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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________TO _______________________
Commission File number 000-25001
Federated National Holding Company
(Exact name of registrant as specified in its charter)
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Florida |
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65-0248866 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(IRS Employer Identification Number) |
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14050 N.W. 14 th Street, Suite 180, Sunrise, FL |
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33323 |
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(Address of principal executive offices) |
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(Zip Code) |
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800-293-2532
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has electronically submitted and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company , or an emerging growth company . See the definitions of “large accelerated filer”, “accelerated filer , ” “smaller reporting company , ” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐ |
Accelerated filer ☒ |
Non ‑ accelerated filer ☐ |
Smaller reporting company ☐ |
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(Do not check if a smaller reporting company) |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 8 , 201 7 , the registrant had 13,838,737 shares of common stock outstanding.
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FEDERATED NATIONAL HOLDING COMPANY
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PART I: FINANCIAL INFORMATION |
PAGE |
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ITEM 1 |
3 | |
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ITEM 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 |
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ITEM 3 |
33 | |
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ITEM 4 |
33 | |
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PART II: OTHER INFORMATION |
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ITEM 1 |
34 | |
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ITEM 1A |
34 | |
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ITEM 2 |
35 | |
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ITEM 3 |
35 | |
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ITEM 4 |
35 | |
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ITEM 5 |
35 | |
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ITEM 6 |
36 | |
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| 37 | ||
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PART I: FIN ANCIAL INFORMATION
Item 1 . Financial Statements
FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
See accompanying notes to unaudited consolidated financial statements.
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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
See accompanying notes to unaudited consolidated financial statements.
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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
See accompanying notes to unaudited consolidated financial statements.
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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
See accompanying notes to unaudited consolidated financial statements.
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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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March 31, |
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2017 |
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2016 |
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(in thousands) |
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Cash flow from operating activities: |
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Net income |
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$ |
3,172 |
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$ |
9,603 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Net realized investment losses (gains) |
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105 |
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(927) |
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Amortization of investment premium or discount, net |
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1,209 |
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1,313 |
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Depreciation and amortization |
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270 |
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187 |
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Share-based compensation |
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667 |
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926 |
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Tax impact related to share-based compensation |
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(50) |
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— |
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Changes in operating assets and liabilities: |
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Prepaid reinsurance premiums |
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44,475 |
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26,224 |
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Premiums receivable, net |
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(4,262) |
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(9,638) |
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Reinsurance recoverable, net |
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(1,923) |
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(5,210) |
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Deferred acquisition costs |
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(344) |
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(217) |
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Income taxes receivable, net |
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8,123 |
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1,274 |
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Loss and loss adjustment expense reserves |
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(3,773) |
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4,275 |
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Unearned premiums |
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(1,927) |
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7,925 |
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Reinsurance payable |
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(24,723) |
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(18,570) |
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Deferred income taxes, net of other comprehensive income |
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1,862 |
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1,729 |
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Other, net |
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864 |
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1,809 |
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Net cash provided by operating activities |
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23,745 |
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20,703 |
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Cash flow from investing activities: |
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Sales, maturities and redemptions of investment securities |
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142,132 |
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72,669 |
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Purchases of investment securities |
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(156,736) |
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(70,933) |
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Purchases of property and equipment |
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(314) |
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(523) |
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Net cash (used in) provided by investing activities |
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(14,918) |
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1,213 |
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Cash flow from financing activities: |
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Tax impact related to share-based compensation |
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- |
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246 |
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Purchases of FNHC common stock |
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(1,876) |
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(1,077) |
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Issuance of common stock for share-based awards |
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1 |
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4 |
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Dividends paid |
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(1,050) |
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(1,565) |
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Net cash used in financing activities |
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(2,925) |
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(2,392) |
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Net increase in cash and cash equivalents |
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5,902 |
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19,524 |
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Cash and cash equivalents at beginning of period |
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74,593 |
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53,038 |
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Cash and cash equivalents at end of period |
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$ |
80,495 |
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$ |
72,562 |
See accompanying notes to unaudited consolidated financial statements.
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FEDERATED NATIONAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
See accompanying notes to unaudited consolidated financial statements.
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1. ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION
Organization
Federated National Holding Company, (“FNHC,” the “Company,” “we,” or “us”), is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents. We are authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners’ multi-peril (“homeowners’”), personal automobile, commercial general liability, federal flood, and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and our other services through a network of independent agents.
Our wholly owned insurance subsidiary is Federated National Insurance Company (“FNIC”), which is licensed as an admitted carrier in Florida, Texas, Georgia, Alabama, Louisiana and South Carolina. We also serve as managing general agent for Monarch National Insurance Company (“MNIC”), which was founded in 2015 through the joint venture, described below, and is licensed as an admitted carrier in Florida. An admitted carrier is an insurance company that has received a license from the state department of insurance giving the Company the authority to write specific lines of insurance in that state. These companies are also bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due to their policyholders.
On March 19, 2015, the Company entered into a joint venture to organize MNIC, which received its certificate of authority to write homeowners’ property and casualty insurance in Florida from the Florida Office of Insurance Regulation (the “Florida OIR”). The Company’s joint venture partners are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly traded Canadian private equity firm and asset manager (“Crosswinds”); and Transatlantic Reinsurance Company (“TransRe”).
The Company and Crosswinds each invested $14.0 million in Monarch Delaware Holdings LLC (“Monarch Delaware”), the indirect parent company of MNIC, for a 42.4% interest in Monarch Delaware (each holding 50% of the voting interests in Monarch Delaware). TransRe invested $5.0 million for a 15.2% non-voting interest in Monarch Delaware and advanced an additional $5.0 million in debt evidenced by a six -year promissory note bearing 6% annual interest payable by Monarch National Holding Company (“MNHC”), a wholly owned subsidiary of Monarch Delaware and the direct parent company of MNIC.
Significant Customer
We entered into an Insurance Agency Master Agreement with Ivantage Select Agency, Inc., (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which we are authorized by ISA to appoint Allstate agents to offer our homeowners’ and commercial general liability insurance products to consumers in Florida. As a percentage of the total homeowners’ premiums we underwrote in the three months ended March 31, 2017 and 2016, 23.8 % and 2 3. 5 % , respectively, were from Allstate’s network of Florida agents.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of FNHC and all other entities in which we have a controlling financial interest and any variable interest entities (“VIE”) in which we are the primary beneficiary. All material inter-company accounts and transactions have been eliminated in consolidation. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements.
In connection with the investment in Monarch Delaware, we have determined that we are the primary beneficiary of this VIE, as we possess the power to direct the activities of the VIE that most significantly impact its economic performance. Accordingly, we consolidate the VIE in our consolidated financial statements. Refer to Note 12 for additional information on the VIE.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be
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expected for a full year. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented. Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below.
This report should be read in conjunction with the Company’s 2016 Annual Report on Form 10-K, as amended (the “2016 Form 10-K”).
2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Our significant accounting policies were described in Note 2 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2016 Form 10-K. There have been no significant changes in our significant accounting policies for the three months ended March 31, 2017.
Accounting Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates.
Similar to other property and casualty insurers, our liability for losses and loss adjustment expense reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, we believe that this liability is adequate. Estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations. Refer to Note 6 accompanying our consolidated financial statements for a discussion of our liability for losses and loss adjustment expense reserves.
Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted these amendments effective January 1, 2017, resulting in $0.1 million of discrete income tax deficiencies reflected as a component of the income tax provision on the Consolidated Statements of Operations. Additionally, ASU 2016-09 requires excess tax benefits be presented within the statement of cash flows as an operating activity rather than as a financing activity. The Company adopted this change on a prospective basis, which resulted in a $ 0.1 million de crease in cash provided by operating activities for the three months ended March 31, 2017. Further, ASU 2016-09 requires excess tax benefits and deficiencies to be prospectively excluded from the assumed future proceeds in the calculation of diluted shares, which increased the Company's weighted average number of diluted common shares outstanding by 18,447 shares in the first quarter of 2017.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This authoritative guidance replaces all general and most industry specific revenue recognition guidance (excluding insurance) currently prescribed by U.S. GAAP. The core principle is that an entity recognizes revenue to reflect the transfer of a promised good or service to customers in an amount that reflects that consideration to which the entity expects to be entitled in exchange for that good or service. This guidance also provides clarification on when an entity is a principal or an agent in a transaction. The guidance may be applied using one of the two following methods: (1) retrospectively to each prior reporting periods presented, or (2) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. In addition, during 2016 the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, all of which clarify certain implementation guidance within ASU 2014-09. We will adopt this accounting standard update effective January 1, 2018.
As part of our implementation process, we have gained an understanding of the new standard and performed an analysis to identify accounting policies that may need to change and additional disclosures that will be required. While we continue to evaluate the impact of the provisions of this accounting standard update, only a portion of our revenues are impacted by this guidance because the guidance does not apply to revenue on contracts accounted for under the financial instruments or insurance contracts standards. As a result, we expect the timing of our revenue recognition for most of our revenue streams to generally remain the same. Our evaluation process includes, but is not limited to, identifying contracts within the scope of the guidance, reviewing and documenting our accounting
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for these contracts, and identifying and determining the accounting for any related contract costs. We have not yet quantified the impact, if any, to our consolidated financial statements .
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. The Company is in the early stages of evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures. The effect of adopting this guidance will be principally affected by the level of unrealized gains or losses associated with equity investments with readily determinable market values. Such unrealized gains or losses will be recognized upon adoption as a cumulative-effect adjustment with future unrealized gains or losses reflected in the statement of income and comprehensive income. Refer to Note 4 for the current status of such unrealized gains and losses levels that are currently recognized as other comprehensive income .
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). Upon the effective date, ASU 2016-02 will supersede the current lease guidance in Topic 840, Leases . Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. All of our leases are classified as operating leases under current lease accounting guidance. This guidance will require us to add our operating leases to the balance sheet. We do not expect this standard will have a material effect on our financial statements due to the recognition of new ROU assets and lease liabilities on our balance sheets for our operating leases. We expect to elect all of the standard’s available practical expedients on adoption.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment model. Additionally, the standard will require enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are in the early stages of evaluating the effects the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. We will adopt this accounting standard update effective January 1, 2018. The provisions of this update will not have a material impact on our consolidated statements of cash flows.
3. FAIR VALUE
Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is defined as a market where transactions for the financial statement occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
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Level 2 — Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques that use observable market data. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the market place.
Level 3 — Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed. Currently, the Company has no level 3 investments.
The Company’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used were as follows:
A third party nationally recognized pricing service provides the fair value of securities in Level 2. A summary of the significant valuation techniques and market inputs for each class of security is as follows:
United States government obligations and authorities : In determining the fair value for U.S. Government securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.
Obligations of states and political subdivisions : In determining the fair value for state and municipal securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.
Corporate and International : In determining the fair value for corporate securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads (for investment grade securities), observations of equity and credit default swap curves (for high-yield corporates), reference data and industry and economic events.
We review the third party pricing methodologies quarterly and test for significant differences between the market price used to value the security and recent sales activity.
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4. INVESTMENTS
Unrealized Gains and Losses
The following table details the difference between amortized cost or cost and estimated fair value, by major investment category, at March 31, 2017 and at December 31, 2016:
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Net Realized Gains and Losses
The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Net realized gains and losses on investments are determined in accordance with the specific identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the three months ended March 31, 2017 and 2016:
During the three months ended March 31, 2017 and 2016, the proceeds from sales of available-for-sale investment securities were $ 111.5 million and $ 66.7 million, respectively.
Contractual Maturity
The amortized cost and estimated fair value of debt securities as of March 31, 2017 and December 31, 2016 by contractual maturity are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
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Net Investment Income
The following table summarizes the Company’s net investment income for the three months ended March 31, 2017 and 2016:
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Three Months Ended |
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March 31, |
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2017 |
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2016 |
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(in thousands) |
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Interest income |
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$ |
2,169 |
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$ |
1,853 |
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Dividends income |
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149 |
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187 |
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Net investment income |
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$ |
2,318 |
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$ |
2,040 |
Aging of Gross Unrealized Losses
As of March 31, 2017 and December 31, 2016, gross unrealized losses and related fair values for available-for-sale debt securities and equity securities, grouped by duration of time in a continuous unrealized loss position, were as follows:
As of March 31, 2017, the Company held a total of 573 debt and equity securities that were in an unrealized loss position, of which 2 3 securities were in an unrealized loss position continuously for 12 months or more. As of December 31, 2016, the Company held a total of 1,132 debt and equity securities that were in an unrealized loss position, of which 36 securities were in an unrealized loss
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position continuously for 12 months or more. The unrealized losses associated with these securities consisted primarily of losses related to corporate securities.
The Company holds its equity securities and some of its debt securities as available-for-sale and as such, these securities are recorded at fair value. The Company continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If the decline of a particular investment is deemed temporary, the Company records the decline as an unrealized loss in shareholders’ equity. If the decline is deemed to be other than temporary, the Company will write the security’s cost-basis or amortized cost-basis down to the fair value of the investment and recognizes an other than temporary impairment (“OTTI”) loss in our consolidated statement of operations. Additionally, any portion of such decline related to debt securities that is believed to arise from factors other than credit will be recorded as a component of other comprehensive income rather than charged against income.
The Company’s assessment of equity securities initially involves an evaluation of all securities that are in an unrealized loss position, regardless of the duration or severity of the loss, as of the applicable balance sheet date. Such initial review consists primarily of assessing whether: (i) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; and (ii) the Company has the ability and intent to hold an equity security for a period of time sufficient to allow for an anticipated recovery (generally considered to be one year from the balance sheet date).
To the extent that an equity security in an unrealized loss position is not impaired based on the initial review described above, the Company then evaluates such equity security by considering qualitative and quantitative factors. These factors include but are not limited to facts and circumstances specific to individual securities, asset classes, the financial condition of the issuer, changes in dividend payment, the length of time fair value had been less than cost, the severity of the decline in fair value below cost, industry outlook and our ability and intent to hold each position until its forecasted recovery.
If the Company intends to sell, or it is more likely than not that, the Company will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as an OTTI loss in our consolidated statement of operations. To the extent a debt security in an unrealized loss position is not impaired based on the preceding , the Company will consider that security to be impaired when it believes collection of the amortized cost is not probable.
During the Company’s quarterly evaluation of its securities for impairment, there were no material OTTI losses identified in our investments in debt and equity securities during the three months ended March 31, 2017 and 2016, respectively .
Collateral Deposits
As of March 31, 2017, investments with fair values of approximately $10. 6 million, the majority of which were debt securities, were deposited with governmental authorities and into custodial bank accounts as required by law or contractual obligations.
5. REINSURANCE
Reinsurance is used to mitigate the exposure to losses, manage capacity and protect capital resources. The Company reinsures (cedes) a portion of written premiums on an excess of loss or a quota share basis in order to limit our loss exposure. To the extent that reinsuring companies are unable to meet their obligations assumed under these reinsurance agreements, we remain primarily liable to our policyholders.
We are selective in choosing reinsurers and consider numerous factors, the most important of which are the financial stability of the reinsurer or capital specifically pledged to uphold the contract, its history of responding to claims and its overall reputation. In an effort to minimize our exposure to the insolvency of a reinsurer, we evaluate the acceptability and review the financial condition of the reinsurer at least annually with the assistance of our reinsurance broker.
