April 29, 2005

 

 

 

 

 

Dear Shareholder:

    On behalf of the board of directors and management of FPIC Insurance Group, Inc., I invite you to join us at our annual meeting of shareholders to be held on Wednesday, June 1, 2005, at 10 a.m. eastern time, at the Omni Hotel, 245 Water Street, Jacksonville, Florida.

    The annual meeting will include a report on our operations, followed by discussion and voting on the matters set forth in the accompanying notice of annual meeting of shareholders and proxy statement.  We will also discuss other business matters properly brought before the meeting.

    At this year’s annual shareholders’ meeting, shareholders will vote on the election of three directors and proposals to amend FPIC’s Director Stock Option Plan and Omnibus Incentive Plan.

    Your vote is important.  If you are not able to attend the meeting, please complete, date and sign your proxy card and return it in the enclosed envelope, so that your shares will be represented and voted at the meeting.  Even if you plan to attend the meeting, you can vote in advance by returning a completed form of proxy. 

	Yours truly,
	/s/ John R. Byers
	John R. Byers

FPIC INSURANCE GROUP, INC.

225 Water Street, Suite 1400

Jacksonville, Florida 32202

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF FPIC INSURANCE GROUP, INC.

    The annual meeting of shareholders of FPIC Insurance Group, Inc. (“FPIC”) will be held at the Omni Hotel, 245 Water Street, Jacksonville, Florida, Wednesday, June 1, 2005, at 10 a.m. eastern time.  The purposes of the meeting are:

1.	To elect three directors to serve until their terms expire.

2.	To vote on a proposal to amend the Director Stock Option Plan.

3.	To vote on a proposal to amend the Omnibus Incentive Plan.

4.	To transact such other business as may properly come before the meeting and at any adjournments or postponements   of the meeting.

§	receive this notice of the meeting; and

§	vote, either by proxy or in person, at the meeting, and at any adjournments or postponements of the meeting.

	By order of the board of directors,
	/s/ Roberta Goes Cown
	Roberta Goes Cown Corporate Counsel and Secretary

IMPORTANT:  TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE,

SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE.

PLEASE SEE OUR QUESTION AND ANSWER SECTION FOR INFORMATION ABOUT VOTING.

IF YOU ATTEND THE MEETING, YOU MAY CHOOSE TO VOTE IN PERSON EVEN IF YOU HAVE

PREVIOUSLY SENT IN YOUR PROXY CARD.

FPIC INSURANCE GROUP, INC.

225 Water Street, Suite 1400

Jacksonville, Florida 32202

 

 

April 29, 2005

 

 

PROXY STATEMENT FOR

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD JUNE 1, 2005

    Our board of directors is furnishing you this proxy statement to solicit your proxy to be voted at the 2005 annual meeting of shareholders of FPIC Insurance Group, Inc. (“FPIC”).

    The meeting will be held Wednesday, June 1, 2005, at the Omni Hotel, 245 Water Street, Jacksonville, Florida, at 10 a.m. eastern time.  Your proxy may also be voted at any adjourn­ments or postponements of the meeting.

    The annual report to shareholders for 2004 and this proxy statement and form of proxy are being distributed on or about April 29, 2005 to shareholders entitled to vote.

    All properly executed written proxies that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked before the meeting.

    Only holders of record of shares of common stock at the close of business on April 6, 2005 are entitled to vote at the meeting, or at adjournments or postponements of the meeting.  Each holder of record on the record date is entitled to one vote for each share of common stock held.  At the close of business on April 6, 2005, FPIC had 10,145,288 shares of common stock issued and outstanding.

 

 

 

QUESTIONS AND ANSWERS
ABOUT THE MEETING AND VOTING

What is a proxy?

    A proxy is your legal designation of another person to vote stock you own. If you designate someone as your proxy in a written document, that document is called a proxy or a proxy card.  The enclosed proxy card names two officers of FPIC as proxies for the 2005 annual meeting of shareholders.  These two officers are Pamela D. Harvey, vice president and controller and Peggy A. Parks, assistant secretary.  A representation of the proxy card for the 2005 annual meeting of shareholders can be found at Appendix A.

What is a proxy statement?

    A proxy statement is a document that the federal securities laws and regulations require us to give you when we ask you to sign a proxy card designating each of Pamela D. Harvey and Peggy A. Parks as proxies to vote on your behalf.  This year’s proxy statement is being distributed on or about April 29, 2005 to shareholders entitled to vote.

What is the difference between a shareholder of record and a shareholder who holds stock in street name?

§	If your shares are registered in your name, you are a shareholder of record.

§	If your shares are in the name of your broker or bank, your shares are held in street name.

§	By proxy: All shareholders may vote by returning the enclosed proxy card; or

§	In person: All shareholders may vote in person at the meeting. If you wish to vote in person at the meeting and your shares of FPIC common stock are held in the street name of your broker, you must obtain a legal proxy from your broker in order to vote in person at the meeting.

 

§	giving written notice to the secretary of FPIC;

§	delivering a later dated proxy; or

§	voting in person at the meeting.

What vote is needed to elect directors?

    Directors will be elected by a plurality of the votes cast by the shareholders voting in person or by proxy at the meeting.  A plurality of the votes, as distinguished from a majority, is the greatest number of votes cast by those voting.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES.

What are your voting options when voting on each proposal to amend FPIC’s Director Stock Option Plan and Omnibus Incentive Plan?

   In voting on each proposal to amend FPIC’s Director Stock Option Plan and Omnibus Incentive Plan, you may vote in one of the following ways:

§	in favor of the proposal;

§	against the proposal; or

§	abstain from voting on the proposal.

What votes are needed to approve each of the proposals?

    A majority of the votes cast by the shareholders voting in person or by proxy at the annual meeting of shareholders will be necessary to approve the proposal to amend FPIC’s Director Stock Option Plan and the proposal to amend FPIC’s Omnibus Incentive Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THESE PROPOSALS.

 

What if a shareholder does not specify a choice for a matter when returning a proxy?

    Shareholders should specify their choice for each matter on the enclosed form of proxy.  If no instructions are given, proxies that are signed and returned will be voted “FOR” the election of all director nominees, “FOR” the proposal to amend FPIC’s Director Stock Option Plan and “FOR” the proposal to amend FPIC’s Omnibus Incentive Plan.

How are abstentions and broker nonvotes counted?

    Abstentions occur when a shareholder who is entitled to vote a share of FPIC common stock chooses not to vote that share.  Broker nonvotes occur when a broker that holds shares in street name for a customer does not have authority to vote on certain nonroutine matters because its customer has not provided any voting instruction on the matter.

    Abstentions and broker nonvotes will have no effect on business of the meeting that is of a routine nature and is properly presented at the meeting.  Abstentions and broker nonvotes will have no effect on the outcome of the votes at FPIC’s 2005 annual meeting of shareholders.

Where can I find the voting results of the annual meeting?

    We will announce the preliminary voting results at the meeting.  We will publish the final voting results in our quarterly report on Form 10-Q for the second quarter of fiscal year 2005 filed with the United States Securities and Exchange Commission (“SEC”).

 

PROPOSAL 1

ELECTION OF DIRECTORS

    FPIC has a staggered board of directors, with three classes of directors that generally serve for terms of three years.  The board of directors has determined that twelve persons should serve as members until the annual shareholders meeting and eleven persons should serve as members thereafter.

    FPIC’s articles of incorporation provide that the number of directors may be determined from time to time by resolution adopted by the affirmative vote of at least 75% of the entire board of directors.  This number and its determination are exclusive of directors to be elected by the holders of any one or more series of preferred stock voting separately as a class or classes.  No such preferred stock is outstanding.  FPIC’s bylaws provide that FPIC’s president will always be nominated by the board of directors for election to the board of directors, whenever the president’s term as a director expires or whenever the president is not a director.  The board of directors considers from time to time a possible increase in its number of directors for the purpose of adding additional areas of expertise to the board of directors.  Any new directorships created would be filled in accordance with Florida law and FPIC’s articles of incorporation. 

    FPIC’s board of directors has determined that:

• John K. Anderson, Jr.
• Richard J. Bagby, M.D.
• Robert O. Baratta, M.D.
• Terence P. McCoy, M.D.
• John G. Rich
• Joan D. Ruffier
• Guy T. Selander, M.D.
• David M. Shapiro, M.D.
• James G. White, M.D.

being a majority of our current directors, are independent according to current National Association of Securities Dealers Automated Quotation, Inc. (“Nasdaq”) rules.

