recommended by shareholders in the same way that it evaluates candidates recommended by its members, other members of the Board, or other persons.
Shareholders who wish to recommend nominees to the Nominating Committee should submit their recommendation in writing to the Secretary of the Company at its executive offices pursuant to the requirements contained in Article III, Section 13 of the Company’s Bylaws. This section provides that the notice shall include: (a) as to each person who the shareholder proposed to nominate for election, (i) name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Company which are beneficially owned by the person, (iv) the consent of each nominee to serve as a director of the Company if so elected and (v) any other information relating to the person that is required to be disclosed in solicitation for proxies for the election of directors pursuant to Rule 14A under the Exchange Act; and (b) as to the shareholder giving the notice, (i) the name and record address of the shareholder, and (ii) the class and number of shares of capital stock of the Company which are beneficially owned by the shareholder. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a director of the Company. To be timely, a shareholder’s notice shall 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 date of the meeting date, however, notice by the shareholder to be timely must be so received 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 first occurs.
Investment Committee. As of December 31, 2016,2018, the Company’s Investment Committee was composed of Carl Dorf,William G. Stewart, Bruce F. Simberg and William G. Stewart.Roberta N. Young. The Investment Committee manages our investment portfolio pursuant to its adopted Investment Policy Statement. Mr. DorfStewart serves as the Chairman. During fiscal 2016,2018, the Investment Committee held fivefour regular and three special meetings. With Carl Dorf’s retirement to occur following the Annual Meeting, theThe same Board may select another member to serve onmembers will constitute the Investment Committee.Committee for 2019.
Business DevelopmentStrategy Committee.As of December 31, 2016,2018, the Company’s Business Strategy Committee (previously called the Business Development CommitteeCommittee) was composed of Thomas A. Rogers, Michael H. Braun and Bruce F. Simberg. The Business DevelopmentStrategy Committee provides advice, oversight and guidance both to management of the Company and to the Board on matters involving the Company’s development of programs and projects, and acquisitions of new technologies or products and other business opportunities of strategic importance to the Company. Mr. Rogers serves as the Chairman. During fiscal 2016,2018, the Business DevelopmentStrategy Committee held four regular meetings. The same Board members will constitute the Business Strategy Committee for 2019.
Code of Conduct
We have adopted a Code of Conduct for all employees, officers and directors of the Company. A copy of our Code of Conduct is available on our web site at www.FedNat.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our executive officers, directors, and persons who own more than 10% of a registered class of our equity securities to file reports of beneficial ownership and certain changes in beneficial ownership with the SEC and to furnish us with copies of those reports. To our knowledge, based solely on a review of the copies of such reports furnished to us or written representations that no other reports were required, we believe that during the year ended December 31, 2016, our officers, directors and greater than 10% shareholders timely filed2018, all reports required by Section 16(a). were timely filed except for one report that was filed late due to an administrative error.
The chart below shows the Company’s cumulative total shareholder return during the five fiscal years ending December 31, 2016.2018. The graph also shows the cumulative total returns of the SNL Insurance P&C Index and the NASDAQ Composite Index. The comparison assumes $100 was invested on December 31, 20112013 in the Company’s common stock and in each of the indices shown, and assumes that all of the dividends were reinvested. Past performance is not necessarily an indicator of future results.
Our filings with the SEC may incorporate information by reference, including this proxy statement. Unless we specifically state otherwise, the information under this heading "Stock Performance Graph" shall not be deemed to be "soliciting materials" and shall not be deemed to be "filed" with the SEC or incorporated by reference into any of our filings under the Securities Act of 1933, as amended (the “Securities Act”), and Exchange Act.
Federated NationalFedNat Holding Company
| | | Period Ending | |
| Index | | 12/31/11 | | | 12/31/12 | | | 12/31/13 | | | 12/31/14 | | | 12/31/15 | | | 12/31/16 | |
| Federated National Holding Company | | | 100.00 | | | | 181.39 | | | | 503.83 | | | | 835.03 | | | | 1,027.79 | | | | 658.07 | |
| NASDAQ Composite | | | 100.00 | | | | 117.45 | | | | 164.57 | | | | 188.84 | | | | 201.98 | | | | 219.89 | |
| SNL Insurance P&C | | | 100.00 | | | | 118.04 | | | | 156.39 | | | | 179.61 | | | | 185.79 | | | | 219.27 | |
|
| | | | | | | | | | | | |
| | Period Ending |
| Index | 12/31/12 |
| 12/31/13 |
| 12/31/14 |
| 12/31/15 |
| 12/31/16 |
| 12/31/17 |
|
| FedNat Holding Company | 100.00 |
| 165.73 |
| 203.99 |
| 130.61 |
| 118.07 |
| 144.41 |
|
| NASDAQ Composite | 100.00 |
| 114.75 |
| 122.74 |
| 133.62 |
| 173.22 |
| 168.30 |
|
| SNL Insurance P&C | 100.00 |
| 114.85 |
| 118.80 |
| 140.21 |
| 160.30 |
| 154.12 |
|
Source : SNL Financial LC, Charlottesville, VAS&P Global Market Intelligence
© 20162019
www.snl.com
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis describes the components and objectives of the Company’s executive compensation program for fiscal 20162018 for our “Named Executive Officers,” describes the process through which the decisions regarding executive compensation have been made, and describes the results of this decision-making process. Our Named Executive Officers for fiscal 20162018 were our Chief Executive Officer and President our Interim Chief Financial Officer and our former Chief Financial Officer. The following Compensation Discussion and Analysis reflects the compensation paid to our Named Executive Officers for fiscal 20162018 and the Compensation Committee’s decisions with respect to the compensation for fiscal 20172019 for the Named Executive Officers.
Philosophy of the Company’s Executive Compensation Programs
The Compensation Committee of the Board is responsible for establishing, implementing and monitoring adherence to the Company’s compensation philosophy and oversees our compensation programs for our Named Executive Officers. With respect to executive compensation, the Compensation Committee’s primary goals are to attract and retain the most qualified, knowledgeable, dedicated and seasoned executives possible; provide challenging but attainable goals by which to measure performance; reward them for their contributions to the development of the Company’s business; and align the executives’ compensation and incentives with the Company’s performance and the interests of our shareholders. The Compensation Committee also endeavors, while compensating our Named Executive Officers for their performance, to structure the Company’s compensation programs so as to not encourage unnecessary or excessive risk-taking. The Compensation Committee believes that crafting incentives so as to not encourage unnecessary or excessive risk taking is especially important in the homeowners’ insurance industry in the Company’s home state of Florida.
The Compensation Committee is committed to ensuring our compensation programs are strongly aligned with the Company’s long-term business strategy. The Committee seeks to continuously and rigorously evaluate its compensation plans to reflect strong governance practices and shareholder feedback.
|
| | | |
| | What We Do | | What We Do Not Do |
✓ü
| Established long-term performance-based criteria for the equity awards to our Chief Executive Officer, which for 20172018 constituted 50%, and for 2019 will constitute, 50%40% of his total incentive award. | x | No change-in-control excise tax gross-ups. |
✓ü
| Implemented a clawback policy that allows for the recovery of previously paid incentive compensation in the event of a restatement of our financial statements. | x | No tax gross-ups on perquisites. |
✓ü
| EstablishedMaintain rigorous stock ownership and retention guidelines for our executive officers and directors. | x | No excessive perquisites. |
✓ü
| ConductedExecute a robust shareholder outreach program in response to our 2016 say-on-pay vote to solicit investor feedback on compensation plan design and disclosure.disclosure and which we will continue in connection with this Annual Meeting. | x | No hedging or pledging of the Company’s common stock. |
✓ü
| Amended our Chief Executive Officer’s employment agreement to requireRequire a “double trigger”"double trigger" for the payment of change-in-control payments to him,our Named Executive Officers, meaning that payments will not be triggered without a qualifying termination following a change in control, and to provide that hisany such change in control payment would be based on the average of the preceding three years’years' actual bonuses earned. | x | No option repricing or repurchases of underwater options without shareholder approval. |
The Company’s 20162018 Performance
The Company’s financial results for 20162018 reflect the impact of multiple severe weather events in Florida and the other challengesstates in which we operate, including Hurricanes Michael and Florence. Our 2018 earnings also reflected continued, but diminishing, headwinds from the Company’s operating environment, such as the continuing frequency of the assignment of benefits by insureds to third parties. Nevertheless,non-core operations, automobile and commercial general liability, from which the Company achievedis continuing to exit. The Company took action to improve its underwriting profitability during 2017 and 2018 that significantly improved results within our core operations, homeowners insurance, and believes it is well positioned for continued earnings growth and increased shareholder value in 2019 and beyond. The significant accomplishments during 2016 that2018 include:
Total revenue in our homeowners line of business increased 13.4% to $364.8 million, driving consolidated total revenue growth of 1.1%, despite the substantial reduction in revenue from the non-core lines of business we are exiting.
Net income attributable to the Company’s shareholders grew to $14.9 million, up 86.9% over the prior year.
Book value per share, excluding non-controlling interest, grew to 6% to $17.13 from $16.16 in 2017, overcoming the substantial adverse impact of Hurricane Michael.
We maintained the Company’s dividend at $0.08 per quarter, returning almost $4.2 million to shareholders based on dividends paid during the year.
Through rigorous focus on exposure management and underwriting, the Company believes will result in increased shareholder value, such as:
reduced the cost of its catastrophe reinsurance program by approximately $30 million for the 2018-2019 treaty year.
| · | 22.6% increase in gross written premiums to $605.5 million, reflecting market share growth in our homeowners’ and personal automobile lines of business; |
The Company continued its expansion outside of Florida. Collectively, gross written premium in Alabama, Louisiana, South Carolina and Texas increased by 48.1% in 2018 to over $81 million.
| · | 9.8% increase in Florida homeowners’ policies to approximately 279,000; |
We reduced our total staffing by over 100 positions during 2018, as we continue to maximize operational initiatives, representing annualized savings of approximately $6 million.
| · | 26.6% increase in total revenue to $316.4 million; |
Lastly, the Company completed a thorough due diligence and negotiation process culminating in our recent announcement of the pending acquisition of the insurance operations of 1347 Property Insurance Holdings, Inc. This pending transaction will further diversify the Company’s premium base, adds organic non-Florida agent distribution, and increases our scale, and is expected to be meaningfully accretive to 2019 earnings.
| · | Continued development of our partnerships to expand the policies we write, including our agreement with Allstate, and our new agreement with GEICO; |
| · | Increases in the Company’s dividend from $0.05 per share beginning December 1, 2015, to $0.06 per share beginning June 1, 2016 and to $0.08 per share beginning December 1, 2016; and |
| · | Approval of an average statewide FNIC Florida homeowners’ rate increase of 5.6% in effect since August 1, 2016, with another rate increase of 9.9% to be effective August 1, 2017. |
Coupled with those accomplishments, however, were the significant increase in losses from multiple weather events, most particularly Hurricane Matthew, which impacted Florida and South Carolina in October 2016, and the inflated costs of handling homeowners’ claims in Florida, primarily as a result of the growth of assignment of benefits by insureds. The Company anticipates that its approved and pending rate increases should gradually offset the increased costs associated with assignment of benefits claims. In the fourth quarter of 2016, the Company recorded for Hurricane Matthew $47.0 million of gross claims, which represented a decrease from the initial estimate of $77.5 million, and $21.4 million of claims, net of reinsurance. The Company also increased its total loss reserves by $30.6 million during the quarter, which increased the Company’s total loss reserves at December 31, 2016 to $158.1 million. The foregoing resulted in a net loss of $0.2 million or $(0.01) per undiluted share for the year ended December 31, 2016.
