Results of Our Evaluations

The total payout for both the annual and long-term incentive bonuses on a combined basis will be based on Mr. Braun’s base salary of $1,000,000 for 2018, at the threshold, target and maximum payout factors indicated in the table below.  No payouts will be made under the annual incentive plan unless the Company’s 2018 net income is above a minimum threshold pre-determined by the Compensation Committee.

 

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The Company does not provide earnings guidance, and accordingly has not disclosed the specific measurement points for the performance metrics.  After performance for the 2018 fiscal year has been determined, the Company intends to disclose its results with respect to these performance metrics in its 2019 proxy statement.

Ronald A. Jordan, who became our Chief Financial Officer in 2017, received an annual base salary of $275,000 and a relocation reimbursement of $100,000.  He also received a grant of 10,000 shares of restricted stock vesting over five years.  He was also entitled to receive for 2017 an annual bonus, payable in stock and cash, with a target of 50% of his base salary and a maximum range of 100% of his base salary subject to performance criteria.  Although the Company did not meet the performance criteria for 2017, the Compensation Committee determined that Mr. Jordan contributed extraordinary efforts since joining the Company to the Company’s accomplishments in 2017, such as the Company’s $45 million debt offering and the related purchase of the joint venture interests in Monarch National Insurance Company.  Therefore, the Compensation Committee determined to award Mr. Jordan a cash bonus of $100,000 for 2017.

For 2018, Mr. Jordan’s base salary is $290,000.  His incentive bonus for 2018 will be based on the same annual and long-term metrics as for our Chief Executive Officer with the same relative weightings, and will be payable in cash for the annual bonus and in stock for the long-term bonus.  The total payout for both the annual and long-term incentive bonuses on a combined basis will be based on a target level of 75% of Mr. Jordan’s base salary of $290,000.  The minimum payout will be 37.5% of base salary and the maximum payout will be 112.5% of base salary, on a combined basis.  No payouts will be made under the annual incentive plan unless the Company’s 2018 net income is above a minimum threshold pre-determined by the Compensation Committee.

Erick A. Fernandez, our Chief Accounting Officer, received during 2017 a bonus of $40,000 pursuant to a bonus agreement entered into with him when he joined the Company entitling him to a quarterly bonus equal to 0.060% of net income as reported in the Company’s Form 10-Q, with a minimum bonus for 2017 of $40,000.  For 2018, Mr. Fernandez’s base salary remains at $212,000.  His incentive bonus for 2018 will be based on five performance metrics, and will be payable in cash.  His bonus will be based on a target level of $75,000, and the minimum payout will be $37,500 and the maximum payout will be $150,000.

 

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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.  The Board has adopted a clawback policy applicable to our Named Executive Officers and other current or former executive officers of the Company.  Pursuant to this policy, the Company will have the right, in appropriate circumstances as determined by the Board in its sole discretion, to seek to recover all or any part of the cash or equity incentive-based compensation granted to our Named Executive Officers or such other executive officers during the three fiscal years preceding the date on which the Company is required to prepare an accounting restatement to correct a material error, if the restatement is required because of a knowing violation of SEC rules and regulations, GAAP, other applicable legal or regulatory requirements, or Company policy by a Named Executive Officer or such other executive officer.  Incentive-based compensation subject to the policy includes any cash or equity compensation granted, earned or vested based wholly or in part on the attainment of a financial reporting measure.  Financial reporting measures include measures that are based on accounting principles used in preparing the Company’s financial statements, measures that are derived from information in the Company’s financial statements, and stock price and total shareholder return.  The Board will have the discretion to forgo such recovery if it determines that seeking such recovery would be unreasonable or not in the Company’s best interests.

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Tax Considerations.  Prior to 2018, Section 162(m) of the Internal Revenue Code of 1986, as amended, provided that the federal income tax deductibility of compensation paid to our Named Executive Officers may be limited to the extent that compensation to a Named Executive Officer exceeds $1.0 million in any year.  Compensation in excess of that amount could be deducted if it qualified as “performance-based compensation” under Section 162(m).  The deductibility of compensation exceeding $1.0 million was eliminated in the tax reform legislation adopted in late 2017.

/s/ Richard W. Wilcox Jr., Chairman

/s/ Jenifer G. Kimbrough

/s/ Thomas A. Rogers

 

The following table sets forth information regarding compensation earned by, awarded to or paid to our Named Executive Officers for the years indicated:

Name and Principal Position	Year		Salary				Bonus (1)				Stock Awards				Option Awards				Non-Equity  Incentive Plan Compensation (2)				Nonqualified Deferred Compensation Earnings				All Other Compensation (3)				Total
Michael H. Braun Chief Executive Officer, President	2017		$	1,000,000			$	--			$	1,250,000(4	)			--			$	698,333				--			$	16,200			$	2,964,533
	2016		$	993,846				--				--				--				--				--			$	35,093			$	1,028,939
	2015		$	617,308			$	1,200,000			$	600,000(5	)			--			$	600,000				--			$	37,951			$	3,055,259
Ronald A. Jordan Chief Financial Officer	2017		$	190,419			$	100,000			$	151,500				--				--				--			$	103,219	(6)		$	545,138
	2016			--				--				--				--				--				--				--				--
	2015			--				--				--				--				--				--				--				--
Erick A. Fernandez Chief Accounting Officer, Treasurer (7)	2017		$	212,000			$	30,500				--				--				--				--			$	10,472			$	252,972
	2016		$	180,846			$	40,000			$	63,228				--				--				--			$	8,131			$	292,205
	2015			--				--				--				--				--				--				--				--

Name	Year		Auto				Relocation Fees				Insurance Benefits (1)				Contribution to 401(k) Plan (2)				All Other Compensation Total
Michael H. Braun	2017		$		(3)			--			$	(3	)		$	16,200			$	16,200
	2016		$	3,817	(3)			--			$	11,261			$	20,015			$	35,093
	2015		$	7,614				--			$	10,407			$	19,930			$	37,951
Ronald A. Jordan	2017			--			$	100,000				--			$	3,219			$	103,219
	2016			--				--				--				--				--
	2015			--				--				--				--				--
Erick A. Fernandez	2017			--				--				--			$	10,472			$	10,472
	2016			--				--				--			$	8,131			$	8,131
	2015			--				--				--				--				--

(3)	Mr. Braun’s automobile allowance was eliminated in July 2016 and payment of 100% of his health insurance premiums was eliminated effective January 1, 2017.

 

Michael H. Braun, Chief Executive Officer and President.  We entered into a second amended and restated employment agreement with Michael H. Braun effective as of January 18, 2012, which amended and restated Mr. Braun’s prior employment agreement. In connection with the organization of Monarch National Insurance Company (“Monarch Insurance”) in 2015, the Company's Board of Directors approved an amendment to his employment agreement to extend the term of his employment agreement to four years from the date of the amendment with automatic extensions so that at all times the balance of the term is not less than two years unless sooner terminated as provided in the employment agreement. Under his agreement, Mr. Braun’s annual salary, which may be increased at any time during the term of the agreement, was increased to $1,000,000 effective January 1, 2016 and remained at that amount for 2017.  Mr. Braun is also entitled to receive such bonuses and increases as may be awarded by the Board of Directors.  It also contains customary confidentiality and non-solicitation provisions.  Mr. Braun’s agreement was further amended in 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.

 

Erick A. Fernandez, Chief Accounting Officer.  Mr. Fernandez was appointed Interim Chief Financial Officer in June 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 Bonus Agreement dated as of January 11, 2016 (the “Bonus Agreement”) and a Change of Control Agreement dated as of May 2, 2016 (the “Fernandez Change of Control Agreement”).  For 2017, the Bonus Agreement provided for a bonus payable to 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 of $40,000; for 2018, Mr. Fernandez is entitled only to an annual bonus as determined by the Compensation Committee.  The Fernandez Change of Control Agreement provides for payments to Mr. Fernandez if he is employed by us on the date on which a Change of Control (as defined in the Fernandez Change of Control Agreement) occurs. If, during the one-year period following a Change in Control, Mr. Fernandez’s employment is terminated by us without Cause or by Mr. Fernandez for Good Reason (each as defined in the Fernandez Change of Control Agreement), he will be entitled to receive a lump sum payment equal to one year of his base salary 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.