    Members of the board of directors are required to be between 18 and 70 years of age.  However, any director who is elected before becoming 70 years of age may complete his or her then current term as a director.  As a result of such age requirement, one director, James G. White, M.D., will be retiring from FPIC’s board of directors upon completion of his 2004-2005 term.  Dr. White has served as a director of FPIC since its formation in 1996 and served as chairman of the board of directors from 1997 until 1999.  Dr. White has also served as a director of First Professionals Insurance Company, Inc. (“First Professionals”), a FPIC subsidiary, since 1986 and served as chairman of its board of directors from 1997 until 2000.  Dr. White has made a significant contribution to the companies he has served.

 

    Three directors are to be elected at the 2005 annual meeting of shareholders to hold office until 2008, or until their successors are elected and qualified.  The persons designated for election in the 2008 class consist of three incumbent directors: Kenneth M. Kirschner, Guy T. Selander, M.D. and David M. Shapiro, M.D.

    If, for any reason, any of the nominees is not a candidate when the election occurs, the enclosed proxy may be voted for a substitute nominee.  The board of directors does not anticipate that any nominee will not be a candidate.  Further information regarding incumbent directors is set forth below.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES.

Director Nominees and Continuing Incumbent Directors

Incumbent Directors Standing for Election in 2005 for Terms Expiring in 2008

    Kenneth M. Kirschner, 62, is a member of the law firm of Kirschner & Legler, P.A. (“Kirschner & Legler”), located in Jacksonville, Florida.  Mr. Kirschner began the practice of law in 1968.  Since 1998 and prior to the formation of Kirschner & Legler, Mr. Kirschner was a partner in Holland & Knight LLP and subsequently, of counsel to LeBoeuf, Lamb, Greene & MacRae, L.L.P. (“LeBoeuf”), both law firms with offices in Jacksonville, Florida.  Prior to 1998, Mr. Kirschner was a partner with Kirschner, Main, Graham, Turner & Demont, also of Jacksonville, Florida.  As an attorney, Mr. Kirschner specializes in corporate and corporate governance matters, finance and mergers and acquisitions.  Mr. Kirschner has served on the boards of directors of several publicly owned corporations and on the boards of directors of several life and property and casualty insurance companies.  Mr. Kirschner has also been a principal shareholder and a director, as well as an active executive officer in several business corporations.  Mr. Kirschner has served as a director of FPIC since 2002.

    Guy T. Selander, M.D., 69, is a family physician engaged in private practice in Jacksonville, Florida.  Dr. Selander has practiced medicine since 1964.  Dr. Selander also serves as chairman of the board of directors and a trustee of Memorial Hospital and as a trustee of Brooks Health Systems, both located in Jacksonville, Florida.  Dr. Selander is also a past president of the Florida Medical Association (“FMA”), the Duval County Medical Society and the Florida Academy of Family Physicians.  He was a delegate to the American Medical Association (“AMA”) and the American Academy of Family Physicians.  Dr. Selander has served as a director of FPIC since its formation in 1996 and served as vice chairman of the board of directors of FPIC from 1997 to 1999.  He has also served as a director of First Professionals since 1989 and currently serves as chairman of the board of directors of First Professionals.

    David M. Shapiro, M.D., 51, is senior vice president of medical affairs of Surgis, Inc. (“Surgis”), an ambulatory surgery center management/development company located in Nashville, Tennessee.  Prior to joining Surgis in 2000, Dr. Shapiro engaged in the private practice of anesthesiology in Fort Myers, Florida.  Dr. Shapiro is immediate past president of the American Association of Ambulatory Surgery Centers.  He is a member of the FMA delegation to the AMA and a member of the AMA’s Council on Long Range Planning and Development. 

 

 

Dr. Shapiro has served as a director of FPIC and First Professionals since 1996 and is currently vice chairman of the board of directors of FPIC. 

Incumbent Directors Whose Terms Expire in 2007

    John K. Anderson, Jr., 56, is managing partner of Bott-Anderson Partners, Inc. (“Bott-Anderson”), an investment consulting firm headquartered in Ponte Vedra, Florida, and a principal of Heritage Capital Group, Inc. (“Heritage Capital”), a middle market investment banking firm headquartered in Jacksonville, Florida.  Prior to joining Heritage Capital in July 2002 and Bott-Anderson in April 2003, Mr. Anderson was the executive vice president, treasurer, chief financial officer and secretary of American Heritage Life Investment Corporation (“American Heritage”), a life insurance company, headquartered in Jacksonville, Florida, wholly owned by The Allstate Corporation.  From 1993 until he joined American Heritage in January 1996, Mr. Anderson served as chief executive officer of E.G. Baldwin & Associates, Inc., a regional distributor of medical imaging products and services to hospitals and other medical providers based in Cleveland, Ohio.  Prior to that, he was president and chief executive officer of Capitol American Life Insurance Company based in Cleveland, Ohio, and before that executive vice president and chief financial officer of Baptist Health Systems, Inc., in Jacksonville, Florida.  Mr. Anderson is also chairman of the board of directors of Baptist Medical Center Beaches.  Mr. Anderson is a former certified public accountant, a registered financial principal and a chartered life underwriter.  Mr. Anderson has served as a director of FPIC since 2001.

    M. C. Harden, III, 52, has served as chairman of the board, president and chief executive officer of Harden & Associates, Inc. (“Harden & Associates”), an insurance broker and risk management and employee benefits consultant, located in Jacksonville, Florida, since 1976.  Mr. Harden also serves on a number of community and corporate boards, including the board of directors of Baptist Health System.  Mr. Harden formerly served on the advisory board of Florida Bank of Jacksonville, NA.  Mr. Harden also serves as chairman of the Jacksonville Economic Development Commission.  Mr. Harden has served as a director of FPIC since 2001.

    John G. Rich, 49, was appointed by the board of directors in November 2003 to fill the vacancy created by the death of Gaston J. Acosta-Rua, M.D. in May 2003.  Mr. Rich was recommended as a candidate for director by Stilwell Value Partners III, L.P. (“Stilwell Value”), a shareholder of FPIC and its principal, Joseph Stilwell.  Mr. Rich is a partner with Rich Intelisano LLP in New York, New York, a law firm specializing in securities and commodities litigation and arbitration.  Mr. Rich has practiced law in New York since 1982. 

    Joan D. Ruffier, 65, currently serves on various state and community boards, including the University of Florida Foundation, where she served as president from 1998 until 2000, the University of Central Florida Foundation and Shands Healthcare, Inc.  Ms. Ruffier formerly served on the Board of Overseers of Rollins College.  Ms. Ruffier has also served on various corporate boards, including Florida Progress Corporation and its subsidiary, Florida Power Corporation, the Federal Reserve Bank of Atlanta and SunTrust Bank, Orlando.  Ms. Ruffier was general partner of Sunshine Cafes, located in Jacksonville, Florida and Orlando, Florida, from 1987 until 1998.  Before joining Sunshine Cafes, Ms. Ruffier was a certified public accountant with Colley, Trumbower & Howell in Orlando, Florida, from 1982 until 1986.  Ms. Ruffier has served as a director of FPIC since 2002. 

 

Incumbent Directors Whose Terms Expire in 2006

    Richard J. Bagby, M.D., 64, is engaged in the private practice of diagnostic radiology and nuclear medicine in Orlando, Florida.  Dr. Bagby has practiced medicine since 1972.  In 2000, Dr. Bagby joined Boston Diagnostic Imaging and Open MRI of Sanford as its medical director.  Dr. Bagby is a past president of the FMA and has served as a director of FPIC since its formation in 1996.  Dr. Bagby has also served as a director of First Professionals since 1993 and currently serves as vice chairman of its board of directors.

    Robert O. Baratta, M.D., 64, is chairman and chief executive officer of Ascent, L.L.C. (“Ascent”), an ambulatory surgery center development and management company.  Prior to joining Ascent in 2004, Dr. Baratta was president, chief executive officer and vice chairman of the board of directors of UltraStrip Systems, Inc. (“UltraStrip”), an environmentally protective marine industrial company.  Prior to joining UltraStrip in 2001, Dr. Baratta engaged in the private practice of ophthalmology in Stuart, Florida, where he served as president and chairman of the board of directors of Stuart Eye Institute.  Dr. Baratta began practicing medicine in 1973.  He has served as a director of FPIC since its formation in 1996 and has served as chairman of the board of directors since 1999.  Dr. Baratta also served as a director of First Professionals from 1993 to 2000. 