Significant Reinsurance Contracts
FNIC and MNIC operate primarily by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those exceed the desired retention level. We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used to achieve our risk and profitability objectives. All of our reinsurance contracts do not relieve FNIC or MNIC from their direct obligations to the insured.
FNIC’s 2015-2016 catastrophe reinsurance program, which ran either from June 1 to May 31 or from July 1 to June 30, consists of the Florida Hurricane Catastrophe Fund (“FHCF”), excess of loss treaties placed with the private market and a 40% property quota-share program. The property quota-share reinsurance is a form of proportional reinsurance that provides coverage for the homeowners’
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property lines in Florida. The FHCF treaty affords coverage for hurricane losses sustained in Florida and represents only a portion of the reinsurance coverage in Florida.
The excess of loss and FHCF treaties, which became effective on July 1, 2015 and June 1, 2015, respectively, insure for approximately $1.82 billion of aggregate catastrophic losses and loss adjustment expenses (“LAE”) with a maximum single event coverage totaling approximately $1.26 billion, with the Company retaining the first $12.9 million in Florida and $5.0 million in Louisiana, Alabama and South Carolina for losses and LAE from each event. Ceded premiums in connection with this program totaled approximately $149.7 million.
FNIC’s 2016-2017 reinsurance programs, costing approximately $179.5 million, include approximately $125.7 million for the private reinsurance for Federated National’s Florida exposure, including prepaid automatic premium reinstatement protection on all layers, along with approximately $53.8 million payable to the FHCF. The combination of private and FHCF reinsurance treaties will afford Federated National with approximately $2.22 billion of aggregate coverage with a maximum single event coverage totaling approximately $1.58 billion, exclusive of retentions. FNIC maintained its FHCF participation at 75% for the 2016 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $18.45 million. In addition, FNIC purchases separate underlying reinsurance layers in Louisiana, Texas, Alabama, and South Carolina to cover losses and LAE outside of Florida for each catastrophic event from $8.0 million to $18.45 million. Depending on the characteristics of the catastrophic event, and the states involved, FNIC’s single event pre-tax retention could be as low as $8.0 million. The maximum pre-tax retention of $18.45 million for Florida represents 7. 63 % of the Company’s shareholders’ equity as of March 31, 2017.
Additionally, the Company’s private market excess of loss treaties became effective July 1, 2016 and all private layers have prepaid automatic reinstatement protection, which affords us additional coverage against multiple catastrophic events in the same hurricane season. The Company obtained multiple year protection for a portion of its program; as a result, some of the coverage will expire on June 30, 2017, and a portion of the coverage will remain in-force one additional treaty year until June 30, 2018. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all private layers attach after $18.45 million in losses for FNIC’s Florida exposure. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted.
MNIC’s 2016-2017 catastrophe reinsurance program, which runs from either June 1 to May 31 or June 1 to June 30 ( 13 month period), consists of the FHCF and private market excess of loss treaties. All private layers have prepaid automatic reinstatement protection, which affords MNIC additional coverage, and have a cascading feature such that substantially all layers attach at $3.4 million for MNIC's Florida exposure.
The Company’s property quota share treaties, which are included in the reinsurance program, run for a two -year period from July 1 to July 1 of the following year. The property quota-share treaties consist of two different treaties, one for 30% which became effective July 1, 2014, and the other for 10% which became effective July 1, 2015. The combined treaties provided a 40% quota-share reinsurance on the first $100 million of covered losses for the homeowners’ property insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts.
On July 1, 2016, the 30% property quota-share treaty expired on a cut-off basis, which means as of that date the Company retain ed an incremental 30% of its unearned premiums and losses. The reinsurers will remain liable for 30% of the paid losses occurring during the term of the treaty, until the treaty is commuted.
The Company’s private passenger automobile quota share treaties are typically one -year programs which become effective at different points in the year and cover auto policies across several states. These automobile quota share treaties cede approximately 75% of all written premiums entered into by the Company.
Certain reinsurance agreements require FNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled $2.6 million as of March 31, 2017 and as of December 31, 2016.
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Reinsurance Recoverables
Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the consolidated balance sheet as reinsurance recoverables. The following table presents reinsurance recoverables as reflected in the consolidated balance sheets as of March 31, 2017 and December 31, 2016:
Premiums Written and Earned
The following table presents premiums written and earned for the three months ended March 31, 2017 and 2016:
6 . LOSS AND LOSS ADJUSTMENT EXPENSE (“LAE”) RESERVES
The liability for loss and LAE reserves is determined on an individual-case basis for all claims reported. The liability also includes amounts for unallocated expenses, consideration for anticipated subrogation recoveries that will offset future loss payments, anticipated future claim development and incurred but not yet reported (“IBNR”).
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Activity in the liability for loss and LAE reserves is summarized as follows:
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Reinsurance recoverable in this table includes only ceded loss and LAE reserves. |
The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as such estimates are subject to the outcome of future events. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple interpretations. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.
During the three months ended March 31, 2017, the Company experienced unfavorable loss and LAE reserve development of $0. 2 million.
The favorable development in the first quarter of 2016 is primarily a result of continued favorable loss experience (mostly caused by decreased severity in reported claims) in the Company’s all other peril homeowners coverage caused in part by the absence of severe weather events in the state of Florida. Specifically, we had experienced better severity than expected on the 2014 and 2013 accident years .
7 . LONG-TERM DEBT
On March 17, 2015, MNHC, a wholly owned subsidiary of Monarch Delaware, and MNIC’s direct parent, our consolidated VIE, issued a promissory note with a principal amount of $5.0 million bearing 6% annual interest, due March 17, 2021 with interest payable on an annual basis due March 17 each year. The debt was issued to TransRe, a related party, in connection with its investment in Monarch Delaware, and is being carried at the unpaid principal balance, net of debt issuance costs, and any accrued and unpaid interest is recognized in other liabilities in the consolidated balance sheet. The Company recorded $0.1 million of debt issuance costs related to the 6% promissory note.
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8 . INCOME TAXES
The provision for income tax expense for the three months ended March 31, 2017 and 2016 is as follows:
The actual income tax expense differs from the “expected” income tax expense (computed by applying the combined applicable effective federal and state tax rates to income before income tax expense) as follows:
The Company files income tax returns in the U.S. federal jurisdiction and various states and local jurisdictions. As of March 31, 2017, no open tax years are under examination by the IRS or any material state and local jurisdictions.
The Company adopted ASU 2016-09 in the first quarter of 2017 which requires the recognition of excess tax benefits and tax deficiencies within income tax (benefit) expense in the Consolidated Statements of Operations (see Note 2). The Company elected to apply this change in presentation prospectively from the beginning of fiscal year 2017, thus prior periods have not been adjusted. This adoption resulted in the recognition of $0.1 million of excess tax deficiencies recorded within income tax expense for the three months ended March 31, 2017. This change could create volatility in the Company's effective tax rate in future periods. During the three months ended March 31, 2016, excess tax benefits were recorded in shareholders’ equity within the Consolidated Balance Sheets instead of income tax expense within the Consolidated Statements of Operations .
As of March 31, 2017 and December 31, 2016, there are no uncertain tax positions.
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In the ordinary course of business, the Company is involved in various legal proceedings, specifically claims litigation. The Company’s insurance subsidiaries participate in most of these proceedings by either defending third-party claims brought against insureds or litigating first-party coverage claims. The Company accounts for such activity through the establishment of loss and LAE reserves. We believe that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, is immaterial to our consolidated financial statements. The Company is also occasionally involved in other legal and regulatory proceedings, some of which may assert claims for substantial amounts. These other legal proceedings may occasionally make us party to individual actions in which extra-contractual damages, punitive damages or penalties are sought, such as claims alleging bad faith in the handling of insurance claims.
On a quarterly basis, the Company reviews these outstanding matters, if any. Consistent with GAAP, the Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably
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estimable. The Company does not establish reserves for identified legal matters when we believe that the likelihood of an unfavorable outcome is not probable. Based on our quarterly review, the Company believes that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial statements.
The Company is a party to a Co-Existence Agreement effective as of August 30, 2013 (the “Co-Existence Agreement”) with Federated Mutual Insurance Company (“Mutual”) pursuant to which the Company has agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to FNHC and Federated National Insurance Company. In response to Mutual’s allegations that the Company’s use of the word “FED” as part of the Company’s federally registered “FEDNAT” trademark infringes on Mutual’s federal and common law trademark rights, which the Company disputes, on July 21, 2016, the Company filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida. Specifically, the Company seeks a declaration that its 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. On July 26, 2016, Mutual filed a demand for arbitration against the Company before the American Arbitration Association (“AAA”) alleging a breach of the Co-Existence Agreement. On November 29, 2016, the U.S. District Court for the Southern District of Florida granted Mutual’s motion to compel arbitration of the Company’s declaratory judgment action for non-infringement of a trademark. On February 3, 2017, the AAA granted the Company’s motion to terminate the arbitration for lack of jurisdiction based upon Mutual’s failure to comply with the Co-Existence Agreement’s regarding the selec tion of an arbitrator. An arbitrator has been selected. The Company nevertheless intends to vigorously defend against Mutual’s allegations, although there can be no assurances as to the outcome of this matter.
On March 2, 2017, the Company filed a complaint in Broward County, Florida court to enforce the terms of the restrictive covenants set forth in the Amended and Restated Non-Competition, Non-Disclosure and Non-Solicitation Agreement dated August 5, 2013, as amended, entered into between Peter J. Prygelski, III and the Company during Mr. Prygelski’s employment with the Company and set forth in the separation agreement he entered into in connection with his separation from the Company. The Company believes that he accepted employment with a competitor in contravention of these restrictive covenants and therefore the Company is seeking injunctive relief, declaratory relief and damages . Initial motions, including the Company’s motion for preliminary (temporary) injunctive relief and Prygelski’s motion to dismiss and compel arbitration, were heard by the court and are pending; accordingly , there can be no assurances as to the outcome of this matter. The Company has not recognized a gain contingency in the financial statements as of March 31, 201 7 .
Assessment Related Activity
We operate in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include: Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF, Florida Joint Underwriters Insurance Association (“JUA”), Georgia Insurers Insolvency Pool (“GIIP”), Special Insurance Fraud Fund (“SIIF”), Fair Access to Insurance Requirements Plan (“FAIRP”), Georgia Automobile Insurance Plan (“GAIP”), Property Insurance Association of Louisiana (“PIAL”), Louisiana Automobile Insurance Plan (“LAIP”), South Carolina Property & Casualty Insurance Guaranty Association (“SCPCIGA”), Texas Property and Casualty Insurance Guaranty Association (“TPCIGA”), Texas Windstorm Insurance Association (“TWIA”), Texas Automobile Insurance Plan Association (“TAIPA”), Alabama Insurance Guaranty Association (“AIGA”), and Alabama Insurance Un derwriters Association (“AIUA”) . As a direct premium writer in Florida, we are required to participate in certain insurer solvency associations under Florida law, administered by FIGA. Future assessments are likely, although the impact of these assessments on our balance sheet, results of operations or cash flow are undeterminable at this time.
FNIC is also required to participate in an insurance apportionment plan under Florida law, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan. FNIC was not assessed by the JUA Plan. Future assessments by this association are undeterminable at this time.
Leases
FNHC and its subsidiaries lease certain facilities, furniture and equipment under long-term lease agreements. Additional information about leases can be found in Note 9 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data,” of the 2016 Form 10-K.
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10. SHAREHOLDERS’ EQUITY
Common Stock Repurchases
In November 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0 million through March 1, 2017. In March 2017, our Board of Directors authorized an additional $10 .0 million share buyback program to repurchase shares of common stock through March 31, 2018. This program may be modified, suspended or terminated by us at any time without notice. Common stock repurchases are conducted in the open market or under Rule 10b5-1 trading plans from time to time in its discretion, based on ongoing assessments of the Company’s capital needs, the market price of its common stock and general market conditions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors.
Pursuant to our Board of Directors’ authorizations, the Company repurchased 103,485 shares of its common stock at a total cost of $ 1.9 million, which is a weighted average price per share of $18.18 , during the three months ended March 31, 2017. As of March 31, 2017, the remaining availability for future repurchases of our common stock was $9.5 million.
Subsequent Event
As of this date , the Company has repurchased an additional 292,961 shares of its common stock at a total cost of $ 4 . 7 million, which is a weighted average price per share of $1 6.07 . T he remaining availability for future repurchases of our common stock i s $4.8 million.
Share-Based Compensation Expense
The following table provides certain information in connection with the Company’s share-based compensation arrangements for the three months ended March 31, 2017 and 2016, respectively:
The intrinsic value of options exercised represents the difference between the stock option exercise price and the weighted average closing stock price of FNHC common stock on the exercise dates, as reported on t he NASDAQ Global Market.
Stock Option Awards
A summary of the Company’s stock option activity for the period from January 1, 2017 to March 31, 2017 is as follows:
Restricted Stock Awards
The Company recognizes share-based compensation expense for all restricted stock awards (“RSAs”) held by employees. The accounting charge is measured at the grant date as the fair value of FNHC common stock and expensed as non-cash compensation over
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the vesting term using the straight-line basis for service awards and the accelerated basis for performance ‑based awards with graded vesting . Certain cliff vesting awards contain performance criteria which are tied to the achievement of certain market conditions. This value is recognized as expense over the service period using the straight ‑line recognition method.
During the first quarter of 2017 and 2016, the Board of Directors granted 96,454 and 128,472 RSAs, respectively, vesting over three or five years, to the Company’s directors, executives and other key employees.
The following table summarizes RSA activity during the three months ended March 31, 2017:
The weighted average grant date fair value is measured using the closing price of FNHC common stock on the grant date, as reported on t he NASDAQ Global Market.
Accumulated Other Comprehensive Income
The following table presents a reconciliation of the changes in accumulated other comprehensive income during the three months ended March 31, 2017 and 2016:
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11. EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period, including outstanding unvested restricted stock awards and vested restricted stock awards during the period . Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options. Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the assumed exercise of common stock options and the vesting of RSAs using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive.
The computations of diluted EPS available to our shareholders do not include approximately 0.1 million stock options and RSAs for the three months ended March 31, 2017, and 0.2 million stock options and RSAs for the three months ended March 31, 2016, as the effect of their inclusion would have been antidilutive to earnings per share.
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The following table presents the calculation of basic and diluted EPS:
Dividends Declared
In March 2017 , our Board of Directors declared a $ 0.08 per common share dividend payable June 1, 2017 to shareholders of record on May 1, 2017 .
12. VARIABLE INTEREST ENTITY
The carrying amounts of the assets of Monarch Delaware, our consolidated VIE, which can only be used to settle obligations of Monarch Delaware, and liabilities of Monarch Delaware for which creditors do not have recourse are as follows:
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General information about Federated National Holding Company can be found at www.FedNat.com; however, the information that can be accessed through our web site is not part of our report. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to the Securities and Exchange Act of 1934 available free of charge on our web site, as soon as reasonably practicable after they are electronically filed with the SEC.
Ite m 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q (the “Form 10-Q”) . In addition, reference should be made to our audited consolidated financial statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”) .
Unless the context requires otherwise, as used in this Form 10-Q, the terms “FNHC,” “Compa ny,” “we,” “us” and “our” refer to Federated National Holding Company and its consolidated subsidiaries.
Forward-Looking Statements
Statements in this Form 10-Q or in documents that are incorporated by reference that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative thereof or other variations thereon and similar words or phrases or comparable terminology are intended to identify forward-looking statements.