Results of Our Evaluations
The following table summarizes the Compensation Committee’s 20162018 compensation decisions for our Named Executive Officers, consistent with how the Compensation Committee views total compensation. The information regarding performance-based compensation is presented both in terms of “Target” compensation and the actual achievement thereof. See the footnotes to the table for further information. The Compensation Committee reached these compensation decisions based on its evaluation of performance relative to the incentive criteria established at the beginning of 20162018 as described below.below, and taking into account actual progress made toward important Company initiatives. For comparative purposes, the table also presents 20152017 and 20142016 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 29.32. Further detail on how individual pay decisions were made and descriptions of the elements of compensation can be found following this table.
|
| | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Year | Base Salary Rate | Annual Incentive and Other Cash Awards | Long-Term Incentive and Other Share-Based Awards | Total Compensation |
| Target | Actual | Target | Actual-to-Date | Target | Actual-to-Date |
Michael H. Braun,
Chief Executive Officer and President (1) | 2018 | $ | 1,000,000 |
| $ | 875,000 |
| $ | 534,167 |
| $ | 875,000 |
| $ | 0 |
| $ | 2,750,000 |
| $ | 1,534,167 |
|
| 2017 | $ | 1,000,000 |
| $ | 875,000 |
| $ | 698,333 |
| $ | 875,000 |
| $ | 0 |
| $ | 2,750,000 |
| $ | 1,698,333 |
|
| 2016 | $ | 1,000,000 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 1,000,000 |
| $ | 1,000,000 |
|
Ronald A. Jordan,
Chief Financial Officer (2) | 2018 | $ | 290,000 |
| $ | 108,750 |
| $ | 100,000 |
| $ | 108,750 |
| $ | 100,000 |
| $ | 507,500 |
| $ | 490,000 |
|
| 2017 | $ | 275,000 |
| $ | 0 |
| $ | 100,000 |
| $ | 0 |
| $ | 151,500 |
| $ | 275,000 |
| $ | 526,500 |
|
| 2016 | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
|
| Named Executive Officer | Year | Base Salary Rate | Annual Incentive Awards | Long-Term Incentive Awards | Total Compensation |
Michael H. Braun, CEO and President (1) | 2016 | $ | 1,000,000 | $ | 0 | $ | 0 | $ | 1,000,000 |
| 2015 | $ | 600,000 | $ | 1,200,000 | $ | 1,200,000 | $ | 3,000,000 |
| 2014 | $ | 475,000 | $ | 950,000 | $ | 1,293,000 | $ | 2,693,300 |
Peter J. Prygelski, III, CFO and Treasurer (2) | 2016 | $ | 325,000 | $ | 0 | $ | 0 | $ | 325,000 |
| 2015 | $ | 325,000 | $ | 487,500 | $ | 243,750 | $ | 1,056,250 |
| 2014 | $ | 300,000 | $ | 450,000 | $ | 0 | $ | 750,000 |
| Erick A. Fernandez, Interim CFO and Treasurer (3) | 2016 | $ | 212,000 | $ | 30,000 | $ | 63,228 | $ | 305,228 |
| 2015 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
| 2014 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
| |
| (1) | The 2018 annual incentive award was paid in 2019 for short-term performance goals met in 2018 and included a discretionary component. The 2018 long-term incentive award of 53,713 shares of restricted stock (at Target payout level) was granted in 2018 for performance-based goals to be met over a three-year period from 2018 to 2020. Such goals were not met in 2018, resulting in the forfeiture of 11,936 shares (or $194,000 based on the grant date share price), thus far, from this grant. The 2017 annual incentive award was paid in 2018 for 2017 short-term performance goals met in 2017. The 2017 long-term incentive award of 47,971 shares of restricted stock (at Target payout level) was granted in 2017 for performance-based goals to be met over a three-year period from 2017 to 2019. Such goals were not met in 2017 and 2018, resulting in the forfeiture of 21,320 shares (or $389,000 based on the grant date share price), thus far, from this grant. |
| |
| (2) | The 2018 annual incentive award was paid in 2019 for short-term performance goals met in 2018, and included a discretionary component. The 2018 long-term incentive award includes:(1) 6,675 shares of restricted stock was granted in 2018 for performance-based goals to be met over a three-year period from 2018 to 2020. Such goals were not met in 2018, resulting in the forfeiture of 1,482 shares (or $24,000 based on the grant date share price), thus far, from this grant; and (2) 5,546 shares of restricted stock (or $100,000) granted in 2019 that time-vests over a five-year period. Mr. Jordan joined the Company in April 2017 and was not a participant in the 2017 incentive compensation plan. The 2017 cash award was paid in 2018 for Mr. Jordan’s efforts during 2017. Mr. Jordan received a grant of 10,000 shares of restricted stock (or $151,500 based on the grant date share price) and $100,000 for relocation expenses as part of the terms of his employment when he joined the Company. The relocation allowance is not included in this table, as the Compensation Committee deems to be an expense reimbursement rather than compensation. |
(1) Of the amount noted in long-term incentive awards for 2016, $600,000 was paid in cash and $600,000 was granted as restricted stock.
(2) Mr. Prygelski separated from the Company in June 2016.
(3) Mr. Fernandez became the Company’s Interim Chief Financial Officer and Treasurer in June 2016. The annual incentive award for Mr. Fernandez was paid pursuant to a bonus agreement entered into prior to his appointment as the Interim Chief Financial Officer pursuant to which he was entitled to receive a minimum bonus of $40,000 for 2016, $30,000 of which was paid in 2016. 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”
At our advisory shareholder vote on executive compensation in 2016,2018, our say-on-pay proposal received the affirmative vote of 49.07%80.7% of the shares voted on the proposal. In response toThe 2018 and 2017 say-on-pay votes were a significant improvement over the results of the 2016 say-on-pay vote, and reflecting the Compensation Committee has soughtCommittee’s meaningful efforts to seek and receivedreceive feedback and guidance from shareholders and others regarding the Company’s executive compensation practices, with a viewplans, and to incorporate this feedback into our 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 A proactive approach to shareholder communication continues to be part of the 2016 say-on-pay vote at its meetings following the 2016 annual shareholders meeting, and directed that the Company engage in a comprehensiveour ongoing process. Our outreach program that went beyond its ordinary-course investor relations program. The outreach process for 2018 was led by the Chairman of our Compensation Committee, Richard 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, 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 2018, we contacted all of the Company’s top 30 shareholders, representing approximately 62% of our outstanding common stock.stock, which followed similarly extensive outreach efforts during 2017. 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 20172019 annual meeting. We may also heldhold discussions with the major proxy advisory firms to learn more about their perspectives, policies and evaluation of our executive compensation program.
The Compensation Committee has carefully considered the shareholder feedback and guidance it received in 2018 and has undertaken a comprehensive review of, and made severalcontinued to refine the positive changes to our executive compensation program.program previously implemented.
|
| | | |
| What We Heard | | How We Responded |
| § | §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. Instead, forBeginning in 2017, the Compensation Committee has 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 continued in 2018, including further refinement of the annual and long-term metrics, as described below.
|
§
| The use of increase in gross revenues as a performance metric may encourage growth at the expense of overall profitability.
| §
| For the 2019 incentive compensation plan, we have eliminated the performance-based metric related to increasing in gross revenues. Such action is consistent with our stated focus on increasing our profitability and growing our net income.
|
| § | 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 under the incentive plan were granted 100% in the form of performance-based equity. In 2018, this approach was applied to the Chief Financial Officer's incentive compensation as well. |
| § | Awards made under the long-term incentive plan should be granted predominantly in the form of equity, rather than cash. | §Beginning in 2017, a portion of our Chief Executive Officer’s awards granted under the long-term incentive plan will be granted 100% in the form of performance-based equity.
|
| § | §The Company should clearly disclose the performance metrics, goals and weighting that were considered when determining our Named Executive Officers’ incentive compensation payouts.
| § | §We have substantially revamped and restructured our Compensation Discussion and Analysis to provide 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 thecertain performance metrics, we have expanded our disclosures to provide certain measurement levels and otherwise describe how the measurement levels for 2017 were determined.
|
§ | The Company should consider amending its executive employment agreement(s) from a “single-trigger” for the payment of change of control bonus to a “double-trigger” for payment. | § | §We entered into amendments to the employment agreement withamended our Chief Executive OfficerOfficer’s employment agreement to provide for a “double-trigger”“double- trigger” for payment of his change of control bonus and 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. This same provision was incorporated into the employment agreement recently executed with our Chief Financial Officer.
|
Evaluation Process
The Compensation Committee conducts an annual review of the total 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 2016,2018, our direct peer group encompassed publicly traded companies that compete with us in the Florida homeowners’ insurance 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)
- Universal Insurance Holdings, Inc. (NYSE: UVE).
| |
| – | Heritage Insurance Holdings, Inc. (NYSE: HRTG) |
| |
| – | HCI Group, Inc. (NYSE: HCI) |
| |
| – | United Insurance Holdings Corp. (NASDAQ: UIHC) |
| |
| – | Universal Insurance Holdings, Inc. (NYSE: UVE). |
This direct peer group remains the same for 2017.2019.
In addition to the four Florida-based insurance companies listed above, the Company included the following companies in its peer group for comparison purposes for 2016:
2018:
| |
| – | 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) |
| |
| – | EMC Insurance Group Inc. (NASDAQ: EMCI) |
| |
| – | Baldwin & Lyons (NASDAQ: BWINB) |
| |
| – | Atlantic American Corp. (NASDAQ: AAME) |
- 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 with a broader perspective of compensation practices among relevant insurance companies. The Committee assessed the competitiveness of the Company’s compensation program in comparison to the entire peer group, as well as the subset of the Company’s direct peers listed above who are the Company’s primary publicly traded competitors in the Florida homeowners’ insurance market.
For the 2016 fiscal year, the Compensation Committee engaged Meridian Compensation Partners, an independent executive compensation consulting firm, to review the structure and competitiveness of the Company’s executive and director compensation for 2016. Meridian provided no other services to the Company other than those directly to the Compensation Committee relating to executive and director compensation. Meridian attended meetings of 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 Chairman of the Compensation Committee with respect to emerging issues.
We also consider the industry knowledge and experience of our Committee members to be an important component of our compensation review process. Our Committee 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 Committee members to use that experience when reviewing the Company’s executive compensation programs and working with MeridianMacKenzie Partners to make appropriate updates.
Meridian was provided with information about our Named Executive Officers’ historical compensation and the Company’s financial results, and was provided copies of their employment agreements. Meridian then delivered to the Compensation Committee a detailed report comparing the Company’s current executive compensation program to those comparable companies, together with recommendations for future updates. The Compensation Committee, on multiple occasions, met with or spoke with a representative of Meridian to review and discuss Meridian’s findings and recommendations. The Compensation Committee may use the services of Meridian or other consultants in the future to assist it in providing a fair and competitive compensation plan for its executives.
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, and to reflect the feedback received as a result of our outreach to our largest shareholders. In that regard, the Compensation Committee approved in 2016 and 2017 a significant revamp of the Company’s compensation practices, in particular the incentive compensation of the Company’s Chief Executive Officer and President. These updated compensation practices have been carried forward into 2018 and 2019. The Company’s executive compensation programs for its Named Executive Officers consist of elements described below.
Base Salary.The Compensation Committee annually reviews the base salaries of the Named Executive Officers, and considers a number of factors, such 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.