    John R. Byers, 50, is president and chief executive officer of FPIC.  Mr. Byers joined FPIC in November 1998 as executive vice president and general counsel.  In May 1999, he was elected secretary and in June 1999, he was further elected as chief operating officer.  Mr. Byers was elected director, interim president and chief executive officer in July 2000.  Mr. Byers was elected president and chief executive officer of FPIC in September 2000.  Mr. Byers also serves as a director of certain subsidiaries of FPIC, including First Professionals, Anesthesiologists Professional Assurance Company (“APAC”) and The Tenere Group, Inc.  Mr. Byers is a member of the board of governors of Physicians’ Reciprocal Insurers (“PRI”), a New York medical professional liability insurance reciprocal for which FPIC provides management services.  Before joining FPIC, Mr. Byers was a partner in the LeBoeuf law firm from 1988 until 1998. 

    Terence P. McCoy, M.D., 60, is a past president of the FMA.  Dr. McCoy has been engaged in the private practice of family medicine in Tallahassee, Florida since 1976.  He is a member of the Board of Medicine (“BOM”) for the State of Florida and serves as chair of the BOM Expert Witness Committee.  He also serves as an advisor to the Department of Highway Safety and Motor Vehicles and is a member of the Florida At-Risk Drivers Advisory Council.  He is an elected member of the AMA Council on Constitution and Bylaws and has been a Florida Delegate to the AMA since 1981.  Dr. McCoy is a past president of the Capital Medical Association.  He served as chief of the medical staff and physician representative to the board of Tallahassee Memorial Hospital, where he also held positions as chair of the credentials committee and chair of the department of family medicine.  Dr. McCoy holds a faculty appointment at the Florida State University College of Medicine and is actively involved in teaching.  He has served as a director of FPIC since 2003 and has also served as a director of First Professionals since 1998.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS

    The following table sets forth the names of beneficial owners that own more than 5% of FPIC’s common stock as of December 31, 2004.  Information with respect to the 5% beneficial owners and their holdings is based on the Schedule 13D or 13G filed by such shareholders with the SEC.

 

 

¹               Dimensional Fund Advisors, Inc. (“Dimensional”) is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940.  In its role as investment advisor or manager, Dimensional possesses voting and/or investment power over the shares.  All shares reported are owned by advisory clients of Dimensional, no one of which, to the knowledge of Dimensional, owns more than 5% of the class.  Dimensional disclaims beneficial ownership of such shares.

²               Bricoleur Capital Management LLC (“Bricoleur”) is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940.  In its role as investment manager, Bricoleur possesses shared voting and dispositive power over the shares.

³               LSV Asset Management (“LSV”) is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940.  In its role as investment advisor or manager, LSV is the beneficial owner of 533,729 shares and possesses sole voting power with respect to 416,329 shares and sole dispositive power with respect to all 533,729 shares.

 

    The following table sets forth the beneficial ownership of FPIC’s common stock, including stock options that have vested or are exercisable within 60 days of March 31, 2005, by each of the directors. 

 

*   Less than 1.0% of the total of FPIC’s outstanding common stock. 

¹               Shares beneficially owned include unvested restricted shares.

²               Based on an aggregate of (i) the number of shares of FPIC’s common stock outstanding at March 31, 2005 and (ii) options held by the person shown that are vested as of March 31, 2005, or that are exercisable within 60 days of March 31, 2005.

³               Mr. Anderson’s beneficial ownership includes 15,000 shares that may be acquired upon exercise of vested nonqualified options.

⁴               Dr. Bagby’s beneficial ownership includes 50,000 shares that may be acquired upon the exercise of vested nonqualified options.

⁵               Dr. Baratta’s beneficial ownership includes 49,000 shares that may be acquired upon the exercise of vested nonqualified options.  Shares beneficially owned also include 18,088 shares held for Dr. Baratta’s account in FPIC’s Nonqualified Deferred Compensation Plan (“Deferred Plan”) and over which Dr. Baratta has sole dispositive power.

⁶               Mr. Byers’ beneficial ownership includes 327,001 shares that may be acquired upon the exercise of vested options.  Shares beneficially owned also include (i) 28,986 shares of unvested restricted stock granted January 26, 2005, one-third of which will vest on the anniversary of grant in 2008, 2010 and 2012; and (ii) 5,000 shares of unvested restricted stock granted January 20, 2005, which will vest on a pro rata basis over three years with vesting to begin on the first anniversary of the date of grant.  Shares beneficially owned further include 620 shares held for Mr. Byers’ account in FPIC’s Deferred Plan and over which Mr. Byers has sole dispositive power.  Shares beneficially owned exclude 15,000 shares that may be acquired upon exercise of options granted on January 20, 2005, one-third of which will vest on the anniversary of the date of grant in 2006, 2007 and 2008.

⁷               Mr. Harden’s beneficial ownership includes 15,000 shares that may be acquired upon the exercise of vested nonqualified options.

⁸               Mr. Kirschner’s beneficial ownership includes 8,334 shares that may be acquired upon the exercise of vested nonqualified options.

⁹               Dr. McCoy’s beneficial ownership includes 3,334 shares that may be acquired upon the exercise of vested nonqualified options.  Amounts shown exclude 6,200 shares held in trust for Dr. McCoy’s son as to which Dr. McCoy disclaims beneficial ownership.

¹⁰              Mr. Rich’s beneficial ownership includes 1,667 shares that may be acquired upon the exercise of vested nonqualified options.

¹¹             Ms. Ruffier’s beneficial ownership includes 8,334 shares that may be acquired upon the exercise of vested nonqualified options.

 

¹²             Dr. Selander’s beneficial ownership includes 40,000 shares that may be acquired upon the exercise of vested nonqualified options.

¹³             Dr. Shapiro’s beneficial ownership includes 43,000 shares that may be acquired upon the exercise of vested nonqualified options.

¹⁴             Dr. White’s beneficial ownership includes 50,000 shares that may be acquired upon the exercise of vested nonqualified options.

¹⁵             Includes approximately 610,670 vested options of these directors.  Excludes 6,200 shares held by or on behalf of family members as to which beneficial ownership is disclaimed.

    The following table sets forth the beneficial ownership of FPIC’s common stock, including stock options that have vested or are exercisable within 60 days of March 31, 2005, by FPIC’s executive officer who is not a director (Mr. Byers appears in the directors’ table above) and all directors and executive officers as a group. 

 

¹                Shares beneficially owned include unvested restricted shares.

²                Based on an aggregate of (i) the number of shares of FPIC’s common stock outstanding at March 31, 2005 and (ii) options held by the person shown that are vested as of March 31, 2005 or that are exercisable within 60 days of March 31, 2005.

³                Mr. Thorpe, 49, was elected executive vice president and chief financial officer in November 1999.  From 1998 until Mr. Thorpe joined FPIC, he served as senior vice president and chief financial officer of First Colony Life Insurance Company, a subsidiary of Genworth Financial, Inc. (formerly GE Financial Assurance Holdings, Inc.).  Mr. Thorpe was also a partner of Coopers & Lybrand, L.L.P. (now PricewaterhouseCoopers LLP) from 1993 until 1998 and served in the firm’s Washington, D.C. office as co-leader of the Mid-Atlantic insurance practice.  Mr. Thorpe’s beneficial ownership includes 135,600 shares that may be acquired upon the exercise of vested options.  Mr. Thorpe’s beneficial ownership also includes 2,500 shares of unvested restricted stock granted January 20, 2005, which will vest on a pro rata basis over three years with vesting to begin on the first anniversary of the date of grant.  Shares beneficially owned further include 21,025 shares held in FPIC’s Defined Contribution Plan (“401(k) Plan”), as to which Mr. Thorpe serves as co-trustee and over which he exercises voting power in such capacity.  Shares beneficially owned exclude 7,500 shares that may be acquired upon exercise of options granted on January 20, 2005, one-third of which will vest on the anniversary of the date of grant in 2006, 2007 and 2008.

⁴                Includes approximately 746,270 vested options of directors and named executive officer.  Excludes 6,200 shares held by or on behalf of family members to which beneficial ownership is disclaimed.

 

 

    Based solely on written representations from reporting persons and on our review of the Section 16(a) reports provided by those individuals, we believe that all filing requirements have been timely met during 2004.

