DEF 14A 1 def14a.txt DEFINITIVE PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 21ST CENTURY HOLDING COMPANY ------------------------------------------------ (Name of Registrant as Specified in Its Charter) (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: 21ST CENTURY HOLDING COMPANY NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 4, 2002 To the Shareholders of 21st Century Holding Company: NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual Meeting") of 21st Century Holding Company, a Florida corporation (the "Company"), will be held at the Company's principal executive offices at 4161 N.W. 5th Street, Plantation, Florida 33317, at 12:00 P.M., on June 4, 2002 for the following purposes: 1. To elect two directors of the Company to serve until 2005; 2. To consider and vote upon a proposal to adopt the 2002 Stock Option Plan in which 1,200,000 shares of the Company's common stock, $.01 par value per share, would be issuable to employees, consultants, independent contractors, officers and directors; and 3. To transact such other business as may properly come before the Annual Meeting and any adjournment or postponements thereof. The Board of Directors has fixed the close of business on April 25, 2002 as the record date for determining those shareholders entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. Whether or not you expect to be present, please sign, date and return the enclosed proxy card in the pre-addressed envelope provided for that purpose as promptly as possible. No postage is required if mailed in the United States. By Order of the Board of Directors, JAMES A. EPSTEIN, Secretary Plantation, Florida May 7, 2002 ALL SHAREHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND ARE RESPECTFULLY URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A PROXY MAY NEVERTHELESS ATTEND THE ANNUAL MEETING, REVOKE THEIR PROXY AND VOTE THEIR SHARES IN PERSON. 2 21ST CENTURY HOLDING COMPANY ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 4, 2002 --------------------- PROXY STATEMENT --------------------- TIME, DATE AND PLACE OF ANNUAL MEETING This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of 21st Century Holding Company, a Florida corporation (the "Company"), of proxies from the holders of the Company's common stock, par value $.01 per share (the "Common Stock"), for use at the Annual Meeting of Shareholders of the Company to be held at 12:00 P.M., on June 4, 2002, at the Company's principal executive offices at 4161 N.W. 5th Street, Plantation, Florida 33317, and at any adjournments or postponements thereof (the "Annual Meeting"), pursuant to the enclosed Notice of Annual Meeting. The approximate date this Proxy Statement and the enclosed form of proxy are first being sent to shareholders is May 7, 2002. Shareholders should review the information provided herein in conjunction with the Company's Annual Report to Shareholders that accompanies this Proxy Statement. The Company's principal executive offices are located at 4161 N.W. 5th Street, Plantation, Florida 33317, and its telephone number is (954) 581-9993. INFORMATION CONCERNING PROXY The enclosed proxy is solicited on behalf of the Company's Board of Directors. The giving of a proxy does not preclude the right to vote in person should any shareholder giving the proxy so desire. Shareholders have an unconditional right to revoke their proxy at any time prior to the exercise thereof, either in person at the Annual Meeting or by filing with the Company's Secretary at the Company's headquarters a written revocation or duly executed proxy bearing a later date; however, no such revocation will be effective until written notice of the revocation is received by the Company at or prior to the Annual Meeting. The cost of preparing, assembling and mailing this Proxy Statement, the Notice of Annual Meeting and the enclosed proxy is to be borne by the Company. In addition to the use of mail, employees of the Company may solicit proxies personally and by telephone. The Company's employees will receive no compensation for soliciting proxies other than their regular salaries. The Company may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of the proxy material to their principals and to request authority for the execution of proxies. The Company may reimburse such persons for their expenses in so doing. PURPOSES OF THE ANNUAL MEETING At the Annual Meeting, the Company's shareholders will consider and vote upon the following matters: 1. To elect two directors of the Company to serve until 2005; 2. To consider and vote upon a proposal to adopt the 2002 Stock Option Plan (the "2002 Plan") in which 1,200,000 shares of the Company's common stock, $.01 par value per share (the "Common Stock"), would be issuable to employees, consultants, independent contractors, officers and directors; and 3. To transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. 3 Unless contrary instructions are indicated on the enclosed proxy, all shares represented by valid proxies received pursuant to this solicitation (and which have not been revoked in accordance with the procedures set forth herein) will be voted (a) for the election of the respective nominees for director named below and (b) in favor of all other proposals described in the Notice of Annual Meeting. In the event a shareholder specifies a different choice by means of the enclosed proxy, the shareholder's shares will be voted in accordance with the specification so made. OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS The Board of Directors has set the close of business on April 25, 2002 as the record date (the "Record Date") for determining shareholders of the Company entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were 3,015,501 shares of Common Stock issued and outstanding, all of which are entitled to be voted at the Annual Meeting. Each share of Common Stock is entitled to one vote on each matter submitted to shareholders for approval at the Annual Meeting. The attendance, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum. Directors will be elected by a plurality of the votes cast by the shares of Common Stock represented in person or by proxy at the Annual Meeting. The affirmative votes of the holders of a majority of the shares of Common Stock represented in person or by proxy at the Annual Meeting will be required for approval of the other proposals covered by this Proxy Statement. If less than a majority of the outstanding shares entitled to vote are represented at the Annual Meeting, a majority of the shares so represented may adjourn the Annual Meeting to another date, time or place, and notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before an adjournment is taken. Prior to the Annual Meeting, the Company will select one or more inspectors of election for the meeting. Such inspector(s) shall determine the number of shares of Common Stock represented at the meeting, the existence of a quorum and the validity and effect of proxies, and shall receive, count and tabulate ballots and votes and determine the results thereof. Abstentions will be considered as shares present and entitled to vote at the Annual Meeting and will be counted as votes cast at the Annual Meeting, but will not be counted as votes cast for or against any given matter. A broker or nominee holding shares registered in its name, or in the name of its nominee, which are beneficially owned by another person and for which it has not received instructions as to voting from the beneficial owner, may have discretion to vote the beneficial owner's shares with respect to the election of directors and certain other matters addressed at the Annual Meeting. Any such shares that are not represented at the Annual Meeting either in person or by proxy will not be considered to have cast votes on any matters addressed at the Annual Meeting. BENEFICIAL SECURITY OWNERSHIP The following table sets forth, as of the Record Date, information with respect to the beneficial ownership of the Company's Common Stock by (i) each person who is known by the Company to beneficially own 5% or more of the Company's outstanding Common Stock, (ii) the Company's Chief Executive Officer ("CEO") and each of the other "named executive officers" (as confirmed below in the Executive Compensation-Summary Compensation Table), (iii) each director of the Company, and (iv) all directors and executive officers of the Company as a group. 4 NUMBER OF SHARES PERCENT OF BENEFICIALLY CLASS NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED (2) OUTSTANDING ---------------------------------------- ----------- ----------- Edward J. Lawson (3) 1,148,828 38.1% Michele V. Lawson (4) 1,148,828 38.1 Bruce F. Simberg (5) 96,000 3.2 Carl Dorf (6) 39,200 1.3 Richard A. Widdicombe (7) 36,700 1.2 Ronald A. Weyers 28,300 * Samuel A. Milne (8) 10,000 * Charles B. Hart, Jr 0 -- All directors and executive officers as a group (8 persons) (11) 1,359,028 45.1 5% OR GREATER HOLDERS: Wallace J. Hilliard (9) 243,680 8.1 2610 Bulrush Lane Naples, FL 34105 Ronald A. Raymond (10) 209,159 6.9 P.O. Box 6037 Fort Lauderdale, FL 33310 Hilliard Family Foundation 95,750 3.2 8040 Williard Drive, Suite 205 Green Bay, WI 54304 ------------ * Less than 1%. (1) Except as otherwise indicated, the address of each person named in the table is c/o 21st Century Holding Company, 4161 N.W. 5th Street, Avenue, Plantation, Florida 33317. (2) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of Common Stock listed, which include shares of Common Stock that such persons have the right to acquire a beneficial interest in within 60 days from the date of this Proxy Statement. (3) Represents 524,389 shares of Common Stock held of record by Mrs. Lawson, 59,100 shares of Common Stock held jointly by Mr. and Mrs. Lawson, 16,950 shares held in an account for a minor, 14,250 shares of Common Stock issuable upon the exercise of stock options held by Mr. Lawson and 9,750 shares of Common Stock issuable upon the exercise of stock options held by Mrs. Lawson. (4) Represents 524,389 shares of Common Stock held of record by Mr. Lawson, 59,100 shares of Common Stock held jointly by Mr. and Mrs. Lawson, 16,950 shares held in an account for a minor, 9,750 shares of Common Stock issuable upon the exercise of stock options held by Mrs. Lawson and 14,250 shares of Common Stock issuable upon the exercise of stock options held by Mr. Lawson. (5) Includes 4,500 shares of Common Stock issuable upon the exercise of stock options held by Mr. Simberg. (6) Includes 2,100 shares of Common Stock held in a joint account in the names of Mr. Dorf's spouse and child and 9,500 shares of Common Stock held by Dorf Partners 2001 LP. (7) Includes 20,000 shares of Common Stock issuable upon the exercise of stock options held by Mr. Widdicombe. (8) Includes 10,000 shares of Common Stock issuable upon the exercise of stock options held by Mr. Milne. 