Because of the unique performance characteristics and competitive factors in the Florida homeowners’ insurance industry, the Compensation Committee believes comparing the Company’s executive 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 Universal 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 focusedfocus significantly on our Chief Executive Officer’s base salary as compared to the annual base salaries of the Chief Executive Officers of our Florida-based direct peer group, as described in the table below:
| Company | | 2015 Annual CEO Salary(A) | | 2016 Annual CEO Salary(A) | | 2017 Annual CEO Salary(B) |
| Universal Insurance Holdings, Inc. | | $2,278,015 | | $2,306,456 | | $2,217,500 |
| Heritage Insurance Holdings, Inc. | | $750,000 | | $2,000,000 | | $2,100,000 |
| United Insurance Holdings Corp. | | $800,000 | | $966,667 | | $1,000,000 |
| Federated National Holding Company | | $617,308 | | $993,846 | | $1,000,000 |
| HCI Group, Inc. | | $500,481 | | $934,479 | | $950,000 |
| Median (excluding FNHC) | | $775,000 | | $1,483,334 | | $1,550,000 |
|
| | | | | | | | |
| Company | | 2017 Annual CEO
Salary (A) | | 2018 Annual CEO
Salary (A) |
| Universal Insurance Holdings, Inc. | | $ | 2,217,500 |
| | $ | 2,217,500 |
|
| Heritage Insurance Holdings, Inc. | | $ | 2,100,000 |
| | $ | 2,205,000 |
|
| United Insurance Holdings Corp. | | $ | 1,000,000 |
| | $ | 1,000,000 |
|
| FedNat Holding Company | | $ | 1,000,000 |
| | $ | 1,000,000 |
|
| HCI Group, Inc. | | $ | 950,000 |
| | $ | 950,000 |
|
| Median (excluding FNHC) | | $ | 1,550,000 |
| | $ | 1,602,500 |
|
| |
| (A) | As reported in each company's summary compensation table.company’s proxy statement. |
| (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. That review indicated that Mr. Braun’s base salary for 2015 was below the median for the Company’s direct peer group. The Compensation Committee also reviewed the compensation analysis report prepared by Meridian and, based on that report and the comparison to the Company’s direct peer group, the Compensation Committee approved an increase in Mr. Braun’s 2016 base salary to $1,000,000 to bring his base salary closer to the median. For 2017,2018, based on the Company’s results for 20162017 and a comparison of Mr. Braun’s salary to that of the direct peer group, Mr. Braun’s base salary remained the same. A similar reviewThe Compensation Committee also determined that Mr. Braun’s salary would remain unchanged for 2019.
Based on an analysis of market rates for 2018, our Chief Financial Officer’s base salary indicated that it was approximately at the median of our direct peer group, and therefore was not changed for 2016. Following the resignation of our Chief Financial Officer and the appointment of Mr. Fernandez as the Interim Chief Financial Officer in June 2016, Mr. Fernandez’sOfficer's base salary was set at $290,000. Based on Mr. Jordan's contributions to the Company since his arrival in 2017, and his increased level of experience, the Compensation Committee increased Mr. Jordan's salary for 2019 to $212,000. His base salary remained the same for 2017.
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 completely revamped the incentive compensation of our Chief Executive Officer. As a resultpart of this revamp, the Compensation Committee required for the annual bonus that the Company’s net income achieve a specified minimum threshold, in addition to the performance criteria described below. Mr. Braun’s incentive compensation will be entirely performance-basedfor 2018 was based on the pre-determined performance metrics described below. Reflecting the Company’s significant progress in important Company initiatives, however, Mr. Braun also received a discretionary bonus for 2018. The revamped pay-for-performance compensation structure remains in place for our Chief Executive Officer and anyChief Financial Officer for 2019, with a discretionary components have been eliminated.component that allows the Compensation Committee to consider achievement in other Company initiatives when awarding up to 10% of the annual award.
Annual Incentive Plan.For 2017,2018, 50% of Mr. Braun’s performance-based incentive compensation will beconsisted of an annual bonus payable in cash based in equal parts on increasing gross revenues,return on equity (“ROE”), controlling expenses, targeted EBITDA, and targeted EBITDA.the discretionary component. The Compensation Committee believesdetermined that these annual financial and operating metrics selected for the annual incentive plan appropriately reflectreflected the important measurements of the Company’s results of operations on a year-to-yearyear- to-year basis, and provideprovided incentives to grow the Company’s business in a cost-effective way.
The Compensation Committee determined the specific measurement levels for 2018 for the chosen performance metrics (for both the annual and long-term components) by extrapolating each metric’s target level from the Company’s recent actual performance results with a factor for growth of the Company. The Committee also considered the Company’s projected and longer-
term historic performance, as well as that of the direct peer group of Florida-based homeowners insurers and of the property and casualty insurance industry generally, when determining the target levels for each 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 2018, the Company’s performance as compared to the metrics used in our Chief Executive Officer’s annual bonus plan was as follows:
ROE was 8.3%, which was below the minimum;
Expense control was 40.3%, which substantially achieved the target level of 40.0%; and
EBITDA was $25.7 million, which was below the minimum.
As a result, for 2018, Mr. Braun’s bonus under the annual component of the plan was $284,167. The Compensation Committee elected to also award a discretionary incentive of $250,000, based on the substantial progress made during 2018 towards important Company initiatives. Specifically, the Committee considered the following achievements:
Rigorous exposure management that drove a $30 million reduction in the cost of the Company’s excess-of-loss catastrophe reinsurance spend for the treaty year ending June 30, 2019.
Growth in net income to $14.9 million, up 86.9% over 2017, driven by $22.2 million of earnings from our core homeowners business, a 689% increase over the prior year.
Streamlining of corporate operations and corresponding reductions in overhead, representing annualized savings of approximately $6 million.
The Compensation Committee believes these achievements are contributing to future earnings momentum. As a result, Mr. Braun’s total cash bonus for 2018 totaled $534,167.
Long-Term Incentive Plan.
2018 Plan.The remaining 50% of Mr. Braun’s 20172018 incentive compensation will beconsisted of a long-term incentive bonus payable in equity, based in equal parts on return on equity (“ROE”), increasedincreasing gross revenues, increasing book value per share and relative total shareholder return over three years (“Relative TSR”). The ROEincrease in revenue and increase in book value per share metrics will beare measured over successive one-year performance periods (but wouldthe goals are not be resetmodified from period to period), and the equity granted will vestvests 1/3 annually beginning one year after the grant date.
The metrics selected by the Compensation Committee for the 2018 long-term incentive plan are appropriate measures of the Company’s success over a longer time horizon, with particular emphasis on the measurements 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 the Company’s business, in particular the material impact of hurricanes and other severe weather events that are inherently difficult to predict during any one year. The Compensation Committee believes that the annual measurement of the ROEincrease in revenue and increase in book value per share metrics provides an appropriate means of measuring long-term performance in an industry where external events that(i.e. hurricanes), pricing cycles, and claims trends (such as assignment of benefits) can have a material impact on the Company’s appetite for growth and its financial and operational results (i.e., hurricanes) occur during annual intervals.results.
The Compensation Committee combined the ROEincrease in revenue and increase in book value per share metrics with a Relative TSR metric that will beis measured over a three-year performance period, with the equity cliff vesting at the end of the three-year performance period based on the Company’s performance relative to its direct peer group of Florida-based homeowners’ insurers. For the Relative TSR metric, the Compensation Committee determined that the most appropriate comparison of the Company’s performance would be to this 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 a more consistent way. The Compensation Committee believes as well that the Company’s performance measures are appropriate when compared to the Company’s broader peer group.
2018 Achievement-Year 1 of 2018 Plan. The Company’s performance for 2018 as compared to the metrics used in our Chief Executive Officer’s long-term incentive plan was as follows:
Increase in gross revenues was 1.1%, which was below the minimum;
Increase in book value per share was 6.0%, which was below the minimum; and
The Relative TSR metric will not be determined for two more years.
As a result, Mr. Braun forfeited 11,936 performance-based shares (or $194,000 based on the grant date share price) that had been granted for 2018 under the long-term plan.
2018 Achievement-Year 2 of 2017 Plan. 2018 represented year two of the long-term portion of Mr. Braun’s 2017 incentive compensation. The Company’s performance as compared to the metrics used was as follows:
ROE was 8.3%, which was below the minimum;
Increase in book value per share was 6.0%, which was below the minimum; and
The Relative TSR metric will not be determined for one more year; however, cumulative performance through two years of the three-year measurement period is below the Threshold level of achievement.
As a result, Mr. Braun forfeited 10,660 performance-based shares (related to the ROE and increase in book value metrics) that had been granted for 2017 under the 2017 long-term plan.
2018 Achievement-2018 and 2017 Plans Combined. For the 2018 and 2017 long-term plans on a combined basis, total long-term compensation forfeited by the CEO based on the Company’s 2018 performance was approximately $388,000, based on the related grant date share prices.
Changes for 2019 Plan. As detailed under “Shareholder Outreach and Say on Pay” above, the Company has proactively sought shareholder input on its compensation practices. Based in part on feedback received from shareholders during 2018, the Compensation Committee determinedapproved several changes to the specific measurement levelsincentive compensation plan for 2019, which the chosenCompany believes retains the goals of relating executive compensation to Company growth and shareholder returns. These changes include:
The removal of increase in gross revenues as an incentive compensation metric, to avoid any incentive that might encourage unprofitable growth;
Total shareholder return was removed as a metric, as the Compensation Committee concluded it often does not accurately reflect the effectiveness of management’s actions over the performance metrics by extrapolating each metric’s target level fromperiod, due to the Company’s recent actual performance results with a factor for growthimpacts of macroeconomics, investor sentiment and other external factors;
ROE was moved to the long-term component of the Company. The Committee also consideredplan; and
Adjustments to the Company’s projectedrelative weighting of the annual and longer-term historic performance,long-term components of the plan, as well as thatthe underlying metrics contained therein.
Adding an option for the Compensation Committee to consider achievement of other important Company initiatives when determining up to 10% of the direct peer groupannual award.
The resulting components of Florida-based homeowners’ insurersthe incentive compensation plan for 2019 are as follows:
|
| | | | | | | | | | | | |
| 2019 Annual Incentive Plan: | | | | CEO Payout Factors |
| | | | | | | | | |
| Performance Metrics | | Weight | | Threshold | | Target | | Maximum |
| EBITDA | | 0.250 |
| | 1.00 |
| | 1.75 |
| | 2.50 |
|
| Expense Control | | 0.250 |
| | 1.00 |
| | 1.75 |
| | 2.50 |
|
| Discretionary Component | | 0.100 |
| | 1.00 |
| | 1.75 |
| | 2.50 |
|
|
| | | | | | | | | | | | |
| 2019 Long-Term Incentive Plan: | | | | CEO Payout Factors |
| | | | | | | | | |
| Performance Metrics | | Weight | | Threshold | | Target | | Maximum |
| ROE | | 0.200 |
| | 1.00 |
| | 1.75 |
| | 2.50 |
|
| Increase in Book Value per Share | | 0.200 |
| | 1.00 |
| | 1.75 |
| | 2.50 |
|
Note: The potential payout for each metric is calculated as base salary x Payout Factor x Weight.
The Threshold, Target and Maximum measurement levels were determined by the Compensation Committee with reference to the historical performance of the property and casualty insurance industry generally, when determiningadjusted to reflect the unique characteristics of the Florida property insurance market, and the Company specifically. Each level was developed such that the threshold level was reasonably achievable with good Company performance, the target level was achievable with superior Company performance, and the maximum level was achievable with exemplary Company performance. For 2019, the Compensation Committee determined that the threshold, target and maximum measurement levels for each metric. The targetthe Expense Control metric would be 45.0%, 40.0% and 35.0%. For the ROE metric, the corresponding measurement levels would be 10.0%, 12.0% and 14.0%. For the Increase in Book Value Per Share metric, the corresponding measurement levels would be 8.0%, 10.0% and 12.0%. These measurement levels were selected based on the Compensation Committee’s (and its advisors) perceptions of the metricslong-term expectations and are intended to incentivize our Chief Executive Officer to directnot indicative of earnings expectations for 2019 or any future period. It should be specifically noted that 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. The Company does not provide earnings guidance, and accordingly hasnor does it intend that the measurement levels provided above be interpreted as financial projections or indicative of the Company’s expectations as to its financial results for any current or future periods. Accordingly, the Company is not disclosedproviding the specific measurement pointslevels for the performance metrics. After performance forEBITDA metric at this time so as to avoid any interpretation of forward earnings guidance. Consistent with the 2017 fiscal year has been determined,Company’s prior practices, the Company intends towill disclose its results with respect to all of these performance metrics in its 20182020 proxy statement.
For our Chief Executive Officer, the resulting total potential payouts are $1.0 million, $1.75 million and $2.5 million at Threshold, Target and Maximum, respectively, with 60% attributable to the annual incentive and 40% attributable to the long-term incentive.
The Compensation Committee also consideredmaintained the EBITDA and expense control metrics in the annual component of the plan and supplemented it with a discretionary factor, with the annual component comprising 60% of the total incentive plan. ROE was moved to the long-term component with increase in book value per share, with the long-term component comprising 40% of the total incentive plan. With these changes, the Compensation Committee believes the 2019 incentive plan appropriately balances our Chief Executive Officer’s focus on both the short-term and long-term success of the Company.