MEETINGS OF THE BOARD OF DIRECTORS
AND ITS COMMITTEES

    The board of directors held seven meetings during 2004 and committees of the board of directors held a total of 22 meetings.  Overall aggregate attendance at such meetings was more than 95%.  Each director attended more than 75% of the aggregate of all meetings of the board of directors and the committees on which he or she served during 2004.

    The board of directors’ current policy encourages all directors of FPIC to attend its annual meeting of shareholders, which is typically held during the month of June.  Eight directors attended the 2004 annual meeting.

The Audit Committee

    The board of directors has an audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.  Current members of the audit committee of the board of directors are Messrs. Anderson (chairman) and Rich, Ms. Ruffier and Drs. Baratta and McCoy.  Dr. Shapiro also served on the audit committee until June 2004.  The audit committee is composed entirely of nonemployee directors, all of whom are considered independent under Nasdaq rules.  This committee recommends selection of FPIC’s independent registered certified public accounting firm (“Independent Accounting Firm”) to audit FPIC’s consolidated financial statements and to perform professional services related to the audit.  The committee reviews the scope and results of such audit, including audit procedures and findings with respect to the systems of internal controls and accounting policies and procedures.  The audit committee or its designee pre-approves services to be performed by its Independent Accounting Firm to ensure such services do not impair the Independent Accounting Firm’s independence.  The audit committee met 11 times during 2004.

    For more details regarding the role, responsibilities and limitations of the audit committee, please refer to the audit committee report below and the audit committee charter, which is attached to this proxy statement as Exhibit A.

    The board of directors has determined that John Anderson, who has served on the audit committee since 2001 and as its chairman since 2003, is also the audit committee financial expert and is independent as defined by Rule 4200(a)(15) of the National Association of Securities Dealers.  The board of directors based its determination on the fact that Mr. Anderson has extensive experience in evaluating financial statements and actively supervising financial managers responsible for preparing financial statements in accordance with generally accepted accounting principles in his capacity as the former chief financial officer of American Heritage, as well as his status as a former certified public accountant.

    Notwithstanding anything to the contrary set forth in any of FPIC’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,

 

 

that incorporated future filings, including this proxy statement, in whole or in part, the following report of the audit committee shall not be incorporated by reference into any such filings.

Report of the Audit Committee

    FPIC Insurance Group, Inc.’s (“FPIC’s”) audit committee presents this report on the responsibilities of the audit committee, the board of directors, FPIC’s management and its independent registered certified public accounting firm (“Independent Accounting Firm”) with respect to systems of internal control and the preparation and reporting of unaudited and audited financial information with respect to FPIC.

    The audit committee is composed of five directors, each of whom is considered independent, based on the business judgment of FPIC’s board of directors, as defined by Rule 4200 of the National Association of Securities Dealers’ (“NASD”) listing standards.  Pursuant to the 1999 recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees and the rules of the United States Securities and Exchange Com­mission (“SEC”) and the NASD, the audit committee recommended to the board of directors a written charter, which was first approved by the board of directors in March 2000.  The charter was further revised in December 2003.

    The audit committee assists the board of directors in its oversight of FPIC’s systems of internal controls, FPIC’s preparation and reporting of its consolidated financial statements and related information, the conduct of annual audits of FPIC and the relationship between FPIC and its Independent Accounting Firm, including pre-approval of audit and nonaudit services performed by the Independent Accounting Firm.  The audit committee has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the Independent Accounting Firm.  The effectiveness of the audit committee is evaluated by the board of directors as required by the Sarbanes-Oxley Act of 2002 and the National Association of Securities Dealers Automated Quotation, Inc. (Nasdaq).  The board of directors, after review and consideration, acknowledged the effectiveness of the audit committee during 2004.

    As set forth in the audit committee’s charter, management is responsible for the preparation, presentation and integrity of FPIC’s financial statements.  Management is also responsible for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations.

    The Independent Accounting Firm is responsible for planning and carrying out proper annual audits and quarterly reviews of FPIC’s financial statements.  The Independent Accounting Firm expresses opinions as to (i) the conformity of the annual financial statements with accounting principles generally accepted in the United States of America; (ii) management’s assessment as to the effectiveness of internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO); and (iii) the operating effectiveness of FPIC’s internal control over financial reporting.

 

    During 2004, in connection with its function to oversee FPIC’s financial reporting process, the audit committee reviewed and discussed with management and with representatives of PricewaterhouseCoopers LLP, FPIC’s Independent Accounting Firm, FPIC’s unaudited quarterly reporting on Form 10-Q, quarterly earnings announcements in advance of issuance, audited financial statements for the year ended December 31, 2004 and audited annual reporting on Form 10-K, before the filing of such disclosure documents with the SEC.  The audit committee has also discussed with the Independent Accounting Firm the matters required to be discussed by the Auditing Standards Board (“ASB”) Statement on Auditing Standards No. 61, Communications with Audit Committees, as amended by ASB’s  Statement of Auditing Standards No. 90, Audit Committee Communications. The audit committee has also received the written disclosures and the letter from the Independent Accounting Firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, including disclosures with respect to other nonaudit services provided by the Independent Accounting Firm.  The audit committee has considered whether the provision of all nonaudit services by the Independent Accounting Firm is compatible with maintaining the Independent Accounting Firm’s independence and has discussed such independence with FPIC’s Independent Accounting Firm. 

    Members of the audit committee are not employees of FPIC and, as such, it is not the duty or responsibility of the audit committee or its members to conduct auditing or accounting reviews or procedures.  In performing their oversight responsibility, members of the audit committee rely on information, opinions, reports and statements, including financial statements and other financial data, prepared or presented by officers or employees of FPIC, legal counsel, the Independent Accounting Firm or other persons with professional or expert competence.  Accordingly, the audit committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles, policies or appropriate internal controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations.  Furthermore, the audit committee’s considerations and discussions referred to above do not ensure that the audit of FPIC’s financial statements by its Independent Accounting Firm has been carried out in accordance with standards of the Public Company Accounting Oversight Board (United States), that the financial statements are presented in accordance with accounting principles generally accepted in the United States of America or that FPIC’s Independent Accounting Firm is in fact “independent.” 

    During 2004, the audit committee held 11 meetings, with members of FPIC’s senior management participating in nine of its meetings and with FPIC’s Independent Accounting Firm participating in seven of its meetings.  The audit committee’s agenda includes, when appropriate, separate private sessions with FPIC’s Independent Accounting Firm, independent actuary and internal auditor, at which time candid discussions regarding financial management, accounting and internal control issues take place with the Independent Accounting Firm and internal auditor and discussions regarding actuarial assumptions and related issues take place with the independent actuary.  During 2004 and through March 31, 2005, FPIC’s Independent Accounting Firm met in private sessions with the audit committee seven times; FPIC’s independent actuary met in a private session with the audit committee once; and FPIC’s internal auditor met in a private session with the audit committee once.  The audit committee’s chairman, together with members of senior management of FPIC, establishes the audit committee’s agenda.

 

    The audit committee recommended to the board of directors the engagement of PricewaterhouseCoopers LLP as FPIC’s Independent Accounting Firm for the year ended December 31, 2004 and reviewed with FPIC’s  senior management and the Independent Accounting Firm the overall audit scope and plans, the results of external audit examinations, evaluations by the Independent Accounting Firm of FPIC’s internal controls performed as part of their audit and the quality of FPIC’s financial reporting. 

    In reliance upon the reports, reviews and discussions described in this report and subject to the limitations on the role and responsibilities of the audit committee, certain of which are referred to above and are more fully described in the audit committee’s written charter, the audit committee further recommended to the board of directors and the board of directors approved, inclusion of the audited financial statements in FPIC’s annual report on Form 10-K for the year ended December 31, 2004, filed with the SEC.

Audit Committee Report

Submitted by:

John K. Anderson, Jr., Chairman

Robert O. Baratta, M.D.

Terence P. McCoy, M.D.

John G. Rich

Joan D. Ruffier

 

The Board Governance Committee

    Current members of the board governance committee of the board of directors are Drs. Baratta (chairman), Bagby and Shapiro and Messrs. Byers and Kirschner.  Drs. Baratta, Bagby and Shapiro are considered independent under Nasdaq rules.  The board governance committee’s responsibilities include recommendation to the board of directors of remuneration for members of the board of directors, oversight of the Director Stock Option Plan (the “Director Plan”) and development and implementation of a method of evaluating the effectiveness of FPIC’s board of directors, its chairman and committees and FPIC’s chief executive officer.  The board governance committee reviews and reassesses periodically FPIC’s corporate governance guidelines and evaluates possible conflicts of interest of directors and officers.  The board governance committee met four times during 2004. 