5 (9) Represents 234,380 shares of Common Stock held by a trust and 9,300 shares of Common Stockheld by an irrevocable trust. (10) Includes 150,850 shares of Common Stock held in Mr. Raymond's IRA and 50,000 shares of Common Stock held by National Insurance Service Plan. (11) Includes 58,500 shares of Common Stock issuable upon the exercise of stock options. ELECTION OF DIRECTORS The Company's Articles of Incorporation provide that the Board of Directors be divided into three classes. Each class of directors serves a staggered term. Carl Dorf and Charles B. Hart, Jr. hold office until the 2002 Annual Meeting, and each has been nominated for reelection to the Board, to serve as class I directors until the Annual Meeting to be held in 2005 or until their successors are duly elected and qualified. Bruce Simberg and Ronald A. Weyers hold office until the 2003 Annual Meeting. Edward J. Lawson, Michele V. Lawson and Richard A. Widdicombe hold office until the 2004 Annual Meeting. The accompanying form of proxy when properly executed and returned to the Company, will be voted FOR the election of directors of the two persons named below, unless the proxy contains contrary instructions. Proxies cannot be voted for a greater number of persons than the number of nominees named in the Proxy Statement. Management has no reason to believe that any of the nominees are unable or unwilling to serve if elected. In the event that any of the nominees should become unable or unwilling to serve as a director, however, the proxy will be voted for the election of such person or persons as shall be designated by the Board of Directors. NOMINEES The persons nominated as directors are as follows: NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Carl Dorf 61 Director Charles B. Hart, Jr. (1) 63 Director CARL DORF is a General Partner of Dorf Asset Management, LLC, an Arizona limited liability company and is responsible for all investment decisions made by the company. From January 1991 to February 2001, Mr. Dorf served as the Fund Manager of ING Pilgrim Bank and Thrift Fund. Prior to his experience at Pilgrim, Mr. Dorf was a principle in Dorf & Associates, an investment management company. Mr. Dorf was Vice President and Portfolio Manager of RNC Capital Management Company, a Senior Security Analyst at BA Investment Management, a Fund Manager at Lowes Corporation, a Security Analyst at Kluger, Ellis & Mann, Nuveen Corporation and Moody's Investor Service. CHARLES B. HART, JR. has over 40 years of experience in the insurance industry. Mr. Hart was General Manager for Becket and Bean Insurance Agency until 1973. From 1973 to 1999, Mr. Hart served as President of Public Assurance Group and as General Manager of Operations for Bristol West Insurance Services. Mr. Hart currently acts as an insurance consultant. ----------------- (1) Member of Audit Committee THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF ALL OF THE NOMINEES FOR ELECTION AS DIRECTORS. 6 Set forth below is certain information concerning the directors who are not currently standing for election: NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Edward J. Lawson (1)(2) 52 President, Chief Executive Officer and Director Michele V. Lawson 44 Treasurer and Director Bruce F. Simberg (1)(3) 53 Director Richard A. Widdicombe 43 Director Ronald A. Weyers (3) 62 Director ------------------- (1)......Member of Compensation Committee. (2)......Member of Investment Committee. (3)......Member of Audit Committee. EDWARD J. LAWSON co-founded the Company and has served as its President and Chief Executive Officer since inception. Mr. Lawson has more than 17 years' experience in the insurance industry, commencing with the founding of the Company's initial agency in 1983. MICHELE V. LAWSON co-founded the Company and has served as a director and executive officer since inception. Mrs. Lawson is currently the Company's Treasurer. Mrs. Lawson has 17 years' experience in the insurance industry, commencing with the founding of the Company's initial insurance agency in 1983. Mrs. Lawson and also holds a property and casualty license in Florida. BRUCE F. SIMBERG has served as a director of the Company since January 1998. Mr. Simberg has been a practicing attorney for the last 23 years, most recently as managing partner of Conroy, Simberg, Ganon, Krevans & Abel, P.A., a law firm in Ft. Lauderdale, Florida, since October 1979. RICHARD A. WIDDICOMBE assumed the office of President of the Company subsidiaries, Federated National Insurance Company and Assurance Managing General Agents, Inc in November 1999 and American Vehicle Insurance Company in August 2001. Mr. Widdicombe has over 20 years of insurance experience. Mr. Widdicombe started as an adjuster with Allstate Insurance Company and has worked with Indiana Insurance Company. During the past 15 years, Mr. Widdicombe worked for Insurance Servicing and Adjusting Company and its sister company, Jardine MacNeil, as Vice President. Mr. Widdicombe holds his adjuster's license and CPCU designation. Mr. Widdicombe is a member of the Florida Department of Insurance Initial Disaster Assessment team. RONALD A. WEYERS is a founding member and on the board the board of directors of Greater Green Bay Community Foundation and is a member of St. Norbert's College Board of Trustees. Mr. Weyers also serves on the board of directors of Promotion Management, Inc. of Green Bay, M&I Bank of Northeast Wisconsin, Secura Insurance Companies, Raven Manufacturing, LLC, WaterHill, LLC, Foth & VanDyke, Executive Flight Support, Junior Achievement of Green Bay and Florida Air Holding Company. Mr. Weyers began in the insurance business in 1962. In 1969, Mr. Weyers co-founded an insurance agency now known as Employers Health Insurance Company, which was sold to Humana, Inc. in 1995. In 1988, Mr. Weyers co-founded American Medical Security, Inc., a provider of medical and specialty health and life insurance products and administrative services, which was sold to United Wisconsin Services, Inc. in 1996. Mr. Weyers has been retired since 1996. Edward J. Lawson and Michele V. Lawson are husband and wife. There are no other family relationships among the Company's directors and executive officers. 7 COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers, directors and holders of more than 10% of the Company's Common Stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission") and The Nasdaq National Market. Such persons are required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or oral or written representations from certain reporting persons, Form 5's were required to be submitted for Edward J. Lawson and Michele V. Lawson only. The Form 5's were filed with the SEC on February 13, 2001. The Company believes that, with respect to the fiscal year ended December 31, 2001, all filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with, with the exception of Form 4's filed late or amended due to clerical error. These filings include Mr. Edward Lawson and Mr. Bruce Simberg's September 2001 filing mailed on October 12, 2001, Mr. Edward Lawson, Mrs. Michele Lawson and Mr. Bruce Simberg's October filing mailed on November 14, 2001, Mr. Bruce Simberg and Mr. Carl Dorf's November 2001 filing mailed on December 10, 2001, Mr. Bruce Simberg's July 2001 filing mailed on December 10, 2001 and lastly an amended filing for Mr. Bruce Simberg's September 2001 Form 4 mailed on December 10, 2001. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS During 2001, the Board of Directors held four formal meetings and took actions by written consent on five occasions. During 2001, no director attended fewer than 75% of the number of meetings of the Board of Directors and each Committee of the Board of Directors held during the period such director served on the Board. The standing committees of the Board of Directors are the Audit Committee, the Compensation Committee and the Investment Committee. The Board does not have a nominating or similar committee. The Audit Committee was composed of Joseph A. Epstein, Robert E. McNally and Bruce F. Simberg through December 2001. The duties and responsibilities of the Audit Committee include (a) recommending to the Board of Directors the appointment of the Company's independent certified public accountants and any termination of engagement, (b) reviewing the plan and scope of independent audits, (c) reviewing the Company's significant accounting and reporting policies and operating controls, (d) having general responsibility for all related auditing matters, and (e) reporting its recommendations and findings to the full Board of Directors. See "Certain Transactions" with respect to the fees paid by the Company to the law firm of which Mr. Simberg is a partner. All of the members of the Audit Committee are "independent" as the term is defined under the NASD listing standards. The Audit Committee met on four occasions in 2001. The Company adopted an Audit Committee Charter on June 6, 2000. The Compensation Committee was composed of Edward J. Lawson, Joseph A. Epstein and Robert E. McNally through December 2001. The Compensation Committee reviews and approves the compensation of the Company's executive officers and administers the Company's 1998 Stock Option Plan. The Compensation Committee acted by written consent twice in 2001. The Investment Committee is currently composed of Edward J. Lawson and one outside advisor. The Investment Committee manages the Company's investment portfolio. The Investment Committee met on one occasion in 2001. Joseph A. Epstein resigned as a director on December 7, 2001. He was replaced on the Audit Committee by Ronald A. Weyers and on the Compensation Committee by Bruce Simberg. Robert E. McNally resigned as a director on April 10, 2002. He was replaced on the Audit Committee by Charles B. Hart, Jr. 8 REPORT OF THE AUDIT COMMITTEE The following report of the Audit Committee is made pursuant to the rules of the Securities and Exchange Commission. This report shall not be deemed incorporated by reference by a general statement incorporating by reference this Proxy statement into any filing under the Securities Act of 1933 (the "Securities Act") or the Securities Exchange Act of 1934 (the "Exchange Act"), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts. REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS The Audit Committee hereby reports as follows: 1. The Audit Committee has reviewed and discussed the audited financial statements with the Company's management. 2. The Audit Committee has discussed with McKean, Paul, Chrycy, Fletcher and Co. ("McKean"), independent accountants, the matters required to be discussed by SAS 61 (Communication with Audit Committees). 3. The Audit Committee has received the written disclosures and the letter from McKean required by the Independence Standards Board No. 1 (Independent Discussions with Audit Committees), and has discussed with McKean their independence. 4. Based on the review and discussion referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board of the Company, and the Board has approved, that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, for filing with the Commission. /s/ Bruce Simberg ----------------- Bruce Simberg AUDIT AND NONAUDIT FEES For the fiscal year ended December 31, 2001, fees for services provided by McKean were as follows: A. Audit(1) $172,188 B. Financial Information Systems Design and Implementation $0 C. All Other Fees $27,505 (1) Includes Quarterly reviews and consultation regarding accounting matters. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following compensation table sets forth, for the years ended December 31, 2001, 2000, and 1999, the cash and certain other compensation paid by the Company to the Company's CEO and for the most highly compensated executive officers where the amount of the salary and bonuses exceed $100,000 during 2001 (together with the CEO, the "Named Executive Officers"): 9
LONG-TERM ANNUAL COMPENSATION COMPENSATION --------------------------- -------------------------------- --------------------------- SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($) --------------------------- ---- --------- -------- ---------- --------------- Edward J. Lawson, 2001 $156,000 0 -- $ 660(1) President and CEO 2000 155,000 0 -- 4,560(1) 1999 156,000 0 -- 4,620(1) Samuel A. Milne, 2001 $103,800 0 -- $ 240(2) Chief Financial Officer 2000 103,800 0 -- -- 1999 36,800(3) 0 -- --
----------- (1) Includes $660 in contributions for Mr. Lawson to the company's 401(k) plan in 2001, includes $4,560 in contributions for Mr. Lawson to the Company's 401(k) plan in 2000, $4,620 in contributions to the Company's 401K plan in 1999, and $1,885 in contributions to the Company's 401(k) Plan in 1998. (2) Includes $240 in contributions for Mr. Milne to the company's 401(k) plan in 2001. (3) Salary from August 1999 through December 1999. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information concerning individual grants of stock options made during 2001 to any of the Named Executive Officers.