The Compensation Committee determined that Mr. Braun will receive no increase in base salary for 20172019 when determining the minimum, target and maximum percentages of base salary for his 20172019 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 2017 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 payout2019 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 2017,2019, 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 20172019 net income is above a minimum threshold pre-determined by the Compensation Committee.
Annual 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) |
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) |
| | | | | | | | |
Long-Term 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) |
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 | | $1.00M | | $1.75M | | $2.50M |
| (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 incentive compensation plan structure approved
Compensation of our Chief Financial Officer. For 2018, our Chief Financial Officer, Ronald A. Jordan, received an annual base salary of $290,000. He was also entitled to receive for 2017 is2018 an annual bonus, payable in stock and cash, with a significant departure fromtarget of 75% of his base salary and a maximum range of 112.5% of his base salary subject to the incentive compensation plan structure approved bysame performance criteria detailed above for the Chief Executive Officer. As described above, the Company exceeded the Threshold performance level for only the expense control metric, resulting in a calculated payment of $35,163. In light of Mr. Jordan’s contributions during 2018, including the continued strengthening of the Company’s reporting and analytical capabilities and internal controls, success in raising $45 million in debt to facilitate our first quarter 2018 buyout of the Monarch joint ventures partners, and achievement of expense reductions, the Compensation Committee increased Mr. Jordan’s 2018 bonus to $100,000.
As described above, the Company did not achieve the Threshold level of either of the annually measured metrics used in our long-term bonus plan during 2018. As a result, Mr. Jordan forfeited 1,482 performance-based shares (or $24,000 based on the grant date share price) that had been granted for 2016. 2018 under the long-term plan.
For 2016,2019, Mr. Braun was entitled to receiveJordan’s base salary is $325,000. His incentive bonus for 2019 will be based on the same short-term and long-term metrics as for our Chief Executive Officer with the same relative weightings, and will be payable in cash for the short-term bonus and in stock for the long-term bonus. The Payout Factors for both the annual and long-term awards as follows:
Performance Metrics | Weight | 2016 Results |
| Pre-tax income | 45% | $2.7 million |
| ROE | 45% | (5.38)% |
| Executive-specific goals | 10% | As determined by the Compensation Committee |
The annual and long-term awards for 2016 were toincentive bonuses on a combined basis will be based on a percentageTarget level of 100% of Mr. Jordan’s base salary of $325,000, Threshold level payout of 50% of base salary and paid 50% in cash and 50% inthe Maximum payout will be 150% of base salary, on a combined basis. No payouts will be made under the annual incentive plan unless the Company’s common stock. Of2018 net income is above a minimum threshold pre-determined by the equity portion, 75% would timeCompensation Committee. In addition, in light of the fact that Mr. Jordan received no shares at year end 2017, nor were any shares vested for 2018 under the 2018 Long-Term Incentive, as a retention tool, the Compensation Committee granted Mr. Jordan $100,000 of restricted stock (5,546 shares, based on the grant date fair value of $18.03) that will vest over five years and 25% would be granted with performance vesting criteria that will be evaluated over three years. The executive-specific goals for Mr. Braun included increasing the Company’s market share in Florida, expanding the Company’s marketing relationships, and expanding the Company’s product lines. The Compensation Committee determined that, although the Company had achieved significant accomplishments during 2016, as described above under “The Company’s 2016 Performance,” the Company’s results did not meet the goals established and therefore Mr. Braun would not be awarded any bonus for 2016.
Erick A. Fernandez, our Interim Chief Financial Officer during 2016, received during 2016 a bonus of $30,000 pursuant to a bonus agreement entered into with him when he joined the Company entitling him to a minimum bonus of $40,000 for 2016. The balance of this bonus was paid to him in 2017. Mr. Fernandez is now our Chief Accounting Officer.
2018 Stock Incentive Plan.Our 20122018 Stock Incentive Plan, which was adopted by the Board of Directors and approved by our shareholders in 2012,2018, 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 20122018 Stock Incentive Plan. The Board has adopted a policy prohibiting2018 Incentive Plan prohibits repricing of stock options and prohibitingprohibits cash buyouts of underwater options, and is proposing an amendment to the 2012 Plan implementing these policies, as well asrequires a minimum vesting requirement, for approval byperiod of one year (except that up to 5% of the Company’s shareholders.shares reserved under the 2018 Stock Incentive Plan may be granted without the minimum vesting requirement).
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 subject to IRS limitations and, from time to time, the Board of Directors approves an additional discretionary profit sharing contribution. No additional contribution was approved for 2016.2018. 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. As part of that review, Mr. Braun’s employment agreement with the 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 that 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 2016, theThe 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 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’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 prohibitedprohibits hedging or pledging the Company’s common stock, without exception.
Tax Considerations. Under Section 162(m) of the Internal Revenue Code of 1986, as amended, 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 compensation in excess of that amount if it qualifies as “performance-based compensation” under Section 162(m). Among other things, compensation qualifies as performance-based for purposes of Section 162(m) if 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 believes 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.
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 20172019 Annual Meeting of Shareholders.
Respectfully Submitted
July 13, 2017
August 26, 2019
/s/ Richard W. Wilcox Jr., Chairman
/s/ Jenifer G. Kimbrough
/s/ Thomas A. Rogers
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 (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 | 2016 | $993,846 | -- | -- | -- | -- | -- | $36,492 | $1,030,338 |
| 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 |
Peter J. Prygelski III Former Chief Financial Officer, Treasurer (7) | 2016 | $325,000 | -- | $1,164,529(10) | -- | -- | -- | $36,418 | $1,525,947 |
| 2015 | $336,346 | $487,500 | $243,750(4) | -- | -- | -- | $51,358 | $1,118,954 |
| 2014 | $297,638 | $175,000 | $658,700(8) | -- | -- | -- | $39,572 | $1,170,910 |
Erick A. Fernandez Interim Chief Financial Officer, Treasurer (9) | 2016 | $180,846 | $40,000 | $63,228 | -- | -- | -- | $8,131 | $292,205 |
| 2015 | -- | -- | -- | -- | -- | -- | -- | -- |
| 2014 | -- | -- | -- | -- | -- | -- | -- | -- |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
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 | 2018 | $ | 1,000,000 |
| — |
| $ | 872,836 |
| (4) | — |
| $ | 534,167 |
| — |
| $ | 16,200 |
| | $ | 2,423,203 |
|
| 2017 | $ | 1,000,000 |
| — |
| 875,000 |
| (5) | — |
| 698,333 |
| — |
| $ | 16,200 |
| | $ | 2,589,533 |
|
| 2016 | $ | 993,846 |
| $ | — |
| $ | — |
| | — |
| $ | — |
| — |
| $ | 35,093 |
| | $ | 1,028,939 |
|
Ronald A. Jordan
Chief Financial Officer | 2018 | $ | 290,000 |
| $ | — |
| $ | 208,469 |
| | — |
| 100,000 |
| — |
| $ | 15,427 |
| | $ | 613,896 |
|
| 2017 | 190,419 |
| 100,000 |
| 151,500 |
| | — |
| — |
| — |
| 103,219 |
| (7) | 545,138 |
|
| 2016 | — |
| — |
| — |
| | — |
| — |
| — |
| — |
| | — |
|
| |
| (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 were updated to reflect the amounts awarded for that year but that were paidMr. Jordan was not a participant in the following fiscal year, and to remove amounts paidCompany’s incentive compensation plan in that year that were awarded for the prior year.2017. |
| |
| (2) | Reflects cash awarded to the Named Executive Officer as long-termannual incentive compensationbonuses based on performance criteria for the applicable fiscalstated year, but that waseach 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) | The nominal amounts remaining after calculationReflects long-term incentive award of awards as53,713 shares (at Target payout level) of restricted stock granted in 2018 for performance-based goals to be met over a three-year period from 2018 to 2020, of which wascertain goals were not met in 2018, resulting in the forfeiture of 11,936 shares (or $194,000 based on the fair market value on the grant date of March 10, 2016, which was $19.16 per share was paid in cash.price), thus far, from this grant. |
| |
| (5) | Mr. Braun elected to receive 100%Reflects (1) long-term incentive award of his 2014 performance award, which was paid in 2015, as restricted stock. The nominal amounts remaining after calculation47,971 shares (at Target payout level) of his award 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 paidgranted in cash. |
(6) | Includes the 2014 performance awards referenced in Note (5) above and grants made on September 9, 2014 and December 9, 2014, which were awarded2017 for performance-based goals to bring his total compensation more in line with the Company’s direct peer group, vestbe met over a five-yearthree-year period from 2017 to 2019, of which certain goals were not met in 2017 and were2018, resulting in the forfeiture of 21,320 shares (or $389,000 based on the fair market values of $25.58 and $26.18, respectively, per share on the grant dates. |
(7) | Mr. Prygelski terminated his employment with the Company on June 20, 2016. The amounts shown include $168,750 paid to Mr. Prygelski in 2016 pursuant to his severance agreement. |
(8) | Reflects a portion of his 2014 performance award, which was paid in 2015, paid in cash and the remaining portion paid in shares of restricted stock. The nominal amount remaining after calculation of his award 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 in 2014 to bring his total compensation more in line with the Company’s direct peer group. All unvested shares held by him were vested upon his separationprice), thus far, from the Company in June 2016.this grant. |
(9) | Mr. Fernandez was appointed Interim Chief Financial Officer in June 2016 and became Chief Accounting Officer in April 2017. |
(10)(6) | Includes grant date fair value and/or incremental fair valueReflects long-term incentive award of 6,675 shares (at Target payout level) of restricted stock granted in 2018 for performance-based goals to be met over a three-year period from 2018 to 2020, of which vesting was accelerated upon his separationcertain goals were not met in 2018, resulting in the forfeiture of 1,482 shares (or $24,000 based on the grant date share price) from this grant, and (2) 5,546 shares of restricted stock (or $100,000 based on the Company.grant date share price) granted in 2019 that time-vests over a five-year period. |
| |
| (7) | This amount includes the amount of relocation expense that was paid to Mr. Jordan. |
ALL OTHER COMPENSATION
| Name | Year | Auto | Club Member Fees | Insurance Benefits (1) | Contribution to 401(k) Plan (2) | All Other Compensation Total |
| Michael H. Braun | 2016 | $3,817 | (3) | -- | $11,261 | $19,930 | $48,466 |
| 2015 | $7,614 | | -- | $10,407 | $17,500 | $34,883 |
| 2014 | $7,998 | | -- | $9,385 | $8,925 | $26,665 |
| Peter J. Prygelski III | 2016 | $2,885 | | $617 | $15,958 | $19,930 | $51,358 |
| 2015 | $6,231 | | $9,239 | $6,844 | $17,500 | $39,572 |
| 2014 | $6,000 | | $9,228 | $6,716 | $8,796 | $30,737 |
| Erick A. Fernandez | 2016 | -- | | -- | -- | $8,131 | $8,131 |
| 2015 | -- | | -- | -- | -- | -- |
| 2014 | -- | | -- | -- | -- | -- |
|
| | | | | | | | | | | | | | | | | | |
| Name | Year | Auto | Relocation Fees | Insurance Benefits (1) | Contribution to 401(k) Plan (2) | All Other Compensation Total |
| Michael H. Braun | 2018 | $ | — |
|
| $ | — |
| $ | — |
| | $ | 16,200 |
| $ | 16,200 |
|
| 2017 | $ | — |
| (3) | $ | — |
| $ | — |
| (3) | $ | 16,200 |
| $ | 16,200 |
|
| 2016 | $ | 3,817 |
| (3) | $ | — |
| $ | 11,261 |
| | $ | 20,015 |
| $ | 35,093 |
|
| Ronald A. Jordan | 2018 | $ | — |
| | $ | — |
| $ | — |
| | $ | 15,427 |
| $ | 15,427 |
|
| 2017 | $ | — |
| | $ | 100,000 |
| $ | — |
| | $ | 3,219 |
| $ | 103,219 |
|
| 2016 | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
|
| |
| (1) | Represents premiums for medical 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. 2017. |
Employment Agreements
Michael H. Braun, Chief Executive Officer and President.We entered intohave been a second amended and restatedparty to an employment agreement with
Michael H. Braun, effective as of January 18,our Chief Executive Officer and President, since 2012, which amended and restated Mr. Braun’s prior employment agreement. In connection with the organization of Monarch National Insurance Company (“Monarch Insurance”) ina 2015 the Company's Board of Directors approved an amendment, to his employment agreement to extend the term of his employment agreement was extended 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 base salary, which may be increased at any time during the term of the agreement, was increased to $1,000,000 effective January 1, 2016.is $1,000,000. 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 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” 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, as amended. If his employment is terminated by us without Cause (as defined in his 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% 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 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 immediately preceding the Change of Control plus the average of his actual bonus for the three fiscal years 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 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 to his Amended and Restated Non-Competition, Non-Disclosure and Non-Solicitation Agreement dated as of August 5, 2013 (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.