 

Grants of Plan Based Awards. The following table provides information regarding restricted stock granted to our Named Executive Officers during 2017 under the Company’s Amended and Restated 2012 Stock Incentive Plan (the “2012 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	3/14/2017			68,530	(2)			--			$	1,249,987
Ronald A. Jordan	5/12/2017			10,000	(3)			--			$	151,500

Stock Incentive Plan. Our 2012 Plan is administered by the Compensation Committee.  The objectives of the 2012 Plan include attracting, motivating and retaining key personnel and promoting our success by linking the interests of our employees, directors and consultants with our success.

Outstanding Equity Awards at Fiscal Year-End. The following table summarizes the equity awards held by our Chief Executive Officer and President, Chief Financial Officer and our Chief Accounting Officer, as of December 31, 2017.

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							20,000			$	331,400				--				--(2	)
							18,000			$	298,260				--				--(3	)
							20,000			$	331,400				--				--(4	)
							10,999			$	182,253				--				--(5	)
							30,000			$	497,100				--				--(6	)
							25,052			$	415,112				--				--(7	)
							68,530			$	1,135,542				--				--(8	)
Ronald A. Jordan							10,000			$	165,700								--(9	)
Erick A. Fernandez							2,200			$	36,454				--				--(10	)

(1)	Based on the market value per share of $16.57 on 12/31/2017.

(2)	Restricted stock vested as to 80% on 12/31/2017, the remaining 20% vest as follows:

20% on 8/5/2018.

(3)	Restricted stock vested as to 60% on 12/31/2017, the remaining 40% vest as follows:

20% on 9/9/2018 and 20% on 9/9/2019.

(4)	Restricted stock vested as to 60% on 12/31/2017, the remaining 40% vest as follows:

20% on 12/9/2018 and 20% on 12/9/2019.

(5)	Restricted stock vested as to 66 2/3% on 12/31/2017, the remaining 33 1/3% vest as follows:

33 1/3% on 3/10/2018.

(6)	Restricted stock vested as to 40% on 12/31/2017, the remaining 60% vest as follows:

20% on 5/5/2018, 20% on 5/5/2019 and 20% on 5/5/20

(7)	Restricted stock vested as to 20% on 12/31/2017, the remaining 80% vests as follows:

20% on 3/10/2018, 20% on 3/10/2019, 20% on 3/10/2020 and 20% on 3/10/2021

(8)	A portion of this grant is performance-based restricted stock that cliff vests over a three-year period from 2017 to 2019 and the remaining portion vests based on performance achieved each year from 2017 to 2019.

(9)	Restricted stock vests as follows:  20% on 5/12/18, 20% on 5/12/19, 20% on 5/12/20, 20% on 5/12/21 and 20% on 5/12/22

(10)	Restricted stock vested as to 33 1/3% on 12/31/2017, the remaining 66 2/3% vest as follows:

33 1/3% on 3/10/18 and 33 1/3% on 3/10/19

 

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 2017 by our Chief Executive Officer, our Chief Financial Officer, and our Chief Accounting 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			--				--				20,000			$	311,000
			--				--				14,666			$	308,426
			--				--				9,000			$	108,450
			--				--				10,000			$	136,900
			--				--				10,999			$	199,192
			--				--				10,000			$	155,000
			--				--				6,263			$	113,423
Ronald A. Jordan			--				--				--				--
Erick A. Fernandez			--				--				1,100			$	19,921

 

During fiscal 2017, the Compensation Committee was responsible for overseeing executive compensation. The members of the Compensation Committee as of December 31, 2017 were Richard W. Wilcox Jr., Jenifer G. Kimbrough and Thomas A. Rogers.  No member of the Compensation Committee was at any time during fiscal 2017 or at any other time an officer or employee of the Company. No 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 2017.

 

DIRECTOR 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.  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.  In March 2018, the Board granted to Mrs. Young 6,138 shares of restricted stock that vest over five years in connection with her election to the Board.  In March 2018, each non-employee director also received a grant of 4,297 shares of restricted stock that vests over three years.  These 2018 annual grants were reflected an increase of $10,000 from the annual grants for 2017, reflecting the impact of the Company’s growth, strategic initiatives and operating environment on the Board’s workload and were in lieu of any increase in cash directors’ fees.  All of these equity grants were approved at a price per share equal to the greater of book value per share or the closing price of the Company’s common stock on the grant date.

Cash compensation paid to, and the dollar value of equity awards granted to, our non-employee directors in 2017 are shown in the table below.

 

Name		Fees Earned or Paid in Cash				Equity (Restricted Stock) Awards (1)				Stock Option Awards (1)				Non-Equity Incentive Plan Compensation				Non-Qualified Deferred Compensation Earnings				All Other Compensation				Total
Jenifer G. Kimbrough		$	98,563			$	59,991				--				--				--				--			$	158,554
Thomas A. Rogers		$	93,375			$	59,991				--				--				--				--			$	153,366
Bruce F. Simberg		$	119,313			$	59,991				--				--				--				--			$	179,304
William G. Stewart		$	77,813			$	59,991				--				--				--				--			$	137,804
Richard W. Wilcox Jr		$	98,563			$	59,991				--				--				--				--			$	158,554
Roberta N. Young		$	19,688				--				--				--				--				--			$	19,688

(1)

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 2017.

 

Name		Total Stock Option/Equity Awards Outstanding at 2017 Fiscal Year End (Shares)				Stock Option / Equity Awards Granted During Fiscal Year 2017 (Shares)				Grant Date Fair Value of Equity Awards Granted During Fiscal Year 2017 ($)
Jenifer G. Kimbrough			25,419	(a)			3,289			$	59,991	(b)
Thomas A. Rogers			9,900	(c)			3,289			$	59,991	(b)
Bruce F. Simberg			5,724	(d)			3,289			$	59,991	(b)
William G. Stewart			9,900	(c)			3,289			$	59,991	(b)
Richard W. Wilcox Jr			10,419	(e)			3,289			$	59,991	(b)
Roberta N. Young			--				--				--

(a)

Includes 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; 4,000 shares of restricted stock which began vesting over five years with an initial vest date of September 9, 2015; 695 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2016, 2,435 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017 and 3,289 shares of restricted stock which will begin vesting over three years with an initial vest date of March 14, 2018.

(b)	Based on the market value of $18.24 on March 14, 2017.

(c)

Includes 2,435 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017, 4,176 shares of restricted stock which began vesting over five years with an initial vest date of March 10, 2017 and 3,289 shares of restricted stock which will begin vesting over three years with an initial vest date of March 14, 2018.

(d)	Includes 2,435 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017 and 3,289 shares of restricted stock which will begin vesting over three years with an initial vest date of March 14, 2018.

(e)

4,000 shares of restricted stock which began vesting over five years with an initial vest date of September 9, 2015; 695 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2016, 2,435 shares of restricted stock which began vesting over three years with an initial vest date of March 10, 2017 and 3,289 shares of restricted stock which will begin vesting over three years with an initial vest date of March 14, 2018.

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 the Board members joining in 2015 and 2017 are in compliance with these guidelines; these three directors are still within the five-year transition period.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Family Relationships

There are no family relationships between or among our executive officers and directors.

Related Transactions

The following is a summary of transactions during 2016 and 2017 between the Company and its executive officers, directors, nominees for director, principal shareholders and other related parties involving amounts in excess of $120,000 or that the Company has chosen to voluntarily disclose.