The Nomination Review Committee and Nominating Committee

    The members of the board governance committee of the board of directors who are independent under Nasdaq rules act as the nomination review committee.  Current members of the nomination review committee are Drs. Baratta, Bagby and Shapiro.  The nomination review committee, together with the other members of the board governance committee, considers the qualifications for re-nomination of existing directors whose terms are expiring, as well as other nominees, and interviews each such director and nominee.  The nomination review committee then reaches its conclusions regarding nominees for re-election and reports such conclusions to the full board of directors.  The nomination review committee also considers qualifications for individuals proposed for nomination by existing directors and, if warranted, investigates and interviews such candidates.  The nomination review committee reports its conclusions with respect to director-nominated candidates to the full board of directors. 

    The full board of directors does not take any action other than consideration and discussion of the candidates presented to it by the nomination review committee and of any other candidates proposed by a member of the board of directors.  Following consideration and discussion by the full board of directors of the candidates covered by the reports of the nomination review committee or otherwise proposed by a director, the members of the board of directors who are independent under Nasdaq rules act as the nominating committee.  Current members of the nominating committee are Drs. Bagby, Baratta, McCoy, Selander, Shapiro and White, Messrs. Anderson and Rich and Ms. Ruffier.  The members of the nominating committee may choose for nomination as director any individual in their sole discretion, whether or not such individual has been considered by the nomination review committee or by the full board of directors.

    In evaluating director nominees, members consider, among other things, the needs of the board of directors and its committees and the qualifications of sitting directors. While the board of directors has no specific, minimum qualifications for directors or director nominees, in general terms, the board of directors looks at, among other things, such criteria as (i)  the highest personal and professional integrity; (ii) achievements and skills; (iii) personal attributes that include leadership abilities, strength of character, an ethical nature, practical wisdom, mature judgment, an inquiring and independent mind, interpersonal skills, including the ability to work together with other members to make a contribution to the work of the board of directors and its

 

committees and the ability and willingness to commit the necessary time required for board of directors’ membership; and (iv) experience attributes that include education, expertise, industry knowledge, business knowledge, financial acumen, special expertise and diversity of viewpoints.  The board of directors believes that members should represent a balance of diverse backgrounds and skills relevant to FPIC’s needs that together ensure a strong board of directors.  The evaluation process for shareholder-recom­mended nominees is consistent with these general terms.

    Current members of the budget and compensation committee of the board of directors are Drs. Selander (chairman), Bagby, McCoy and Shapiro, Mr. Anderson and Ms. Ruffier.  The budget and compensation committee is composed entirely of nonemployee directors.  The budget and compensation committee establishes budgetary guidelines and processes for FPIC, the board of directors and the board of directors’ committees and oversees the budgeting function.  The budget and compensation committee also establishes remuneration for officers.  For more detailed information regarding the budget and compensation committee’s administration of FPIC’s executive compensation program, see the Report of the Compensation Committee found elsewhere in this proxy statement.  The budget and compensation committee met three times during 2004.

The Bylaws Committee

    Current members of the bylaws committee of the board of directors are Messrs. Kirschner (chairman) and Harden.  This committee interprets FPIC’s bylaws if questions arise and reviews the bylaws from time to time to determine if changes are appropriate for legal or operational purposes.  The bylaws committee did not meet during 2004.

The Executive Committee

    Current members of the executive committee of the board of directors are Drs. Baratta (chairman), Selander, Shapiro and White and Messrs. Byers and Harden.  This committee may exercise the powers of the board of directors, subject to the limitations of Florida law, whenever the chairman of the board of directors determines that it is not practical for the full board of directors to meet and action is required to be taken on matters that the chairman determines to be of an urgent nature.  The executive committee met once during 2004.

 

The Investment Committee

    Current members of the investment committee of the board of directors are Drs. White (chairman) and McCoy and Messrs. Harden, Kirschner and Rich.  This committee oversees FPIC’s investment policy with respect to portfolio investments and recommends such investment policy and portfolio investments to the board of directors for its approval.  The investment committee met three times during 2004.

The Strategic Planning Committee

Current members of the strategic planning committee of the board of directors are Ms. Ruffier (chairman) and Messrs. Harden and Kirschner.  The strategic planning committee was formed in March 2004 as an ad hoc committee of the board of directors.  In January 2005, the board of directors approved the ad hoc strategic planning committee as a standing committee of the board of directors.  The strategic planning committee was chartered by the board of directors with responsibility for (i) providing broad strategic direction; (ii) considering strategic implications; (iii) providing oversight of strategic activities; and (iv) considering alignment of corporate activities with long-term strategic goals and direction.  The strategic planning committee met twice in 2004 and once in 2005, as an ad hoc committee of the board of directors.

 

DIRECTORS’ COMPENSATION

    During 2004 and through March 31, 2005, nonemployee members of the board of directors received compensation as follows:

Cash Compensation

Annual Board Fees.  An annual fee of $25,000 was paid to each member of the board of directors who was not an employee of FPIC, subject to reduction as determined by the board of directors in the event a director was absent from more than 25% of the board of directors meetings during any calendar year.  The chairman of the board of directors received an additional annual board fee of $25,000 and the vice chairman of the board of directors received an additional board fee of $6,000.

Annual Committee Fees.  Annual fees to the nonemployee members of the committees of the board of directors were paid as follows:

Equity Compensation

    Each nonemployee member of the board of directors received annual equity-based compensation awarded as of the date of the 2004 annual shareholders meeting, pursuant to FPIC’s Director Plan, in the form of nonqualified options to purchase 5,000 shares of common stock.  Such options had an exercise price equal to the fair market value of FPIC’s common stock on the date of grant and pro rata vesting over a three-year period. 

    The board of directors further authorized, under the Director Plan, each new nonemployee member of the board of directors to receive, upon initial election to the board of directors, an initial grant of nonqualified options to purchase 5,000 shares of FPIC’s common stock.  Such options to be granted on the date the person first becomes a director of FPIC were authorized to have an exercise price equal to the fair market value of FPIC’s common stock on the date of grant and pro rata vesting over a three-year period.  The Director Plan gives the board of directors the ability to make additional grants to directors from time to time at its discretion.

    In January 2004, the board of directors also authorized, subject to shareholder approval at the 2004 annual meeting of shareholders, nonemployee members of the board of directors of First Professionals who are not also members of the board of directors of FPIC to receive annual equity-based compensation to be awarded as of the date of the annual shareholders meeting, pursuant to FPIC’s Director Plan.  Such compensation consists of an annual award of nonqualified options to purchase 5,000 shares of FPIC common stock.  Such options had an exercise price equal to the fair market value of FPIC’s common stock on the date of grant and pro rata vesting over a three-year period.

    On April 1, 2005, the board of directors authorized cash and equity-based compensation for nonemployee members of the board of directors and for certain members of the board of directors of First Professionals as follows:

Cash Compensation Effective as of April 1, 2005

Annual Board Fees.  An annual fee of $35,000 will be paid to each member of the board of directors who is not an employee of FPIC, subject to reduction as determined by the board of directors in the event a director is absent from more than 25% of the board of directors meetings during any calendar year.  The chairman of the board of directors will receive an additional annual board fee of $25,000 and the vice chairman of the board of directors will receive an additional annual board fee of $6,000.

Annual Committee Fees.  Annual fees to the nonemployee members of the committees of the board of directors will be paid as follows:

Per Meeting Fees.  A fee of $1,000 will be paid to each nonemployee committee member for each committee meeting attended, excluding meetings of the executive committee.

Equity Compensation Subsequent to April 1, 2005

    The board of directors authorized each nonemployee member of the board of directors to receive annual equity-based compensation to be awarded as of the date of the annual shareholders meeting, pursuant to FPIC’s Director Plan, in the form of 1,000 shares of full value restricted common stock, which will fully vest on the first anniversary of the date of grant.

    The board of directors further authorized each new nonemployee member of the board of directors to receive, upon initial election to the board of directors, an initial award of 1,000 shares of full value restricted common stock, which will fully vest on the first anniversary of the date of grant, awarded pursuant to the Director Plan.