Ronald A. Jordan, Chief Financial Officer. Mr. Jordan became the Company’s Chief Financial Officer in April 2017. He is not party toOn January 8, 2019, we entered into an employment agreement with the Company. Mr. Jordan will receive 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 will also behim, pursuant to which he is entitled to receive 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 that will be subject to performance criteria. Mr. Jordan entered into a Change of Control Agreement datedincentive compensation 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 employeddetermined by the CompanyCompensation Committee of the Company’s Board of Directors. He is also entitled to receive medical insurance (including family coverage) and other benefits commensurate with that offered to other similarly situated employees.
Mr. Jordan’s employment agreement is for a two-year term beginning on the date on which a Change of Control (as defined in the Jordan Change of Control Agreement) occurs.execution. If during the two-year period following a Change of Control, Mr. Jordan’s employment is terminated by the Company without Cause orcause prior to a change of control of the Company (as defined in his employment agreement), Mr. Jordan will be entitled to receive in a lump sum payment severance equal to two times his annual base salary as in effect immediately prior to such termination (“Termination Severance”) and any accrued but unpaid bonuses, incentive compensation and other benefits (“Accrued Obligations”). In addition, any unvested equity awards held by Mr. Jordan will vest. The Company will also provide Mr. Jordan and his family medical insurance coverage for two years at no cost (“Extended Medical Coverage”).
If Mr. Jordan’s employment is terminated because of his death or disability (as defined in his employment agreement), Mr.
Jordan will be entitled to receive the Termination Severance (less, in the case of his disability, any amounts paid to him under a long-term disability policy) and the Accrued Obligations. The Termination Severance will be paid in a lump sum in the case of his death, and in accordance with the Company’s payroll practices, in the case of his disability. In addition, any unvested equity awards held by him will vest and the Company will provide two years of Extended Medical Coverage to his family, in the case of his death, or to him and his family, in the case of his disability.
If Mr. Jordan’s employment is terminated by the Company without cause or is terminated by him for Good Reason (each as(as defined in his employment agreement) following a change of control of the Company, Mr. Jordan will be entitled to receive in a lump sum payment severance equal to two times the sum of (a) his annual base salary in effect immediately prior to date of the definitive agreement for the transaction resulting in the change of control plus (b) the average of his incentive bonuses (annual and long-term) awarded for the three fiscal years immediately preceding the termination of his employment (“Change of Control Severance”). In addition, any unvested equity awards held by Mr. Jordan will vest. The Company will also provide Mr. Jordan and his family Extended Medical Coverage for two years.
If Mr. Jordan’s employment is terminated by the Company without cause prior to a change of control, and a change of control occurs within six months of the termination of his employment, Mr. Jordan will be entitled to receive an additional payment equal to the difference between the Change of Control Severance to which he would have been entitled and the Termination Severance. If Mr. Jordan resigns, or is terminated by the Company for cause (as defined in the Jordan Change of ControlEmployment Agreement), he will be entitled to receive a lump sum payment equal to one year ofonly his base salary in effect immediately prior toprorated through the Changedate of Control. termination and will forfeit any accrued but unpaid bonus or other incentive compensation or other benefits, unless otherwise provided under the applicable plan, program or arrangement.
Mr. Jordan is subject toJordan’s employment agreement also sets forth a reaffirmation of the Company’s standard restrictive covenants applicable to its executive officersin Mr. Jordan’s Confidential Information, Non-Solicitation and is entitled to receive other benefits consistent with the other members of the Company’s management team.
Erick A. Fernandez, Chief Accounting Officer. Mr. Fernandez was appointed Interim Chief Financial Officer effective June 20, 2016 and became Chief Accounting Officer in April 2017. Mr. Fernandez is not party to an employment agreement with the Company. In connection with his joining the Company in January 2016, Mr. Fernandez and the Company entered into a BonusNon-Competition Agreement dated as of January 11, 2016 (the “Bonus Agreement”) and a Change of Control Agreement dated as of May 2, 2016 (the “Change of Control Agreement”). The Bonus Agreement provides for a bonus payable to Mr. Fernandez on a quarterly basis equal to 0.060% of net income as reported in the Company’s Form 10-Q, with a minimum bonus for 2016 of $40,000. The 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 above) 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 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. Fernandez 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.April 17, 2017.
Peter J. Prygelski III, Former Chief Financial Officer. Mr. Prygelski resigned his positions as Chief Financial Officer and Treasurer of the Company on June 20, 2016 and therefore the employment-related provisions of his Second Amended and Restated Employment Agreement dated effective as of January 18, 2012 were deemed terminated as of that date. The confidentiality, non-competition and non-solicitation provisions remain in effect. In connection with his resignation, the Company agreed to pay him cash severance equal to two years’ base salary, or $650,000, payable bi-weekly over two years, and accelerated the vesting of approximately 66,500 unvested restricted shares.
Equity-Based Compensation
Grants of Plan Based Awards.The following table provides information regarding restricted stock granted to our Named Executive Officers during 20162018 under the Company’s Amended and Restated 20122018 Stock Incentive Plan (the “2012“2018 Plan”).
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 | 3/10/2016 | 33,315 (2) | $19.16 | $599,995 |
| Peter J. Prygelski III | 3/10/2016 | 12,721 (2) | $19.16 | $243,734 |
| Erick A. Fernandez | 3/10/2016 | 3,300 (3) | $19.16 | $63,228 |
|
| | | | | | | | | |
| 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 | 3/16/2018 | 53,713 |
| (2) | — |
| $ | 872,836 |
|
| Ronald A. Jordan | 3/16/2018 | 6,675 |
| (2) | — |
| $ | 108,469 |
|
| |
| (1) | This amount reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions used inof the calculationshares granted at the Target level of this amount are included in Footnote 14 topayout. The grant date fair value is based on the Company’s audited financial statements for fiscal year ended December 31, 2016.closing price of the common stock at the applicable grant date. |
| |
| (2) | Shares granted in 20162018 for incentiveperformance awards to be based on 20152018 to 2020 performance. |
| (3) | Shares granted to Mr. Fernandez upon his employment with the Company and prior to his appointment as Interim Chief Financial Officer. |
Stock Incentive Plan. Our 20122018 Plan is administered by the Compensation Committee. The objectives of the 20122018 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 20122018 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 2002 stock option plan. This plan has expired, although as of December 31, 2016, 79,484 options remain outstanding under the 2002 plan.
As of December 31, 2016, 243,7592018, 810,103 shares were remaining available to be granted under the 20122018 Plan and, as of the date of this proxy statement, 139,265684,660 shares were available. As of December 31, 2016, all shares of common stock authorized for issuance upon exercise of options granted under the 2002 plan have been issued or are issuable upon exercise of outstanding options. 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 20122018 Plan.
Awards granted under the 20122018 Plan typically vest in equal portions over three or five years. Awards granted under the 2012 Plans require2018 Plan requires 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.
For a summary of the other material provisions of the 2012 Plan, please see “Proposal Three: Approve an Amendment to the Company's Amended and Restated 2012 Stock Incentive Plan—Summary of Plan” below.
Outstanding Equity Awards at Fiscal Year-End. The following table summarizes the equity awards held by our Chief Executive Officer and President and our Interim Chief Financial Officer as of December 31, 2016.2018.
| | 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 |
| Michael H. Braun | | | | | 40,000 | $747,000 | -- | --(2) |
| | | | | | 14,666 | $274,108 | -- | --(3) |
| | | | | | 27,000 | $504,630 | -- | --(4) |
| | | | | | 30,000 | $560,700 | -- | --(5) |
| | | | | | 21,998 | $411,143 | -- | --(6) |
| | | | | | 40,000 | $747,600 | -- | --(7) |
| | | | | | 31,315 | $585,227 | -- | --(8) |
| Erick A. Fernandez | | | | | 3,300 | $61,677 | -- | --(8) |
|
| | | | | | | | | | | | | | |
| Stock Option Awards | Restricted Stock Awards |
| Name | Number of Securities Underlying Exercisable Options (#) | Number of Securities Underlying Unexercisable Options (#) | Option Exercise Price ($) | 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 |
| Michael H. Braun | | | | | 9,000 |
| $ | 179,280 |
| — |
| — |
| (2) |
| | | | | 10,000 |
| $ | 199,200 |
| — |
| — |
| (3) |
| | | | | 20,000 |
| $ | 398,400 |
| — |
| — |
| (4) |
| | | | | 18,879 |
| $ | 374,277 |
| — |
| — |
| (5) |
| | | | | 38,072 |
| $ | 758,394 |
| — |
| — |
| (6) |
| | | | | 59,682 |
| $ | 1,188,865 |
| — |
| — |
| (7) |
| Ronald A. Jordan | | | | | 8,000 |
| $ | 159,360 |
| — |
| — |
| (8) |
| | | | | 7,788 |
| $ | 155,137 |
| |
| — |
| (9) |
| |
| (1) | Based on the market value per share of $29.56$19.92 on December 31, 2016.12/31/2018. |
| |
| (2) | Restricted stock vested as to 25% on December 31, 2016,80% as of 12/31/2018, the remaining 50%20% vest as follows: 20% on 9/9/2019. |
25% on 8/5/2017 and 25% on 8/5 2018.
| |
| (3) | Restricted stock vested as to 66 2/3% on December 31, 2016,80% as of 12/31/2018, the remaining 33 1/3% vests20% vest as follows: 20% on 3/4/2017.12/9/2019. |
| |
| (4) | Restricted stock vested as to 60% as of 12/31/2018, the remaining 40% vest as follows: 20% on 5/5/2019 and 20% on 5/5/2020. |
| |
| (5) | Restricted stock vested as to 40% on December 31, 2016,as of 12/31/2018, the remaining 60% vest as follows: 20% on 3/10/2019, 20% on 3/10/2020, and 20% on 3/10/2021. |
20% on 9/9/2017, 20% on 9/9/2018 and 20% on 9/9/2019.
(5) | Restricted |
| (6) | A portion of this grant is performance-based restricted stock vested asthat cliff vests over a three-year period from 2017 to 40% on December 31, 2016,2019 and the remaining 60% vest as follows:portion vests based on performance achieved in 2019. The Threshold level of Company performance was not achieved for 2017 and 2018, therefore the annually measured components of the grant for those years were forfeited. |
20% on 12/9/2017, 20% on 12/9/2018 and 20% on 12/9/2019.
(6) | Restricted |
| (7) | A portion of this grant is performance-based restricted stock vested asthat cliff vests over a three-year period from 2018 to 33 1/3% on December 31, 2016,2020 and the remaining 66 2/3% vest as follows:portion vests based on performance achieved each year from 2019 to 2020. The Threshold level of Company performance was not achieved for 2018, therefore the annually measured component of the grant for that year was forfeited. |
33 1/3% on 3/10/2017 and 33 1/3% on 3/10/2018.