Forward-looking statements might also include, but are not limited to, one or more of the following:
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The risks and uncertainties include, without limitation, risks and uncertainties related to estimates, assumptions and projections generally; the nature of the Company’s business; the adequacy of its reserves for loss and loss adjustment expense (“LAE”); claims experience; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail) and other catastrophic losses; reinsurance costs and the ability of reinsurers to indemnify the Company; raising additional capital and our potential failure to meet minimum capital and surplus requirements; potential assessments that support property and casualty insurance pools and associations; the effectiveness of internal financial controls; the effectiveness of our underwriting, pricing and related loss limitation methods; changes in loss trends, including as a result of insureds’ assignment of benefits; court decisions and trends in litigation; our potential failure to pay claims accurately; ability to obtain regulatory approval applications for requested rate increases, or to underwrite in additional jurisdictions, and the timing thereof; the impact that the results of the Monarch joint venture may have on our results of operations; inflation and other changes in economic conditions (including changes in interest rates and financial markets); pricing competition and other initiatives by competitors; legislative and regulatory developments; the outcome of litigation pending against the Company, and any settlement thereof; dependence on investment income and the composition of the Company’s investment portfolio; insurance agents; ratings by industry services; the reliability and security of our information technology systems; reliance on key personnel; acts of war and terrorist activities; and other matters described from time to time by the Company in this report and other filings filed with the United States Securities and Exchange Commission, including the Company’s Form 10-K.
In addition, investors should be aware that U.S. generally accepted accounting principles (“GAAP”) prescribe when a company may reserve for particular risks, including claims and litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a contingency. Reported results may therefore appear to be volatile in certain accounting periods.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
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GENERAL
FNHC is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents. We are authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners’ multi-peril (“homeowners”), commercial general liability, federal flood, pers onal automobile and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products a nd our other services through a network of independent agents.
Our wholly - owned insurance subsidiary is Federated National Insurance Company (“FNIC”), which is licensed as an admitted carrier in Florida, Texas, Georgia, Alabama, Louisiana and South Carolina. We also serve as managing general agent for Monarch National Insurance Company (“MNIC”), which was founded in 2015 through the joint venture described below, and is licensed as an admitted carrier in Florida. An admitted carrier is an insurance company that has received a license from the state department of insurance giving the Company the authority to write specific lines of insurance in that state. These companies are also bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due to their p olicyholders.
Monarch National Insurance Company Joint Venture
On March 19, 2015, the Company entered into a joint venture to organize MNIC, which received its certificate of authority to write homeowners’ property and casualty insurance in Florida from the Florida Office of Insurance Regulation (the “Florida OIR”). The Company’s joint venture partners are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly traded Canadian private equity firm and asset manager (“Crosswinds”) and Transatlantic Reinsurance Company (“TransRe”).
The Company and Crosswinds each invested $14.0 million in Monarch Delaware Holdings, LLC (“Monarch Delaware”), the indirect parent company of MNIC, for a 42.4% interest in Monarch Delaware (each holding 50% of the voting interests in Monarch Delaware). TransRe invested $5.0 million for a 15.2% non-voting interest in Monarch Delaware and advanced an additional $5.0 million in debt evidenced by a six-year promissory note bearing 6% annual interest payable by Monarch National Holding Company (“MNHC”), a wholly owned subsidiary of Monarch Delaware and the direct parent company of MNIC .
In connection with the organization of MNIC, the parties entered into the following agreements dated as of March 17, 2015:
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MNIC entered into a Managing General Agent and Claims Administration Agreement (the “Monarch MGA Agreement”) with FedNat Underwriters, Inc. (“FNU”), a wholly owned subsidiary of the Company, pursuant to which FNU provides underwriting, accounting, reinsurance placement and claims administration services to Monarch. For its services under the Monarch MGA Agreement, FNU receives 4% of Monarch’s total written annual premium, excluding acquisition expenses payable to agents, for FNU’s managing general agent services; 3.6% of Monarch’s total earned annual premium for FNU’s claims administration services; and a per-policy administrative fee of $25 for each policy underwritten for Monarch. The Company also receives an annual expense reimbursement for accounting and related services. |
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MNIC, MNHC and Monarch Delaware (collectively, the “Monarch Entities”) entered into an Investment Management Agreement (the “Monarch Investment Agreement”) with Crosswinds AUM LLC, a wholly owned subsidiary of Crosswinds (“Crosswinds AUM”), pursuant to which Crosswinds AUM manages the investment portfolios of the Monarch Entities. The management fee, on an annual basis, is 0.75% of assets under management up to $100 million; 0.50% of assets under management of more than $100 million but less than $200 million; and 0.30% of assets under management of more than $200 million. |
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MNIC also entered into a Reinsurance Capacity Right of First Refusal Agreement with TransRe, pursuant to which TransRe has a right of first refusal for all quota share and excess of loss reinsurance that Monarch Insurance deems necessary in its sole discretion for so long as TransRe remains a member of Monarch Delaware or the MNHC debt remains outstanding. Pursuant to this agreement, TransRe has the right to provide, at market rates and terms, a maximum of 15% of any reinsurance coverage obtained by Monarch Delaware in any individual reinsurance contract. |
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The Compa ny’s Chi ef Executive Officer and Chief Financial Officer hold th eir respective positions with Monarch Entities while they remain employed by the Company. |
The Monarch Entities are consolidated as a variable interest entity (“VIE”) in the accompanying unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
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Overview of Insurance Lines of Business
Homeowners’ Property and Casualty Insurance
FNIC and MNIC underwrite homeowners’ insurance in Florida and FNIC also underwrites insurance in Alabama, Texas, Louisiana and South Carolina. Homeowners’ insurance generally protects an owner of real and personal property against covered causes of loss to that property. The Florida homeowners’ policies in-force totaled 280,397 and 252,975 at March 31, 2017 and 2016 , respectively.
Our homeowners’ insurance products provide maximum dwelling coverage in the amount of approximately $ 4.0 million, with the aggregate maximum policy limit being approximately $6. 0 million. We currently offer dwelling coverage “A” up to $4.0 million with an aggregate total insured value of $6.5 million. We review these subject limits on an annual basis. The typical deductible is either $2,500 or $1,000 for non-hurricane-related claims and generally 2% of the coverage amount for the structure for hurricane-related claims.
Premium rates charged to our homeowners’ insurance policyholders are continually evaluated to assure that they meet the expectation that they are actuarially sound and produce a reasonable level of profit (neither excessive, inadequate or discriminatory). Premium rates in Florida and other states are regulated and approved by the respective states’ office of insurance regulation. In 2016, FNIC applied for and was approved by the Florida OIR for a rate increase of 5.6% for Florida homeowners multiple-peril insurance policies, which became effective for new and renewal policies on August 1, 2016. MNIC applied for and was approved by the Florida OIR for a rate decrease of 11.9% for Florida homeowners multiple-peril insurance policies, which became effective for new and renewal policies on April 15, 2016. As of the date of this Report, the Company has applied with the Florida OIR for a 2017 rate increase of 6.5% for FNIC for Florida homeowners’ insurance policies. These rate changes are currently awaiting approval from the Florida OIR and are subject to change based on their assessment. We continue to monitor and seek appropriate adjustment to our rates in order to remain competitive and profitable .
Other Lines of Business
Personal Automobile: Nonstandard personal automobile insurance is principally provided to insureds that are unable to obtain standard insurance coverage because of their driving record, age, vehicle type or other factors, including market conditions. We market this through licensed general agents in their respective territories.
Commercial General Liability : We underwrite for approximately 380 classes of skilled craft workers (excluding homebuilders and developers) and mercantile trades (such as owners, landlords and tenants). The limits of liability range from $100,000 per occurrence with a $200,000 policy aggregate to $1.0 million per occurrence with a $2.0 million policy aggregate. We market the commercial general liability insurance products through independent agents and a limited number of gene ral agents un affiliated with the Company.
Flood: FNIC writes flood insurance through the National Flood Insurance Program (“NFIP”). We write the policy for the NFIP, which assumes 100% of the flood risk while we retain a commission for our service.
See the discussion in Item 1: “Business” in our 2016 Form 10-K for additional information with respect to our business.
Regulation
All insurance companies must file quarterly and annual statements with certain regulatory agencies and are subject to regular and special examinations by those agencies. We may be the subject of additional special examinations or analysis. These examinations or analysis may result in one or more corrective orders being issued by the Florida OIR. The Florida OIR is currently performing a regularly scheduled statutory examination of FNIC for the five years ended December 31, 2015. To date, we are not aware of any material findings by the Florida OIR in connection with this examination.
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RESULTS OF OPERATIONS
Operating Results Overview - Three Months Ended March 31, 2017 Compared with Three Months Ended March 31, 2016
The following overview does not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to our shareholders or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following table summarizes our unaudited results of operations for the three months ended March 31, 2017 and 2016:
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(1) |
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The net loss ratio is calculated as losses and LAE divided by net premiums earned. |
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(2) |
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The net expense ratio is calculated as all operating expenses less interest expense divided by net premiums earned. |
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The net combined ratio is calculated as the sum of losses and LAE and all operating expenses less interest expense divided by net premiums earned. |
Revenue
Total revenue for the three months ended March 31, 2017 of $ 92.9 million increased $ 24.0 million, or 34.7 %, compared to total revenue of $ 69.0 million in the same three-month period of 2016 , due primarily to higher earned premiums as described below .
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Gross Premiums Written
The following table represents the gross premiums written breakout for the three months ended March 31, 2017 and 2016:
Gross written premiums increased $10.1 million, or 7.4%, to $146.1 million for the three months ended March 31, 2017, compared with $136.0 million for the same period last year. The increase predominantly reflects market share growth in our homeowners’ and personal automobile lines of business. Homeowners’ gross written premiums increased $6.5 million, or 5.7%, to $121.2 million for the three months ended March 31, 2017, compared with $114.7 million for the same three-month period last year. This increase is also reflected in the increase in our homeowners’ in-force policy count to 280,379 as of March 31, 2017, compared with 252,975 as of March 31, 2016. Gross written premiums for our personal automobile line of business increased by $3.6 million to $19.3 million for the year three months ended March 31, 2017, compared to $15.7 million in the prior year period. These increases reflect management’s strategy to continue to grow market share in Florida as well as expand operations outside of Florida with the growth in our property and personal automobile lines of business. With the expansion into areas outside of Florida, we are able to continue to leverage our personnel and, at the same time, diversify our insurance risk .
Gross Premiums Earned
The following table represents the gross premiums earned breakout for the three months ended March 31, 2017 and 2016:
Gross premiums earned increased $19.9 million, or 15.5%, to $148.0 million for the three months ended March 31, 2017, compared with $128.1 million for the same period last year, driven by higher gross written premiums as described above.
Ceded Premiums Earned
Ceded premiums earned de creased by $ 3.6 million, or 4.9 %, to $ 69.5 million for the three months ended March 31 , 201 7 , compared with $ 73.1 million in the same three-month period last year. This decrease was driven by lower ceded premiums in the first quarter of 2017 as compared to the same period in 2016 and is due to the expiration of the 30% Florida-only property quota share treaty, which ended on July 1, 2016. The effect of this expiration was partially offset by additional excess-of-loss reinsurance costs purchased for the 2016-2017 reinsurance programs, which became effective on June 1, 2016 and July 1, 2016 .
Net Investment Income
Net investment income increased 13.6% to $2.3 million during the three months ended March 31, 2017, compared to $2.0 million during the three months ended March 31, 2016. This increase was primarily driven by growth in our fixed income portfolio. For the first quarter of 2017, the average balance of our fixed income portfolio was approximately $381.2 million, up 10.6% from an average balance of $344.8 million for the first quarter of 2016. In addition, the yield on our fixed income portfolio was 2.3% for the three months ended March 31, 2017, up from 2.2% for the same period in the prior year. The increase in yield was the result of portfolio repositioning during the first quarter of 2017, particularly the sale of tax-free municipal bonds, the proceeds of which were
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reinvested in taxable municipal and corporate fixed income securities with higher coupon rates. A portion of the increase in net investment income will be offset by higher federal income taxes, given that going forward a lower percentage of our investment income originates from tax-free securities.
Net Realized Investment (Losses) Gains
Net realized investment ( losses ) gains decreased $1.0 million, to a net realized investment loss of $0.1 million for the three months ended March 31, 2017, from a net realized investment gain of $ 0.9 million in the prior year period. From time to time, our portfolio managers, under our control, move out of positions due to both macro and micro conditions; these movements generate both realized gains and losses.
Direct Written Policy Fees
Direct written policy fees increased by $0.9 million, or 21.0%, to $5.1 million for the three months ended March 31, 2017, compared with $4.2 million in the same three-month period in 2016. The increase in direct written policy fees is correlated to the increase in gross written premiums in our homeowners and personal automobile lines of business compared to the prior year. These fees are generated when the Company writes a policy and the fee varies from state to state and by line of business. Policy fees generated by the managing general agent are earned by the Company. All other policy fees are collected by us and passed through to the general agent as acquisition costs and recognized in commissions and other underwriting expenses .
Other Income
Other income increased $ 0.3 million, or 5 .0 %, to $ 7 .1 million for the three months ended March 31, 2017, compared with $ 6.8 million in the prior year period. The following table represents the other income detail as follows:
The decrease in commission income is primarily the result of changes in the personal automobile reinsurance agreements during the first quarter of 2017 as compared to the first quarter of 2016. The increase in brokerage revenue is driven by the increase in our homeowners reinsurance program, the type of reinsurance purchased and the commissions paid on these reinsurance agreements in the first quarter of 2017 as compared to the first quarter of 2016 .
Expenses
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses (“LAE”) increased $21.3 million, or 72.0%, to $50.8 million for the three months ended March 31, 2017, compared with $29.5 million for the same three-month period last year. Losses and LAE includes reported claims, whether paid or unpaid, as well as the provision of reserves for estimated unreported claims. Approximately $7 million of the increase in losses and LAE represents a volume variance driven strictly by growth in premiums in the first quarter of 2017 as compared to the first quarter of 2016, specifically in the homeowners and personal automobile lines of business. Additionally, losses and LAE in the first quarter of 2017 was impacted by $5.2 million of gross claims related to tornados that impacted the states of Florida and Louisiana and approximately $3.5 million related to increasing our Florida homeowners’ current year attritional loss ratio, which continues to be at 36.1% (unchanged from the second half of 2016, but up from the first quarter of 2016). We believe this measure is useful to investors as the Company uses the attritional loss ratio to monitor losses associated with non-severe weather events. The remainder of the increase was the result of the 30% property quota-share ending, as noted earlier.
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Commissions and Other Underwriting Expenses
The following table represents the commissions and other underwriting expenses breakout for the three months ended March 31, 2017 and 2016:
Commissions and other underwriting expenses increased $12.4 million, or 62.6%, to $32.3 million for the three months ended March 31, 2017, compared with $19.9 million for the three months ended March 31, 2016. The increase is related to the premium growth in our homeowners and personal automobile lines of business, with personal automobile and homeowners’ non-Florida lines of business carrying higher acquisition costs as a result of our different distribution models we employ to market these insurance products.