    The board of directors also authorized nonemployee members of the board of directors of First Professionals who are not also members of the board of directors of FPIC to receive annual equity-based compensation to be awarded as of the date of the annual shareholders meeting, pursuant to FPIC’s Director Plan, in the form of 1,000 shares of full value restricted common stock, which will fully vest on the first anniversary of the date of grant.

    Members of the board of directors who receive a restricted common stock award will be permitted to redeem an adequate number of shares from such award upon vesting to satisfy any tax withholding liability.

    Equity compensation authorized by the board of directors in the form of restricted common stock awards is subject to shareholder approval of a proposal to amend the Director Plan to allow for restricted common stock as a form of equity-based compensation under the Director Plan.  See Proposal 2 found elsewhere in this proxy statement for proposed amendments to the Director Plan.

    In the event the proposal to amend the Director Plan to include restricted common stock as a form of equity-based compensation is not approved by FPIC shareholders at the 2005 annual meeting of shareholders, the board of directors further authorized, in the alternative, equity-based compensation in the form of common stock options to be awarded to each nonemployee member of the board of directors and to certain members of the First Professionals’ board of directors, as more fully described above, pursuant to the Director Plan.  In such case, each nonemployee member of the board of directors (and eligible members of the First Professionals’ board of directors) would be awarded a number of common stock options equal in value to the value of the restricted common stock award that would otherwise have been awarded.  Such options would have an exercise price equal to the fair market value of FPIC’s common stock on the date of grant and would vest on the first anniversary of the date of grant.  Options would not be exercisable until vested.  The Director Plan gives the board of directors the ability to make additional awards to members of the board of directors from time to time at its discretion.

 

Payment or Reimbursement for Reasonable Expenses

    Reasonable expenses incurred by a director for attendance at meetings of the board of directors and its committees are paid or reimbursed by FPIC.

Deferred Compensation Plan

    FPIC also offers directors a nonqualified deferred compensation plan, under which directors may defer all or a portion of their fees earned as directors.  Deferred fees will be paid, as adjusted for investment gains or losses, at such time in the future as specified by the participating director.

Additional Compensation

    Mr. Rich entered into an agreement dated November 11, 2003, with Stilwell Value, remunerating Mr. Rich for serving on FPIC’s board of directors at its request.  Under such agreement, so long as Stilwell Value holds more than a 1% beneficial interest in FPIC and Mr. Rich sits on FPIC’s board of directors and its audit committee, Stilwell Value will pay Mr. Rich annual cash compensation in an amount equal to $100,000, less the amount of any cash compensation paid by FPIC to Mr. Rich for his services as a director.  Amounts owed to Mr. Rich by Stilwell Value will be paid quarterly on a pro rata basis.  Under the agreement, Stilwell Value will also reimburse Mr. Rich’s actual out-of-pocket expenses incurred in connection with his FPIC board of directors and audit committee service, not otherwise paid or reimbursed by FPIC.

CODE OF ETHICS

            FPIC has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions for FPIC.  The code of ethics is available on FPIC’s website at www.fpic.com.

 

EXECUTIVE COMPENSATION

    The following table sets forth information concerning the compensation paid by FPIC to its principal executive officer and only other executive officer, as defined by Rule 3b-7 of the Securities Exchange Act (the “named executive officers”), for all services in all capacities during the years indicated.

 

Summary Compensation Table
					Annual Compensation ($)									Long-Term Compensation
Name and Principal Position		Fiscal Year			Salary 1			Bonus			Other Annual Compensation			Restricted Stock Award(s) ($)			Securities Underlying Options (#)			All Other Compensation ($)
John R. Byers			2004			500,000			333,000			—			—			—			31,3242
President and			2003			473,200			266,468			—			—			40,000			29,8043
Chief Executive Officer			2002			455,500			169,309			—			—			40,000			26,1074
Kim D. Thorpe			2004			333,751			185,231			—			—			—			30,0195
Executive Vice President			2003			312,920			146,681			—			—			20,000			28,1026
and Chief Financial Officer			2002			310,500			96,177			—			—			20,000			25,1687

 

 

    No common stock options were granted to FPIC’s named executive officers during 2004 pursuant to FPIC’s Omnibus Incentive Plan (the “Omnibus Plan”).

 

 

 

 

    The following table sets forth the maximum annual benefits payable in the form of a straight life annuity under FPIC’s qualified Defined Benefit Plan and, to eligible officers, FPIC’s Excess Benefit Plan, to an officer or employee retiring at age 65 with the specified combination of final average compensation (the average of the five consecutive years of compensation that give the highest average out of the 10 latest years) and years of credited service.  The benefit accrual rate is higher for compensation in excess of the Social Security Administration’s (“Social Security’s”) wage base.  For 2005, the Social Security wage base is $90,000.  The amounts shown in the pension plan table attributable to the qualified Defined Benefit Plan and the Excess Benefit Plan, if applicable, were calculated using Social Security covered compensation levels based upon the average age of the two named executive officers and have been calculated without reflection of the current limit of $210,000 on includible compensation.  Mr. Byers is covered by the qualified Defined Benefit Plan but not the Excess Benefit Plan.  Mr. Thorpe is covered by the qualified Defined Benefit Plan and the Excess Benefit Plan.  As of December 31, 2004, the credited years of service under the qualified Defined Benefit Plan of the following officers were as follows:  Mr. Byers – six years; Mr. Thorpe – five years. Generally, compensation for purposes of the qualified Defined Benefit Plan and the Excess Benefit Plan includes salary and annual bonus, as reported in the summary compensation table, including compensation that is contributed by FPIC pursuant to a salary reduction agreement and that is not currently includible in the individual’s gross income by reason of the application of certain provisions of the Internal Revenue Code (the “Code”).

    The Excess Benefit Plan provides a means of equalizing the benefits of those employees participating in the qualified Defined Benefit Plan, other than those individuals covered under the Supplemental Executive Retirement Plan (“SERP”), whose funded benefits under the qualified Defined Benefit Plan are or will be limited by the application of the Employee Retirement Income Security Act of 1974, the Code, or any applicable law or regulation.  The Excess Benefit Plan is a nonqualified plan and benefits payable under the Excess Benefit Plan are not funded and are payable out of FPIC’s general funds.

    The SERP is an unfunded nonqualified plan.  The SERP provides Mr. Byers, who has been selected as a participant by the compensation committee, with income at retirement.  A participant in the SERP is eligible to retire and receive a retirement benefit beginning on the earlier of such participant’s (i) early retirement date, (ii) disability retirement date or (iii) normal retirement date.  The retirement benefit at the normal retirement date equals 60% of pre-retirement compensation (averaged over the highest three consecutive years of service), less qualified Defined Benefit Plan and all predecessor plans’ benefits and Social Security benefits, multiplied by the percentage of benefits vested.  Compensation for purposes of the SERP includes the salary of a participant as reported in the summary compensation table, but does not include bonuses.  The early retirement benefit equals the retirement benefit at the normal retirement date, reduced by an early retirement factor for each month a participant’s early retirement date occurs before the participant’s normal retirement date.  A participant terminating employment due to a permanent and total disability will be eligible for a disability retirement benefit equal to 60% of pre-retirement compensation, less qualified Defined Benefit Plan and all predecessor plans’ benefits and Social Security benefits. In the event of the participant’s death before retirement, the participant’s surviving spouse will be eligible to receive a death benefit

 

equal to 50% of the retirement benefit the participant would otherwise have been eligible to receive.  Benefits attributable to the SERP are subject to reduction for Social Security benefits received by participants. 

    The estimated annual SERP retirement benefits for Mr. Byers were calculated using 2004 base salary; Social Security benefits were based on the maximum benefits payable for an individual retiring at age 65 in 2004; and qualified Defined Benefit Plan benefits were based on 2004 base salary, including bonuses, assuming 15 years of service.  The estimated annual retirement benefit from the SERP on December 31, 2004 is $64,325 for Mr. Byers.   

    FPIC’s qualified 401(k) Plan has two components.  FPIC allows employees to contribute up to 100% of their compensation earned, subject to statutory limitations ($14,000 for 2005), during the plan year, of which up to 2.5% is matched 100% by FPIC.  In 2005, employees age 50 and older are permitted to make an additional contribution of up to $4,000.  In addition, FPIC may make a discretionary contribution of up to 10% of each participant’s compensation for the plan year. FPIC made discretionary contributions of 10% in each of 2002, 2003 and 2004, subject to statutory limitations.