(7) | |
| (8) | Restricted stock vested as to 20% on December 31, 2016,as of 12/31/2018, the remaining 80% vest as follows: 20% on 5/12/2019, 20% on 5/12/2020, 20% on 5/12/2021 and 20% on 5/12/2022. |
20% on 5/5/2017, 20% on 5/5/2018, 20% on 5/5/2019 and 20% on 5/5/20
(8) | Restricted |
| (9) | A portion of this grant is performance-based restricted stock that cliff vests as follows: 33 1/3%over a three-year period from 2018 to 2020 and the remaining portion vests based on 3/10/2017, 33 1/3% on 3/10/performance achieved each year from 2019 to 2020. The Threshold level of Company performance was not achieved for 2018, and 33 1/3% on 3/10/2019.therefore the annually measured component of the grant for that year was forfeited. |
Option Exercises and Stock Vested. The following table sets forth certain information with respect to stock options exercised and restricted stock awards vested during calendar year 20162018 by our Chief Executive Officer and our former Chief Financial Officer.
|
| | | | | | | | | | |
| | Stock Option Awards | Restricted Stock Awards |
| Name | Shares acquired on Exercise (#) | Value Realized on Exercise ($) | Shares Acquired on Vesting (#) | Value Realized on Vesting ($) |
| Michael H. Braun | — |
| $ | — |
| 9,000 |
| $ | 227,880 |
|
| — |
| $ | — |
| 10,000 |
| $ | 214,000 |
|
| — |
| $ | — |
| 10,000 |
| $ | 173,000 |
|
| — |
| $ | — |
| 6,263 |
| $ | 108,600 |
|
| Ronald A. Jordan | — |
| $ | — |
| 2,000 |
| $ | 36,680 |
|
Chief Executive Officer andPay 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 Interimmedian compensated employee, excluding our Chief FinancialExecutive Officer, to the annual total compensation of our Chief Executive Officer.
| | Stock Option Awards | Restricted Stock Awards |
Name | Shares acquired on Exercise (#) | Value Realized on Exercise ($) | Shares Acquired on Vesting (#) | Value Realized on Vesting ($) |
| Michael H. Braun | 15,000 | $206,461 | -- | -- |
| | 10,000 | $156,133 | -- | -- |
| | 15,000 | $209,500 | -- | -- |
| | -- | -- | 8,333 | $201,075 |
| | -- | -- | 20,000 | $370,200 |
| | -- | -- | 14,665 | $353,866 |
| | -- | -- | 9,000 | $159,840 |
| | -- | -- | 10,000 | $187,300 |
| | | | 10,999 | $210,741 |
| | | | 10,000 | $216,300 |
| Peter J. Prygelski III | 15,000 | $204,461 | -- | -- |
| | 10,000 | $156,133 | -- | -- |
| | 15,000 | $192,150 | -- | -- |
| | -- | -- | 5,000 | $120,650 |
| | -- | -- | 30,000 | $555,300 |
| | -- | -- | 10,894 | $232,260 |
| | -- | -- | 12,000 | $222,120 |
| | -- | -- | 9,551 | $178,859 |
| | -- | -- | 127,21 | $235,466 |
| Erick A. Fernandez | -- | -- | -- | -- |
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 311 full-time and part-time workers who were included as employees on our payroll records as of December 31, 2018 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 2018 annual total compensation as determined under Item 402 of Regulation S-K for our Chief Executive Officer was $2,423,203 as reported in the Summary Compensation Table included above. The 2018 annual total compensation as determined under Item 402 of Regulation S-K for our median employee was $62,268. The ratio of our Chief Executive Officer’s annual total compensation to our median employee’s total annual compensation for fiscal year 2018 is 39 to 1.
Compensation Committee Interlocks and Insider Participation
During fiscal 2016,2018, the Compensation Committee was responsible for overseeing executive compensation. The members of the Compensation Committee as of December 31, 20162018 were Richard W. Wilcox Jr., who served as Chair, Jenifer G. Kimbrough and Thomas A. Rogers and Bruce F. Simberg.Rogers. No member of the Compensation Committee was at any time during fiscal 20162018 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 2016.2018.
Cash Compensation.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 2018.
During 2016,2018, the non-employee directors received an annual retainer of $75,000,$78,750, payable in quarterly installments in January, April, and July and October. We had five non-employee directors until January 20, 2016, when Mr. Simberg re-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 six.
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;$42,000; chairperson of the Audit Committee, $20,000;$21,000; chairperson of the Investment Committee, $17,500;$18,375; chairperson of the Compensation Committee, $15,000; and chairperson of Business DevelopmentStrategy Committee, $15,000.$15,750. Richard W. Wilcox Jr. also received a fee of $20,000$21,000 as the Lead Director during 2016,2018, and did not receive any compensation for serving as the chairperson of the Compensation Committee.and Nominating Committees. These annual chair fees are also payable in quarterly installments in January, April, July and October.
For 2017,2019, the Board approved a 5% increasedid not receive any increases in the annual retainer or chair fees. David W. Michelson and chair fees, reflectingDavid K. Patterson, the impact oftwo new candidates for election to the Company’s growth, strategic initiativesBoard, will serve as Board observers until they join the Board and operating environment onwill be entitled to receive cash compensation from the Board’s workload.Company equivalent in amount and timing to the compensation provided to the director most recently appointed to the Board.
Equity Compensation.Compensation 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. As with the cash compensation, Mr. Michelson and Mr. Patterson, the two new candidates for election to the Board who are serving as Board observers until they join the Board, will be entitled to receive equity compensation from the Company equivalent in amount and timing to the compensation provided to the director most recently appointed to the Board. The Board believes that providing a substantial portion of the non-employee directors’ total compensation in the form of equity aligns the directors’ compensation with the interests of the Company’s shareholders. For 2016,These equity grants are at a price per share equal to the greater of book value per share or the closing price of the Company’s common stock on the grant date. In March 2019, each non-employee director received a grant of $70,000 in5,546 shares of restricted stock that vests over three years.
The Board requested in 2015 that Meridian conduct a review These 2019 annual grants reflected an increase of $30,168 from the cash value of the Board’s compensation of its non-employee directors. Meridian evaluatedannual grants for 2018, reflecting the Company’s outside director compensation relative to the peer group used for its evaluationimpact of the Company’s executive compensation. This evaluation demonstrated thatgrowth, strategic initiatives and operating environment on the Company’s outside director compensation was competitive with its peer groupBoard’s workload and therefore, no changes were made for 2016.in lieu of any increase in cash directors’ fees.
Cash compensation paid to, and the dollar value of equity awards granted to, our non-employee directors in 20162018 are shown in the table below.
NON-EMPLOYEE DIRECTORS' COMPENSATION SUMMARY
| 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 |
| Carl Dorf | $92,500 | $69,991 | -- | -- | -- | | $162,491 |
| Jenifer G. Kimbrough | $95,000 | $69,991 | -- | -- | -- | | $164,991 |
| Thomas A. Rogers | $86,250 | $169,988 | -- | -- | -- | | $256,238 |
| Bruce F. Simberg | $110,055 (2) | $69,991 | -- | -- | -- | | $180,046 |
| William G. Stewart | $75,000 | $169,988 | -- | -- | -- | | $244,988 |
| Richard W. Wilcox Jr | $95,000 | $69,991 | -- | -- | -- | $396 (3) | $165,387 |
|
| | | | | | | | | | | | | | | | | |
| 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 | $ | 99,750 |
| $ | 69,826 |
| — |
| — |
| — |
| — |
| $ | 169,576 |
|
| Thomas A. Rogers | $ | 94,500 |
| $ | 69,826 |
| — |
| — |
| — |
| — |
| $ | 164,326 |
|
| Bruce F. Simberg | $ | 120,750 |
| $ | 69,826 |
| — |
| — |
| — |
| — |
| $ | 190,576 |
|
| William G. Stewart | $ | 97,125 |
| $ | 69,826 |
| — |
| — |
| — |
| — |
| $ | 166,951 |
|
| Richard W. Wilcox Jr | $ | 99,750 |
| $ | 69,826 |
| — |
| — |
| — |
| — |
| $ | 169,576 |
|
| Roberta N. Young (2) | $ | 78,750 |
| 169,569 |
| — |
| — |
| — |
| — |
| $ | 248,319 |
|
| |
| (1) | 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 2016.2018. |
| |
| (2) | Mr. Simberg resigned from the Board of DirectorsIn March 2018, in March 2015 for personal reasons, becoming a consultantaddition to the Company for which he earned consulting fees, and rejoined theannual grant received by each Board in January 2016. This amount includes his director’s fees paid to him during 2016 and his consulting fees for the first few weeksmember, Ms. Young received a grant of 2016. |
(3) | Includes the fair value of events attended by Mr. Wilcox in 2016. |
Name | Total Stock Option/Equity Awards Outstanding at 2016 Fiscal Year End (Shares) | Stock Option / Equity Awards Granted During Fiscal Year 2016 (Shares) | Grant Date Fair Value of Equity Awards Granted During Fiscal Year 2016 ($) |
Carl Dorf | 37,089 (a) | 3,653 | $69,991 (b) |
Jenifer G. Kimbrough | 27,089 (c) | 3,653 | $69,991 (b) |
Thomas A. Rogers | 8,872 (d) | 8,872 | $169,988 (b) |
Bruce F. Simberg | 3,653 (e) | 3,653 | $69,991 (b) |
William G. Stewart | 8,872 (d) | 8,872 | $169,988 (b) |
Richard W. Wilcox Jr | 12,089 (f) | 3,653 | $69,991 (b) |
(a) | Includes 10,000 fully vested options granted on August 22, 2011 with an exercise price of $2.45,and an expiration date of August 22, 2021; 15,000 fully vested options granted on April 6, 2012 with an exercise price of $4.40 and an expiration date of April 6, /2022; 6,0006,138 shares of restricted stock which began vestingthat vest over five years in connection with an initial vest date of September 9, 2015; 695 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2016 and 2,435 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017.her election to the Board. |
|
| | | | | | | | | |
| Name | Total Stock
Option/Equity
Awards Outstanding
at 2018 Fiscal Year
End (Shares) | Stock Option /
Equity Awards
Granted During
Fiscal Year 2018
(Shares) | Grant Date Fair Value of
Equity Awards Granted
During Fiscal Year 2018
($) |
| Jenifer G. Kimbrough | 24,708 |
| (a) | 4,297 |
| $ | 69,826 |
| (b) |
| Thomas A. Rogers | 10,839 |
| (c) | 4,297 |
| $ | 69,826 |
| (b) |
| Bruce F. Simberg | 11,708 |
| (d) | 4,297 |
| $ | 69,826 |
| (b) |
| William G. Stewart | 10,839 |
| (c) | 4,297 |
| $ | 69,826 |
| (b) |
| Richard W. Wilcox Jr | 9,708 |
| (e) | 4,297 |
| $ | 69,826 |
| (b) |
| Roberta N. Young | 10,435 |
| (f) | 10,435 |
| 169,569 |
| (b) |
(b) | Based on the market value of $19.16 on March 10, 2016. |
(c)(a) | Includes 15,000 fully vested options granted on April 6, 2012 with an exercise price of $4.40 and an expiration date of April 6, 2022; 6,0002,000 shares of restricted stock which began vesting over five years with an initial vest date of September 9, 2015; 6951,218 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 20162017, 2,193 shares of restricted stock which will begin vesting over three years with an initial vest date of March 14, 2018 and 2,4354,297 shares of restricted stock which will begin vesting over three years with an initial vest date of March 6, 2019. |
| |
| (b) | Based on the market value per share of $16.25 on March 16, 2018. |
| |
| (c) | Includes 1,218 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017.2017, 3,131 shares of restricted stock which began vesting over five years with an initial vest date of March 10, 2017 and 2,193 shares of restricted stock which will begin vesting over three years with an initial vest date of March 14, 2018, and 4,297 shares of restricted stock which will begin vesting over three years with an initial vest date of March 6, 2019. |
(d) | |
| (c) | Includes 2,4364,000 shares of restricted stock which will began vesting over five years with an initial vest date of September 9, 2015, 1,218 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017 and 4,1762,193 shares of restricted stock which began vesting over five years with an initial vest date of March 10, 2017. |
(e) | Includes 2,435 shares of restricted stock which beganwill begin vesting over three years with an initial vest date of March 10, 2017.14, 2018 and 4,297 shares of restricted stock which will begin vesting over three years with an initial vest date of March 6, 2019. |
(f) | |
| (d) | Includes 6,0002,000 shares of restricted stock which began vesting over five years with an initial vest date of September 9, 2015; 6951,218 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 20162017 and 2,4352,193 shares of restricted stock which beganwill begin vesting over three years with an initial vest date of March 10, 2017.14, 2018 and 4,297 shares of restricted stock which will begin vesting over three years with an initial vest date of March 6, 2019. |
| |
| (e) | Includes 6,138 shares of restricted stock which will begin vesting over five years with an initial vest date of March 6, 2019 and 4,297 shares of restricted stock which will begin vesting over three years with an initial vest date of March 06, 2019. |
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 non-employee 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 the Company’s common stock and prohibited pledging the Company’s common stock except in limited circumstances as approved by the Board. All of our directors except for two newthe Board members joining in 2015 and 2017 are in compliance with these guidelines.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.