 

Bruce F. Simberg, our Chairman of the Board, is a partner of the 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 $72,198 and $0 in 2016 and 2017, respectively. We believe that the fees charged for services provided by Conroy Simberg during 2016 were on terms at least as favorable as those that we could have secured from a non-affiliated law firm.  The firm has handled only a limited number of matters for the Company.  Mr. Simberg has not been personally involved in any of the legal matters handled by the firm for the Company and he received de minimis direct personal benefit from the fees paid to the firm by the Company.  The firm is no longer working any current matters for the Company and we do not, at this time, anticipate retaining the firm for future matters.

During 2016 and 2017, Michael H. Braun, the Company’s Chief Executive Officer and President, received the compensation described in "Executive Compensation" above.  Mr. Braun’s brother received salary compensation of $165,647 and $150,473 for his services in 2016 and 2017, respectively as Vice President of Accounting and Finance, respectively.  We believe that the compensation provided to this individual is comparable to that paid by other companies in our industry and market for similar positions.

We have adopted a written policy that any transactions between the Company and executive officers, directors, principal shareholders or their affiliates take place on an arm’s-length basis and require the approval of a majority of our independent directors, as defined in the Nasdaq Rules.

The Board has determined that the following continuing directors are independent pursuant to the Nasdaq Rules applicable to the Company:  Bruce F. Simberg, Richard W. Wilcox Jr., Jenifer G. Kimbrough, Thomas A. Rogers, William G. Stewart and Roberta N. Young.   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) and, therefore, the Board has determined that Mr. Simberg qualifies as an independent director under Nasdaq Rule 5605(a)(2).

PROPOSAL TWO:  APPROVE A PROPOSAL TO CHANGE THE COMPANY'S NAME TO FEDNAT HOLDING COMPANY BY APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION

The Board of Directors has recommended that the Company's shareholders approve an amendment to the Company's Articles of Incorporation to change the Company's name to "FedNat Holding Company."  A copy of the proposed Articles of Amendment to the Company’s Amended and Restated Articles of Incorporation is attached to this proxy statement as Annex A.

 

Reasons for Name Change

Subject to shareholder approval, we are changing our name to “FedNat Holding Company.”  In addition, subject to receipt of regulatory approval, we will be changing the name of our principal operating subsidiary, Federated National Insurance Company, to “FedNat Insurance Company.”  We believe that these name changes provide us with a unified brand that is consistent with how our policyholders and agents refer to our company.  The unified brand will allow us to streamline our marketing efforts and relay our vision to our shareholders, agents and policyholders.

These name changes enable us to use our federally registered trademark, “FEDNAT,” following the completion in February 2018 of the arbitration over our use of “FEDNAT” and the arbitrator’s determination that our registered mark did not infringe any alleged trademark rights of Federated Mutual Insurance Company (“Mutual”).  We have been a party to a Co-Existence Agreement effective as of August 30, 2013 (the “Co-Existence Agreement”) with Mutual pursuant to which we agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to the Company and Federated National Insurance Company. In response to Mutual’s allegations that our use of the word “FED” as part of our federally registered “FEDNAT” trademark infringed on Mutual’s federal and common law trademark rights, in July 2016 we filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida seeking a declaration that our federally registered trademark “FEDNAT” does not infringe any alleged trademark rights of Mutual and that Mutual does not own any trademark rights to the name or mark “FED” in connection with insurance services outside of Owatonna, Minnesota. In response to Mutual’s demand for arbitration against us alleging a breach of the Co-Existence Agreement, on February 16, 2018 the arbitrator agreed that our “FEDNAT” trademark does not infringe on Mutual’s federal or common law trademark rights. As a result, we have begun the process of re-branding the Company to use the FEDNAT name. The arbitrator also required us to cease using the Federated National name within 90 days. Unless the Company is able to reach agreement with Mutual regarding the timing of the name change, the Company intends to challenge that portion of the arbitration award in federal court.  Nevertheless, the Company is proceeding with the name change and rebranding to use the “FEDNAT” name.

 

On March 14, 2018, the Board adopted a resolution approving an amendment to the Company’s Amended and Restated Articles of Incorporation to change the name of the Company to “FedNat Holding Company” and recommended that the amendment be submitted to shareholders for approval. The Board believes it is in the best interest of our Company to change its name to FedNat Holding Company and recommends the approval of the name change amendment to its shareholders.

Shareholder Action on the Name Change

Shareholders are being asked to approve the Articles of Amendment to the Company’s Amended and Restated Articles of Incorporation in substantially the form as set forth in Annex A.

Subject to and following shareholder approval of the amendment, we plan to cause the amendment to become effective by submitting Articles of Amendment to the Florida Secretary of State. The amendment will become effective upon filing with the Florida Secretary of State. The Board retains the right, without further shareholder action, to decide not to pursue the amendment at any time prior to it becoming effective.

We will continue to use the stock symbol “FNHC.” The name change to FedNat Holding Company will not affect the validity or transferability of any currently outstanding stock certificates and shareholders will not be requested to surrender for exchange any certificates held by them.

Required Vote for Approval

The amendment to the Company’s Amended and Restated Articles of Incorporation to change the name of our Company will be approved if the votes in favor of the amendment exceed the votes against the amendment.  Broker “non-votes” and abstentions will count as neither votes for or against this proposal.

The Board of Directors unanimously recommends that you vote FOR the amendment to the Company's Articles of Incorporation changing the Company's name to "FEDNAT HOLDING COMPANY."

PROPOSAL THREE:  APPROVE THE 2018 OMNIBUS INCENTIVE COMPENSATION PLAN

The Board is asking shareholders to approve The Federated National Holding Company 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”). On March 30, 2018, the Board unanimously approved the 2018 Plan, subject to shareholder approval and, accordingly, the Board directed that the 2018 Plan be submitted to the Company’s shareholders for approval at the Annual Meeting.

The 2018 Plan is a new equity compensation plan for our employees, non-employee directors, consultants and advisors. The 2018 Plan replaces the Federated National Holding Company Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”), which does not have sufficient shares available for continued equity awards to our employees, non-employee directors, consultants and advisors. No further awards will be made under the 2012 Plan if the 2018 Plan is approved by the shareholders. In addition, in April 2012, the 21st Century Holding Company 2002 Stock Option Plan, as amended, which was the predecessor plan to the 2012 Plan (the “2002 Plan”) expired and no awards were granted under the 2002 Plan after its expiration.  The 2002 Plan will continue to govern the options granted thereunder.  Furthermore, any shares subject to options outstanding under the 2002 Plan will not be added back into the share authorization of the 2018 Plan.

 

Shareholder approval of the 2018 Plan is being sought in order to (i) meet NASDAQ listing requirements, (ii) establish a limit on annual compensation of non-employee directors, and (iii) allow for incentive stock options to meet the requirements of the Internal Revenue Code of 1986, as amended (the “Code”).

Determination of the Number of Shares Available for Awards under the 2018 Plan

If this Proposal 3 is approved by our shareholders at the Annual Meeting, subject to adjustments as described in the 2018 Plan, the maximum aggregate number of shares of our common stock that may be issued under the 2018 Plan will be 802,777, which is equal to the sum of (i) 800,000 shares of our common stock, plus (ii) 2,777 shares, which is the number of shares of our common stock reserved for issuance under the 2012 Plan that remain available as of March 31, 2018. In addition, the number of shares of common stock subject to outstanding awards under the 2012 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2012 Plan after the effective date of the 2018 Plan will be available for issuance under the 2018 Plan. The number in clause (ii) above will be reduced by any awards granted under the 2012 Plan between March 31, 2018 and the effective date of the 2018 Plan.

In determining the number of shares to be authorized for issuance under the 2018 Plan, the Board considered a number of factors, including the number of shares available under the 2012 Plan, our past share usage (burn rate), the number of shares needed for future awards, a dilution analysis, competitive data from relevant peer companies, the current and future accounting expenses associated with our equity award practices, and input from our shareholders.