Our net expense ratio for first quarter of 2017 was 47.0% compared with 43.5% for the same period in 2016. The increase is due to a higher mix of premiums from personal automobile and homeowners’ non-Florida lines of business, which carry higher acquisition costs as a result of our different distribution models we employ to market our insurance products. Although personal automobile quota-share treaties cede approximately 75% of all premiums, the full expense for commissions and other acquisition costs are recognized in this line item, which is then partially offset by the related ceded commission income recorded within the other income line in the Consolidated Statements of Operations .
Additionally, the decrease in ceded commissions is the result of the expiration of the 30% Florida-only property quota share treaty on July 1, 2016.
General and Administrative Expenses
General and administrative expenses in creased $0. 5 million, or 1 3 .2%, to $4. 6 million for the three months ended March 31, 2017, compared with $4. 1 million for the three months ended March 31, 2016. The increase is primarily driven by an increase in legal and professional fees, which includes audit, tax and actuarial fees .
Income Taxes
Income taxes decreased $ 3.9 million, or 6 6. 6 %, to $1. 9 million for the three months ended March 31, 2017, compared with $5.8 million for the three months ended March 31, 2016. The change was due to a decrease in taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are net premiums, investme nt income, commission income and fee income. Our primary uses of funds are the payment of claims and operating expenses. As of March 31, 2017 , the Company held $4 2 5.5 million in investments. Cash and cash equivalents increased $ 5 .9 million, to $ 80.5 million as of March 31, 2017 , compared with $ 74.6 million as of December 31, 2016 . Total shareholders’ equity increased $ 3. 1 million, to $24 1.0 million as of March 31, 2017, compared with $237.9 million as of December 31, 2016.
Cash Flows Discussion
We believe that existing cash and investment balances, when combined with anticipated cash flows as noted below , will be adequate to meet our expected liquidity needs in both the short-term and the reasonably foreseeable future. We currently expect to continue declaring and paying dividends at comparable levels, subject to our future liquidity needs and reserve requirements. The Company also considers various opportunities, including common stock repurchases, to deploy its excess capital. Any future growth strategy may require external financing, and we may from time to time seek to obtain external financing. We cannot assure that additional sources of financing will be available to us on favorable terms, or at all, or that any such financing would not negatively impact our results of operations.
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Operating Activities
Net cash provided by operating activities in creased to $ 2 3.7 million in the three months ended March 31, 2017 from $ 2 0 .7 million in the same period in 2016 . This in crease primarily reflects the increases in p repaid reinsurance premiums and premiums receivable, partly offset by de crease s in loss and LAE reserves, unearned premiums, reinsurance payables , and amortization of investment premiums .
Investing Activities
Net cash used in investing activities of $ 1 4.9 million in the three months ended March 31, 2017 related to purchases of investment securities of $1 56 .7 million, partly offset by sales, maturities and redemptions of our investment securities of $ 1 4 2.1 million. Net cash provided by investing activities of $ 1.2 million in the three months ended March 31, 2016 related to sales, maturities and redemptions of our investment securities of $72.7 million, partly offset by purchases of investment securities of $ 70.9 million.
Financing Activities
Net cash used in financing activities for the three months ended March 31, 2017 of $ 2.9 million, primarily reflects repurchases of our common stock of $ 1.9 million and dividend payments of $ 1.1 million , at a dividend of $0.08 per share, declared in November 2016 . Net cash used in financing activities of $ 2.4 million for the three months ended March 31, 2016 ref lects dividend payments of $1 .6 million and repurchases of our common stock of $1.1 million , partially offset by tax benefits related to share-based compensation of $ 0.2 million .
Dividends and Common Stock Repurchases
In March 2017 , our Board of Directors declared a $0.08 per common share dividend payable June 1, 201 7 to shareholders of record on May 1, 201 7 . Based on the number of shares of common stock outstanding as of March 31, 2017 the anticipated cash outflow would be $1. 1 million in the second quarter of 201 7 . We currently expect to continue to declare and pay quarterly dividends of similar amounts.
In November 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0 million through March 1, 2017. In March 2017, our Board of Directors authorized an additional $10 million share buyback program to repurchase shares of common stock through March 31, 2018. This program may be modified, suspended or terminated by us at any time without notice . Common stock repurchases are conducted in the open market or under Rule 10b5-1 trading plans from time to time in its discretion, based on ongoing assessments of the Company’s capital needs, the market price of its common stock and general market conditions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors.
During the first three months of 2017 , we repurchased 0. 1 million shares of common stock for $ 1.9 million, including commissions. Subsequent to March 31, 2017 , the Company has repurchased an additional 0.3 shares of its common stock at a total cost of $4.7 million, including commissions.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the inflationary effect on the cost of paying losses and LAE.
Insurance premiums are established before we know the amount of losses and LAE and the extent to which inflation may affect such expenses. Consequently, we attempt to anticipate the future impact of inflation when establishing rate levels. While we attempt to charge adequate premiums, we may be limited in raising premium levels for competitive and regulatory reasons. Inflation may also affect the market value of our investment portfolio and the investment rate of return. Any future economic changes that result in prolonged and increasing levels of inflation could cause increases in the dollar amount of incurred losses and LAE and thereby materially adversely affect future liability requirements.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and
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their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
We believe our most critical accounting estimates inherent in the preparation of our financial statements relate to : (i) fair value measurements of our investments, (ii) investments, (iii) premium and unearned premium calculation, (iv) reinsurance contracts, (v) the amount and recoverability of amortization of deferred acquisition costs (“DAC”), (vi) reserve for loss and LAE and (vii) income taxes. The accounting estimates that result require the use of assumptions about certain matters that are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our financial condition, results of operations, and cash flows would be affected.
There have been no significant changes to our critical accounting estimates during the three months ended March 31, 2017 . Refer to Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” included in our 201 6 Form 10-K for a more complete description of our critical accounting estimates.
Ite m 3. Quantitative and Qualitative Disclosures about Market Risk
Our investment objective is to maximize total rate of return after federal income taxes while maintaining liquidity and minimizing risk. Our current investment policy limits investment in non-investment-grade debt securities (including high-yield bonds), and limits total investments in preferred stock, common stock and mortgage notes receivable. We also comply with applicable laws and regulations that further restrict the type, quality and concentration of our investments. In general, these laws and regulations permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common equity securities and real estate mortgages.
Our investment policy is established by the Board of Directors Investment Committee and is reviewed on a regular basis. Pursuant to this investment policy, as of March 31, 2017 , approximately 9 0 % of investments were in debt securities and cash and cash equivalents, which are considered to be either held until maturity or available-for-sale, based upon our estimates of required liquidity. Approximately 9 9 % of the debt securities are considered available-for-sale and are marked to market. We may in the future consider additional debt securities to be held-to-maturity securities, which are carried at amortized cost. We do not use any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio.
Ite m 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as of March 31, 2017 . Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of March 31, 2017 , were effective to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes during the th ree months ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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Item 1. Legal Proceedings
The Company is a party to a Co-Existence Agreement effective as of August 30, 2013 (the “Co-Existence Agreement”) with Federated Mutual Insurance Company (“Mutual”) pursuant to which the Company has agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to FNHC and Federated National Insurance Company. In response to Mutual’s allegations that the Company’s use of the word “FED” as part of the Company’s federally registered “FEDNAT” trademark infringes on Mutual’s federal and common law trademark rights, which the Company disputes, on July 21, 2016, the Company filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida. Specifically, the Company seeks a declaration that its 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. On July 26, 2016, Mutual filed a demand for arbitration against the Company before the American Arbitration Association (“AAA”) alleging a breach of the Co-Existence Agreement. On November 29, 2016, the U.S. District Court for the Southern District of Florida granted Mutual’s motion to compel arbitration of the Company’s declaratory judgment action for non-infringement of a trademark. On February 3, 2017, the AAA granted the Company’s motion to terminate the arbitration for lack of jurisdiction based upon Mutual’s failure to comply with the Co-Existence Agreement’s regarding the selec tion of an arbitrator. An arbitrator has been selected. The Company nevertheless intends to vigorously defend against Mutual’s allegations, although there can be no assurances as to the outcome of this matter.
On March 2, 2017, the Company filed a complaint in Broward County, Florida court to enforce the terms of the restrictive covenants set forth in the Amended and Restated Non-Competition, Non-Disclosure and Non-Solicitation Agreement dated August 5, 2013, as amended, entered into between Peter J. Prygelski, III and the Company during Mr. Prygelski’s employment with the Company and set forth in the separation agreement he entered into in connection with his separation from the Company. The Company believes that he accepted employment with a competitor in contravention of these restrictive covenants and therefore the Company is seeking injunctive relief, declaratory relief and damages . Initial motions, including the Company’s motion for preliminary (temporary) injunctive relief and Prygelski’s motion to dismiss and compel arbitration, were heard by the court and are pending; accordingly , there can be no assurances as to the outcome of this matter. The Company has not recognized a gain contingency in the financial statements as of March 31, 2017 .
Refer to Note 9 to our consolidated financial statements set forth in Part I, “Financial Statements” for further information about legal proceedings.
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors , ” of the Company’s 2016 Form 10-K . Please refer to that section for disclosures regarding what we believe are the most significant risks and uncertainties related to our business.
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It em 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities. The following table s set forth information with respect to purchases of shares of our common stock made during the quarter ended March 31, 2017 by or on behalf of FNHC. All purchases were made in the open market or under Rule 10b 5-1 of the Exchange Act.
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In November 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0 million through March 1, 2017. |
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In March 2017, our Board of Directors authorized an additional $10 million share buyback program to repurchase shares of common stock through March 31, 2018. |
It em 3. Defaults upon Senior Securities
None.
It em 4. Mine Safety Disclosures
Not applicable.
As previously reported in a Current Report on Form 8-K filed on April 5, 2017 (the “Form 8-K”), Ronald A. Jordan joined the Company as its Chief Financial Officer beginning April 17, 2017. In addition to the compensation described in the Form 8-K, Mr. Jordan entered into a Change of Control Agreement (the “Change of Control Agreement”) dated as of April 17, 2017 with the Company, which provides for certain payments to Mr. Jordan if he is employed by the Company on the date on which a Change of Control (as defined in the Change of Control Agreement) occurs. If, during the two-year period following a Change of Control, Mr. Jordan’s employment is terminated by the Company without Cause or by Mr. Jordan for Good Reason (each as defined in the 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.
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+ Management Compensation Plan or Arrangement .
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F
iled herewith
* * In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of Exchange Act, except as shall be expressly set forth by specific reference in such filing .
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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FEDERATED NATIONAL HOLDING COMPANY |
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By: |
/s/ Michael H. Braun |
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Michael H. Braun, Chief Executive Officer |
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(Principal Executive Officer) |
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/s/ Ronald Jordan |
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Ronald Jordan , Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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Date: May 10 , 201 7
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FORM OF RESTRICTED STOCK AGREEMENT
FEDERATED NATIONAL HOLDING COMPANY
RESTRICTED STOCK AGREEMENT
FOR
[RECIPIENT]
1 . Award of Restricted Stock . Federated National Holding Company (the “Company”) hereby grants, as of [GRANT DATE] (the “ Date of Grant ”), to [RECIPIENT], [QUANTITY] restricted shares of the Company’s Common Stock, par value $0.01 per share (collectively the " Restricted Stock "). The Restricted Stock is being issued pursuant to the Company’s 2012 Stock Incentive Plan as amended (the “Plan”), which is incorporated herein for all purposes. The Restricted Stock shall be subject to the terms, provisions and restrictions set forth in this Agreement and in the Plan. As a condition to entering into this Agreement, and as a condition to the issuance of any Shares (or any other securities of the Company), the Recipient agrees to be bound by all of the terms and conditions herein and in the Plan. Unless otherwise provided herein, terms used herein that are defined in the Plan and not defined herein shall have the meanings attributable thereto in the Plan.
2 . Vesting of Restricted Stock .
(a) Except as otherwise provided in Sections 2(b), 2(c), 2(d), 2(e) and 4 hereof, provided that the continuous service of the Recipient continues through and on the applicable Vesting Date, the shares of Restricted Stock shall become vested in the following amounts, at the following times and upon the following conditions:
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Number of Shares of Restricted Stock |
Vesting Date |
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[QUANTITY] [QUANTITY] [QUANTITY] [QUANTITY] [QUANTITY] |
[VEST DATE 1] [VEST DATE 2] [VEST DATE 3] [VEST DATE 4] [VEST DATE 5] |
There shall be no proportionate or partial vesting of shares of Restricted Stock in or during the months, days or periods prior to each Vesting Date, and all vesting of shares of Restricted Stock shall occur only on the applicable Vesting Date.
(b) [ In the event that a Change in Control of the Company occurs during the Recipient's continuous service and the Recipient’s employment is terminated without Cause or for Good Reason within the [●]-month period following the Change in Control (a “Change in Control Termination”), the shares of Restricted Stock subject to this Agreement shall become immediately and fully vested as of the date of the Change in Control Termination, and shall be delivered, subject
to any requirements under this Agreement, to the Recipient on the date of the Change in Control Termination . ]
(c) Notwithstanding any other term or provision of this Agreement, the Administrator shall be authorized, in its sole discretion, to accelerate the vesting of any shares of Restricted Stock under this Agreement, at such times and upon such terms and conditions as the Administrator shall deem advisable.
(d) In the event that the Recipient’s continuous service terminates by reason of the Recipient’s death, all of the shares of Restricted Stock subject to this Agreement shall be immediately vested as of the date of such death, and shall be delivered, subject to any requirements under this Agreement, to the beneficiary or beneficiaries designated by the Recipient, or if the Recipient has not so designated any beneficiary(ies), or no designated beneficiary survives the Recipient, such shares shall be delivered to the personal representative of the Recipient’s estate.
(e) For purposes of this Agreement, the following terms shall have the meanings indicated:
(i)“ Non-Vested Shares ” means any portion of the Restricted Stock subject to this Agreement that has not become vested pursuant to this Section 2.
(ii)“ Vested Shares ” means any portion of the Restricted Stock subject to this Agreement that is and has become vested pursuant to this Section 2.
3 . Delivery of Restricted Stock .
(a) One or more stock certificates evidencing the Restricted Stock shall be issued in the name of the Recipient but shall be held and retained by or on behalf of the Administrator until the date (the “ Applicable Date ”) on which the shares (or a portion thereof) subject to this Restricted Stock award become Vested Shares pursuant to Section 2 hereof, subject to the provisions of Section 4 hereof. All such stock certificates shall bear the following legend, along with such other legends that the Administrator shall deem necessary and appropriate or which are otherwise required or indicated pursuant to any applicable law:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO SUBSTANTIAL VESTING AND OTHER RESTRICTIONS AS SET FORTH IN THE RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES, AND INCLUDE VESTING CONDITIONS WHICH MAY RESULT IN THE COMPLETE FORFEITURE OF THE SHARES.
(b) The Recipient shall deposit with the Company stock powers or other instruments of transfer or assignment, duly endorsed in blank with signature(s) guaranteed, corresponding to each certificate representing shares of Restricted Stock until such shares become Vested Shares. If the Recipient shall fail to provide the Company with any such stock power or
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other instrument of transfer or assignment, the Recipient hereby irrevocably appoints the Secretary of the Company as his attorney-in-fact, with full power of appointment and substitution, to execute and deliver any such power or other instrument which may be necessary to effectuate the transfer of the Restricted Stock (or assignment of distributions thereon) on the books and records of the Company.