% OF TOTAL NUMBER OF SECURITIES OPTIONS/SAR GRANTED EXERCISE OR UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) EXPIRATION DATE ------------------ -------------- -------------------- ---------- --------------- Edward J. Lawson 3,000 15.0% 10.00 June 5, 2011 Samuel Milne 0
STOCK OPTIONS HELD AT END OF 2001 The following table indicates the total number and value of exercisable and unexercisable stock options held by the Named Executive Officers as of December 31, 2001. No options were exercised by the Named Executive Officers during the year ended December 31, 2001.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ----------------------------- ------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1) ------------------ ----------- ------------- ------------------------------- Edward J. Lawson 12,750 9,250 0 $ 0 Samuel A. Milne 10,000 10,000 0 $ 0
----------------- (1) Based on a fair market value of $3.15 per share at December 31, 2001. 10 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Under rules established by the Commission, the Company is required to provide a report explaining the rationale and considerations that led to fundamental compensation decisions affecting the Company's executive officers (including the Named Executive Officers) during the past fiscal year. The report of the Company's Compensation Committee is set forth below. COMPENSATION PHILOSOPHY The three principal components of the Company's executive compensation are salary, bonus and stock options. These components are designed to facilitate fulfillment of the compensation objectives of the Company's Board of Directors and the Compensation Committee, which objectives include (i) attracting and retaining competent management, (ii) recognizing individual initiative and achievement, (iii) rewarding management for short and long term accomplishments, and (iv) aligning management compensation with the achievement of the Company's goals and performance. The Compensation Committee endorses the position that equity ownership by management is beneficial in aligning management's and shareholders' interests in the enhancement of shareholder value. This alignment is amplified by the extensive holdings by management of the Company's Common Stock and stock options. Base salaries for new management employees are determined initially by evaluating the responsibilities of the position held and the experience of the individual, and by reference to the competitive marketplace for managerial talent, including a comparison of base salaries for comparable positions at similar companies of comparable sales and capitalization. Annual salary adjustments are determined by evaluating the competitive marketplace, the performance of the Company, the performance of the executive, and the responsibilities assumed by the executive. The Compensation Committee intends to review the Company's existing management compensation programs on an ongoing basis and will (i) meet with the chief executive officer to consider and set mutually agreeable performance standards and goals for members of senior management and/or the Company, as appropriate or as otherwise required pursuant to any such officer's employment agreement and (ii) consider and, as appropriate, approve modifications to such programs to ensure a proper fit with the philosophy of the Compensation Committee and the agreed-upon standards and goals. The Compensation Committee has not yet considered or approved the individual or corporate performance goals or standards for the fiscal year ending December 31, 2002 with respect to the Company's management incentive programs. CHIEF EXECUTIVE OFFICER COMPENSATION The principal factors considered by the Board of Directors in determining fiscal 2001 salary and bonus for Edward J. Lawson, the President and Chief Executive Officer of the Company, included an analysis of the compensation of chief executive officers of public companies within the Company's industry and public companies similar in size and capitalization to the Company. The Compensation Committee also considered the Company's fiscal 2001 earnings, expectations for the fiscal year ending December 31, 2002 and other performance measures in determining Mr. Lawson's compensation, but there was no specific relationship or formula by which such compensation was tied to Company performance. OTHER EXECUTIVE OFFICERS' COMPENSATION Fiscal 2001 base salary and bonus for the Company's other executive officers were determined by the Compensation Committee. This determination was made after a review and consideration of a number of factors, including each executive's level of responsibility and commitment, level of performance (with respect to specific areas of responsibility and on an overall basis), past and present contribution to and achievement of Company goals and performance during fiscal 2001, compensation levels at competitive publicly held companies and the Company's historical compensation levels. Although Company performance was one of the factors considered, the approval of the Compensation Committee was based upon an overall review of the relevant factors, and there was no specific relationship or formula by which compensation was tied to Company performance. 11 STOCK OPTIONS The Company maintains stock option plans which are designed to attract and retain directors, executive officers and other employees of the Company and to reward them for delivering long-term value to the Company. /s/ Edward J. Lawson -------------------- Edward J. Lawson /s/ Bruce Simberg ----------------- Bruce Simberg COMPENSATION OF DIRECTORS The Company previously paid fees to all of its directors. Such fees were paid at rates ranging from $12,000 to $25,000 per annum from January 1, 1998 through August 31, 1998. Commencing September 1, 1998, non-employee directors receive a fee of $500 per meeting of the Board of Directors or committee thereof attended and receive annual grants of stock options under the Company's 1998 Stock Option Plan (the "1998 Plan") to purchase 3,000 shares of Common Stock. Directors who are also officers of the Company do not receive directors' compensation. All directors are reimbursed for travel and lodging expenses in connection with their attendance at meetings. In September 1998, Mr. Simberg was granted ten-year options under the 1998 Plan to purchase 3,000 shares of Common Stock at an exercise price of $10.00 per share. Such options vest over a four-year period commencing September 1999. In June 2000, each of Mrs. Lawson, and Messrs. Lawson and Simberg were granted ten-year options under the 1998 Plan to purchase 3,000 shares of Common Stock at an exercise price of $10.00 per share. Such options vest over a four-year period commencing June 2001. In June 2001, each of Mrs. Lawson, and Messrs. Lawson and Simberg were granted ten-year options under the 1998 plan to purchase 3,000 shares of Common Stock at an exercise price of $10.00 per share. Such options vest over a four-year period commencing June 2002. INDEMNIFICATION AGREEMENTS The Company has entered into an indemnification agreement with each of its directors and executive officers. Each indemnification agreement provides that the Company will indemnify such person against certain liabilities (including settlements) and expenses actually and reasonably incurred by him or her in connection with any threatened or pending legal action, proceeding or investigation (other than actions brought by or in the right of the Company) to which he or she is, or is threatened to be, made a party by reason of his or her status as a director, officer or agent of the Company, provided that such director or executive officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal proceedings, had no reasonable cause to believe his or her conduct was unlawful. With respect to any action brought by or in the right of the Company, a director or executive officer will also be indemnified, to the extent not prohibited by applicable law, against expenses and amounts paid in settlement, and certain liabilities if so determined by a court of competent jurisdiction, actually and reasonably incurred by him or her in connection with such action if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. EMPLOYMENT AGREEMENTS Effective September 1, 1998, the Company entered into employment agreements with each of Edward J. Lawson, the Company's President and Chief Executive Officer, and Michele V. Lawson, the Treasurer. Each employment agreement has a "rolling" two-year term, so that at all times the remaining term of the agreement is two years. The employment agreements provide for annual salaries initially set at $156,000 for Mr. Lawson and $78,000 for Mrs. Lawson, and such bonuses and increases as may be awarded by the Board of Directors. 12 Each employment agreement provides that the executive officer will continue to receive his salary for a period of two years after the termination of employment, if his or her employment is terminated by the Company for any reason other than death, disability or Cause (as defined in the employment agreement), or for a period of two years after termination of the agreement as a result of his or her disability and a bonus equal to twice the amount paid to the executive officer during the 12 months preceding the termination, and the executive officer's estate will receive a lump sum payment equal to two year's salary plus a bonus equal to twice the amount paid to the executive officer during the 12 months preceding the termination by reason of his death. Each employment agreement also prohibits the executive officer from directly or indirectly competing with the Company for one year after termination for any reason except a termination without Cause. If a Change of Control (as defined in the employment agreement) occurs, the employment agreement provides for the continued employment of the executive officer for a period of two years following the Change of Control. In addition, following the Change of Control, if the executive officer's employment is terminated by the Company other than for Cause or by reason of his death or disability, or by the executive officer for certain specified reasons (such as a reduction of compensation or a diminution of duties), he or she will receive a lump sum cash payment equal to 299% of the cash compensation received by him or her during the 12 calendar months prior to such termination. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Edward J. Lawson, the Company's President and Chief Executive Officer serves as a member of the Compensation Committee. CERTAIN TRANSACTIONS TRANSACTIONS Bruce F. Simberg, a director of the Company, is a partner of the Fort Lauderdale, Florida law firm of Conroy, Simberg, Ganon, Krevans & Abel, P.A., which renders legal services to the Company. In 2001 and 2000, the Company paid legal fees to Conroy, Simberg, Ganon, Krevans & Abel, P.A. for services rendered in the amount of $530,000 and 533,000, respectively. Mortgage loan receivables in the amount of $227,391 and $119,304 as of December 31, 2000 and 1999, respectively, represent secured loans to relatives of an officer of the Company. As of December 31, 2001 the mortgage loan receivable was $0. APPROVAL OF AFFILIATED TRANSACTIONS The Company has adopted a policy that any transactions between the Company and its executive officers, directors, principal shareholders and their affiliates take place on an arms-length basis and require the approval of a majority of the independent directors of the Company. The Company believes that its transaction with Edward Lawson, Michele Lawson, and Bruce Simberg are on terms at least as favorable as those the Company could secure from a non-affiliated third party. STOCK PERFORMANCE GRAPH Set forth below is a line graph comparing the dollar change in the cumulative total shareholder return on the Company's Common Stock for the period beginning on November 6, 1998 (the second day of public trading for the Common Shares) and ending on December 31, 2001 as compared to the cumulative total return of the NASDAQ Stock Market Index and the cumulative total return of the NASDAQ Insurance Index. The graph depicts the value based on the assumption of a $100 investment with all dividends reinvested. 13