Dilution Analysis.  As of March 31, 2018, the Company’s capital structure consisted of 13,126,480 shares of common stock outstanding. As described above, 2,777 shares remain available for grant of awards under the 2012 Plan as of March 31, 2018.  As of March 31, 2018, 50,351 shares are subject to outstanding options under the 2002 Plan and since April 2012, no awards were permitted to be granted under the 2002 Plan.

The proposed share authorization is a request for 800,000 new shares to be available for awards under the 2018 Plan. The table below shows our potential dilution (referred to as “overhang”) levels based on our fully diluted shares of common stock and our request for 800,000 shares to be available for awards under the 2018 Plan. The 800,000 new shares represent 5.7% of fully diluted shares of our common stock, including all shares that will be authorized under the 2018 Plan, as described in the table below. The Board believes that this number of shares of common stock under the 2018 Plan represents a reasonable amount of potential equity dilution, which will allow the Company to continue awarding equity awards, and that equity awards are an important component of the Company’s equity compensation program.

Potential Overhang with 800,000 Additional Shares

 

Stock Options Outstanding as of March 31, 2018 (1)			50,351
Weighted Average Exercise Price of Stock Options Outstanding as of March 31, 2018		$	3.72
Weighted Average Remaining Term of Stock Options Outstanding as of March 31, 2018		3.5046 years
Outstanding Restricted Stock Awards as of March 31, 2018 (1)			384,100
Total Equity Awards Outstanding as of March 31, 2018 (1)			434,451
Shares Available for Grant under the 2012 Plan as of March 31, 2018 (to be added to the 2018 Plan share reserve) (2)			2,777
New Shares Requested under the 2018 Plan			800,000
Total Shares Requested under the 2018 Plan(3)			802,777
Total Potential Overhang under the 2018 Plan (and all predecessor and other equity compensation plans or agreements)			853,128
Shares of Common Stock Outstanding as of March 31, 2018			13,126,480
Fully Diluted Shares of Common Stock			13,979,608
Potential Dilution of 800,000 shares as a Percentage of Fully Diluted Shares of Common Stock			5.7	%

 

(1)

Represents the number of outstanding awards under the 2012 Plan and the 2002 Plan.  The number of shares subject to outstanding awards under the 2012 Plan that could again become available under the 2018 Plan is 384,100 shares. Any shares subject to options outstanding under the 2002 Plan will not be added into the share authorization of the 2018 Plan.

(2)

As of April 2012, no additional awards were granted under the 2002 Plan. No additional awards will be granted under the 2012 Plan as of the effective date of the 2018 Plan.

(3)

Total shares will be reduced by any grants made after March 31, 2018 under the 2012 Plan and prior to the effective date of the 2018 Plan.

 

No additional grants will be made under the 2012 Plan if the 2018 Plan is approved by the shareholders. The Total Shares Requested in the foregoing table does not include shares subject to outstanding grants under the 2002 Plan.

 

The Fully Diluted Shares of Common Stock in the foregoing table consist of the Shares of Common Stock Outstanding as of March 31, 2018, plus the Total Potential Overhang under the 2018 Plan (and all predecessor and other equity compensation plans or agreements), minus Outstanding Restricted Stock Awards, which are already included in the number of Shares of Common Stock Outstanding.

Based on our historic and projected future usage patterns, the Board estimates that these shares will be sufficient to provide awards under the 2018 Plan for approximately three to five years, although the number of grants awarded for any year could vary as the Compensation Committee deems appropriate. This is only an estimate, and circumstances could cause the share reserve to be used more quickly or more slowly. These circumstances include, but are not limited to, the future price of our common stock, the mix of cash, options and full value awards provided as long-term incentive compensation, grant amounts provided by our competitors, hiring activity, and promotions during the next few years.

The table below sets forth the following information regarding the awards granted under the 2012 Plan: (i) the burn rate for each of the last three calendar years and (ii) the average burn rate over the last three calendar years. The burn rate for a year has been calculated as follows:

(i)

the sum of (x) all stock options granted in the applicable year, and (y) all full value awards granted in the applicable year,

divided by

 

(ii)

the weighted average number of shares of common stock outstanding for the applicable year.

 

Burn Rate

Element		2017				2016				2015
Full Value Stock Awards Granted			106,454				128,472				116,140
Stock Options Granted			0				0				0
Total Full Value Stock Awards and Stock Options Granted			106,454				128,472				116,140
Weighted Average Shares of Common Stock Outstanding as of December 31 (1)			13,250,000				13,922,000				13,997,000
Burn Rate			0.8	%			0.9	%			0.8	%

 

(1)

Reflects fully diluted common shares outstanding as reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

 

The burn rate means that the Company used an annual average of 0.9% of the weighted average shares outstanding for awards granted over the past three years under the 2012 Plan.

The Board believes that the current number of shares that may be issued under the 2012 Plan is not sufficient in light of our compensation structure and strategy. Equity incentives form an integral part of the compensation paid to many of our employees, particularly those in positions of key importance. Equity incentives also are a major part of our non-employee director annual retainer compensation. The Board has concluded that our ability to attract, retain and motivate top quality employees, non-employee directors, and consultants and advisors is critical to our success and growth, and would be enhanced by our continued ability to make grants under the 2018 Plan. In addition, the Board believes that our interests and the interests of our shareholders will be advanced if the Company can continue to offer employees, non-employee directors and consultants and advisors the opportunity to acquire or increase their proprietary interests in the Company. The Board believes that adopting the 2018 Plan will ensure that the Company continues to have a sufficient number of shares with which to achieve our compensation strategy and to allow for growth.

The material terms of the 2018 Plan are summarized below. A copy of the full text of the 2018 Plan is attached to this proxy statement as Annex B. This summary of the 2018 Plan is not intended to be a complete description of the 2018 Plan and is qualified in its entirety by the actual text of the 2018 Plan to which reference is made.

Summary of the 2018 Plan

Purpose and Types of Grants.  The purpose of the 2018 Plan is to attract and retain employees, non-employee directors and consultants, and advisors. The 2018 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights, other stock-based awards, and cash awards. The 2018 Plan is intended to provide an incentive to grantees to contribute to our economic success by aligning the economic interests of grantees with those of our shareholders.

Administration.  The 2018 Plan will be administered by our Compensation Committee, and our Compensation Committee will determine all of the terms and conditions applicable to grants under the 2018 Plan. Our Compensation Committee will also determine who will receive grants under the 2018 Plan and the number of shares of common stock that will be subject to grants. Our Compensation Committee may delegate authority under the 2018 Plan to one or more subcommittees as it deems appropriate. Our Compensation Committee will consist of "non-employee directors" as defined under Rule 16b-3 promulgated under the Exchange Act and "independent directors," as determined in accordance with the independence standards established by the stock exchange on which our common stock is at the time primarily traded. Subject to compliance with applicable law and the applicable stock exchange rules, our Board of Directors, in its discretion, may perform any action of our Compensation Committee under the 2018 Plan. Subject to compliance with applicable law and applicable stock exchange requirements, the Compensation Committee (or our Board of Directors or a subcommittee, as applicable) may delegate all or part of its authority to our Chief Executive Officer, as it deems appropriate, with respect to grants to employees or consultants or advisors who are not executive officers or directors under Section 16 of the Exchange Act. Our Compensation Committee, our Board of Directors, any subcommittee or the Chief Executive Officer, as applicable, that has authority with respect to a specific grant will be referred to as "the Committee" in this description of the 2018 Plan.

 

Shares Subject to the Plan.  Subject to adjustment, the maximum aggregate number of shares of common stock that may be issued or transferred under the 2018 Plan is 802,777 shares, which is equal to the sum of (i) 800,000 shares of our common stock, plus (ii) 2,777 shares, which is the number of shares of our common stock reserved for issuance under the 2012 Plan that remain available as of March 31, 2018. In addition, the number of shares of common stock subject to outstanding awards under the 2012 Plan that terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2012 Plan after the effective date of the 2018 Plan (not exceeding 384,100 shares) will be available for issuance under the 2018 Plan. The number in clause (ii) above will be reduced by any awards granted under the 2012 Plan between March 31, 2018 and the effective date of the 2018 Plan.