(c) On or after each Applicable Date, upon written request to the Company by the Recipient, the Company shall promptly cause a new certificate or certificates to be issued for and with respect to all shares that become Vested Shares on that Applicable Date, which certificate(s) shall be delivered to the Recipient as soon as administratively practicable after the date of receipt by the Company of the Recipient's written request. The new certificate or certificates shall continue to bear those legends and endorsements that the Company shall deem necessary or appropriate (including those relating to restrictions on transferability and/or obligations and restrictions under applicable securities laws).
4 . Acknowledgements of Recipient Regarding Forfeiture of Non-Vested Shares and Company Clawback Policy . By signing this Agreement where indicated below, the Recipient hereby acknowledges and agrees as follows:
(a) If the Recipient’s continuous service with the Company and its subsidiaries is terminated for any reason, any shares of Restricted Stock that are not Vested Shares, and that do not become Vested Shares pursuant to Section 2 hereof as a result of such termination, shall be forfeited immediately upon such termination of continuous service and revert back to the Company without any payment to the Recipient. The Administrator shall have the power and authority to enforce on behalf of the Company any rights of the Company under this Agreement in the event of the Recipient’s forfeiture of Non-Vested Shares pursuant to this Section 4.
(b) The Company’s Board of Directors (the “Board”) has adopted a Clawback Policy, as may be amended from time to time (the “Clawback Policy”), which authorizes the Company, when directed by the Board in its discretion, to seek to recover from any current or former executive officer that has been determined by the Board to have engaged in “Misconduct” any “Incentive-Based Compensation” (each as defined in the Clawback Policy) awarded to such executive officer during the time period specified in the Clawback Policy. The Restricted Stock granted hereby may constitute Incentive-Based Compensation that is subject to the Clawback Policy.
5 . Rights with Respect to Restricted Stock .
(a) Except as otherwise provided in this Agreement, the Recipient shall have, with respect to all of the shares of Restricted Stock, whether Vested Shares or Non-Vested Shares, all of the rights of a holder of shares of Common Stock of the Company, including without limitation (i) the right to vote such Restricted Stock, (ii) the right to receive dividends, if any, as may be declared on the Restricted Stock from time to time, and (iii) the rights available to all holders of shares of Common Stock of the Company upon any merger, consolidation, reorganization, liquidation or dissolution, stock split ‑up, stock dividend or recapitalization undertaken by the Company; provided , however , that all of such rights shall be subject to the terms, provisions, conditions and restrictions set forth in this Agreement (including without limitation conditions under which all such rights shall be forfeited). Any shares issued to the Recipient as a
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dividend with respect to shares of Restricted Stock shall have the same status and bear the same legend as the shares of Restricted Stock and shall be held by the Company, if the shares of Restricted Stock that such dividend is attributed to is being so held, unless otherwise determined by the Administrator. In addition, notwithstanding any provision to the contrary herein, any cash dividends declared with respect to shares of Restricted Stock subject to this Agreement shall be (i) held in escrow by the Administrator until such time as the shares of Restricted Stock that such cash dividends are attributed to shall become Vested Shares, and in the event that such shares of Restricted Stock are subsequently forfeited, the cash dividends attributable to such portion shall be forfeited as well and (ii) paid on the date such shares vest in full, provided that such payment shall be made in no event later than March 15 of the year following the year in which such vesting date occurs.
(b) If at any time while this Agreement is in effect (or shares granted hereunder shall be or remain unvested while Recipient’s continuous service continues and has not yet terminated or ceased for any reason), there shall be any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of such shares, then and in that event, the Administrator shall make any adjustments it deems fair and appropriate, in view of such change, in the number of shares of Restricted Stock then subject to this Agreement. If any such adjustment shall result in a fractional share, such fraction shall be disregarded.
(c) Notwithstanding any term or provision of this Agreement to the contrary, the existence of this Agreement, or of any outstanding Restricted Stock awarded hereunder, shall not affect in any manner the right, power or authority of the Company to make, authorize or consummate: (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger, consolidation or similar transaction by or of the Company; (iii) any offer, issue or sale by the Company of any capital stock of the Company, including any equity or debt securities, or preferred or preference stock that would rank prior to or on parity with the Restricted Stock and/or that would include, have or possess other rights, benefits and/or preferences superior to those that the Restricted Stock includes, has or possesses, or any warrants, options or rights with respect to any of the foregoing; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the stock, assets or business of the Company; or (vi) any other corporate transaction, act or proceeding (whether of a similar character or otherwise).
6. Transferability . Unless otherwise determined by the Administrator, the shares of Restricted Stock are not transferable unless and until they become Vested Shares in accordance with this Agreement, otherwise than by will or under the applicable laws of descent and distribution. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Recipient. Except as otherwise permitted pursuant to the first sentence of this Section, any attempt to effect a Transfer of any shares of Restricted Stock prior to the date on which the shares become Vested Shares shall be void ab initio. For purposes of this Agreement, “Transfer” shall mean any sale, transfer, encumbrance, gift, donation, assignment, pledge, hypothecation, or other disposition, whether similar or dissimilar to those previously enumerated, whether voluntary or involuntary, and including, but not limited to, any disposition by operation of law, by court order, by judicial process, or by foreclosure, levy or attachment.
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7 . Tax Matters; Section 83(b) Election .
(a) If the Recipient properly elects, within thirty (30) days of the Date of Grant, to include in gross income for federal income tax purposes an amount equal to the fair market value (as of the Date of Grant) of the Restricted Stock pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the “ Code ”), the Recipient shall make arrangements satisfactory to the Company to pay to the Company any federal, state or local income taxes required to be withheld with respect to the Restricted Stock. If the Recipient shall fail to make such tax payments as are required, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind (including without limitation, the withholding of any Shares that otherwise would be issued to the Recipient under this Agreement) otherwise due to the Recipient any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock.
(b) If the Recipient does not properly make the election described in paragraph (a) above, the Recipient shall, no later than the date or dates as of which the restrictions referred to in this Agreement hereof shall lapse, pay to the Company, or make arrangements satisfactory to the Administrator for payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock (including without limitation the vesting thereof). If the Recipient fails to comply with the tax obligations set forth in the immediately preceding sentence (the “Tax Obligations”), then the Recipient hereby irrevocably authorizes and instructs a broker to be designated by the Company in its sole discretion to sell for the account of the Recipient a sufficient number of shares of the Restricted Stock (based upon prevailing market prices at the time of such sale) necessary to satisfy the Recipient’s Tax Obligations, to remit to the Company the proceeds of such sale in such amount necessary to satisfy the Tax Obligations and to remit any balance resulting from such sale to the Recipient. The Company and any such broker shall be entitled to use and to rely upon the stock powers and other instruments of transfer provided pursuant to Section 3(b) above. In addition, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to Recipient any federal, state, or local taxes of any kind required by law to be withheld with respect to the Restricted Stock.
(c) Tax consequences on the Recipient (including without limitation federal, state, local and foreign income tax consequences) with respect to the Restricted Stock (including without limitation the grant, vesting and/or forfeiture thereof) are the sole responsibility of the Recipient. The Recipient shall consult with his or her own personal accountant(s) and/or tax advisor(s) regarding these matters, the making of a Section 83(b) election, and the Recipient’s filing, withholding and payment (or tax liability) obligations.
8 . Amendment, Modification and Assignment . This Agreement may only be modified or amended in a writing signed by the parties hereto. No promises, assurances, commitments, agreements, undertakings or representations, whether oral, written, electronic or otherwise, and whether express or implied, with respect to the subject matter hereof, have been made by either party which are not set forth expressly in this Agreement.
9. Complete Agreement . This Agreement (together with those agreements and documents expressly referred to herein, for the purposes referred to herein) embody the complete and entire agreement and understanding between the parties with respect to the subject matter hereof, and supersede any and all prior promises, assurances, commitments, agreements, undertakings or
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representations, whether oral, written, electronic or otherwise, and whether express or implied, which may relate to the subject matter hereof in any way.
10 . Miscellaneous .
(a) No Right to (Continued) Employment or Service . This Agreement and the grant of Restricted Stock hereunder shall not confer, or be construed to confer, upon the Recipient any right to employment or service, or continued employment or service, with the Company or any subsidiary.
(b) No Limit on Other Compensation Arrangements . Nothing contained in this Agreement shall preclude the Company or any subsidiary from adopting or continuing in effect other or additional compensation plans, agreements or arrangements, and any such plans, agreements and arrangements may be either generally applicable or applicable only in specific cases or to specific persons.
(c) Severability . If any term or provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or under any applicable law, rule or regulation, then such provision shall be construed or deemed amended to conform to applicable law (or if such provision cannot be so construed or deemed amended without materially altering the purpose or intent of this Agreement and the grant of Restricted Stock hereunder, such provision shall be stricken as to such jurisdiction and the remainder of this Agreement and the award hereunder shall remain in full force and effect).
(d) No Trust or Fund Created . Neither this Agreement nor the grant of Restricted Stock hereunder shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any subsidiary and the Recipient or any other person. To the extent that the Recipient or any other person acquires a right to receive payments from the Company or any subsidiary pursuant to this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company.
(e) Law Governing . This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Florida (without reference to the conflict of laws rules or principles thereof).
(f) Interpretation . The Recipient accepts the Restricted Stock subject to all of the terms, provisions and restrictions of this Agreement and the Plan. The undersigned Recipient hereby accepts as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under this Agreement.
(g) Headings . Section, paragraph and other headings and captions are provided solely as a convenience to facilitate reference. Such headings and captions shall not be deemed in any way material or relevant to the construction, meaning or interpretation of this Agreement or any term or provision hereof.
(h) Notices . Any notice under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or when deposited in the United States mail, registered, postage prepaid, and addressed, in the case of the Company, to the Company’s
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Secretary at Federated National Holding Company, 14050 N.W. 14 th Street, Suite 180, Sunrise, Florida 33323, or if the Company should move its principal office, to such principal office, and, in the case of the Recipient, to the Recipient’s last permanent address as shown on the Company’s records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section.
(i) Non-Waiver of Breach . The waiver by any party hereto of the other party's prompt and complete performance, or breach or violation, of any term or provision of this Agreement shall be effected solely in a writing signed by such party, and shall not operate nor be construed as a waiver of any subsequent breach or violation, and the waiver by any party hereto to exer cise any right or remedy which he or it may possess shall not operate nor be construed as the waiver of such right or remedy by such party, or as a bar to the exercise of such right or remedy by such party, upon the occurrence of any subsequent breach or violation.
(j) Counterparts . This Agreement may be executed in two or more separate counterparts, each of which shall be an original, and all of which together shall constitute one and the same agreement.
(k) Internal Revenue Code Section 409A . The Restricted Stock granted hereunder is intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury regulations and other official guidance promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed this Agreement as of the date first written above.
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FEDERATED NATIONAL HOLDING |
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COMPANY |
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By: |
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Name: |
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Title: |
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Date: |
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Agreed and Accepted: |
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RECIPIENT: |
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By: |
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[RECIPIENT NAME] |
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Date: |
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7
FORM OF PERFORMANCE-BASED RESTRICTED STOCK AGREEMENT
FEDERATED NATIONAL HOLDING COMPANY
PERFORMANCE-BASED RESTRICTED STOCK AGREEMENT
FOR
[RECIPIENT]
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1. |
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Award of Restricted Stock . Federated National Holding Company (the “Company”) hereby grants, as of [GRANT DATE] (the "Date of Grant"), to [ RECIPIENT ] ("Recipient"), [ QUANTITY ] restricted shares of the Company's Common Stock, par value $0.01 per share (collectively the "Restricted Stock"). The Restricted Stock is being issued pursuant to the Company's 2012 Stock Incentive Plan, as amended to date and as it may hereafter be amended (the "Plan"), which is incorporated herein for all purposes. The Restricted Stock shall be subject to the terms, provisions and restrictions set forth in this Agreement and in the Plan. As a condition to entering into this Agreement, and as a condition to the issuance of any shares of Restricted Stock (or any other securities of the Company), the Recipient agrees to be bound by all of the terms and conditions herein and in the Plan and all applicable laws and regulations. Unless otherwise provided herein, terms used herein that are defined in the Plan and not defined herein shall have the meanings attributable thereto in the Plan. |
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2. |
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Vesting of Restricted Stock . |
(a) Time-Vesting of Restricted Stock . All of the Restricted Stock shall be subject to time-vesting. Except as otherwise provided in this Section 2, the shares of Restricted Stock shall become vested in the following amounts, at the following times and upon the following conditions, provided that the continuous service of the Recipient continues through and on the applicable Time-Vesting Date:
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Number of Shares of Restricted Stock |
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Time-Vesting Date |
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[ number of shares ] |
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[ Date(s) ] |
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Other than in accordance with this Section 2, there shall be no proportionate or partial vesting of shares of Restricted Stock in or during the months, days or periods prior to the Time-Vesting Date and all vesting of shares of Restricted Stock shall occur only on the Time-Vesting Date.
(b) Performance-Vesting of Restricted Stock . In addition to the time-vesting provision contained in Section 2(a) above, all of the shares of Restricted Stock shall be subject to performance-vesting, based on the performance goals established by the Administrator on [ date ] (the “Performance Goals”) and the achievement of which is substantially uncertain as of the Date of Grant. Other than in accordance with this Section 2, the shares of Restricted Stock shall vest on the Time-Vesting Date if and only if and to the extent that the Performance Goals described on Exhibit A are achieved, as approved by the Administrator.
(c) Change in Control . [ In the event that a Change in Control of the Company occurs during the Recipient's continuous service and the Recipient’s employment is terminated without Cause or for Good Reason within the [●]-month period following the Change in Control (a “Change in Control Termination”), the shares of Restricted Stock subject to this Agreement shall become immediately and fully vested as of the date of the Change in Control Termination, and shall be delivered, subject to any requirements under this Agreement, to the Recipient on the date of the Change in Control Termination . For the avoidance of doubt, if a Change in Control of the Company occurs prior to a Time-Vesting Date and during the Recipient's continuous service, and a Change in Control Termination occurs, then the requirement to achieve the Performance Goals is immediately and irrevocably waived. ]
(d) Administrator Discretion to Accelerate Vesting . Notwithstanding any other term or provision of this Agreement, the Administrator shall be authorized, in its sole discretion, based upon its review and evaluation of the performance of the Recipient and of the Company, to accelerate the vesting of any shares of Restricted Stock under this Agreement, at such times and upon such terms and conditions as the Administrator shall deem advisable, provided that such action does not result in the loss of a tax deduction of the compensation attributable to the vesting of the shares of Restricted Stock under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
(e) Termination of Recipient's Employment due to Death or Disability . In the event that the Recipient's continuous service terminates prior to the Time-Vesting Date in connection with (i) the Recipient's death or (ii) the Recipient's Disability, [ then a pro rata number ] [or (as such term is defined in the Recipient's employment agreement dated [ date of employment agreement ] (the "Recipient's Employment Agreement")) , then all] [then none] of shares of Restricted Stock subject to this Agreement shall be immediately and fully vested as of the date of such death or termination of employment, as the case may be, and shall, to the extent so vested, be delivered, subject to any requirements under this Agreement, to (x) the Recipient or (y) the beneficiary or beneficiaries designated by the Recipient, or if the Recipient has not so designated any beneficiary(ies), or no designated beneficiary survives the Recipient, such shares shall be delivered to the personal representative of the Recipient's estate, as the case may be. [The pro rata number of shares of Restricted Stock that shall time vest under this Section 2(e) shall be equal to (x) [ insert number of shares granted under this Agreement ] multiplied by (y) a fraction, the numerator of which shall be equal to the number of full and partial months following the Date of Grant during which the Recipient was employed by the Company and the denominator of which shall be [ insert time vesting period in months ].] [For the avoidance of doubt, if the Recipient's Continuous Service terminates in connection with his death or Disability, then the requirement to achieve the Performance Goals is immediately and irrevocably waived.]