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN --------------------------------- ------------------------------ ------------------------------- ------------------------ 21st Century NASDAQ NASDAQ Holding Company Stock Market Index Insurance Index --------------------------------- ------------------------------ ------------------------------- ------------------------ 11/06/98 100.000 100.000 100.000 --------------------------------- ------------------------------ ------------------------------- ------------------------ 12/31/98 93.331 118.100 106.410 --------------------------------- ------------------------------ ------------------------------- ------------------------ 12/31/99 55.065 219.500 112.300 --------------------------------- ------------------------------ ------------------------------- ------------------------ 12/31/00 41.704 132.000 129.900 --------------------------------- ------------------------------ ------------------------------- ------------------------ 12/31/01 53.033 104.800 122.800 --------------------------------- ------------------------------ ------------------------------- ------------------------ [GRAPHIC OMITTED]
Note: The stock price performance shown on the graph above is not necessarily indicative of future price performance. PROPOSAL TO APPROVE 2002 STOCK OPTION PLAN In 1998, the Company adopted a Stock Option Plan, which was amended in 2000 (as amended, the "1998 Plan") to increase the number of shares reserved for issuance thereunder. The 1998 Plan authorizes the Company to grant stock options to purchase up to an aggregate of 600,000 shares of Common Stock. At present, the Company has granted stock options under the 1998 Plan to purchase approximately 600,000 shares of Common Stock reserved for issuance under the 1998 Plan. In order to continue to effectively attract and retain employees and directors, the Board of Directors believes that the Company needs to continue to grant stock options to purchase shares of Common Stock. As a result, in April 2002, the Board of Directors adopted the 2002 Stock Option Plan (the "2002 Plan"). Pursuant to the 2002 Plan, the Company may grant options to purchase up to an aggregate of 1,200,000 shares of the Company's Common Stock to eligible persons. The Company's ability to grant "incentive stock options" under the 2002 Plan is subject to the approval of the shareholders at the Annual Meeting. The Company's Board of Directors recommends that the 2002 Plan be adopted by the shareholders. SUMMARY OF THE PLAN The following is a general description of the terms and provisions of the 2002 Plan and does not purport to be complete. All such statements are qualified in their entirety by reference to the full text of the 2002 Plan, which is filed herewith, as Annex A. The purpose of the 2002 Plan is to provide the employees, directors, independent contractors and consultants of the Company and its subsidiaries with an added incentive to provide their services to the Company and its subsidiaries and to induce them to exert their maximum efforts toward the Company's success. The 2002 Plan provides for the issuance of incentive stock options ("Incentive Stock Options") and nonqualified stock options ("Nonqualified Stock Options"). An Incentive Stock Option is an option to purchase Common Stock that meets the definition of "incentive stock option" set forth in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). A Nonqualified Stock Option is a stock option to purchase Common Stock that meets certain requirements in the 2002 Plan but does not meet the definition of an "incentive 14 stock option" set forth in Section 422 of the Code. Nonqualified Stock Options and Incentive Stock Options are sometimes referred to herein as "Options." The number of shares that may be issued pursuant to Options granted under the 2002 Plan is up to an aggregate of 1,200,000 shares. If any Option granted pursuant to the 2002 Plan terminates or expires for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the shares subject to the unexercised portion of such Option shall again be available under the 2002 Plan. The shares acquired upon exercise of Options granted under the 2002 Plan will be authorized and unissued shares of Common Stock. The shareholders will not have any preemptive rights to purchase or subscribe for the shares reserved for issuance under the 2002 Plan. The 2002 Plan is administered by the compensation committee of the Board of Directors (the "Committee"), comprised of at least two outside directors of the Board of Directors or, if a Committee is not designated by the Board of Directors, by the Board of Directors as a whole. The Committee has the right to determine, among other things, the persons to whom Options are granted, the number of shares of Common Stock subject to Options, the exercise price of Options and the term thereof. All employees of the Company and its subsidiaries, including officers, directors, consultants and independent contractors to the Company, are eligible to receive grants of Options under the 2002 Plan; however, no Incentive Stock Option may be granted to non-employee directors, consultants, independent contractors or individuals who are not also employees of the Company or any of its subsidiaries. Upon receiving a grant of Options, each holder of the Options shall enter into an option agreement with the Company, which contains the terms and conditions of the Options established by the Committee. TERMS AND CONDITIONS OF OPTIONS Option Price. For any Option granted under the 2002 Plan, the Option price per share of Common Stock may be any price not less than par value per share as determined by the Committee; however, the Option price per share of any Incentive Stock Option may not be less than the Fair Market Value (defined below) of the Common Stock on the date such Incentive Stock Option is granted. As of the Record Date, the closing price of the Company's Common Stock as reported by the NASDAQ National Market was $8.40 per share. Under the 2002 Plan, the "Fair Market Value" is the closing price of shares on the business day on or immediately preceding the date of grant; however, if the shares are not publicly traded, then the fair market value will be as the Committee shall in its sole and absolute discretion determine in a fair and uniform manner. Exercise of Options. Each Option is exercisable in such amounts, at such intervals and upon such terms as the Committee may determine. In no event may an Option be exercisable after 6 years from the date of grant. Unless otherwise provided in an Option, each outstanding Option may, in the sole discretion of the Committee, become immediately fully exercisable (1) if there occurs any transaction (which shall include a series of transactions occurring within 60 days or occurring pursuant to a plan), that has the result that shareholders of the Company immediately before such transaction cease to own at least 40 percent of the voting stock of the Company or of any entity that results from the participation of the Company in a reorganization, consolidation, merger, liquidation or any other form of corporate transaction; (2) if the shareholders of the Company shall approve a plan of merger, consolidation, reorganization, liquidation or dissolution in which the Company does not survive (unless such plan is subsequently abandoned); or (3) if the shareholders of the Company shall approve a plan for the sale, lease, exchange or other disposition of all or substantially all the property and assets of the Company (unless such plan is subsequently abandoned). The Committee may in its sole discretion accelerate the date on which any Option may be exercised and may accelerate the vesting of any shares subject to any Option. Unless further limited by the Committee in any Option agreement, shares of Common Stock purchased upon the exercise of Options must be paid for in cash, by certified or official bank check, by money order, with already owned shares of Common Stock, or a combination of the above. The Committee, in its sole discretion, may accept a personal check in full or partial payment. If paid in whole or in part with shares of already owned Common Stock, the value of the shares surrendered is deemed to be their fair market value on the date the Option is exercised. Proceeds from the sale of Common Stock pursuant to the exercise of Options will be added to the 15 general funds of the Company to be used for general corporate purposes. Under the 2002 Plan, the Company may also lend money to an optionee to exercise all or a portion of an Option granted under the 2002 Plan. If the exercise price is paid in whole or in part with an optionee's promissory note, such note shall (1) provide for full recourse to the maker, (2) be collateralized by the pledge of shares purchased by the optionee upon exercise of such Option, (3) bears interest at a rate of interest no less than the rate of interest payable by the Company to its principal lender, and (4) contain such other terms as the Committee in its sole discretion shall require. An Option may also be exercised pursuant to a "cashless" or "net issue" exercise. Nontransferability. Incentive Stock Options granted under the 2002 Plan are not transferable by an optionee other than by will or the laws of descent and distribution. Nonqualified Stock Options granted under the 2002 Plan are not transferable by an optionee other than (a) by will or the laws of descent and distribution, (b) by gift to a family member, as that term is defined in the 2002 Plan, and (c) through a domestic relations order in settlement of marital property rights. No Option shall be exercisable during the optionee's lifetime by any person other than the optionee or certain transferees permitted under the 2002 Plan. Termination of Options. The expiration date of an Option is determined by the Committee at the time of the grant and is set forth in the applicable stock option agreement. In no event may an Option be exercisable after 10 years from the date it is granted. The 2002 Plan provides that if an optionee's employment is terminated for any reason other than for cause, retirement, an improper termination, mental or physical disability or death, then the unexercised portion of the optionee's Options shall terminate three months after the such termination. If an optionee's employment is terminated for cause or if there is an improper termination of optionee's employment, the unexercised portion of the optionee's Options shall terminate immediately upon such termination. If an optionee's employment is terminated by reason of the optionee's mental or physical disability or by reason of the optionee's death, the unexercised portion of the optionee's Options