If any options or stock appreciation rights, including outstanding options and stock appreciation rights granted under our 2012 Plan, terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been exercised, or if any stock awards, stock units or other stock-based awards, including outstanding awards granted under our 2012 Plan, are forfeited, terminated, or otherwise not paid in full (including restricted stock awards granted under the 2012 Plan that are forfeited or terminated, or otherwise are not paid in full on or after the effective date of the 2018 Plan), the shares of our common stock subject to such grants will again be available for purposes of the 2018 Plan. Shares of our common stock that are surrendered in payment of the exercise price of an option or stock appreciation right will not be available for issuance under the 2018 Plan. Shares of our common stock that are withheld in satisfaction of the withholding taxes, or surrendered for the payment of taxes, incurred in connection with the issuance, vesting or exercise of any grant, or the issuance of our common stock will not be available for issuance under the 2018 Plan. When stock appreciation rights are granted, the full number of shares subject to the stock appreciation rights will be considered issued under the 2018 Plan regardless of the number of shares issued upon exercise of the stock appreciation rights.  If we repurchase shares of our common stock on the open market with the proceeds from the exercise price we receive from options, the repurchased shares will not be available for issuance under the 2018 Plan.  If any grants are paid in cash, and not in shares of our common stock, any shares of our common stock subject to such grants will also be available for future grants. In addition, shares of our common stock issued under grants made pursuant to assumption, substitution, or exchange of previously granted awards of a company that we acquire will not reduce the number of shares of our common stock available under the 2018 Plan. Available shares under a shareholder approved plan of an acquired company may be used for grants under the 2018 Plan and will not reduce the share reserve, subject to compliance with the applicable stock exchange and the Code.

The maximum number of shares of our common stock that may be subject to option, stock appreciation right, stock award stock unit and other stock-based grants made to employees, consultants and advisors under the 2018 Plan in any calendar year will not exceed 200,000 shares of our common stock in the aggregate. The maximum aggregate grant date value of shares of common stock subject to grants made to any non-employee member of our Board during any calendar year, including any cash fees earned for services rendered during the calendar year, will not exceed $600,000 in total value.  In determining this dollar limit, the value of grants will be calculated based on the grant date fair value of the grants for financial reporting purposes.  For grants that are made to newly hired employees on around the date of hire, the limit applicable to employees as described in this paragraph is doubled such that the maximum number of shares of our common stock that may be subject to a grant to a newly hired employee is 400,000 shares.

Adjustments. In connection with stock splits (reverse stock splits), stock dividends, recapitalizations, and certain other events affecting our common stock, the committee will make adjustments as it deems appropriate in the maximum number of shares of common stock reserved for issuance as grants or for which individuals may receive grants in any year; the number and kind of shares covered by outstanding grants; the kind of shares that may be issued or transferred under the 2018 Plan; the price per share or market value of any outstanding grants; the exercise price of options; the base amount of stock appreciation rights; and the performance goals or other terms; and conditions as the committee deems appropriate.

 

Eligibility.  All of our employees are eligible to receive grants under the 2018 Plan. In addition, our non-employee directors and consultants or advisors who perform services for us may receive grants under the 2018 Plan. Incentive stock options may be granted only to our employees.

As of March 31, 2018, approximately 373 employees, 6 non-employee directors and no consultants and/or advisors (other than our non-employee directors) are eligible to participate in the 2018 Plan. The Committee, in its discretion, selects the persons to whom awards may be granted, determines the type of awards, determines the times at which awards will be made, determines the number of shares subject to each such award (or the dollar value of certain performance awards), and determines the other terms and conditions relating to the awards. For this reason, it is not possible to determine the benefits or amounts that will be received by any particular person in the future.

Vesting.  The Committee determines the vesting and exercisability terms of awards granted under the 2018 Plan.  Under the 2018 Plan, no grant nor any portion of a grant will vest over a period that is less than one year from the date of grant.  However, up to 5% of the shares reserved under the 2018 Plan as of the effective date of the 2018 Plan (subject to adjustment as set forth in the 2018 Plan) may be granted without regard to this minimum vesting requirement.

At the Committee’s discretion, performance goals for stock awards, stock units or other stock-based grants may be based on the attainment of specified levels of one or more objective performance goals established by the committee. If the Committee so determines, the vesting of any such award subject to performance goals may be subject to the achievement of one or more objective performance goals established by the committee, which shall be based on the attainment of specified levels of one or any combination of the following: cash flow; free cash flow; earnings  (including gross margin, earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, adjusted earnings before interest, taxes, depreciation and amortization and net earnings); earnings per share; growth in earnings or earnings per share; book value growth; stock price; return on equity or average shareholder equity; total shareholder return or growth in total shareholder return either directly or in relation to a comparative group; return on capital; return on assets or net assets; revenue, growth in revenue or return on sales; sales; expense reduction or expense control; expense to revenue ratio; income, net income or adjusted net income; operating income, net operating income, adjusted operating income or net operating income after tax; operating profit or net operating profit; operating margin; gross profit margin; return on operating revenue or return on operating profit; regulatory filings; regulatory approvals, litigation and regulatory resolution goals; other operational, regulatory or departmental objectives; budget comparisons; growth in shareholder value relative to established indexes, or another peer group or peer group index; development and implementation of strategic plans and/or organizational restructuring goals; development and implementation of risk and crisis management programs; improvement in workforce diversity; compliance requirements and compliance relief; safety goals; productivity goals; workforce management and succession planning goals; economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); measures of  customer satisfaction, employee satisfaction or staff development; development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Corporation’s revenue or profitability or enhance its customer base; merger and acquisitions; and other similar criteria consistent with the foregoing.  Performance goals applicable to grants under the 2018 Plan may be established on an absolute or relative basis and may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments.  Relative performance may be measured against a group of peer companies, a financial market index or other objective and quantifiable indices.

 

Any performance goals that are financial metrics, may be determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP. Such performance goals also may be based solely by reference to our performance or the performance of a subsidiary, division, business segment or business unit of the Company, or based upon our performance relative to performance of other companies or upon comparisons of any of the indicators of our performance relative to performance of other companies. The Committee may also exclude charges related to an event or occurrence which the committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, unusual or infrequently occurring items, and other unusual or non-recurring charges, (b) an event either not directly related to our operations or not within the reasonable control of our management, or (c) the cumulative effects of tax or accounting changes in accordance with GAAP. Such performance goals (and any exclusions) shall be set by the Committee within 90 days of the beginning of the performance period or such other period, as determined by the Committee.

Options.  Under the 2018 Plan, the Committee will determine the exercise price of the options granted and may grant options to purchase shares of common stock in such amounts as it determines. The Committee may grant options that are intended to qualify as incentive stock options under Section 422 of the Code, or non-qualified stock options, which are not intended to so qualify. Incentive stock options may only be granted to our employees. Anyone eligible to participate in the 2018 Plan may receive a grant of non-qualified stock options. The exercise price of a stock option granted under the 2018 Plan cannot be less than the fair market value of a share of our common stock on the date the option is granted. If an incentive stock option is granted to a 10% shareholder, the exercise price cannot be less than 110% of the fair market value of a share of our common stock on the date the option is granted. The aggregate number of shares of common stock that may be issued or transferred under the 2018 Plan pursuant to incentive stock options under Section 422 of the Code may not exceed 802,777 shares of common stock.  The fair market value of our common stock is generally equal to the closing price for the common stock on the date the option is granted (or if there was no closing price on that date, on the last preceding date on which a closing price was reported).