(f) Termination of Recipient's Employment [due to] [or Other Than] a Termination [for Cause or] without [Good Reason] [or Cause, or due to Death or Disability] . In the event that the Recipient's continuous service terminates prior to the Time-Vesting Date due to a termination of the Recipient's employment [other than a termination of the Recipient's employment by the Company without Cause or due to the Recipient's death or Disability] [or (i) by the Company for Cause (as such term is defined in the Recipient's Employment Agreement) or (ii) by the Recipient without Good Reason (as such term is defined in the Recipient's Employment Agreement)] , then all of the shares of Restricted Stock subject to this Agreement shall be immediately forfeited upon
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such termination of continuous service and revert back to the Company without any payment to the Recipient. The Administrator shall have the power and authority to enforce on behalf of the Company any rights of the Company under this Agreement in the event of the Recipient's forfeiture of shares pursuant to this Section 2(f).
(g) Termination of Recipient's Employment due to a Termination without Cause [for Good Reason prior to [ vesting date ]] . In the event that the Recipient's continuous service terminates [prior to vesting date] due to a termination of the Recipient's employment by the Company without Cause [or by the Recipient for Good Reason] , [[then [a pro rata number of shares] [or all] of Restricted Stock subject to this Agreement shall immediately time-vest as of the date of such termination of employment, but shall only fully vest upon the achievement of the Performance Goal prior to [ vesting date ], and shall be delivered, subject to any requirements under this Agreement, to the Recipient within 10 days following the date the Performance Goal has been achieved] [then all of the shares of Restricted Stock subject to this Agreement shall be immediately forfeited upon such termination of continuous service and revert back to the Company without any payment to the Recipient]] . [The pro rata number of shares of Restricted Stock that shall time-vest under this Section 2(g) shall be equal to (x) [ insert number of shares granted under this Agreement ] multiplied by (y) a fraction, the numerator of which shall be equal to the number of full and partial months following the Date of Grant during which the Recipient was employed by the Company and the denominator of which shall be [insert time vesting period in months ].] For the avoidance of doubt, if the Performance Goal is not achieved prior to [ vesting date ] , then all of the shares of Restricted Stock subject to this Agreement shall be immediately forfeited as of [ vesting date ] and shall revert back to the Company without any payment to the Recipient.
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Delivery of Restricted Stock . |
(a) One or more stock certificates evidencing the shares of Restricted Stock shall be issued in the name of the Recipient but shall be held and retained by the Records Administrator of the Company until the date (the "Applicable Date") on which the shares (or a portion thereof) subject to this Restricted Stock award become fully vested shares pursuant to Section 2 above. All such stock certificates shall bear the following legend, along with such other legends that the Administrator shall deem necessary and appropriate or which are otherwise required or indicated pursuant to any applicable law:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO SUBSTANTIAL VESTING AND OTHER RESTRICTIONS AS SET FORTH IN THE RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES, AND INCLUDE VESTING CONDITIONS WHICH MAY RESULT IN THE COMPLETE FORFEITURE OF THE SHARES.
(b) The Recipient shall deposit with the Company stock powers or other instruments of transfer or assignment, duly endorsed in blank with signature(s) guaranteed, corresponding to each certificate representing shares of Restricted Stock until such shares become fully vested shares. If the Recipient shall fail to provide the Company with any such stock power or other instrument of
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transfer or assignment, the Recipient hereby irrevocably appoints the Secretary of the Company as his attorney-in-fact, with full power of appointment and substitution, to execute and deliver any such power or other instrument which may be necessary to effectuate the transfer of the Restricted Stock (or assignment of distributions thereon) on the books and records of the Company.
(c) On or after each Applicable Date, upon written request to the Company by the Recipient, the Company shall promptly cause a new certificate or certificates to be issued for and with respect to all shares that become fully vested shares on that Applicable Date, which certificate(s) shall be delivered to the Recipient as soon as administratively practicable after the date of receipt by the Company of the Recipient's written request The new certificate or certificates shall continue to bear those legends and endorsements that the Company shall deem necessary or appropriate (including those relating to restrictions on transferability and/or obligations and restrictions under applicable securities laws).
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4. |
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Rights with Respect to Restricted Stock . |
(a) Except as otherwise provided in this Agreement, the Recipient shall have, with respect to all of the shares of Restricted Stock all of the rights of a holder of shares of Common Stock of the Company, including without limitation (i) the right to vote such Restricted Stock, (ii) the right to receive dividends, if any, as may be declared on the Restricted Stock from time to time, and (iii) the rights available to all holders of shares of Common Stock of the Company upon any merger, consolidation, reorganization, liquidation or dissolution, stock split-up, stock dividend or recapitalization undertaken by the Company; provided , however , that all of such rights shall be subject to the terms, provisions, conditions and restrictions set forth in this Agreement (including without limitation conditions under which all such rights shall be forfeited). Any shares issued to the Recipient as a dividend with respect to shares of Restricted Stock shall have the same status and bear the same legend as the shares of Restricted Stock and shall be held by the Company, if the shares of Restricted Stock that such dividend is attributed to is being so held, unless otherwise determined by the Administrator. In addition, notwithstanding any provision to the contrary herein, any cash dividends declared with respect to shares of Restricted Stock subject to this Agreement shall be (i) held in escrow by the Administrator until such time as the shares of Restricted Stock that such cash dividends are attributed to shall become fully vested shares, and in the event that such shares of Restricted Stock are subsequently forfeited, the cash dividends attributable to such portion shall be forfeited as well and (ii) paid on the date such shares vest in full, provided that such payment shall be made in no event later than March 15 of the year following the year in which such vesting date occurs.
(b) If at any time while this Agreement is in effect (or shares granted hereunder shall be or remain unvested while Recipient's continuous service continues and has not yet terminated or ceased for any reason), there shall be any increase or decrease in the number of issued and outstanding shares of the Common Stock of the Company through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of such shares, then and in that event, the Administrator shall make any adjustments it deems fair and appropriate, in view of such change, in the number of shares of Restricted Stock then subject to this Agreement. If any such adjustment shall result in a fractional share, such fraction shall be disregarded.
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(c) Notwithstanding any term or provision of this Agreement to the contrary, the existence of this Agreement, or of any outstanding Restricted Stock awarded hereunder, shall not affect in any manner the right, power or authority of the Company to make, authorize or consummate: (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger, consolidation or similar transaction by or of the Company; (iii) any offer, issue or sale by the Company of any capital stock of the Company, including any equity or debt securities, or preferred or preference stock that would rank prior to or on parity with the Restricted Stock and/or that would include, have or possess other rights, benefits and/or preferences superior to those that the Restricted Stock includes, has or possesses, or any warrants, options or rights with respect to any of the foregoing; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the stock, assets or business of the Company; or (vi) any other corporate transaction, act or proceeding (whether of a similar character or otherwise).
(d) Acknowledgements of Recipient Regarding Forfeiture of Non-Vested Shares and Company Clawback Policy . By signing this Agreement where indicated below, the Recipient hereby acknowledges and agrees as follows:
(i) If the Recipient’s continuous service with the Company and its subsidiaries is terminated for any reason, any shares of Restricted Stock that are not vested, and that do not become vested pursuant to Section 2 hereof as a result of such termination, shall be forfeited immediately upon such termination of continuous service and revert back to the Company without any payment to the Recipient. The Administrator shall have the power and authority to enforce on behalf of the Company any rights of the Company under this Agreement in the event of the Recipient’s forfeiture of non-vested shares pursuant to this Section.
(ii) The Company’s Board of Directors (the “Board”) has adopted a Clawback Policy, as may be amended from time to time (the “Clawback Policy”), which authorizes the Company, when directed by the Board in its discretion, to seek to recover from any current or former executive officer that has been determined by the Board to have engaged in “Misconduct” any “Incentive-Based Compensation” (each as defined in the Clawback Policy) awarded to such executive officer during the time period specified in the Clawback Policy. The Restricted Stock granted hereby may constitute Incentive-Based Compensation that is subject to the Clawback Policy.
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Transferability . Unless otherwise determined by the Administrator, the shares of Restricted Stock are not transferable unless and until they become fully vested shares in accordance with this Agreement, otherwise than by will or under the applicable laws of descent and distribution. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Recipient. Except as otherwise permitted pursuant to the first sentence of this Section, any attempt to effect a Transfer of any shares of Restricted Stock prior to the date on which the shares become fully vested shares shall be void ab initio . For purposes of this Agreement, "Transfer" shall mean any sale, transfer, encumbrance, gift, donation, assignment, pledge, hypothecation, or other disposition, whether similar or dissimilar to those previously enumerated, whether voluntary or involuntary, and including, but not limited to, any disposition by operation of law, by court order, by judicial process, or by foreclosure, levy or attachment. |
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Tax Matters: Section 83(b) Election . |
(a) If the Recipient properly elects, within thirty (30) days of the Date of Grant, to include in gross income for federal income tax purposes an amount equal to the fair market value (as of the Date of Grant) of the Restricted Stock pursuant to Section 83(b) of the Code, the Recipient shall make arrangements satisfactory to the Company to pay to the Company any federal, state or local income taxes required to be withheld with respect to the Restricted Stock. If the Recipient shall fail to make such tax payments as are required, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind (including without limitation, the withholding of any shares that otherwise would be issued to you under this Agreement) otherwise due to the Recipient any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock.
(b) If the Recipient does not properly make the election described in Section 6(a) above, die Recipient shall, no later than the date or dates as of which the restrictions referred to in this Agreement hereof shall lapse, pay to the Company, or make arrangements satisfactory to the Administrator for payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock (including without limitation the vesting thereof), including (if permitted by the Company) by providing instructions to the Company to net settle the vested Restricted Stock to be transferred to the Recipient under Section 3 above. If the Recipient fails to comply with the tax obligations set forth in the immediately preceding sentence (the "Tax Obligations"), then the Recipient hereby irrevocably authorizes and instructs a broker to be designated by the Company in its sole discretion to sell for the account of the Recipient a sufficient number of shares of the Restricted Stock (based upon prevailing market prices at the time of such sale) necessary to satisfy the Recipient's Tax Obligations, to remit to the Company the proceeds of such sale in such amount necessary to satisfy the Tax Obligations and to remit any balance resulting from such sale to the Recipient. The Company and any such broker shall be entitled to use and to rely upon the stock powers and other instruments of transfer provided pursuant to Section 3(b) above. In addition, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to Recipient any federal, state, or local taxes of any kind required by law to be withheld with respect to the Restricted Stock.
(c) Tax consequences on the Recipient (including without limitation federal, state, local and foreign income tax consequences) with respect to the Restricted Stock (including without limitation the grant, vesting and/or forfeiture thereof) are the sole responsibility of the Recipient The Recipient shall consult with his or her own personal accountants) and/or tax advisor(s) regarding these matters, the making of a Section 83(b) election, and the Recipient's filing, withholding and payment (or tax liability) obligations.
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Amendment, Modification and Assignment; Non-Transferability . This Agreement may only be modified or amended in a writing signed by the parties hereto. No promises, assurances, commitments, agreements, undertakings or representations, whether oral, written, electronic or otherwise, and whether express or implied, with respect to the subject matter hereof, have been made by either party which are not set forth expressly in this Agreement. Unless otherwise consented to in writing by the Company, in its sole discretion, this Agreement (and Recipient's rights hereunder) may not be assigned, and the obligations of Recipient hereunder may not be delegated, in whole or in part. The rights and obligations created hereunder shall be binding on the
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Recipient and his or her heirs and legal representatives and on the successors and assigns of the Company. |
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Complete Agreement . This Agreement (together with those agreements and documents expressly referred to herein, for the purposes referred to herein) embody the complete and entire agreement and understanding between the parties with respect to the subject matter hereof, and supersede any and all prior promises, assurances, commitments, agreements, undertakings or representations, whether oral, written, electronic or otherwise, and whether express or implied, which may relate to the subject matter hereof in any way. |
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Miscellaneous . |
(a) No Right to (Continued) Employment or Service . This Agreement and the grant of Restricted Stock hereunder shall not confer, or be construed to confer, upon the Recipient any right to employment or service, or continued employment or service, with the Company or any subsidiary.
(b) No Limit on Other Compensation Arrangements . Nothing contained in this Agreement shall preclude the Company or any subsidiary from adopting or continuing in effect other or additional compensation plans, agreements or arrangements, and any such plans, agreements and arrangements may be either generally applicable or applicable only in specific cases or to specific persons.
(c) Severability . If any term or provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or under any applicable law, rule or regulation, then such provision shall be construed or deemed amended to conform to applicable law (or if such provision cannot be so construed or deemed amended without materially altering the purpose or intent of this Agreement and the grant of Restricted Stock hereunder, such provision shall be stricken as to such jurisdiction and the remainder of this Agreement and the award hereunder shall remain in full force and effect).
(d) No Trust or Fund Created . Neither this Agreement nor the grant of Restricted Stock hereunder shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any subsidiary and the Recipient or any other person. To the extent that the Recipient or any other person acquires a right to receive payments from the Company or any subsidiary pursuant to this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company.
(e) Law Governing . This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Florida (without reference to the conflict of laws rules or principles thereof).
(f) Interpretation . The Recipient accepts the Restricted Stock subject to all of the terms, provisions and restrictions of this Agreement and the Plan. The undersigned Recipient hereby accepts as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under this Agreement.
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(g) Headings . Section, paragraph and other headings and captions are provided solely as a convenience to facilitate reference. Such headings and captions shall not be deemed in any way material or relevant to the construction, meaning or interpretation of this Agreement or any term or provision hereof.
(h) Notices . Any notice under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or when deposited in the United States mail, registered, postage prepaid, and addressed, in the case of the Company, to the Company's Secretary at Federated National Holding Company, 14050 N.W. 14 th Street, Suite 180, Sunrise, Florida 33323, or if the Company should move its principal office, to such principal office, and, in the case of the Recipient, to the Recipient's last permanent address as shown on the Company's records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section.
(i) Non-Waiver of Breach . The waiver by any party hereto of the other party's prompt and complete performance, or breach or violation, of any term or provision of this Agreement shall be effected solely in a writing signed by such party, and shall not operate nor be construed as a waiver of any subsequent breach or violation, and the waiver by any party hereto to exercise any right or remedy which he, she or it may possess shall not operate nor be construed as the waiver of such right or remedy by such party, or as a bar to the exercise of such right or remedy by such party, upon the occurrence of any subsequent breach or violation.
(j) Counterparts . This Agreement may be executed in two or more separate counterparts, each of which shall be an original, and all of which together shall constitute one and the same agreement.
(k) Internal Revenue Code Section 409A . The Restricted Stock granted hereunder is intended to be exempt from Section 409A of the Code and the Treasury regulations and other official guidance promulgated thereunder.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed this Agreement as of the date first written above.