shall terminate 12 months after the optionee's death. The Committee in its sole discretion may by giving written notice cancel, effective upon the date of the consummation of certain corporate transactions that would result in an Option becoming fully exercisable, any Option that remains unexercised on such date. Such notice shall be given a reasonable period of time prior to the proposed date of such cancellation and may be given either before or after shareholder approval of such corporate transaction. Cancellation and Rescission of Awards. Unless the Option says otherwise, during the time the optionee is employed by the Company and for a period of two years from the date the optionee ceases being employed by the Company (the "Restrictive Period"), the committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred Options for certain "Detrimental Activity", including (1) the rendering of services to a competitor of the Company, (2) the disclosure of any of the Company's confidential information, (3) the failure or refusal to disclose promptly and to assign to the Company all right, title and interest in any invention or idea conceived by the optionee during employment by the Company, (4) activity that results in termination of the optionee's employment for cause (as that term is defined in the 2002 Plan), (5) a material violation of any written rules, policies, procedures or guidelines of the Company, (6) any attempt to induce another Company employee to be employed or perform services elsewhere or any attempt to solicit the trade or business of any current or prospective customer, supplier or partner of the Company, (7) being convicted of, or entering a guilty plea with respect to a crime, or (8) any other conduct or act determined by the Company to be injurious, detrimental or prejudicial to any interest of the Company. Upon exercising an Option, the optionee is required to certify that he or she is in compliance with the terms of the 2002 Plan. If the optionee engages in any Detrimental Activity described above within the Restrictive Period, the exercise of an Option may be rescinded by the Company within the Restrictive Period. In the event of rescission, the Optionee shall return any and all shares obtained upon the exercise of Options if the shares are still held by the optionee. If the optionee no longer holds the shares, the optionee shall pay to the Company an amount equal to the Fair Market Value of the shares as of the date of rescission less the exercise price paid for the shares. The Company shall be entitled to set-off against the foregoing amount. 16 AMENDMENT OF 2002 PLAN Either the Board of Directors or the Committee may from time to time amend this 2002 Plan or any Option without the consent or approval of the shareholders of the Company. However, except to the extent provided in the Termination of Options section above, no amendment or suspension of this 2002 Plan or any Option issued thereunder shall substantially impair any Option previously granted to any optionee without the consent of such optionee. FEDERAL INCOME TAX EFFECTS The 2002 Plan is not qualified under the provisions of Section 401(a) of the Code, nor is it subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended. Incentive Stock Options. Incentive Stock Options are "incentive stock options" as defined in Section 422 of the Code. Under the Code, an optionee generally is not subject to ordinary income tax upon the grant or exercise of an Incentive Stock Option. However, an employee who exercises an Incentive Stock Option by delivering shares of Common Stock previously acquired pursuant to the exercise of an Incentive Stock Option is treated as making a disqualifying disposition (defined below) of such shares if the employee delivers such shares before the expiration of the holding period applicable to such shares. The applicable holding period is the longer of two years from the date of grant or one year from the date of exercise. The effect of this provision is to prevent "pyramiding" the exercise of an Incentive Stock Option (i.e., the exercise of the Incentive Stock Option for one share and the use of that share to make successive exercise of the Incentive Stock Option until it is completely exercised) without the imposition of current income tax. The amount by which the fair market value of the shares acquired at the time of exercise of an Incentive Stock Option exceeds the purchase price of the shares under such Option will be treated as an item of adjustment included in the optionee's alternative minimum taxable income for purposes of the alternative minimum tax. If, however, there is a disqualifying disposition in the year in which the Option is exercised, the maximum amount of the item of adjustment for such year is the gain on the disposition of the shares. If there is disqualifying disposition in a year other than the year of exercise, the dispositions will not result in an item of adjustment for such other year. If, subsequent to the exercise of an Incentive Stock Option (whether paid for in cash or in shares), the optionee holds the shares received upon exercise for a period that exceeds (a) two years from the date such Incentive Stock Option was granted or, if later, (b) one year from the date of exercise, or the required holding period, the difference (if any) between the amount realized from the sale of such shares and their tax basis to the holder will be taxed as long-term capital gain or loss. If the holder is subject to the alternative minimum tax in the year of disposition, such holder's tax basis in his or her shares will be increased for purposes of determining his alternative minimum tax for such year, by the amount of the item of adjustment recognized with respect to such shares in the year the Option was exercised. In general, if, after exercising an Incentive Stock Option, an employee disposes of the shares so acquired before the end of the required holding period a disqualifying disposition, such optionee would be deemed in receipt of ordinary income in the year of the disqualifying disposition, in an amount equal to the excess of the fair market value of the shares at the date the Incentive Stock Option was exercised over the exercise price. If the disqualifying disposition is a sale or exchange which would permit a loss to be recognized under the Code (were a loss in fact to be sustained), and the sales proceeds are less than the fair market value of the shares on the date of exercise, the optionee's ordinary income would be limited to the gain (if any) from the sale. If the amount realized upon disposition exceeds the fair market value of the shares on the date of exercise, the excess would be treated as short-term or long-term capital gain, depending on whether the holding period for such shares exceeded one year. An income tax deduction is not allowed to the Company with respect to the grant or exercise of an Incentive Stock Option or the disposition, after the required holding period, of shares acquired upon exercise. In the event of a disqualifying disposition, a federal income tax deduction should be allowed to the Company in an amount equal to the ordinary income to be recognized by the optionee, provided that such amount constitutes an 17 ordinary and necessary business expense to the Company and is reasonable, and the Company satisfies its withholding obligation with respect to such income. Nonqualified Stock Options. An optionee granted a Nonqualified stock option under the 2002 Plan will generally recognize, at the date of exercise of such Nonqualified stock option, ordinary income equal to the difference between the exercise price and the fair market value of the shares of Common Stock subject to the Nonqualified stock option. This taxable ordinary income will be subject to federal income tax withholding. A federal income tax deduction should be allowed to the Company in an amount equal to the ordinary income to be recognized by the optionee, provided that such amount constitutes an ordinary and necessary business expense to the Company and is reasonable, and the Company satisfies its withholding obligation with respect to such income. If an optionee exercises a Nonqualified stock option by delivering other shares, the optionee should not recognize gain or loss with respect to the exchange of such shares, even if their then fair market value is different from the optionee's tax basis. The optionee, however, should be taxed as described above with respect to the exercise of the Nonqualified Stock Option as if he had paid the exercise price in cash, and the Company likewise generally should be entitled to an equivalent tax deduction. Provided a separate identifiable stock certificate is issued therefor, the optionee's tax basis in that number of shares received on such exercise which is equal to the number of shares surrendered on such exercise should be equal to his tax basis in the shares surrendered and his holding period for such number of shares received should include his holding period for the shares surrendered. The optionee's tax basis and holding period for the additional shares received on exercise of a Nonqualified Stock Option paid for, in whole or in part, with shares should be the same as if the optionee had exercised the Nonqualified Stock Option solely for cash. The discussion set forth above does not purport to be a complete analysis of the potential tax consequences relevant to the optionees or to the Company, or to describe tax consequences based on particular circumstances. It is based on federal income tax law and interpretational authorities as of the date of this Proxy Statement, which are subject to change at any time. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL. HOUSEHOLDING OF ANNUAL DISCLOSURE DOCUMENTS As permitted by the Securities Exchange Act of 1934, only one copy of this Proxy Statement is being delivered to shareholders residing at the same address, unless such shareholders have notified the Company of their desire to receive multiple copies of the Proxy Statement. The Company will promptly deliver, upon oral or written request, a separate copy of the Proxy Statement to any shareholder residing at an address to which only one copy was mailed. Requests for additional copies should be directed to the Chief Financial Officer by phone at (954) 581-9993 or by mail to the Chief Financial Officer, 4161 N.W. 5th Street, Plantation, Florida 33317. Shareholders residing at the same address and currently receiving only one copy of the Proxy Statement may contact the Chief Financial Officer by phone at (954) 581-9993 or by mail to the Chief Financial Officer, 4161 N.W. 5th Street, Plantation, Florida 33317 to request multiple copies of the Proxy Statement in the future. OTHER BUSINESS The Board knows of no other business to be brought before the Annual Meeting. If, however, any other business should properly come before the Annual Meeting, the persons named in the accompanying proxy will vote proxies as in their discretion they may deem appropriate, unless they are directed by a proxy to do otherwise. 