The exercise price for any option is generally payable in cash. In certain circumstances as permitted by the committee, the exercise price may be paid by the surrender of shares of our common stock with an aggregate fair market value on the date the option is exercised equal to the exercise price; by payment through a broker in accordance with procedures established by the Federal Reserve Board; by withholding shares of common stock subject to the exercisable option which have a fair market value on the date of exercise equal to the aggregate exercise price; or by such other method as the committee approves.

The term of an option cannot exceed ten years from the date of grant, except that if an incentive stock option is granted to a 10% shareholder, the term cannot exceed five years from the date of grant. In the event that on the last day of the term of a non-qualified stock option, the exercise is prohibited by applicable law, including a prohibition on purchases or sales of our common stock under our insider trading policy, the term of the non-qualified option will be extended for a period of 30 days following the end of the legal prohibition, unless the Committee determines otherwise.

Except as provided in the grant instrument, an option may only be exercised while a grantee is employed by or providing service to us. The Committee will determine in the grant instrument under what circumstances and during what time periods a grantee may exercise an option after termination of employment.

Stock Appreciation Rights.  Under the 2018 Plan, the Committee may grant stock appreciation rights, which may be granted separately or in tandem with any option. Stock appreciation rights granted with a non-qualified stock option may be granted either at the time the non-qualified stock option is granted or any time thereafter while the option remains outstanding. Stock appreciation rights granted with an incentive stock option may be granted only at the time the grant of the incentive stock option is made. The Committee will establish the base amount of the stock appreciation right at the time the stock appreciation right is granted, which will be equal to or greater than the fair market value of a share of our common stock as of the date of grant.

If a stock appreciation right is granted in tandem with an option, the number of stock appreciation rights that are exercisable during a specified period will not exceed the number of shares of our common stock that the grantee may purchase upon exercising the related option during such period. Upon exercising the related option, the related stock appreciation rights will terminate, and upon the exercise of a stock appreciation right, the related option will terminate to the extent of an equal number of shares of our common stock. Generally, stock appreciation rights may only be exercised while the grantee is employed by, or providing services to, us. When a grantee exercises a stock appreciation right, the grantee will receive the excess of the fair market value of the underlying common stock over the base amount of the stock appreciation right. The appreciation of a stock appreciation right will be paid in shares of our common stock, cash or both.

 

The term of a stock appreciation right cannot exceed ten years from the date of grant. In the event that on the last day of the term of a stock appreciation right, the exercise is prohibited by applicable law, including a prohibition on purchases or sales of our common stock under our insider trading policy, the term of the stock appreciation right will be extended for a period of 30 days following the end of the legal prohibition, unless the Committee determines otherwise.

Stock Awards.  Under the 2018 Plan, the Committee may grant stock awards. A stock award is an award of our common stock that may be subject to restrictions as the Committee determines. The restrictions, if any, may lapse over a specified period of employment or based on the satisfaction of pre-established criteria, in installments or otherwise, as the Committee may determine. Except to the extent restricted under the grant instrument relating to the stock award, a grantee will have all of the rights of a shareholder as to those shares, including the right to vote and the right to receive dividends or distributions on the shares. Dividends with respect to stock awards that vest based on performance shall vest if and to the extent that the underlying stock award vests, as determined by the Committee. All unvested stock awards are forfeited if the grantee's employment or service is terminated for any reason, unless the Committee determines otherwise.

Stock Units.  Under the 2018 Plan, the Committee may grant restricted stock units to anyone eligible to participate in the 2018 Plan. Restricted stock units are phantom units that represent shares of our common stock. Stock units become payable on terms and conditions determined by the Committee and will be payable in cash or shares of our stock as determined by the Committee. All unvested restricted stock units are forfeited if the grantee's employment or service is terminated for any reason, unless the Committee determines otherwise.

Cash Awards.  Under the 2018 Plan, the Committee may grant cash awards to our employees who are executives or other key employees. The Committee will determine which employees will receive cash awards and the terms and conditions applicable to each cash award, including the criteria for vesting, attainment of the specified performance goals and payment.

Other Stock-Based Awards.  Under the 2018 Plan, the Committee may grant other types of awards that are based on, measured by, or payable to, anyone eligible to participate in the 2018 Plan in shares of our common stock. The Committee will determine the terms and conditions of such awards. Other stock-based awards may be payable in cash, shares of our common stock, or a combination of the two.

Dividend Equivalents.  Under the 2018 Plan, the Committee may grant dividend equivalents in connection with grants of stock units or other stock-based awards made under the 2018 Plan. Dividend equivalents entitle the grantee to receive amounts equal to ordinary dividends that are paid on the shares underlying a grant while the grant is outstanding. The Committee will determine whether dividend equivalents will be paid currently or accrued as contingent cash obligations. Dividend equivalents may be paid in cash, in shares of our common stock, or in a combination of the two. The Committee will determine the terms and conditions of the dividend equivalent grants, including whether the grants are payable upon the achievement of specific performance goals. Dividend equivalents with respect to stock units or other stock-based awards that vest based on performance shall vest and be paid only if and to the extent that the underlying stock units or other stock-based awards vest and are paid as determined by the Committee.

Change in Control.  If we experience a change in control where we are not the surviving corporation (or survive only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding grants that are not exercised or paid at the time of the change in control will be assumed by, or replaced with grants that have comparable terms by, the surviving corporation (or a parent or subsidiary of the surviving corporation). Unless a grant instrument provides otherwise, if a grantee's employment is terminated by the surviving corporation without cause (as defined in the 2018 Plan) upon or within 12 months following a change in control, the grantee's outstanding grants will fully vest as of the date of termination; provided that if the vesting of any grants is based, in whole or in part, on performance, the applicable grant instrument will specify how the portion of the grant that becomes vested upon a termination following a change in control will be calculated.

 

If there is a change in control and all outstanding grants are not assumed by, or replaced with grants that have comparable terms by, the surviving corporation, the Committee may take any of the following action without the consent of any grantee:

·

determine that outstanding options and stock appreciation rights will accelerate and become fully exercisable and the restrictions and conditions on outstanding stock awards, stock units, cash awards, and dividend equivalents immediately lapse;

·

pay grantees, in an amount and form determined by the Committee, in settlement of outstanding stock units, cash awards, or dividend equivalents;

·

require that grantees surrender their outstanding stock options, stock appreciation rights or any other exercisable grant, in exchange for a payment by us, in cash or shares of our common stock, equal to the difference between the exercise price and the fair market value of the underlying shares of common stock; provided, however, if the per share fair market value of the common stock does not exceed the per share stock option exercise price or stock appreciation right base amount, as applicable, we will not be required to make any payment to the grantee upon surrender of the stock option or stock appreciation right; or

·

after giving grantees an opportunity to exercise all of their outstanding stock options and stock appreciation rights, terminate any unexercised stock options and stock appreciation rights on the date determined by our Compensation Committee.

In general terms, a change in control under the 2018 Plan occurs if:

·

a person, entity or affiliated group, other than entities which the Chairman of our Board directly or indirectly controls, acquires more than 50% of our then outstanding voting securities;

·

we merge into another entity unless the holders of our voting shares immediately prior to the merger have at least 50% of the combined voting power of the securities in the merged entity or its parent;

·

we sell or dispose of all or substantially all of our assets unless the sale is to one of our subsidiaries and does not involve a change in our equity holdings or to an entity this is directly or indirectly controlled by the Chairman of our Board;

·

our shareholders approve a plan of complete liquidation or dissolution; or

·

a majority of the members of our Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the incumbent directors.

Deferrals.  The Committee may permit or require grantees to defer receipt of the payment of cash or the delivery of shares of common stock that would otherwise be due to the grantee in connection with a grant under the 2018 Plan. The Committee will establish the rules and procedures applicable to any such deferrals, consistent with the requirements of Section 409A of the Code.

Withholding.  All grants under the 2018 Plan are subject to applicable U.S. federal (including FICA), state and local, foreign, or other tax withholding requirements. We may require grantees or other persons receiving grants or exercising grants to pay an amount sufficient to satisfy such tax withholding requirements with respect to such grants, or we may deduct from other wages and compensation paid by us the amount of any withholding taxes due with respect to such grant.