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FEDERATED NATIONAL HOLDING |
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COMPANY |
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Name: |
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Title: |
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Date: |
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Agreed and Accepted: |
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RECIPIENT: |
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[Recipient’s name] |
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Date: |
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9
EXHIBIT A
PERFORMANCE GOALS
The number of shares of Restricted Stock that may be earned will be determined based on the actual performance level achieved with respect to the following performance measures during the period from [●] through [●] (the “Performance Period”):
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[ Performance measure] ; |
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[ Performance measure] ; |
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and [ Performance measure] (collectively referred to as the “Performance Goals,” and each individual measure, a “Performance Goal”); |
and may be more or less than the number of shares of Restricted Stock set forth in Section 1 of the Agreement.
The chart below sets forth the applicable weighting of each performance measure and the Performance Goals needed to be achieved at each performance level for such performance measure during the Performance Period:
* The number of shares set forth on the first page of the Agreement is the number of shares payable based on target level performance. The actual number of shares of Restricted Stock that will be earned with respect to the [●] performance measure is based on [●]. Each performance measure will be evaluated on a measure by measure basis, and once performance results are determined as to each individual performance measure, those results will be aggregated and the weighting applied. [When assessing each performance measure, actual performance level achieved between each performance level will be interpolated on a straight line basis rounded down to the nearest whole number] ; provided that if the actual performance level achieved does not meet threshold performance (i.e., less than [●]%) for the applicable performance measure, then no shares of Restricted Stock will be earned for that performance measure pursuant to this grant. Threshold level performance may be achieved for one performance measure and not another based on the Company’s actual performance during the Performance Period. The actual number of shares of Restricted Stock earned will be determined by the Administrator based on the actual performance level achieved with respect to each of the applicable Performance Goals, factoring in the weighting for each performance measure. The maximum number of shares of Restricted Stock that may be earned pursuant to this grant is capped at [●]% of the number of shares set forth in Section 1 of the Agreement.
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DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
C ONFIDENTIAL I NFORMATION , N ON -S OLICITATION AND N ON -C OMPETITION A GREEMENT
This Confidential Information, Non-Solicitation and Non-Competition Agreement ("Agreement") is made and entered into as of the 17 th day of April, 2017 , by and between FEDERATED NATIONAL HOLDING COMPANY, its affiliates, parents, subsidiaries, successors or assigns (collectively referred to as “Company”), and RONALD JORDAN (hereinafter "Employee").
WHEREAS , Employee seeks employment or continued employment with the Company;
WHEREAS , the Company would not employ or continue to employ Employee but for Employee's agreement to the terms and conditions hereinafter set forth; and
WHEREAS , Employee will be entrusted with and have access to the Company's trade secrets, customers, employees and other confidential and proprietary information, property and knowledge.
NOW, THEREFORE , in consideration of, among other things, Employee's employment or continued employment, the receipt and sufficiency of which Employee acknowledges, Company and Employee agree as follows:
1. COMPANY'S BUSINESS . The Company offers insurance products and services, including but not necessarily limited to, homeowners insurance, commercial general liability insurance, federal flood insurance, personal auto, and umbrella insurance. The term "Company's Business", as used in this Agreement, includes these activities as well as any other activities in which the Company may become engaged or be in the process of developing during Employee's employment with the Company.
2. ACCESS TO CUSTOMERS, POLICYHOLDERS, AGEN TS AND CONFIDENTIAL INFORMATION . At great expense to it, the Company has secured customers, policyholder, agents and solicited potential customers, policyholders and agents through its employees and sales and marketing efforts in its service area and by promoting its business practices through its good name in the industry. In this regard, Employee will have employment responsibilities involving finance, accounting, investments, SEC reporting, shareholder communication, administration, customer contact, marketing, distribution, products, services and new product and services launches, recruiting, contact with recruits, and/or exposure to sales, marketing, product, services, customer and recruiting information and other aspects of Company's Business.
3. COMPANY'S CONFIDENTIAL INFORMATION .
a. With the exception of its employees, the Company considers its most valuable assets to be its trade secrets and other confidential business information such as its insured and agent lists, any and all Company financial records known or considered to be non-public information, current and future sales and marketing plans, including distribution, advertising, underwriting, files, business relationships and accounts, customer lists and information, computer software and hardware, information relating to the Company's programs, activities, projects and services, or any other materials relating to
DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
the Company's business or the customers of the Company or any trade secrets or confidential information, including, without limitation, any business or operational planning, budgeting and methods, drawings, sketches, designs or concepts, know-how, marketing plans or strategies, financial accounting, investment presentations, reinsurance, human resource management, corporate recordkeeping, programs, products or services, business acquisition plans, financial or other performance data, personnel and other policies of the Company, and any other information, whether communicated orally or in documentary or other tangible form, concerning how Company operates Company's Business. The parties to this Agreement recognize Company has invested considerable amounts of time and money in attaining and developing all of the information described above (hereafter collectively referred to as "Company's Confidential Information"), and any unauthorized disclosure or release of Company's Confidential Information in any form would irreparably harm Company.
b. The parties recognize Employee may take part in attaining and developing, and/or otherwise will have access to Company's Confidential Information in the course of Employee's employment with Company.
c. The parties further recognize protecting Company's Confidential Information from disclosure to others not only benefits Company, but also benefits all Company employees who remain in Company's employ, as their livelihood is dependent upon the preservation of Company's Business.
4. COMPANY'S LEGITIMATE BUSINESS INTERESTS . In light of the foregoing, the Company has legitimate business interests to protect, including (a) valuable confidential business and proprietary information and trade secrets, (b) substantial relationships with specific prospective and existing customers, and (c) goodwill associated with (i) extraordinary or specialized training of its employees, (ii) promotion of the Company's business practice through its good name in the industry, and (iii) the specific geographical location and marketing area within which the Company’s business is located and draws its customers.
5. NON-DISCLOSUR E OR U SE OF COMPANY 'S CONFIDENTIAL INFORMATION. Employee shall refrain from directly or indirectly disclosing to any third party, using for any purpose other than for the direct benefit of Company, or communicating in any manner, any of Company's Confidential Information during Employee's employment and thereafter, whatever the reason for Employee leaving Company's employ.
6. CONFIDENTIAL INFORMATION FROM THIRD PARTIES . Employee recognizes the Company has received and in the future will receive from customers, agents, and other third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Employee agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out Employee’s work for Company consistent with Company's agreement with such third party.
DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
7. RETURN OF COMPANY'S PROPERTY . Should Employee's employment be terminated for any reason, Employee shall:
a. Refrain from taking any of the Company's property or allowing any of the Company's property to be taken from the Company's premises;
b. Refrain from transmitting or reproducing in any manner or allowing to be transmitted or reproduced any of the Company's property;
c. Refrain from removing any such reproduction from the Company's premises;
d. Delete any electronically stored Company property in Employee's possession, custody or control; and
e. Immediately return to Company any original or reproduction of Company's property in Employee's possession, including but not limited to manuals, procedures, reports, papers, or other documents relating to the business of the Company. At any time upon request by the Company, Employee agrees to immediately return to the Company any of the Company's property.
8. RESTRICTIVE COVENANTS. During Employee’s employment with the Company and for a period of 1 year thereafter, whatever the reason for Employee's termination of employment, Employee shall not, either directly or indirectly, either on Employee’s own behalf or on behalf of another business or individual, engage in any of the following activities, or assist others in such activities, in any geographic location where Company's Business is or may be conducted:
a. Solicit, hire, recruit, or attempt to solicit, hire or recruit, for any individual or entity engaged in any business similar to and in competition with Company's Business, any current or former employee, including directors, officers and agents, of the Company, or enter into any contractual agreement with any employee or former employee, including directors, officers and agents, of the Company, or attempt to induce any employee, including directors, officers and agents, of the Company to terminate his or her employment or relationship with the Company;
b. Solicit or accept any business from any of Company's current, former or prospective customers (a prospective customer is defined as any person or business Company has actively solicited, planned to solicit, or provided products or services to, during the 12 months before Employee's termination of employment with Company), insureds, agents, vendors, partners, or associations, if the business solicited or accepted is similar to Company's Business; or
c. Enter into, engage in, be employed by, be connected to, consult for, or otherwise assist any business or individual engaged primarily in any business similar to and in competition with Company's Business. Nothing in this Agreement prevents Employee from owning not more than 2% of the equity of a publicly traded entity.
DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
9. RIGHT TO INJUNCTIVE RELIEF . The parties to this Agreement recognize irreparable harm would result from any breach by Employee of the covenants contained in this Agreement and monetary damages alone would not provide adequate relief for any such breach. Accordingly, in addition to any other remedy which may be available to Company, if Employee breaches a restrictive covenant in this Agreement, the parties acknowledge injunctive and other relief in favor of Company is proper and may be ordered by any state or federal court of competent jurisdiction located in Broward County, Florida.
10. TRADE SECRETS . Company and Employee's rights and obligations under this Agreement shall be cumulative and in addition to any rights Company may have to protect Company's Confidential Information that may constitute trade secrets under applicable law.
1 1. COSTS AND ATTORNEYS' FEES . If either party seeks to enforce any provision(s) in this Agreement in a court of competent jurisdiction and secures any relief, the prevailing party shall be entitled to reasonable attorney's fees and costs incurred in enforcing this Agreement.
1 2. EXTENSION OF RESTRICTIVE COVENANT DURING BREACH . If Employee breaches a covenant containing a specified duration, the duration of that covenant shall be extended by the period of time between Employee's termination of employment with Company and the date a court of competent jurisdiction enters an injunction restraining further breach of the covenant. Additionally, if Employee breaches any restrictive covenant in this Agreement, Employee forfeits Employee’s right to any compensation payable while Employee is breaching such covenant or after any such breach has occurred.
1 3. SERVICE OF PROCESS . If Company determines Employee has breached this Agreement, Employee shall become available for service of process within the State of Florida.
1 4. JUDICIAL MODIFICATION OF COVENANTS . If a court of competent jurisdiction determines any of the restrictions in this Agreement are overbroad, Employee shall agree to modification of the affected restriction(s) to permit enforcement to the maximum extent allowed by law.
1 5. INDEPENDENT AGREEMENTS . The agreements and covenants in Paragraphs 5-8 of this Agreement shall be construed as agreements independent of any other provision of this Agreement or in any other agreement by, between, among, or affecting Company and Employee, and the existence of any claim or cause of action of Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of any of the agreements or covenants in those Paragraphs. The covenants, agreements, and representations set forth in this Agreement will survive termination of this Agreement and termination of Employee's employment.
1 6. AT- WILL EMPLOYMENT/N O DU TY TO EMPLOY . Employee understands that this Agreement does not constitute a contract of employment or obligate the Company to employ Employee for any stated period of time. Nothing contained in this Agreement shall limit the ability of either Employee or the Company to terminate the employment relationship at will, with or without cause, at any time.
1 7. SUCCESSORS AND ASSIGNS . Company's rights and obligations under this Agreement may be assigned at the Company's discretion to any successor or assign. Any
DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
successor or assign of Company is authorized to enforce all terms of this Agreement, including, but not limited to, the provisions and restrictive covenant described in Paragraphs 5-8 of this Agreement, as if the name of such successor or assign replaces Company throughout this Agreement. Employee's rights and obligations under this Agreement, being personal in nature, may not be assigned.
1 8. NOTICES . All notices required or permitted under this Agreement shall be in writing and shall be deemed delivered when delivered in person or on the third day after being deposited in the mail, postage paid, addressed as follows:
FEDERATED NATIONAL HOLDING COMPANY:
14050 NW 14th Street, Suite 180
Sunrise, Florida 33323
Attention: Chief Executive Officer
RONALD JORDAN
5817 Crutchfield Farm Road
Oakridge, NC 27310
Such addresses may be changed from time to time by either party by providing written notice in the manner set forth above.
1 9. ENTIRE AGREEMENT . This Agreement, Bonus Agreement, and Change in Control Agreement contain the entire agreement of the parties and there are no other promises or conditions in any other agreement whether oral or written. This Agreement supersedes any prior written or oral agreements between the parties, with the exception of the Bonus Agreement, and Change in Control Agreement.
20. AMENDMENT . This Agreement may not be modified or amended, unless the modification is set forth in a written document signed by both parties.
2 1. SEVERABILITY . If any provisions of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid or enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.
2 2. WAIVER OF CONTRACTUAL RIGHT . The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement.
2 3. APPLICABLE LAW . ALL ISSUES RELATED TO THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF TH E STAT E O F FLORIDA , WITHOU T REGA RD T O CONFLI CT O F LAWS
DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
PRINCIPLES. THE PARTIES AGREE THAT ANY LITIGATION ARISING OUT OF, CONCERNING, OR IN CONNECTION WITH THIS AGREEMENT SHALL OCCUR IN THE STATE OF FLORIDA, IN BROWARD COUNTY, FLORIDA OR IN THE FEDERAL COURTS OF THE UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF FLORIDA. BOTH PARTIES HEREBY CONSENT TO JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF FLORIDA OVER ANY SUCH LITIGATION OR DISPUTE. EMPLOYEE EXPRESSLY CONSENTS TO THE PERSONAL JURISDICTION OF THE FEDERAL AND STATE COURTS IN FLORIDA. ANY SUCH LAWSUIT SHALL BE BROUGHT IN OR REMOVED TO A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN BROWARD COUNTY, FLORIDA OR THE UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF FLORIDA.
2 4. ACKNOWLEDGMENTS . Both Employee and the Company are executing this Agreement voluntarily and without any duress or undue influence. Both Employee and the Company understand the terms, consequences and binding effect of this Agreement. Both Employee and the Company have had the opportunity to seek the advice of an attorney of their own selection before signing this Agreement. No rules of construction will be applied in favor of or against either party based on the identity of the party drafting this Agreement.
2 5. COUNTERPARTS . This Agreement may be executed in any number of counterparts, each of which shall be enforceable, and all of which together shall constitute one agreement. A photocopy, facsimile, copy or electronic copy of any party's signature shall be as binding as the original.
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AGREED TO AND ACCEPTED: |
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FEDERATED NATIONAL HOLDING COMPANY |
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By: |
/s/ Michael H. Braun |
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Michael H. Braun CEO/President |
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AGREED TO AND ACCEPTED: |
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RONALD JORDAN |
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/s/ Ronald Jordan |
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Ronald Jordan |
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DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (the “Agreement”), made and entered into as of the 17 th day of April, 2017, by and between:
(i) RONALD JORDAN (the “Employee”) and
(ii) FEDERATED NATIONAL HOLDING COMPANY , a Florida corporation with offices and place of business in Sunrise, Florida (the “ Company ”).
All capitalized terms which are not defined herein shall have the same meaning as defined terms in Appendix A , which is attached hereto and incorporated herein by this reference.
P R E L I M I N A R Y S T A T E M E N T
WHEREAS , the Company believes it to be in the best interests of the Company to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control; and
WHEREAS , the Company and Employee desire to enter into this Agreement to protect the Employee's interests in the event of a Change of Control.
NOW , THEREFORE , in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Termination without Cause or for Good Reason During the Two-Year Period Following a Change of Control . If during the two-year period following a Change of Control, the Employee's employment with the Company is terminated by the Company without Cause or by the Employee for Good Reason, the Company will make a lump sum payment, no later than 10 days following such termination, to the Employee in an amount equal to one year of the Employee's base salary as in effect immediately prior to the Change of Control.