18 INFORMATION CONCERNING SHAREHOLDER PROPOSALS Pursuant to Rule 14a-8 promulgated by the Securities and Exchange Commission, a shareholder intending to present a proposal to be included in the Company's proxy statement for the Company's 2003 Annual Meeting of Shareholders must deliver a proposal in writing to the Company's principal executive office no later than January 10, 2003. Shareholder proposals intended to be presented at, but not included in the Company's proxy materials for, that meeting must be received by the Company no later than March 23, 2003, at its principal executive offices; otherwise, such proposals will be subject to the grant of discretionary authority contained in the Company's form of proxy to vote on them. By Order of the Board of Directors JAMES A. EPSTEIN, Secretary Plantation, Florida May 7, 2002 19 21ST CENTURY HOLDING COMPANY ANNUAL MEETING OF SHAREHOLDERS - JUNE 4, 2002 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF 21ST CENTURY HOLDING COMPANY The undersigned hereby appoints Edward J. Lawson and Michele V. Lawson, as Proxies, each with full power to appoint a substitute, to represent and to vote, with all the powers the undersigned would have if personally present, all the shares of common stock, $.01 par value per share, of 21st Century Holding Company (the "Company") held of record by the undersigned on April 25, 2002 at the Annual Meeting of Shareholders to be held on June 4, 2002 or any adjournments or postponements thereof. PROPOSAL 1. ELECTION OF DIRECTORS [ ] FOR ALL THE NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY (except as marked to the contrary below) TO VOTE FOR ALL NOMINEES LISTED BELOW. Carl Dorf Charles B. Hart, Jr. (INSTRUCTIONS: To withhold authority for any individual nominees, write that nominee's name in the space below.) -------------------------------------------------------------------------------- PROPOSAL 2. ADOPTION OF THE 2002 STOCK OPTION PLAN [ ] For [ ] Against [ ] Abstain In their discretion, the Proxies are authorized to vote upon other business as may come before the meeting. (CONTINUED AND TO BE SIGNED ON THE OTHER SIDE) This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, the Proxy will be voted FOR Proposals 1 and 2. Dated: , 2002 ------------------------------- -------------------------------------------- (Signature) -------------------------------------------- (Signature) PLEASE SIGN HERE Please date this proxy and sign your name exactly as it appears hereon. Where there is more than one owner, each should sign. When signing as an agent, attorney, administrator, executor, guardian, or trustee, please add your title as such. If executed by a corporation, the proxy should be signed by a duly authorized officer who should indicate his office. PLEASE DATE, SIGN, AND MAIL THIS PROXY CARD IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. ANNEX "A" -------------------------------------- 21ST CENTURY HOLDING COMPANY 2002 STOCK OPTION PLAN -------------------------------------- 1. PURPOSE. The purpose of the 21st Century Holding Company 2002 Stock Option Plan (the "Plan") is to advance the interests of 21st Century Holding Company, a Florida corporation (the "Company"), by providing an additional incentive to attract, retain and motivate highly qualified and competent persons who are important to the Company, and upon whose efforts and judgments the success of the Company and its Subsidiaries is largely dependent, including employees, consultants, independent contractors, Officers and Directors, by authorizing the grant of options to purchase Common Stock of the Company to persons who are eligible to participate hereunder, thereby encouraging stock ownership in the Company by such persons, all upon and subject to the terms and conditions of this Plan. 2. DEFINITIONS. As used herein, the following terms shall have the meanings indicated: (a) "Board" shall mean the Board of Directors of the Company. (b) "Cause" shall mean a determination by the Company that any of the following has occurred: (i) that the Optionee has been willful, reckless or grossly negligent in the performance of his or her duties as an employee of the Company; (ii) that there has been a willful breach by the Optionee of any of the material terms or provisions of any employment agreement between such Optionee and the Company; (iii) any conduct by the Optionee that either results in his or her conviction of a felony under the laws of the United States of America or any state thereof, or of an equivalent crime under the laws of any other jurisdiction; (iv) that the Optionee has committed one or more acts involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty or material dishonesty against the Company, its properties or personnel; (v) any act by the Optionee that the Company determines to be in willful or wanton disregard of the Company's best interests, or which results, or is intended to result, directly or indirectly, in improper gain or personal enrichment of the Optionee at the expense of the Company; (vi) that there has been a willful, reckless or grossly negligent failure by the Optionee to comply with any rules, regulations, policies or procedures of the Company, or that the Optionee has engaged in any act, behavior or conduct demonstrating a deliberate and material violation or disregard of standards of behavior that the Company has a right to expect of its employees; or (vii) if the Optionee, while employed by the Company and for two years thereafter, violates a confidentiality and/or noncompete agreement with the Company, or fails to safeguard, divulges, communicates, uses to the detriment of the Company or for the benefit of any person or persons, or misuses in any way, any Confidential Information; PROVIDED, HOWEVER, that, if the Optionee has entered into a written employment agreement with the Company which remains effective and which expressly provides for a termination of such Optionee's employment for "cause", the term "Cause" as used herein shall have the meaning as set forth in the Optionee's employment agreement in lieu of the definition of "Cause" set forth in this Section 2(b). (c) "Change of Control" shall mean the acquisition by any person or group (as that term is defined in the Securities Exchange Act), and the rules promulgated pursuant to that act) in a single transaction or a series of transactions of forty percent (40%) or more in voting power of the outstanding stock of the Company and a change of the composition of the Board of Directors so that, within two years after the acquisition took place, a majority of the members of the Board of Directors of the Company, or of any corporation with which the Company may be consolidated or merged, are persons who were not Directors or Officers of the Company or one of its Subsidiaries immediately prior to the acquisition, or to the first of a series of transactions which resulted in the acquisition of forty percent (40%) or more in voting power of the outstanding stock of the Company. A-1 (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Committee" shall mean the stock option or compensation committee appointed by the Board or, if not appointed, the Board. (f) "Common Stock" shall mean collectively, the Company's common stock, par value $.01 per share. (g) "Confidential Information" shall mean any and all information pertaining to the Company's financial condition, clients, customers, prospects, sources of prospects, customer lists, trademarks, trade names, service marks, service names, "know-how," trade secrets, products, services, details of client or consulting contracts, management agreements, pricing policies, operational methods, site selection, results of operations, costs and methods of doing business, owners and ownership structure, marketing practices, marketing plans or strategies, product development techniques or plans, procurement and sales activities, promotion and pricing techniques, credit and financial data concerning customers and business acquisition plans, that is not generally available to the public. (h) "Director" shall mean a member of the Board. (i) "Employee" shall mean any person, including Officers, Directors, consultants and independent contractors who are either employed or engaged by the Company or any parent or Subsidiary of the Company within the meaning of Code Section 3401(c) or the regulations promulgated thereunder. (j) "Fair Market Value" of a Share on any date of reference shall be the Closing Price of a share of Common Stock on the business day on or immediately preceding such date, unless the Committee in its sole discretion shall determine otherwise in a fair manner. For this purpose, the "Closing Price" of the Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange (including the National Association of Securities Dealers Automated Quotation System, NASDAQ), or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of the Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation, or (ii) if clause (i) is not applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for the Common Stock on at least five of the ten preceding days. If the information set forth in clauses (i) through (ii) above is unavailable or inapplicable to the Company (e.g., if the Company's Common Stock is not then publicly traded or quoted), then the "Fair Market Value" of a Share shall be the fair market value (i.e., the price at which a willing seller would sell a Share to a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of all relevant facts) of a share of the Common Stock on the business day immediately preceding such date as the Committee in its sole and absolute discretion shall determine in a fair and uniform manner. (k) "Family Member" shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Employee's household (other than a tenant or Employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the Employee) control the management of assets, and any other entity in which these persons (or the Employee) own more than 50% of the voting interests. (l) "Incentive Stock Option" shall mean an incentive stock option as defined in Section 422 of the Code. (m) "Non-Employee Directors" shall have the meaning set forth in Rule 16b-3(b)(3)(i) (17 C.F.R. ss.240.16(b)-3(b)(3)(i)) under the Securities Exchange Act. (n) "Non-Statutory Stock Option" or "Nonqualified Stock Option" shall mean an Option which is not an Incentive Stock Option. (o) "Officer" shall mean the Company's chairman, chief executive officer, president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Officers of Subsidiaries shall be deemed Officers of the Company if they perform such policy-making functions for the Company. As used in this paragraph, the phrase "policy-making function" does not include policy-making functions A-2 that are not significant. Unless specified otherwise in a resolution by the Board, an "executive officer" pursuant to Item 401(b) of Regulation S-K (17 C.F.R. ss.229.401(b)) shall be only such person designated as an "Officer" pursuant to the foregoing provisions of this paragraph. (p) "Option" (when capitalized) shall mean any stock option granted under this Plan. (q) "Optionee" shall mean a person to whom an Option is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person. (r) "Plan" shall mean this 2002 Stock Option Plan of the Company, which Plan shall be effective upon approval by the Board, subject to approval, within 12 months of the date thereof by holders of a majority of the Company's issued and outstanding Common Stock of the Company. (s) "Securities Act" shall mean the Securities Act of 1933, as amended. (t) "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (u) "Share" or "Shares" shall mean a share or shares, as the case may be, of the Common Stock, as adjusted in accordance with Section 10 of this Plan. (v) "Subsidiary" shall mean any corporation (other than the Company) in any unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. SHARES AND OPTIONS. Subject to adjustment in accordance with Section 10 hereof, the Company may grant to Optionees from time to time Options to purchase an aggregate of up to one million two hundred thousand (1,200,000) Shares from Shares held in the Company's treasury or from authorized and unissued Shares. If any Option granted under this Plan shall terminate, expire, or be canceled, forfeited or surrendered as to any Shares, the Shares relating to such lapsed Option shall be available for issuance pursuant to new Options subsequently granted under this Plan. Upon the grant of any Option hereunder, the authorized and unissued Shares to which such Option relates shall be reserved for issuance to permit exercise under this Plan. Subject to the provisions of Section 14 hereof, an Option granted hereunder shall be either an Incentive Stock Option or a Non-Statutory Stock Option as determined by the Committee at the time of grant of such Option and shall clearly state whether it is an Incentive Stock Option or Non-Statutory Stock Option. All Options shall be granted within 10 years from the effective date of this Plan. 4. LIMITATIONS. Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the Shares, with respect to which Options meeting the requirements of Code Section 422(b) are exercisable for the first time by any individual during any calendar year (under all stock option or similar plans of the Company and any Subsidiary), exceeds $100,000. 5. CONDITIONS FOR GRANT OF OPTIONS. (a) Each Option shall be evidenced by an Option agreement that may contain any term deemed necessary or desirable by the Committee, provided such terms are not inconsistent with this Plan or any applicable law. Optionees shall be those persons selected by the Committee from the class of all regular Employees of the Company or its Subsidiaries, including Employee Directors and Officers who are regular or former regular employees of the Company, Directors who are not regular employees of the Company, as well as consultants to the Company. Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver. (b) In granting Options, the Committee shall take into consideration the contribution the person has made, or is expected to make, to the success of the Company or its Subsidiaries and such other factors as the Committee shall determine. The Committee shall also have the authority to consult with and receive recommendations from Officers and other personnel of the Company and its Subsidiaries with regard to these matters. The Committee may from time to time in granting Options under this Plan prescribe such terms and conditions concerning such Options as it deems appropriate, including, without limitation, (i) the exercise price or prices of the Option or any installments thereof, (ii) prescribing the date or dates on which the Option becomes and/or remains exercisable, (iii) providing that the Option vests or becomes exercisable in installments A-3 over a period of time, and/or upon the attainment of certain stated standards, specifications or goals, (iv) relating an Option to the continued employment of the Optionee for a specified period of time, or (v) conditions or termination events with respect to the exercisability of any Option, provided that such terms and conditions are not more favorable to an Optionee than those expressly permitted herein; provided, however, that to the extent not canceled pursuant to Section 9(b) hereof, upon a Change in Control, any Options that have not yet vested, may, in the sole discretion of the Committee, vest upon such Change in Control. (c) The Options granted to employees under this Plan shall be in addition to regular salaries, pension, life insurance or other benefits related to their employment with the Company or its Subsidiaries. Neither this Plan nor any Option granted under this Plan shall confer upon any person any right to employment or continuance of employment (or related salary and benefits) by the Company or its Subsidiaries. 6. EXERCISE PRICE. The exercise price per Share of any Option shall be any price determined by the Committee but shall not be less than the par value per Share; PROVIDED, HOWEVER, that in no event shall the exercise price per Share of any Incentive Stock Option be less than the Fair Market Value of the Shares underlying such Option on the date such Option is granted and, in the case of an Incentive Stock Option granted to a 10% shareholder, the per Share exercise price will not be less than 110% of the Fair Market Value in accordance with Section 14 of this Plan. Re-granted Options, or Options which are canceled and then re-granted covering such canceled Options, will, for purposes of this Section 6, be deemed to have been granted on the date of the re-granting. 7. EXERCISE OF OPTIONS. (a) An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate Option price of the Shares as to which the Option is exercised has been made, (iii) the Optionee has agreed to be bound by the terms, provisions and conditions of any applicable shareholders' agreement, and (iv) arrangements that are satisfactory to the Committee in its sole discretion have been made for the Optionee's payment to the Company of the amount that is necessary for the Company or the Subsidiary employing the Optionee to withhold in accordance with applicable Federal or state tax withholding requirements. Unless further limited by the Committee in any Option, the exercise price of any Shares purchased pursuant to the exercise of such Option shall be paid in cash, by certified or official bank check, by money order, with Shares or by a combination of the above; PROVIDED, HOWEVER, that the Committee in its sole discretion may accept a personal check in full or partial payment of any Shares. If the exercise price is paid in whole or in part with Shares, the value of the Shares surrendered shall be their Fair Market Value on the date the Option is exercised. The Company in its sole discretion may, on an individual basis or pursuant to a general program established by the Committee in connection with this Plan, lend money to an Optionee to exercise all or a portion of the Option granted hereunder. If the exercise price is paid in whole or part with the Optionee's promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon exercise of such Option, (iii) bear interest at a rate no less than the rate of interest payable by the Company to its principal lender, and (iv) contain such other terms as the Committee in its sole discretion shall require. No Optionee shall be deemed to be a holder of any shares subject to an Option unless and until a stock certificate or certificates for such shares are issued to the person(s) under the terms of this Plan. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 10 hereof. Additionally, any Option may be exercised pursuant to a "cashless" or "net issue" exercise provision set forth in the Option agreement evidencing such Option. (b) No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 10 hereof. 8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in such amounts, at such intervals, upon such events or occurrences and upon such other terms and conditions as shall be provided in this Plan or in an individual Option agreement evidencing such Option, except as otherwise provided in Section 5(b) or this Section 8. (a) The expiration date(s) of an Option shall be determined by the Committee at the time of grant, but in no event shall an Option be exercisable after the expiration of 6 years from the date of grant of the Option. (b) Unless otherwise expressly provided in any Option as approved by the Committee, notwithstanding the exercise schedule set forth in any Option, each outstanding Option, may, in the sole discretion of the Committee, become A-4 fully exercisable upon the date of the occurrence of any Change of Control, but, unless otherwise expressly provided in any Option, no earlier than six months after the date of grant, and if and only if Optionee is in the employ of the Company on such date. (c) The Committee may in its sole discretion at any time accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option. 9. TERMINATION OF OPTION PERIOD. (a) Unless otherwise expressly provided in any Option, the unexercised portion of any Option shall automatically and without notice immediately terminate and become forfeited, null and void at the time of the earliest to occur of the following: (i) three months after the date on which the Optionee's employment is terminated for any reason other than by reason of (A) Cause, (B) the termination of the Optionee's employment with the Company by such Optionee following less than ninety (90) days' prior written notice to the Company of such termination (an "Improper Termination"), (C) a mental or physical disability (within the meaning of Section 22(e) of the Code) as determined by a medical doctor satisfactory to the Committee, or (D) death; (ii) immediately upon (A) the termination by the Company of the Optionee's employment for Cause, or (B) an Improper Termination; or (iii) one year after the date on which the Optionee's employment is terminated by reason of a mental or physical disability (within the meaning of Code Section 22(e)) as determined by a medical doctor satisfactory to the Committee; or (iv) the later of (A) one year after the date of termination of the Optionee's employment by reason of death of the Employee, or (B) three months after the date on which the Optionee shall die if such death shall occur during the one year period specified in Section 9(a)(iii) hereof. (b) Notwithstanding the foregoing, if the Optionee's employment is terminated by reason of a mental or physical disability (within the meaning of Section 22(e) of the Code) as determined by a medical doctor satisfactory to the Committee or the Optionee retires from employment by the Company or any other entity, then the Option shall continue until the original expiration date. (c) The Committee in its sole discretion may, by giving written notice (the "Cancellation Notice"), cancel effective upon the date of the consummation of any corporate transaction described in Section 10(d) hereof, any Option that remains unexercised on such date. The Cancellation Notice shall be given a reasonable period of time prior to the proposed date of such cancellation and may be given either before or after approval of such corporate transaction. (d) Upon Optionee's termination of employment as described in this Section 9, or otherwise, any Option (or portion thereof) not previously vested or not yet exercisable pursuant to Section 8 of this Plan or the vesting schedule set forth in the Option Agreement evidencing the Option shall be immediately canceled. 