The Committee may permit or require that our tax withholding obligation with respect to grants paid in our common stock will paid by having shares withheld up to an amount that does not exceed the grantee's minimum applicable withholding tax rate for United States federal (including FICA), state and local tax liabilities, or as otherwise determined by the Committee. In addition, the Committee may, in its discretion, and subject to such rules as the Committee may adopt, allow grantees to elect to have such share withholding applied to all or a portion of the tax withholding obligation arising in connection with any particular grant.

 

Transferability.  Except as permitted by the Committee with respect to non-qualified stock options, only a grantee may exercise rights under a grant during the grantee's lifetime. Upon death, the personal representative or other person entitled to succeed to the rights of the grantee may exercise such rights. A grantee cannot transfer those rights except by will or by the laws of descent and distribution or, with respect to grants other than incentive stock options, pursuant to a domestic relations order. The Committee may provide in a grant instrument that a grantee may transfer non-qualified stock options to family members, or one or more trusts or other entities for the benefit of or owned by family members, consistent with applicable securities laws.

Amendment; Termination.  Our Board of Directors may amend or terminate the 2018 Plan at any time, except that our shareholders must approve an amendment if such approval is required in order to comply with the Code, applicable laws, or applicable stock exchange requirements. Unless terminated sooner by our Board of Directors or extended with shareholder approval, the 2018 Plan will terminate on the day immediately preceding the tenth anniversary of the effective date of the 2018 Plan.

Shareholder approval is required to amend the terms of outstanding options or stock appreciation rights or reduce the exercise price or base price of options or stock appreciation rights, respectively, cancel outstanding options or stock appreciation rights in exchange for options or stock appreciation rights with an exercise price or base price, as applicable, that is (1) less than the exercise price or base price of the original options or stock appreciation rights or (2) above the current stock price in exchange for cash or other securities. However, such shareholder approval is not required in connection with certain corporate transactions or other actions with respect to our securities, such as a stock split, extraordinary cash dividend, recapitalization, change in control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of our common stock.

Establishment of Sub-Plans.  Our Board of Directors may, from time to time, establish one or more sub-plans under the 2018 Plan to satisfy applicable blue sky, securities, or tax laws of various jurisdictions. Our Board of Directors may establish such sub-plans by adopting supplements to the 2018 Plan setting forth limitations on the Committee's discretion and such additional terms and conditions not otherwise inconsistent with the 2018 Plan as our Board of Directors will deem necessary or desirable. All such supplements will be deemed part of the 2018 Plan, but each supplement will only apply to grantees within the affected jurisdiction.

Clawback.  Subject to applicable law, the Committee may provide in any grant instrument that if a grantee breaches any restrictive covenant agreement between the grantee and us, or otherwise engages in activities that constitute cause either while employed by, or providing services to, us or within a specified period of time thereafter, all grants held by the grantee will terminate, and we may rescind any exercise of an option or stock appreciation right and the vesting of any other grant and delivery of shares upon such exercise or vesting, as applicable on such terms as the Committee will determine, including the right to require that in the event of any rescission:

·

the grantee must return the shares received upon the exercise of any option or stock appreciation right or the vesting and payment of any other grants; or

·

if the grantee no longer owns the shares, the grantee must pay to us the amount of any gain realized or payment received as a result of any sale or other disposition of the shares (if the grantee transferred the shares by gift or without consideration, then the fair market value of the shares on the date of the breach of the restrictive covenant agreement or activity constituting cause), net of the price originally paid by the grantee for the shares.

The Committee may also provide for clawbacks pursuant to a clawback policy, which our Board of Directors has adopted and may amend from time to time. Payment by the grantee will be made in such manner and on such terms and conditions as may be required by the Committee. We will be entitled to set off against the amount of any such payment any amounts that we otherwise owe to the grantee.

 

Federal Income Tax Consequences

The following discussion summarizes certain federal income tax considerations of awards under the Plan. However, it does not purport to be complete and does not describe the state, local or foreign tax considerations or the consequences for any particular individual.

Stock Options. A grantee does not realize ordinary income on the grant of a stock option. Upon exercise of a non-qualified stock option, the grantee will realize ordinary income equal to the excess of the fair market value of the shares of common stock over the option exercise price. The cost basis of the shares acquired for capital gain treatment is their fair market value at the time of exercise. Upon exercise of an incentive stock option, the excess of the fair market value of the shares of common stock acquired over the option exercise price will be an item of tax preference to the grantee, which may be subject to an alternative minimum tax for the year of exercise. If no disposition of the shares is made within two years from the date of granting of the incentive stock option or within one year after the transfer of the shares to the grantee, the grantee does not realize taxable income as a result of exercising the incentive stock option; the tax basis of the shares received for capital gain treatment is the option exercise price; any gain or loss realized on the sale of the shares is long-term capital gain or loss. If the grantee disposes of the shares within the two-year or one-year periods referred to above, the grantee will realize ordinary income at that time in an amount equal to the excess of the fair market value of the shares at the time of exercise (or the net proceeds of disposition, if less) over the option exercise price. For capital gain treatment on such a disposition, the tax basis of the shares will be their fair market value at the time of exercise.

Stock Appreciation Rights. No ordinary income will be realized by a grantee in connection with the grant of a SAR. When the SAR is exercised, the grantee will realize ordinary income in an amount equal to the sum of the amount of any cash received and the fair market value of the shares of common stock or other property received upon the exercise.

Restricted Stock, Performance and Restricted Stock Unit Awards. The grantee will not realize ordinary income on the grant of a restricted stock award (or a performance award if the shares of common stock are issued on grant), but will realize ordinary income when the shares subject to the award become vested in an amount equal to the excess of (i) the fair market value of the shares on the vesting date over (ii) the purchase price, if any, paid for the shares. The grantee may, however, elect under Section 83(b) of the Code to include as ordinary income in the year the shares are granted an amount equal to the excess of (i) the fair market value of the shares on the date of issuance, over (ii) the purchase price, if any, paid for the shares. If the Section 83(b) election is made, the grantee will not realize any additional taxable income when the shares become vested.

The grantee will not realize ordinary income on the grant of a restricted stock unit award (or a performance award under which shares of common stock are not issued on grant), but will realize ordinary income when the shares subject to the award are issued to the grantee after they become vested. The amount of ordinary income will be equal to the excess of (i) the fair market value of the shares on the date they are issued over (ii) the purchase price, if any, paid for the award.

Upon disposition of shares of common stock acquired under a restricted stock award, performance award or restricted stock unit award, the grantee will realize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for the shares plus any amount realized as ordinary income upon grant (or vesting) of the shares.

Company Tax Deduction

Prior to 2018, Section 162(m) of the Internal Revenue Code imposed a $1 million limit on the amount a public company may deduct for compensation paid to a company’s chief executive officer or any of the company’s three other most highly compensated executive officers (other than the chief financial officer) who are employed as of the end of the year. This limitation did not apply to compensation that meets the tax code requirements for “qualified performance-based” compensation (i.e., compensation paid only if the individual’s performance meets pre-established objective goals based on performance criteria approved by shareholders, including stock options).

 

The performance-based compensation exemption and the exemption of the chief financial officer from Section 162(m)’s deduction limit have been repealed, among other changes, effective for taxable years beginning after December 31, 2017, such that awards paid to our covered executive officers (including our chief executive officer) in excess of $1 million will not be deductible in future years, unless it qualifies for transition relief applicable to certain arrangements that were in effect as of November 2, 2017 and are not materially modified thereafter.

As in prior years, while deductibility of executive compensation for federal income tax purposes is among the factors the Committee considers when structuring our executive compensation arrangements, it is not the sole or primary factor considered. We retain the flexibility to authorize compensation that may not be deductible if we believe it is in the best interests of the Company.