Related Transactions
The following is a summary of transactions during 2015 and 2016since the beginning of the 2018 fiscal year 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 ofIn connection with the Board, is a partner of the Fort Lauderdale, Florida law firm of Conroy Simberg, which specializes in insurance defense and coverage matters. The Company paid legal fees to Conroy Simberg for services rendered in the amount of $26,286 and $72,198 in 2015 and 2016, respectively. We believe that the fees charged for services provided by Conroy Simberg are on terms at least as favorable as those that we could secure 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 forCooperation Agreement (please see “Cooperation Agreement with Capital Returns” above), the Company agreed to reimburse Capital Returns’ fees and he received de minimis direct personal benefit from the fees paidexpenses relating to the firm by the Company. The matters handled by the firm for the Company asCooperation Agreement up to a maximum of December 31, 2016 have been completed or are in the process of being completed, and the Company does not at this time anticipate retaining the firm for future matters.$450,000.
During 2015 and 2016,2018, the brother of 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 $148,917$162,766 for his services in 2015 as Vice President of Accounting and Finance and in 20162018 as Director of BudgetingBudgets and Forecasting, respectively.Forecasts. 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 and director nominees are independent pursuant to the Nasdaq Rules applicable to the Company: Bruce F. Simberg, Richard W. Wilcox Jr., Jenifer G. Kimbrough, Thomas A. Rogers, and William G. Stewart. In making the independence determination with respect to Mr. Simberg, the Board considered that the fees paid by the Company in connection with the legal services provided by Conroy Simberg during the past three fiscal years did not exceed the amounts set forth in Nasdaq Rule 5605(a)(2)(D)Stewart, Roberta N. Young, David W. Michelson, and therefore, the Board has determined that Mr. Simberg qualifies as an independent director under Nasdaq Rule 5605(a)(2).David K. Patterson.
PROPOSAL TWO: 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 20162018 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 NationalFedNat 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 will, however, 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 2 to approve, on an advisory basis, the Company’s executive compensation.
PROPOSAL THREE: APPROVE AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED 2012 STOCK INCENTIVE PLAN
The Board of Directors has recommended that the Company's shareholders approve an amendment to the Company's Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) to implement certain prohibitions on repricing of outstanding options. A copy of the proposed amendment to the 2012 Plan is attached to this proxy statement as Annex A.
In March 2017, the Board approved a formal policy prohibiting the repricing of any outstanding option awards, and directed that the 2012 Plan be amended accordingly. This formal policy and the proposed amendment memorializes the Board’s longstanding practice of not permitting the repricing of any outstanding option awards. Although the Company is not currently granting stock options as a means of providing equity incentives to its management team and directors, the Board believes that amending the 2012 Plan to implement this policy and practice is in the best interests of the Company and its shareholders. In addition, the Board has approved amending the 2012 Plan to provide that no portion of awards under the 2012 Plan shall vest before one year from the grant date, which is consistent with the Board’s approach to requiring that equity awards vest over a period of time (generally three to five years), thereby encouraging recipients to continue their service with the Company to receive the full benefits of the awards. The Board believes that this approach also better aligns the interests of the award recipients with the interest of the Company’s shareholders.
In particular, if the proposed amendment is approved, the Compensation Committee, as Administrator of the 2012 Plan, will be prohibited from approving:
(a) the reduction, directly or indirectly, of the exercise price of an option,
(b) the cancellation of an option in exchange for cash, other awards, or options with an exercise price that is less than the exercise price of the original option, and
(c) the repurchase of an option for value (in cash or otherwise) from a recipient of an award if the then-current Fair Market Value of the shares of Common Stock underlying the option is lower than the exercise price of the option, in each case without the approval of the shareholders of the Company and except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares).
In addition, if the proposed amendment is approved, awards under the 2012 Plan will be subject to a minimum vesting requirement of at least one year from the date of grant.
Although the Board does not intend to authorize the repricing of any outstanding equity awards, the Board believes that memorializing the Board’s policy through the adoption of this proposed amendment further enhances the Company’s executive and director compensation programs by strengthening the alignment of the 2012 Plan with the interests of the Company’s shareholders by explicitly prohibiting actions that are seen as being shareholder-unfriendly. In addition, this amendment formalizes the Board’s policy of requiring that awards under the 2012 Plan be subject to minimum vesting requirements.
The amendment to the 2012 Plan proposed in this proxy statement will not increase the number of shares reserved for future issuance, nor will it extend the term of the 2012 Plan, beyond what the shareholders previously approved in 2012 when the shareholders voted to approve the 2012 Plan. Except as set forth in the proposed amendment, all other terms of the 2012 Plan will remain the same.
For the reasons described above, the Board determined that it is in the best interests of the Company and its shareholders to amend the 2012 Plan to prohibit repricing of outstanding stock options and establish a minimum vesting requirement of at least one year from the date of grant, as set forth in Annex A to this proxy statement. Accordingly, the Board is recommending that the shareholders vote in favor of this proposal.
The amendment to the 2012 Plan will be approved if the votes in favor of the amendment exceed the votes against the amendment. Broker “non-votes” and abstentions will count neither as votes for or against this proposal.
The Board of Directors recommends that you vote FOR the amendment to the Company's Amended and Restated 2012 Stock Incentive Plan.
Summary of Plan
The following summarizes the material provisions of the 2012 Plan, which, other than as described above and in Annex A, are not being amended and will remain the same. The 2012 Plan reserves 1,000,000 shares of the Company’s common stock for awards and, as of the date of this proxy statement, 860,735 shares have been granted or are subject to an award and 139,265 remain available for grant. For more information regarding our currently outstanding equity awards, please see Note 10 to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, which accompanies this proxy statement. The number and class of shares available under the 2012 Plan and the terms of outstanding awards may be adjusted by the Administrator to prevent dilution or enlargement of rights in the event of various changes in the capitalization of the Company. If any shares that are subject to an award under the 2012 Plan remain unissued upon the cancellation or termination of such award for any reason whatsoever, if any shares of restricted stock or performance shares are forfeited pursuant to the terms of the 2012 Plan, or if any shares in respect of which a stock appreciation right is settled for cash, such shares will again become available for issuance under the 2012 Plan.
Administration
The Compensation Committee, as the Administrator of the 2012 Plan, has the authority (i) to exercise all of the powers granted to it under the 2012 Plan, (ii) to construe, interpret and implement the 2012 Plan and any award agreements executed pursuant to the terms of the 2012 Plan in its sole discretion with all such determination being final, binding and conclusive, (iii) to prescribe, amend and rescind rules and regulations relating to the 2012 Plan, including rules governing its own operations, (iv) to make all determinations necessary or advisable in administering the 2012 Plan, and (v) to correct any defect, supply any omission and reconcile any inconsistency in the 2012 Plan. 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. To the extent permitted by the 2012 Plan, the Administrator also has the power to modify or waive restrictions on awards, to amend awards, and to grant extensions and accelerations of awards.
Because the administration of the 2012 Plan involves discretionary determinations by the Administrator, future awards to be granted under the 2012 Plan are not now determinable.
Eligibility of Participation
Officers, directors and executive, managerial, administrative and professional employees of the Company and its subsidiaries are eligible to participate in the 2012 Plan. The selection of eligible participants is within the discretion of the Administrator. As of the date of this proxy statement, approximately 433 persons are eligible to participate in the 2012 Plan.
Types of Awards
The 2012 Plan provides for incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units, and performance shares. Awards may be granted singly, in combination, or in tandem, as determined by the Compensation Committee. The Board of Directors may amend, suspend or modify the 2012 Plan at any time, except as limited by the terms of the 2012 Plan.
Stock Option Grants. The Administrator may grant options qualifying as incentive stock options under the Internal Revenue Code and nonqualified stock options. The term of an option will be fixed by the Administrator, but will not exceed 10 years or five years in the case of an incentive stock option granted to a person beneficially owning shares representing 10% or more of the total combined voting power of all classes of stock of the Company (a “10% shareholder”). The option price for any option will not be less than the fair market value of common stock on the date of grant (or 110% of the fair market value in the case of an incentive stock option granted to a 10% shareholder). Generally, the fair market value will be the closing price of the common stock on the applicable trading market. Payment for shares purchased upon exercise of a stock option must be made in full at the time of purchase. Payment may be made in cash, with the consent of the Administrator, by the transfer to the Company of shares having a fair market value equal to the option exercise price, or at the discretion of the Administrator and to the extent permitted by law, by such other provision, consistent with the terms of the 2012 Plan, as the Administrator may prescribe from time to time.
Stock Appreciation Rights.�� The Administrator is authorized to grant stock appreciation rights entitling the participant to receive the amount by which the fair market value of a share of common stock on the date of exercise exceeds the grant price of the stock appreciation right. The grant price of a stock appreciation right is determined by the Administrator, but may not be less than the fair market value of a share of common stock as of the date of grant. The maximum term of each stock appreciation right, the times at which each stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised stock appreciation rights at or following termination of employment are determined by the Administrator. All awards of stock appreciation rights will be settled in cash or shares of common stock, or a combination of both as determined by the Administrator in its sole discretion.
Restricted Stock and Restricted Stock Units. The Administrator is authorized to grant restricted stock and restricted stock units. Restricted stock is a grant of shares of common stock which may not be sold or disposed of and which shall be subject to such risks of forfeiture and other restrictions as the Administrator may impose. Upon the issuance of such a restricted stock award, the grantee shall have the rights of a shareholder with respect to the restricted stock, subject to: (i) the nontransferability restrictions and forfeiture provision described the 2012 Plan; (ii) in the Administrator's discretion, to a requirement that any dividends paid on such shares shall be held in escrow until all restrictions on such shares have lapsed; and (iii) any other restrictions and conditions contained in the applicable restricted stock agreement. Shares of restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as otherwise specifically described in the 2012 Plan or the applicable restricted stock agreement. The Administrator may grant, or sell at a purchase price at least equal to par value, shares of common stock free of restrictions under the 2012 Plan, subject to such forfeiture provisions as the Administrator shall determine in its sole discretion. A grant of restricted stock units allows the recipient to receive, upon the occurrence of events specified in the grant, cash equal to amount of the vested restricted stock units multiplied by the fair market value of a share of common stock. A participant granted restricted stock generally has all of the rights of a shareholder of the company, unless otherwise determined by the Administrator.
Performance Shares. The Administrator may grant performance share awards to such key persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Administrator shall in its sole discretion determine, subject to the provisions of the 2012 Plan. Such an award shall entitle the grantee to acquire shares of common stock, or to be paid the value thereof in cash, as the Administrator shall determine, if specified performance goals are met. The grantee of a performance share award will have the rights of a stockholder only as to shares for which a stock certificate has been issued pursuant to the award and not with respect to any other shares subject to the award.
Amendment of the 2012 Plan
The Board of Directors has the right and power to amend the 2012 Plan, without the consent of the participants. The Board of Directors may not, however, amend the 2012 Plan in a manner that would impair or adversely affect the rights of the holder of an award without the holder's consent. The Company will obtain shareholder approval if an amendment increases the aggregate number of shares that may be issued pursuant to incentive stock options or changes the class of employees eligible to receive such options; materially increases the benefits under the 2012 Plan to persons whose transactions in common stock are subject to Section 16(b) of the Exchange Act or increases the benefits under the 2012 Plan to someone who is, materially increases the number of shares that may be issued to such persons, or materially modifies the eligibility requirements affecting such persons; other otherwise as determined by the Board in its discretion.