10. ADJUSTMENT OF SHARES. (a) If at any time while this Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split, combination or exchange of Shares (other than any such exchange or issuance of Shares through which Shares are issued to effect an acquisition of another business or entity or the Company's purchase of Shares to exercise a "call" purchase option), then and in such event: (i) appropriate adjustment shall be made in the maximum number of Shares available for grant under this Plan, so that the same percentage of the Company's issued and outstanding Shares shall continue to be subject to being so optioned; (ii) appropriate adjustment shall be made in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company's issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price; and A-5 (iii) such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. (b) Subject to the specific terms of any Option, the Committee may change the terms of Options outstanding under this Plan, with respect to the Option price or the number of Shares subject to the Options, or both, when, in the Committee's sole discretion, such adjustments become appropriate by reason of a corporate transaction described in Section 10(d) hereof, or otherwise. (c) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into or exchangeable for shares of its capital stock of any class, either in connection with a direct or underwritten sale or upon the exercise of rights or warrants to subscribe therefor or purchase such Shares, or upon conversion of shares of obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to the number of or exercise price of Shares then subject to outstanding Options granted under this Plan. (d) Without limiting the generality of the foregoing, the existence of outstanding Options granted under this Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, reclassifications, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger or consolidation of the Company or to which the Company is a party; (iii) any issuance by the Company of debt securities, or preferred or preference stock that would rank senior to or above the Shares subject to outstanding Options; (iv) any purchase or issuance by the Company of Shares or other classes of common stock or common equity securities; (v) the dissolution or liquidation of the Company; (vi) any sale, transfer, encumbrance, pledge or assignment of all or any part of the assets or business of the Company; or (vii) any other corporate act or proceeding, whether of a similar character or otherwise. (e) The Optionee shall receive written notice within a reasonable time prior to the consummation of such action advising the Optionee of any of the foregoing. The Committee may, in the exercise of its sole discretion, in such instances declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option. 11. TRANSFERABILITY OF OPTIONS. Unless otherwise authorized by the Board, no Incentive Stock Option granted hereunder shall be sold, pledged, assigned, hypothecated, disposed or otherwise transferred by the Optionee other than by will or the laws of descent and distribution. Nonqualified Stock Options granted hereunder may not be sold, pledged, assigned, hypothecated, disposed or otherwise transferred by the Optionee other than (a) by will or the laws of descent and distribution (b) by gift to a Family Member, or (c) through a domestic relations order in settlement of marital property rights. No Option shall be exercisable during the Optionee's lifetime by any person other than the Optionee or transferee permitted under this Section 11. 12. ISSUANCE OF SHARES. As a condition of any sale or issuance of Shares upon exercise of any Option, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation including, but not limited to, the following: (a) a representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and (b) (i) an agreement and undertaking to comply with all of the terms, restrictions and provisions set forth in any then applicable shareholders' agreement relating to the Shares, including, without limitation, any restrictions on transferability, any rights of first refusal, any option of the Company to "call" or purchase such Shares under then applicable agreements, and any option of the Company to rescind the issuance of the Shares; and (ii) any restrictive legend or legends, to be embossed or imprinted on Share certificates, that are, in the discretion of the Committee, necessary or appropriate to comply with the provisions of any securities law or other restriction applicable to the issuance of the Shares. 13. ADMINISTRATION OF THIS PLAN. (a) This Plan shall initially be administered by the Board. As soon as may be practicable, but no later than the date (if ever) the Common Stock is listed or admitted for trading on any United States national securities exchange, the Plan shall be administered by the Committee, which shall consist of not less than two Non-Employee Directors. The Committee A-6 shall have all of the powers of the Board with respect to this Plan. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. (b) Subject to the provisions of this Plan, the Committee shall have the authority, in its sole discretion, to: (i) grant Options, (ii) determine the exercise price per Share at which Options may be exercised, (iii) determine the Optionees to whom, and time or times at which, Options shall be granted, (iv) determine the number of Shares to be represented by each Option, (v) determine the terms, conditions and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option, (vi) defer (with the consent of the Optionee) or accelerate the exercise date of any Option, and (vii) make all other determinations deemed necessary or advisable for the administration of this Plan, including repricing, canceling and regranting Options. (c) The Committee, from time to time, may adopt rules and regulations for carrying out the purposes of this Plan. The Committee's determinations and its interpretation and construction of any provision of this Plan shall be final, conclusive and binding upon all Optionees and any holders of any Options granted under this Plan. (d) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting of the Committee or (ii) without a meeting by the unanimous written approval of the members of the Committee. (e) No member of the Committee, or any Officer or Director of the Company or its Subsidiaries, shall be personally liable for any act or omission made in good faith in connection with this Plan. 14. INCENTIVE OPTIONS FOR 10% SHAREHOLDERS. Notwithstanding any other provisions of this Plan to the contrary, an Incentive Stock Option shall not be granted to any person owning directly or indirectly (through attribution under Section 424(d) of the Code) at the date of grant, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or of its Subsidiary) at the date of grant unless the exercise price of such Option is at least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is granted, and such Option by its terms is not exercisable after the expiration of 10 years from the date such Option is granted. 15. INTERPRETATION. (a) This Plan shall be administered and interpreted so that all Incentive Stock Options granted under this Plan will qualify as Incentive Stock Options under Section 422 of the Code. If any provision of this Plan should be held invalid for the granting of Incentive Stock Options or illegal for any reason, such determination shall not affect the remaining provisions hereof, and this Plan shall be construed and enforced as if such provision had never been included in this Plan. (b) This Plan shall be governed by the laws of the State of Florida. (c) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan or affect the meaning or interpretation of any part of this Plan. (d) Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. (e) Time shall be of the essence with respect to all time periods specified for the giving of notices to the Company hereunder, as well as all time periods for the expiration and termination of Options in accordance with Section 9 hereof (or as otherwise set forth in an Option agreement). 16. CANCELLATION AND RESCISSION OF AWARDS. (a) Unless the Option specifies otherwise, the Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred Options at any time if the Optionee is not in compliance with all applicable provisions of this Plan and the individual Option agreement evidencing such Option, or if the Optionee engages in any "Detrimental Activity" (as defined in this Section 16). For purposes of this Section 16 and during the time the Optionee is employed by the Company and for a period of two years from the date the Optionee ceases being employed by the Company (the "Restrictive Period"), without the Company's prior written consent, in each instance, "Detrimental Activity" shall include: (i) the rendering of services for any organization or engaging directly or indirectly in any business which is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company; (ii) the disclosure to A-7 anyone outside the Company, or the use in other than the Company's business, without prior written authorization from the Company, of any confidential information or material, as defined in any agreement between the Optionee and the Company regarding confidential information and intellectual property either during or after employment with the Company; (iii) the failure or refusal to disclose promptly and to assign to the Company, pursuant to the Company's confidentiality agreement with the Optionee, all right, title and interest in any invention or idea, patentable or not, made or conceived by the Optionee during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company or the failure or refusal to do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in other countries; (iv) activity that results in termination of the Optionee's employment for cause; (v) a material violation of any written rules, policies, procedures or guidelines of the Company; (vi) any attempt directly or indirectly to induce any employee of the Company to be employed or perform services elsewhere or any attempt directly or indirectly to solicit the trade or business of any current or prospective customer, supplier or partner of the Company; (vii) the Optionee being convicted of, or entering a guilty plea with respect to, a crime, whether or not connected with the Company; or (viii) any other conduct or act determined to be injurious, detrimental or prejudicial to any interest of the Company. (b) Upon exercising an Option, the Optionee shall certify in a manner reasonably acceptable to the Company that he or she is in compliance with the terms and conditions of the Plan. In the event an Optionee fails to comply with the provisions of paragraphs (a)(i)-(viii) of this Section 16 within the Restrictive Period, the exercise of an Option may be rescinded by the Company at any time within the Restrictive Period. In the event of any such rescission, the Optionee shall return any and all Shares obtained upon the exercise of Options if the Shares are still held by the Optionee. If the Optionee no longer holds the Shares, the Optionee shall pay the Company an amount equal to the Fair Market Value of the Shares as of the date of the rescission less the exercise price paid for the Shares, in such manner and on such terms and conditions as may reasonably be required by the Company. The Company shall be entitled to set-off against the foregoing amount. 17. AMENDMENT AND DISCONTINUATION OF THIS PLAN. Either the Board or the Committee may from time to time amend this Plan or any Option without the consent or approval of the shareholders of the Company; PROVIDED, HOWEVER, that, except to the extent provided in Section 9, no amendment or suspension of this Plan or any Option issued hereunder shall substantially impair any Option previously granted to any Optionee without the consent of such Optionee. 18. TERMINATION DATE. This Plan shall terminate 10 years after the date of adoption by the Board provided, however, that no such termination shall affect the validity of Options granted hereunder in accordance with the terms of this Plan, which Options expire after such termination date. A-8