New Plan Benefits under the 2018 Plan

Future benefits under the 2018 Plan generally will be granted at the discretion of the Compensation Committee and are therefore not currently determinable.

The table below shows, as to each of the Company’s executive officers named in the Summary Compensation Table of this proxy statement and the various indicated individuals and groups, the awards granted between January 1, 2017 and December 31, 2017 under the 2012 Plan.  As of March 29, 2018, the closing price of the common stock as reported on NASDAQ was $15.77 per share.

Name	Title	Stock Awards (1)
Michael H. Braun	CEO & President	68,530
Ronald A. Jordan	CFO	10,000
Erick A. Fernandez	CAO	0
All current executive officers as a group (3 persons)		78,530
All current directors who are not executive officers as a group (6 persons)		16,445
All employees, including current officers who are not executive officers, as a group (40 persons)		8,190

 

(1)

Represents the number of shares subject to restricted stock awards granted in 2017 under the 2012 Plan. See the 2017 Grant of Plan Based Awards Table for details of the restricted stock awards granted to the Named Executive Officers.

Vote Required for Approval

The Company’s 2018 Omnibus Incentive Compensation Plan will be approved if the votes in favor of the proposal to approve the 2018 Plan exceed the votes against the proposal. Broker “non-votes” and abstentions will count as neither votes for or against this proposal.

 

The Board of Directors unanimously recommends a vote FOR approval of the 2018 Omnibus Incentive Compensation Plan.

 

PROPOSAL FOUR:  ADVISORY (NON-BINDING) VOTE

APPROVING EXECUTIVE COMPENSATION

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) enables the Company’s shareholders to vote to approve, on an advisory, non-binding 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 use 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 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.

We 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 our shareholders.  Please read the “Compensation Discussion and Analysis” beginning on page 21 for additional details about the Company’s executive compensation programs, including information about the fiscal year 2017 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 disclosed in this proxy statement by voting for or against the following resolution (or by abstaining with respect to the resolution):

“RESOLVED, that the shareholders of Federated National Holding Company approve, on an advisory basis, the compensation of the executive officers named in this proxy statement as described under “Executive Compensation,” including the Compensation Discussion and Analysis and related tabular and narrative disclosure, contained in this proxy statement.”

Because your vote is advisory, it will not be binding on either the Board of Directors or the Company. Our Compensation Committee, however, will take into account the outcome of the shareholder vote on this proposal when considering future executive compensation decisions and arrangements.

The Board of Directors unanimously recommends that you vote FOR Proposal 4 to approve, on an advisory basis, the Company’s executive compensation.

 

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 requires efforts by three 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 Roberta N. Young, each of whom the Board has determined to be an independent director as defined in the Nasdaq Rules.  The Audit Committee operates under a written charter adopted by the Board, which is available at www.FedNat.com under the “Investors” tab and the link “Corporate Governance.”

At each of the Audit Committee’s regularly scheduled meetings during 2017, the Audit Committee met with the senior members of the Company’s financial reporting and accounting group and the independent auditors. The Audit Committee’s agenda is established by the chair in consultation with the Company’s Chief Financial Officer. The Audit Committee also met with the Company’s independent auditors in private sessions at certain of its meetings, and also separately with the Company’s head of internal audit, without other management representation, to discuss financial management, accounting and internal control issues. The Audit Committee has reviewed and discussed with management and the Company’s independent auditors the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, including a discussion of the acceptability and quality of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with GAAP. The Audit Committee discussed, with the independent auditors, matters required to be discussed by the Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, as adopted by the 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, 2017.

Respectfully Submitted

April 2, 2018

/s/ Jenifer G. Kimbrough, Chairman

/s/ Richard W. Wilcox Jr.

/s/ Roberta N. Young

 

PROPOSAL FIVE:  RATIFICATION OF SELECTION OF AUDITORS

The Audit Committee, which is responsible for the appointment, compensation and oversight of our independent auditors, has engaged Ernst & Young LLP (“E&Y”) as independent auditors to audit our consolidated financial statements for the year ending December 31, 2018. As a matter of good corporate governance, we are requesting that shareholders ratify the Audit Committee’s appointment of E&Y as independent auditors. If shareholders do not ratify the appointment of E&Y, the Audit Committee will reevaluate the appointment, but may retain such independent auditor.  Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. Representatives of E&Y will be present at the Annual Meeting and will have the opportunity to make a statement and be available to respond to appropriate questions by shareholders.

Audit and Non-Audit Fees

The following table shows fees that we paid (or accrued) for professional services rendered by E&Y for fiscal 2017 and 2016.

	Year Ended December 31,
			2017				2016
Audit Fees (1)		$	1,129,000			$	882,522
Audit-Related Fees (2)			121,553				22,055
Tax fees (3)			154,152				205,820
Total		$	1,404,705			$	1,110,397

(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)	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.”

(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 E&Y in 2017 were pre-approved in accordance with these procedures.

The Company’s independent auditors for the 2017 fiscal year, E&Y, has advised the Company that neither it, nor any of its members, has any direct financial interest in the Company as a promoter, underwriter, voting trustee, director, officer or employee.  All professional services rendered by E&Y and GSK during the fiscal year ended December 31, 2017 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 2018 fiscal year will be ratified if the votes in favor of the proposal exceed the votes against the proposal. Abstentions will count as neither votes for or against this proposal.

 

The Board of Directors unanimously recommends a vote FOR ratification of the appointment of Ernst & Young LLP as the Company’s independent auditors for the 2018 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 National Holding Company, 14050 N.W. 14 Street, Suite 180, Sunrise, Florida 33323 or via our website at www.FedNat.com.  The Board has instructed the Corporate Secretary to review this correspondence and determine, in his or her discretion, whether matters submitted are appropriate for Board consideration. The Corporate Secretary may also forward certain communications elsewhere in the Company for review and possible response.  In particular, communications such as customer or commercial inquiries or complaints, job inquiries, surveys and business solicitations or advertisements or patently offensive or otherwise inappropriate material will not be forwarded to the Board.

Shareholder Proposals for Inclusion in 2019 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 2019 Annual Meeting of Shareholders must deliver a proposal in writing to our principal executive offices no later than December 21, 2018 (or a reasonable time before we begin to print and mail the proxy materials for the 2019 annual meeting, if we change the date of the 2019 annual meeting more than 30 days from the date of this year’s Annual Meeting).  Proposals should be addressed to:  Corporate Secretary, Federated National Holding Company, 14050 N.W. 14 Street, Suite 180, Sunrise, Florida 33323.  Proposals of shareholders must also comply with the SEC’s rules regarding the inclusion of shareholder proposals in proxy materials, and we may omit any proposal from our proxy materials that does not comply with the SEC’s rules.

Other Shareholder Proposals for Presentation at 2019 Annual Meeting

Shareholder proposals intended to be presented at, but not included in the proxy materials for, our 2019 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’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.

 

OTHER BUSINESS

The Board knows of no other business to be brought before the Annual Meeting.  If, however, any other business should properly come before the Annual Meeting, the persons named in the accompanying proxy will, to the extent permitted by applicable law, vote proxies in their discretion as they may deem appropriate, unless they are directed by a proxy to do otherwise.

 

HOUSEHOLDING OF ANNUAL DISCLOSURE DOCUMENTS

As permitted by the Exchange Act, only one copy of this proxy statement is being delivered to shareholders residing at the same address and holding 1,000 shares or more, unless those shareholders have notified us of their desire to receive multiple copies of the proxy statement.

Shareholders residing at the same address who currently receive only one copy of the proxy statement and who would like to receive an additional copy of the proxy statement for this Annual Meeting or in the future may contact our Corporate Secretary by phone at (800) 293-2532 or by mail to our Corporate Secretary, 14050 N.W. 14 Street, Suite 180, Sunrise, Florida 33323.

 

By Order of the Board of Directors

REBECCA L. SANCHEZ, Corporate Secretary

Sunrise, Florida

April 20, 2018