    FPIC’s Deferred Plan is offered to key employees selected by the board of directors who are participants in FPIC’s qualified 401(k) Plan and whose contributions are limited by the Code.  Mr. Byers and Mr. Thorpe are eligible to participate in this plan.  Key employee participants may defer into the plan all or a portion of their compensation. In addition, FPIC, at the discretion of the board of directors, may match the contributions made by key employees and may also make discretionary incentive contributions for key employees. Participants’ account balances generally will be paid, as adjusted for investment gains or losses, following termination of employment.  FPIC did not make any discretionary or matching contributions during 2004.

Certain Compensation Arrangements

Employment Agreements

    FPIC has entered into employment agreements with Messrs. Byers and Thorpe.  The employment agreements provide for a minimum annual salary and the opportunity for annual salary increases, incentive compensation and other compensation and perquisites as approved by the board of directors.

    Mr. Byers’ employment agreement is for a term of three years and Mr. Thorpe’s employment agreement is for a term of two years.  Both employment agreements may be extended for an additional year by the board of directors before the end of each year.  The terms of the officers’ employment under their respective employment agreements have been so extended each year and currently continue through December 31, 2007, in the case of Mr. Byers and December 31, 2006, in the case of Mr. Thorpe.  If the board of directors does not extend the employment agreement by the end of any year, the officer may terminate his employment by providing at least 90 days’ written notice of such termination.  Upon such termination, the officer would continue to receive his annual salary and benefits for the remaining term of the employment agreement or until commencing work for a competing company.  Under the employment agreements, Mr. Byers’ minimum annual salary for 2005 is $550,000 and Mr.

 

 

Thorpe’s minimum annual salary for 2005 is $350,000.  The officer may also terminate his employment in the event of a constructive discharge and continue to receive annual salary and benefits for the remaining term of the employment agreement.  In the case of Mr. Byers, in the event that payments or benefits under his employment agreement are subject to the excise tax imposed by Code Section 4999 or any interest, penalty or addition to tax with respect to such excise tax, the employment agreement provides for cash gross up payments intended to put Mr. Byers in the same position as though no excise tax, penalty or interest had been imposed upon or incurred as a result of any payment or benefits.

Severance Agreements

    FPIC has entered into severance agreements with Messrs. Byers and Thorpe.  The severance agreements, which apply in the case of a change of control of FPIC, provide that if at any time during the coverage period as defined under the severance agreements, employment is terminated by FPIC for any reason other than cause, death or disability, or by the individual in the event of a constructive discharge, FPIC will pay severance in a lump sum cash amount equal to three times the sum of the individual’s (i) annual salary and (ii) the greater of the target bonus opportunity for the current calendar year or the average of the annual bonuses for the three prior calendar years.  In the event that payments or benefits under the severance agreements are subject to the excise tax imposed by Code Section 4999 or any interest, penalty or addition to tax with respect to such excise tax, the severance agreements provide for cash gross up payments intended to put Messrs. Byers and Thorpe in the same position as though no excise tax, penalty or interest had been imposed upon or incurred as a result of any payment or benefits.

    If Messrs. Byers and Thorpe are entitled to receive benefits under both their employment agreements and their severance agreements, then each will be permitted to select and receive benefits under either his employment agreement or his severance agreement, but not benefits from both the employment agreement and the severance agreement. 

Compensation Committee
Interlocks and
Insider Participation

    During 2004, no executive officer of FPIC served as a director of, or as a member of the compensation or equivalent committee of, any other entity, one of whose executive officers served on FPIC’s board of directors’ compensation committee or otherwise as a member of the board of directors.

    Notwithstanding anything to the contrary set forth in any of FPIC’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporated future filings, including this proxy statement, in whole or in part, the following committee report on compensation shall not be incorporated by reference into any such filings.

 

Report of the Compensation Committee

    The budget and compensation committee serving as the compensation committee of the board of directors presents this report on the responsibilities of FPIC Insurance Group, Inc.’s (“FPIC’s”) board of directors as to the compensation of FPIC’s employees, its chief executive officer and other named executive officers.  The budget and compensation committee is composed of six outside directors and operates pursuant to a written charter.  Independent consultants are retained by the budget and compensation committee from time to time to assist in assessment of compensation programs and to confer with the board governance committee regarding chief executive officer evaluation, remuneration and goals. 

    Goal of the Compensation Committee.  The goal of the committee is to establish remuneration in an appropriate, fair manner with compensation that is linked to FPIC’s strategic business objectives and, further, is justifiable, comparable and provides incentives for retention and longevity.

    Philosophy of the Compensation Committee.  The committee’s philosophy on the incentive components of compensation includes the establishment of performance goals.  Such variable compensation provides for award opportunities based on individual performance, corporate performance and on the individual’s ability to affect FPIC’s annual results and market competitiveness.  Such variable compensation is further designed to attract and retain high-performing executives focused on increasing shareholder value and FPIC’s performance. 

    Structure of the Compensation Program.  FPIC’s executive compensation program is structured to include base salary, annual bonus, long-term compensation and retirement and disability benefits.  Each component is designed in relation to the other components to offer management competitive remuneration and incentives to enhance shareholder value.  During 2004, executive officers were also eligible for other employee benefits as set forth in the summary compensation table found elsewhere in this proxy statement.  

    Base Salary. Base salary for executives was established at a level that the compensation committee believes is both appropriate and consistent within the industry and relative to peer companies.  For 2004, the base salaries of continuing executive officers named in the summary compensation table ranged from 62% to 64% of their total annual cash compensation (base salary plus bonus).  There are many criteria used in determining the appropriate executive salary level, including, but not limited to, contribution to performance, scope of responsibility, productivity, expense and risk control, management development and strategic planning.

    Bonus Program.  FPIC’s bonus program provides for the establishment of a bonus pool as a direct incentive to improve the financial results of FPIC.  This bonus program is assessed through a formal evaluation of overall FPIC performance and special circumstances that includes financial targets (i.e., targets in revenues and earnings) and strategic targets, as well as subjective evaluation of each employee (excluding the president and chief executive officer and the executive vice president and chief financial officer, whose bonuses are based solely on the attainment or degree of attainment of financial and strategic targets) in the areas of, among others, quality of work, reliability, initiative and creativity.  The targeted formula bonus for all employees was determined as a percentage of base salary, ranging from 6% to 45% for 2004

 

 

(6% to 50% beginning in 2005).  For the president and chief executive officer, the targeted bonus award, as a percentage of base salary, was 45% for 2004 (50% beginning in 2005).  During 2004, FPIC’s strong financial performance and measurable progress against various strategic targets resulted in actual bonus percentages for the year ranging from approximately 6% to 67% of base salary. 

    Each year the compensation committee reviews executive compensation programs to ensure that they are aligned with FPIC’s long-term and short-term performance goals and objectives.  The compensation committee will also consider, as part of this review, any changes in laws and regulations governing compensation programs and will often seek advice from counsel and other independent third parties.

    Deductibility of Executive Compensation.  Internal Revenue Code (the “Code”) Section 162(m) limits FPIC’s ability to deduct, for federal income tax purposes, certain compensation in excess of $1 million per year paid to individual officers named in the summary compensation table unless such compensation is “performance-based.”  The amount of compensation paid to each of the named executive officers during fiscal year 2004 was less than $1 million.  It is possible for FPIC to compensate or make awards that may either qualify or not qualify as performance-based compensation deductible under Code Section 162(m).  The compensation committee, in structuring compensation programs for its top executive officers, intends to give strong consideration to the deductibility of awards.

    The board of directors believes FPIC has implemented an executive compensation policy that serves to retain, motivate and reward management while aligning management’s interests closely with those of FPIC and its shareholders.   The board of directors has neither modified nor rejected, in any material way, any action or recommendations of the committee.  FPIC’s compensation policies reflect the advice of an independent executive compensation consultant who is retained from time to time to review FPIC’s compensation practices.

Budget and Compensation Committee

Report Submitted by:

 

Guy T. Selander, M.D., Chairman

John K. Anderson, Jr.

Richard J. Bagby, M.D.

Terence P. McCoy, M.D.

Joan D. Ruffier

David M. Shapiro, M.D.

PERFORMANCE GRAPH

    The following performance graph compares the cumulative total return for FPIC’s common stock, the Russell 2000 index and two custom peer groups for the five-year period ended December 31, 2004.