Termination of the 2012 Plan
The 2012 Plan may be terminated at any time by the Board. Termination will not in any manner impair or adversely affect any benefit outstanding at the time of termination. The 2012 Plan will expire on the date that is 10 years after the plan is approved by the Board.
Administrator's Right to Modify Benefits
Any award granted may be converted, modified, forfeited, or canceled, in whole or in part, by the Administrator if and to the extent permitted in the 2012 Plan, or applicable agreement entered into in connection with an award or with the consent of the participant to whom the award was granted.
Federal Tax Treatment
The 2012 Plan is not qualified under the provisions of section 401(a) of the Internal Revenue Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974. The following is a summary of the federal tax consequences of awards under the 2012 Plan and is not a complete analysis of the potential tax consequences relevant to the recipients of awards or to the Company, nor is it intended to describe tax consequences based on particular circumstances. This summary is based on the U.S. federal income tax law, regulations and interpretations as in existence as of the date of this proxy statement, which may change at any time.
Nonqualified Stock Options. On exercise of a nonqualified stock option granted under the 2012 Plan, an optionee will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the shares of stock acquired on exercise of the option over the exercise price. If the optionee is an employee of the Company, that income will be subject to the withholding of Federal income tax. The optionee’s tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and his holding period for those shares will begin on that date.
If an optionee pays for shares of stock on exercise of an option by delivering shares of the Company’s common stock, the optionee will not recognize gain or loss on the shares delivered, even if their fair market value at the time of exercise differs from the optionee’s tax basis in them. The optionee, however, otherwise will be taxed on the exercise of the option in the manner described above as if he had paid the exercise price in cash. If a separate identifiable stock certificate is issued for that number of shares equal to the number of shares delivered on exercise of the option, the optionee’s tax basis in the shares represented by that certificate will be equal to his tax basis in the shares delivered, and his holding period for those shares will include his holding period for the shares delivered. The optionee’s tax basis and holding period for the additional shares received on exercise of the option will be the same as if the optionee had exercised the option solely in exchange for cash.
The Company will be entitled to a deduction for Federal income tax purposes equal to the amount of ordinary income taxable to the optionee, provided that amount constitutes an ordinary and necessary business expense for the Company and is reasonable in amount, and either the employee includes that amount in income or the Company timely satisfies its reporting requirements with respect to that amount.
Incentive Stock Options. The 2012 Plan provides for the grant of stock options that qualify as “incentive stock options” as defined in section 422 of the Code. Under the Internal Revenue Code, an optionee generally is not subject to tax upon the grant or exercise of an incentive stock option. In addition, if the optionee holds a share received on exercise of an incentive stock option for at least two years from the date the option was granted and at least one year from the date the option was exercised (the “Required Holding Period”), the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder’s tax basis in that share will be long-term capital gain or loss.
If, however, an optionee disposes of a share acquired on exercise of an incentive stock option before the end of the Required Holding Period (a “Disqualifying Disposition”), the optionee generally will recognize ordinary income in the year of the Disqualifying Disposition equal to the excess, if any, of the fair market value of the share on the date the incentive stock option was exercised over the exercise price. If, however, the Disqualifying Disposition is a sale or exchange on which a loss, if realized, would be recognized for federal income tax purposes, and if the sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income recognized by the optionee will not exceed the gain, if any, realized on the sale. If the amount realized on a Disqualifying Disposition exceeds the fair market value of the share on the date of exercise of the option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.
An optionee who exercises an incentive stock option by delivering shares of stock acquired previously pursuant to the exercise of an incentive stock option before the expiration of the Required Holding Period for those shares is treated as making a Disqualifying Disposition of those shares. This rule prevents “pyramiding” or the exercise of an incentive stock option (that is, exercising an incentive stock option for one share and using that share, and others so acquired, to exercise successive incentive stock options) without the imposition of current income tax.
For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an incentive stock option exceeds the exercise price of that option generally will be an adjustment included in the optionee’s alternative minimum taxable income for the year in which the option is exercised. If, however, there is a Disqualifying Disposition of the share in the year in which the option is exercised, there will be no adjustment with respect to that share. If there is a Disqualifying Disposition in a later year, no income with respect to the Disqualifying Disposition is included in the optionee’s alternative minimum taxable income for that year. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an incentive stock option is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the option is exercised.
We are not allowed an income tax deduction with respect to the grant or exercise of an incentive stock option or the disposition of a share acquired on exercise of an incentive stock option after the Required Holding Period., If there is a Disqualifying Disposition of a share, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionee, provided that amount constitutes an ordinary and necessary business expense for the Company and is reasonable in amount, and either the employee includes that amount in income or the Company timely satisfies its reporting requirements with respect to that amount.
Stock Awards. Generally, the recipient of a stock award will recognize ordinary compensation income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is non-vested when it is received under the 2012 Plan (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary compensation income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient in exchange for the stock.
The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired as stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested. Upon the disposition of any stock received as a stock award under the 2012 Plan, the difference between the sale price and the recipient’s basis in the shares will be treated as a capital gain or loss and generally will be characterized as long-term capital gain or loss if the shares have been held for more than one year from the date as of which he or she would be required to recognize any compensation income.
The Company will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the employee is required to recognize at the time so recognized by the employee, whether upon vesting or grant, if the employee makes the election deferral above.
Stock Appreciation Rights. Generally, the recipient of a stock appreciation right will not recognize any taxable income at the time the stock appreciation right is granted. When the recipient receives the appreciation inherent in the stock appreciation right in shares of stock, the recipient will recognize ordinary compensation income equal to the excess of the fair market value of the stock on the day it is received over any amounts paid by the recipient for the stock. In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of a stock appreciation right. Upon the exercise of the stock appreciation right, however, we will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the employee is required to recognize as a result of the exercise, provided that the deduction is not otherwise disallowed under the Code.
Section 409A. Section 409A of the Code imposes certain new requirements applicable to “nonqualified deferred compensation plans,” including rules relating to the timing of deferral elections and elections with regard to the form and timing of benefit distributions, prohibitions against the acceleration of the timing of distributions, and the times when distributions may be made. If a nonqualified deferred compensation plan subject to Section 409A fails to meet, or is not operated in accordance with, these requirements, then all compensation deferred under the plan is or becomes immediately taxable to the extent that it is not subject to a substantial risk of forfeiture and was not previously taxable. The tax imposed as a result of these rules would be increased by interest at a rate equal to the rate imposed upon tax underpayments plus one percentage point, and an additional tax equal to 20% of the compensation which is required to be included in income. Some of the awards to be granted under the 2012 Plan may constitute deferred compensation subject to the Section 409A requirements, including, without limitation, the stock appreciation rights that are not payable in shares of the Company’s common stock. It is the Company’s intention that any award agreement that will govern awards subject to Section 409A will comply with these rules.
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. With the retirement of Carl Dorf following the Annual Meeting, the Board will add another member to the Audit Committee with the requisite knowledge and experience. The Audit Committee operates under a written charter adopted by the Board, which is available at www.FedNat.com under the “Investors” tab and the link “Corporate Governance.”
At each of the Audit Committee’s regularly scheduled meetings during 2016,2018, 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, 2016,2018, 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, 2016.2018.
Respectfully Submitted
July 13, 2017August 26, 2019
/s/ Jenifer G. Kimbrough, Chairman
/s/ Carl Dorf
/s/ Richard W. Wilcox Jr.
/s/ Roberta N. Young
PROPOSAL
FOUR:THREE: 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, 2017.2019. 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 shows fees that we paid (or accrued) for professional services rendered by E&Y and GSK for fiscal 20162018 and 2015.2017.
| | | Year Ended December 31, | |
| | | 2016 | | 2015 | |
| Audit Fees (1) | | $ | 882,522 | | $ | 1,299,760 | (2) |
| Audit-Related Fees (4) | | | 22,055 | | | 6,425 | (3) |
| Tax fees (5) | | | 205,820 | | | — | |
| Total | | $ | 1,110,397 | | $ | 1,306,185 | |
|
| | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 |
| Audit Fees (1) | | $ | 915,200 |
| | $ | 1,129,000 |
|
| Audit-Related Fees (2) | | 36,511 |
| | 121,553 |
|
| Tax fees (3) | | 252,840 |
| | 154,152 |
|
| Total | | $ | 1,204,551 |
| | $ | 1,404,705 |
|
| |
| (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)(2) | 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. |
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 services rendered to us by GSK and E&Y in 20162018 were pre-approved in accordance with these procedures.
The Company’s independent auditors for the 20162018 fiscal year, E&Y, as successor to GSK, 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, officer or employee. All professional services rendered by E&Y and GSK during the fiscal year ended December 31, 20162018 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 20172019 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” ratification ofFOR Proposal 3, to ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the 20172019 fiscal year.
SHAREHOLDER MATTERS
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 NationalFedNat Holding Company, 14050 N.W. 14th 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 20182020 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 20182020 Annual Meeting of Shareholders must deliver a proposal in writing to our principal executive offices no later than March 28, 2018May 9, 2020 (or a reasonable time before we begin to print and mail the proxy materials for the 20182020 annual meeting, if we change the date of the 20182020 annual meeting more than 30 days from the date of this year’s Annual Meeting). Proposals should be addressed to: Corporate Secretary, Federated NationalFedNat Holding Company, 14050 N.W. 14th 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 20182020 Annual Meeting
Shareholder proposals intended to be presented at, but not included in the proxy materials for, our 20182020 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,
The name and record address of the shareholder proposing such business,
The class and number of shares beneficially owned by the shareholder, and
Any material interest of the shareholder in such business.
The SEC’sSEC'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 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. 14th Street, Suite 180, Sunrise, Florida 33323.
By Order of the Board of Directors
REBECCA L. SANCHEZJ.G. Jennings III, Corporate Secretary
Sunrise, Florida
July 25, 2017September 6, 2019
Proposed Amendment to the Amended and Restated 2012 Stock Incentive Plan
The Amended and Restated 2012 Stock Incentive Plan shall be amended by adding new Sections 2.10 and 2.11 as follows:
“Section 2.10. Restrictions on Repricing
Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares): (a) the exercise price of an option may not be reduced, directly or indirectly, (b) an option may not be cancelled in exchange for cash, other awards, or options with an exercise price that is less than the exercise price of the original option, and (c) the Company may not repurchase an option for value (in cash or otherwise) from a recipient of an award if the then-current Fair Market Value of the shares of Common Stock underlying the option is lower than the exercise price of the option, in each case without the approval of the shareholders of the Company.
Section 2.11. Minimum Vesting Requirement
No portion of any awards under the Plan shall vest before one year from the date of grant.”
REVOCABLE PROXY
FEDERATED NATIONAL HOLDING COMPANY
ANNUAL MEETING OF SHAREHOLDERS – SEPTEMBER 12, 2017
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 13, 2017 at the Annual Meeting of Shareholders to be held on September 12, 2017 or any adjournments or postponements thereof.
Proposal 1. | TO ELECT ONE CLASS III DIRECTOR TO SERVE UNTIL OUR ANNUAL MEETING IN 2020 |
Thomas A. Rogers
☐ For ☐ Against ☐ Abstain
Proposal 2. | ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION |
☐ For ☐ Against ☐ Abstain
Proposal 3. | TO AMEND THE COMPANY’S AMENDED AND RESTATED 2012 STOCK INCENTIVE PLAN TO IMPLEMENT PROHIBITIONS ON REPRICING AND ESTABLISH A MINIMUM VESTING REQUIREMENT |
☐ For ☐ Against ☐ Abstain
Proposal 4. | TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2017 FISCAL YEAR |
☐ For ☐ Against ☐ Abstain
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 the nominee in Proposal 1 and FOR Proposals 2, 3 and 4. 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.
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 STATES45