2. Termination for Cause, without Good Reason, Death or Disability Following a Change of Control . In the event that Employee's employment is terminated by the Company for Cause, by the Employee without Good Reason, or due to the death or total disability of Employee following a Change of Control, Employee shall be entitled to receive any earned and unpaid compensation and all earned and vested benefits pursuant to the terms of any applicable benefit plans through the date of termination of the Employee’s employment with the Company within seven days following such date of termination.
3. Release . Employee agrees that, as a condition to receiving the payments and benefits provided hereunder, the Employee will execute, deliver and not revoke (within the time period permitted by applicable law) a release of all claims of any kind whatsoever against the Company, its affiliates, officers, directors, employees, agents and shareholders in the then- standard form being used by the Company.
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DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
4. Full Settlement . Any amounts due under this Agreement are in lieu of any, amounts payable under any other salary continuation or cash severance arrangement of the Company and, to the extent paid or provided under any other such arrangement, any such other payment shall be offset from the amount due hereunder. The Company's obligation to make payments provided for in this Agreement and otherwise perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or to take any action by way of mitigation of the amounts payable to the Employee under any provision of this Agreement.
5. Notices . All notices, demands and other communications that may or are required to be given to or made by either party to the other in connection with this Agreement shall be in writing, shall be given by hand delivery, by overnight delivery through a nationally recognized delivery service, or by United States Certified or Registered mail, return receipt requested, postage prepaid, and shall be deemed to have been given or made when received by the addressee, addressed to the respective parties as follows:
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If to Employee: |
Ronald Jordan |
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5817 Crutchfield Farm Road |
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Oakridge, NC 27310 |
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If to Company: |
FEDERATED NATIONAL HOLDING COMPANY |
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14050 NW 14 Street, Suite 180 |
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Sunrise, Florida 33323 |
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Attn: Chief Executive Officer |
6. Miscellaneous :
(a) This Agreement has been executed in and shall be governed and construed in accordance with the laws of the State of Florida.
(b) Unless otherwise provided herein, all rights, powers, and privileges conferred hereunder upon the parties shall be cumulative and not restrictive of those given by law.
(c) No failure of any party hereto to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder, and no customary practice of the parties at variance with the terms hereof, shall constitute a waiver of a party’s right to demand exact compliance with the terms hereof.
(d) Time is of the essence in complying with the terms, conditions and provisions of this Agreement.
(e) This Agreement contains the entire agreement of the parties hereto pertaining to the subject matter hereof, and no representation, inducements, promises or agreements between the parties not contained herein shall be of any force or effect.
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DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
(f) This Agreement is binding upon and shall inure to the benefit of the Company, its successors and assigns and the Employee and his respective heirs, personal representatives, successors and assigns.
(g) Any amendment to this Agreement shall not be binding upon the parties to this Agreement unless such amendment is in writing and executed by all the parties hereto.
(h) In the event any litigation or controversy arises out of or in connection with this Agreement between the parties hereto, the prevailing party in such litigation or controversy shall be entitled to recover from the other party or parties all reasonable attorney’s fees, expenses and suit costs, including those associated with any appellate or post-judgment collection proceeding.
7. Section 409A Compliance .
(a) General . It is the intention of both the Company and the Employee that the benefits and rights to which the Employee is entitled pursuant to this Agreement comply with Code Section 409A, to the extent that the requirements of Code Section 409A are applicable thereto, and the provisions of this Agreement shall be construed in a manner consistent with that intention. If the Employee or the Company believes, at any time, that any such benefit or right that is subject to Code Section 409A does not so comply, it shall promptly advise the other and shall negotiate reasonably and in good faith to amend the terms of such benefits and rights such that they comply with Code Section 409A (with the most limited possible economic effect on the Employee and on the Company).
( b) Distributions on Account of Separation from Service . To the extent required to comply with Code Section 409A, any payment or benefit required to be paid under this Agreement on account of termination of the Employee’s service (or any other similar term) shall be made only in connection with a "separation from service" with respect to the Employee within the meaning of Code Section 409A.
(c) No Acceleration of Payments . Neither the Company nor the Employee, individually or in combination, may accelerate any payment or benefit that is subject to Code Section 409A, except in compliance with Code Section 409A and the provisions of this Agreement, and no amount that is subject to Code Section 409A shall be paid prior to the earliest date on which it may be paid without violating Code Section 409A.
(d) Six-Month Delay for Specified Employees . In the event that the Employee is a “specified employee” (as described in Code Section 409A), and any payment or benefit payable pursuant to this Agreement constitutes deferred compensation under Code Section 409A, then the Company and the Employee shall cooperate in good faith to undertake any actions that would cause such payment or benefit not to constitute deferred compensation under Code Section 409A. In the event that, following such efforts, the Company determines (after consultation with its counsel) that such payment or benefit is still subject to the six-month delay requirement described in Code Section 409A(2)(b) in order for such payment or benefit to comply with the requirements of Code Section 409A, then no such payment or benefit shall be made before the date that is six months after the Employee’s “separation from service” (as described in Code Section 409A) (or, if earlier, the date of the Employee’s death). Any payment or benefit delayed by reason of the prior sentence (the Delayed Payment") shall be paid out or
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provided in a single lump sum at the end of such required delay period in order to catch up to the original payment schedule.
(e) Treatment of Each Installment as a Separate Payment . For purposes of applying the provisions of Code Section 409A to this Agreement, each separately identified amount to which the Employee is entitled under this Agreement shall be treated as a separate payment. In addition, to the extent permissible under Code Section 409A, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments.
IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the day, month and year first above written.
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EMPLOYEE: |
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/s/ Ronald Jordan |
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Print Name: |
Ronald Jordan |
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COMPANY: |
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FEDERATED NATIONAL HOLDING |
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COMPANY, a Florida corporation |
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By: |
/s/ Michael H. Braun |
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Name: |
Michael H. Braun |
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Title: |
Michael H. Braun |
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DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
APPENDIX A DEFINITIONS
" Cause ” shall mean that:
(i) There has been continued neglect on the part of the Employee in the performance of Employee’s duties under this Agreement, with notice to the Employee and an opportunity to cure;
(ii) The Employee's continued neglect of the Company’s Employee Handbook Policies and Procedures; or
(iii) The Employee is convicted during the Term of this Agreement of a felony involving moral turpitude that is committed by Employee, or enters a plea of guilty or nolo contendere to such felony.
Prior to terminating the Employee for Cause under clauses (i) – (ii) above, the Company shall provide the Employee with at least 10 days’ written notice of the breach and an opportunity to cure the breach. If the Employee does not cure the breach to the satisfaction of the Company in its sole and absolute discretion during this period, the Company may terminate the Employee for Cause. If the Employee is terminated under clause (iii) above, the Employee’s termination will be immediate upon the date of the conviction or plea and no written notice is required by the Company.
“ Change of Control ” shall be deemed to have taken place if: (1) any person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the owner or beneficial owner of Company securities, after the date of this Agreement, having 50% or more of the combined voting power of the then-outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company, or open market purchases approved by the Board, as long as the majority of the Board approving the purchases is the majority at the time the purchases are made), or (2) the persons who were directors of the Company before such transactions shall cease to constitute a majority of the Board, or any successor to the Company, 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. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur unless it constitutes a “change in control event” within the meaning of Section 1.409A- 3(i)(5) of the Treasury Regulations promulgated under Section 409A.
" Code " shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
" Code Section 409A " shall mean Section 409A of the Code and its implementing regulations and guidance.
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DocuSign Envelope ID: 16F25047-3114-46A4-8F01-8B8F8DF821C9
" Good Reason " shall mean the occurrence of one of the following conditions:
(1) A material diminution in the Employee's base compensation; or
(2) A material change in the geographic location at which the Employee must perform the services.
Notwithstanding the foregoing, the Employee shall not be deemed to have terminated this Agreement for Good Reason unless the Employee provides to the Company a written notice of the existence of the above-referenced condition(s) within 90 days following the initial existence of such condition(s) and the Company fails to remedy such condition(s) within 30 days following the receipt of such notice.
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This Annual Bonus Agreement ("Agreement") is made as of January 1, 2017 (the "Effective Date") by and between Erick Fernandez ("Employee") and Federated National Holding Company, a Florida corporation ("Company"). The Company and Employee are collectively referred to as the "Parties".
WHEREAS , the Company desires to motivate Employee to take on and meet a high level of performance with respect to Employee's job responsibilities;
WHEREAS , the purpose of this Agreement is to provide financial incentives to Employee who is needed for the successful performance of the Company; and
WHEREAS , the Parties acknowledge that nothing in this Agreement is intended to or shall be interpreted to alter Employee's employment status from that of "at will."
NOW, THEREFORE , in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the Parties agree as follows:
1. Term of Agreement . This Agreement will take effect as of the Effective Date set forth above and will continue in full force and effect through December 31, 2017 (the “Termination Date”), unless sooner terminated in accordance with the terms hereof. Thereafter the Agreement may be subject to renewal for consecutive one (1) calendar year terms, with such changes of terms including amount of bonus payment on or before expiration of a relevant term. Notwithstanding the foregoing, the Agreement may be terminated during any subsequent term in accordance with the terms hereof.
2. Criteria for Annual Bonus Payment . Employee will be eligible for a payment under this Agreement only if Employee satisfies all of the following criteria:
(a) Employee devotes full effort and diligence to the ongoing business affairs of Company ; and
(b) Employee remains employed by the Company through the Payment Date (as hereinafter defined) .
3. Annual Bonus Payment . Employee is eligible to receive an Annual Bonus Payment based on Company performance in the five categories set forth in the chart below. Employee’s Annual Bonus Payment will be calculated based on a sliding scale from the minimum Company Performance Goal and corresponding bonus amount to the maximum Company Performance Goal and corresponding bonus amount for each of the five categories. If the Company does not meet or exceed the minimum Company Performance Goal in a category, then Employee will not receive an annual bonus for that category. If the Company exceeds the maximum Company Performance Goal in a category, Employee will receive the maximum
annual bonus amount for that category and not more than the maximum annual bonus amount. The Annual Bonus Payment will be paid in U.S. dollars on an annual basis as provided for in Section 4 . By way of example only, and without any guarantees, assurances or other representations as to the actual financial performance of the Company or the actual Annual Bonus Payment that Employee may be paid for any calendar year, Exhibit “A” demonstrates calculations of the Annual Bonus Payment for a hypothetical calendar year.
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Book Value Growth |
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Annual Bonus Amount |
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8% |
$7,500 |
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$15,000 |
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12% |
$30,000 |
4. Payment of Annual Bonus Payment .
(a) The Annual Bonus Payment, if any, that shall be paid to Employee on the Payment Date shall be determined on the recommendation and approval of the Company's Chief Executive Officer. The Annual Bonus Payment may be pro-rated in the Company’s sole discretion if Employee does not hold an employment position eligible for the bonus during an entire calendar year . The Annual Bonus Payment made pursuant to this Agreement will, to the extent required by law, be treated as supplemental wages and subject to withholding of applicable income and employment taxes at the IRS rate for supplemental wages.
(b) Subject to satisfaction of the criteria in Section 2 , and so long as this Agreement has not been earlier terminated, the Annual Bonus Payment determined in accordance with Section 3 shall be paid on or before the second regular pay period following the Company's filing of the Annual Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934, Form 10-Q, filed with the United States Securities and Exchange Commission (“Payment Date”) .
5. No Contract of Employment . The Parties agree that this Agreement is not intended and will not be construed to be an employment contract between the Employee and Company. Nothing contained in this Agreement shall limit the ability of either Employee or the Company to terminate the employment relationship at will, with or without cause, at any time.
6. Assignment . No benefit payable under this Agreement may be assigned, transferred, pledged or otherwise encumbered by Employee, or subjected to any legal process for the payment of any claim against Employee. Company's rights and obligations under this Agreement may be assigned at the Company's discretion to any successor or assign. Any successor or assign of Company is authorized to enforce all terms of this Agreement as if the name of such successor or assign replaces Company throughout this Agreement.
7. Governing Law . This Agreement shall be governed in all respects by and in accordance with the laws of the State of Florida without regard to its conflict of law provisions. Company and Employee expressly consent to the personal jurisdiction of the state and federal courts located in the State of Florida for any lawsuit arising from or related to this Agreement,
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and that any such lawsuit shall be brought in or removed to a state or federal court of competent jurisdiction located in Broward County, Florida.
8. Entire Agreement . This Agreement constitutes the entire agreement between the Parties concerning the payment of an annual bonus to be made to Employee in connection with Employee's employment by the Company, and replaces all prior agreements, understandings and negotiations (whether oral or written) between the Parties regarding the payment of an annual bonus in connection with their employment relationship, except in cases where the Chief Executive Officer or Chief Financial Officer authorizes other forms of supplemental wages designated as bonus/commission; such authorized payments wil l not change the terms of this A greement. The execution of this Agreement acts as a termination of any existing Annual Bonus Agreement between the Parties.
9. Severability . If any provisions of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid or enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.
10. Termination/Amendment of Agreement . The Company may terminate, amend, or modify this Agreement at any time with or without notice. The Parties agree that any modification or amendment to this Agreement must be set forth in a written document signed by the Company's Chief Executive Officer or Chief Financial Officer.
11. Costs and Attorneys' Fees . If Company seeks to enforce any provision in this Agreement in a court of competent jurisdiction and secures any relief, Employee shall pay to Company all costs Company incurs in enforcing this Agreement, including Company's attorney’s fees and court costs.
12. Waiver of Contractual Right . The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement.
13. Waiver of Jury Trial . THE PARTIES HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT OR ANY CLAIMS ARISING OUT OF THIS AGREEMENT.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company and Employee have caused this Annual Bonus Agreement to be executed and delivered duly authorized, all as of the date first written above.
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FEDERATED NATIONAL HOLDING |
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COMPANY |
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By: |
/s/ Michael H. Braun |
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Name: |
Michael H. Braun |
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Title: |
CEO and President |
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EMPLOYEE |
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/s/ Erick A. Fernandez |
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Signature |
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Erick A. Fernandez |
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Print Name |
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EXHIBIT “A”
The below examples are based on a hypothetical minimum annual bonus amount of $ 50 per Company Performance Goal category; mid annual bonus amount of $ 100 per Company Performance Goal category; and maximum annual bonus amount of $ 200 per Company Performance Goal category.
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Michael H. Braun, certify that:
1. I have reviewed this Form 10-Q of Federated National Holding Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 10 , 201 7
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/s/ Michael H. Braun |
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Michael H. Braun |
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Chief Executive Officer (Principal Executive Officer) |
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CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Ronald Jordan , certify that:
1. I have reviewed this Form 10-Q of Federated National Holding Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 10 , 201 7
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/s/ Ronald Jordan |
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Ronald Jordan |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the Quarterly Report on Form 10-Q of Federated National Holding Company for the quarter ended March 31 , 201 7 as filed with the Securities and Exchange Commission (the “Report”), I, Michael H. Braun, Chief Executive Officer of Federated National Holding Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Federated National Holding Company. |
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/s/ Michael H. Braun |
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Michael H. Braun |
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Chief Executive Officer (Principal Executive Officer) |
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May 10 , 201 7
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the Quarterly Report on Form 10-Q of Federated National Holding Company for the quarter ended March 31 , 201 7 as filed with the Securities and Exchange Commission (the “Report”), I, Ronald Jordan , Chief Financial Officer of Federated National Holding Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Federated National Holding Company. |
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/s/ Ronald Jordan |
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Ronald Jordan |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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May 10 , 201 7