    The FPIC 2003 custom peer group, which is indicated on the performance graph by a single asterisk (“*”), represents a peer group that comprises performance data for ProAssurance Corporation (since June 28, 2001, as a result of the merger of Medical Assurance, Inc. and Professionals Group, Inc., on June 27, 2001); MIIX Group, Inc. (until November 24, 2004, when it ceased to underwrite business); SCPIE Holdings, Inc.; American Physicians Capital, Inc. (since December 8, 2000, as a result of its initial public offering of stock); and NCRIC Group, Inc.

    The FPIC 2004 custom peer group, which is indicated on the performance graph by a double asterisk (“**”), represents a peer group that comprises performance data for ProAssurance Corporation (since June 28, 2001, as a result of the merger of Medical Assurance, Inc. and Professionals Group, Inc., on June 27, 2001); SCPIE Holdings, Inc.; American Physicians Capital, Inc. (since December 8, 2000, as a result of its initial public offering of stock); and NCRIC Group, Inc.

    The graphs assume an investment on December 31, 1999, of $100 in each of FPIC’s common stock, the stocks comprising the Russell 2000 index and the common stocks of the two custom peer groups of companies.  The graph further assumes that all paid dividends were reinvested.  The Russell 2000 index and the two custom peer groups are weighted by market capitalization.  SNL Financial LC of Charlottesville, Virginia, prepared the calculations for the information below.

    Notwithstanding anything to the contrary set forth in any of FPIC’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporated future filings, including this proxy statement, in whole or in part, the information provided in this section regarding stock performance shall not be incorporated by reference into any such filings.

 

 

 

 

 

 

 

 

 

 

 

    The board of directors adopted FPIC’s Director Plan in 1996 to provide FPIC’s nonemployee directors an incentive to contribute materially to expanding and improving FPIC’s profits, to aid in attracting and retaining directors of outstanding ability and to encourage ownership of shares by directors. The Director Plan was last approved by FPIC’s shareholders at the 2004 annual meeting of shareholders.

 

 

 

1.	Description of the Proposed Amendments

 

 

 

2.	Description of the Amended and Restated Director Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.	Federal Income Tax Consequences

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.	Description of the Proposed Amendments

 

 

 

2.	Description of the Amended and Restated Omnibus Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.	Federal Income Tax Consequences

 

 

 

 

 

 

 

 

 

 

 

 

(2)	Includes Director Plan, Omnibus Plan and Employee Stock Purchase Plan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

q	the proposal is specifically described in our notice to all shareholders of the meeting and the matters to be acted upon at the meeting, or

 

q	the proposal has been submitted in writing to the secretary by fax, mail or e-mail, has been received at FPIC’s principal executive office before December 30, 2005 and is an appropriate subject for shareholder action under law.

 

 

(a)	the name and address of the shareholder who intends to make the nominations or propose the business and, if applicable, the name and address of the person or persons to be nominated;

 

(b)	a representation that the shareholder is a holder of record of stock of FPIC entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons or propose the business specified in the notice;

 

(c)	if applicable, a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;

 

(d)

such other information regarding each nominee or each matter of business to be proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had the nominee been nominated, or the matter been proposed, by the board of directors; and

 

(e)	if applicable, the consent of each nominee to serve as director of FPIC if so elected.

 

 

 

 

 

 

 

 

 

 

 

 

Appendix A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix A

 

Exhibit A

 

 

 

 

1.

must not have any relationship that disqualifies such person from being deemed independent under National Association of Securities Dealers Automated Quotation, Inc. (“Nasdaq”) Rule 4200(a)(15); and

2.

must qualify as independent under Rule 10A-3, as amended, of the Securities and Exchange Commission.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	Review among itself and with senior management and select the independent auditors to audit the financial statements of the Company and its divisions and subsidiaries.

·

Ensure receipt from the independent auditors of a formal written statement delineating all relationships between the auditors and the Company (consistent with Independence Standards Board Standard No. 1, Independent Discussion with Audit Committees), actively engage in a dialogue with the independent auditors regarding any disclosed relationships or services that may affect the objectivity and independence of the auditors and take appropriate action to ensure the independence of the auditors.

·

Meet with the independent auditors and financial management of the Company to: (1) review the scope of the proposed audits for the current year and the audit procedures to be utilized; and (2) at the conclusion thereof, review such audits, including any comments or recommendations of the independent auditors.

·

Review with the independent auditors, the Company’s internal auditor (once the position is established and filled) and financial and accounting personnel the adequacy and effectiveness of the accounting and financial controls of the Company and their compliance with all applicable standards and regulations. It should elicit any recommendations for the improvement of such internal control

·

Review with the Chief Executive Officer (“CEO”) and the Chief Financial Officer (CFO), the accounting and financial human resources needs for the finance, control and internal audit functions, to permit them to perform all of their functions. It should also review, with senior management, succession planning within these functions.

·	Submit the minutes of all meetings of the Audit Committee to, or report on the matters discussed at each meeting with, the Board of Directors.

·	Investigate any matter brought to its attention within the scope of its duties and recommend to the CEO and the full board of directors, outside consultants or experts for dealing with it, if necessary.

 

 

 

 

·	Size and term of appointment:

 

 

·	Meetings should be held no less than four times per year. Additional meetings would be held for special occasions as they arise.

 

 

·	Reporting to the board of directors: After each meeting.

 

 

·	Company counsel: The Audit Committee should meet regularly with the Company’s general counsel (and outside counsel when appropriate), to discuss legal matters that may have a significant effect on the Company’s financial statements.

 

·	Audit plans: Review with the internal and external auditors their annual audit plans prior to and after the completion of, each audit.

 

·	Compliance officer: The compliance officer, as required by the Company’s Whistleblower Policy, shall report to the Audit Committee.

 

·

Areas requiring special attention: The Audit Committee should instruct both the independent auditor and the internal auditor that it expects to be advised if there are any areas that require special attention or if they encounter any difficulty in securing access to appropriate management personnel or needed data.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.	PURPOSE	1
2.	DEFINITIONS	1
3.	ADMINISTRATION	3
4.	ELIGIBILITY	3
5.	SHARES SUBJECT TO THE PLAN; ANTI-DILUTION ADJUSTMENTS	4
6.	AWARDS UNDER THE PLAN	4
7.	STOCK OPTIONS	4
8.	STOCK APPRECIATION RIGHTS	6
9.	CONTINGENT STOCK AWARDS	7
10.	RESTRICTED STOCK AWARDS	8
11.	NONASSIGNABILITY	9
12.	AMENDMENT OR DISCONTINUANCE OF PLAN	9
13.	NO OBLIGATION TO EXERCISE OPTION OR SAR	9
14.	RIGHTS OF A SHAREHOLDER	9
15.	EFFECTIVE DATE; DURATION OF THE PLAN	10
16.	EFFECT OF PLAN	10
17.	SUCCESSORS	10
18.	LEGAL CONSTRUCTION	10

Exhibit B

 

 

1.

PURPOSE

 

 

2.	DEFINITIONS

 

 

 

 

 

 

 

 

 

 

 

(i)	If the Shares are listed on a national stock exchange, the closing market price of such Shares as reported on the composite tape for issues listed on such exchange on such

 

 

(iii)

If (i) or (ii) do not apply, the Fair Market Value of a Share without regard to any control premium or discount for lack of control as determined by the Committee in good faith consistent with the valuation by the Company as provided by a third party appraiser for other corporate purposes before adjustments or any discounts applied due to lack of marketability. The Committee may rely upon the most recent valuation and there shall be no requirement to cause a more recent valuation to be made.

 

 

 

 

 

 

 

 

 

 

 

3.	ADMINISTRATION

 

 

 

 

 

 

 

 

 

4.	ELIGIBILITY

 

 

5.	SHARES SUBJECT TO THE PLAN; ANTI-DILUTION ADJUSTMENTS

 

 

 

 

 

 

6.	AWARDS UNDER THE PLAN

 

 

7.	STOCK OPTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.	STOCK APPRECIATION RIGHTS

 

 

 

 

 

 

 

 

 

9.	CONTINGENT STOCK AWARDS

 

 

 

 

 

 

 

 

 

 

10.	RESTRICTED STOCK AWARDS

 

 

 

 

 

 

 

 

 

 

11.	NONASSIGNABILITY

 

 

12.	AMENDMENT OR DISCONTINUANCE OF PLAN