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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB/A NO. 1
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 001-12677
------------------------
PREFERRED EMPLOYERS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 65-0698779
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
</TABLE>
<TABLE>
<CAPTION> <C> <C>
10800 BISCAYNE BOULEVARD
MIAMI, FLORIDA (305) 893-4040
(Address of principal (Registrant's telephone 33161
executive offices) number, (Zip Code)
including area code)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _ No X
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ____
The issuer's revenues for the year ended December 31, 1997 were $15,999,112.
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant on May 27, 1998 was $18,401,000 based on the
closing sale price of the Common Stock of $9.38 on such date, as reported by the
Nasdaq SmallCap Market-Registered Trademark-.
The number of outstanding shares of the issuer's Common Stock as of May 27,
1998 was 4,725,000.
Transitional Small Business Disclosure Format. Yes _ No X
DOCUMENTS INCORPORATED BY REFERENCE
A list of Exhibits to this Annual Report on Form 10-KSB/A begins on Page 9.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of May 30, 1998,
concerning the Company's directors, executive officers and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Mel Harris........................................... 58 Chief Executive Officer, President and Chairman of
the Board of Directors
William R. Dresback.................................. 50 Senior Vice President, Chief Financial Officer and
Secretary
Nancy Ryan........................................... 41 Vice President and Assistant Secretary
Stuart J. Gordon..................................... 67 Director
Jack D. Burstein..................................... 52 Director
Maxwell M. Rabb...................................... 87 Director
D. Mark Olson........................................ 49 Vice Chairman and Chief Operating Officer of PEGI
</TABLE>
The business experience of each of the persons listed above for at least the
last five years is as follows:
MEL HARRIS has been a director of the Company since its inception in 1988
and has been Chairman of the Board of Directors and Chief Executive Officer of
the Company since April 1993. In May 1998, Mr. Harris was appointed as President
of the Company. Mr. Harris served as Vice Chairman of Jardine Insurance Brokers
New York, Inc. from February 1992 until January 1994. From 1988 until February
1992, Mr. Harris served as Vice Chairman of Alexander & Alexander of New York,
Inc. (a wholly-owned subsidiary of A&A Services, Inc.), a global insurance
brokerage organization. Mr. Harris currently serves as President of
International Insurance Group, Inc., an insurance brokerage company located in
Miami, Florida and New York, New York and, since September 1996, has been a
director of Koo Koo Roo, Inc., a casual dining chain. Mr. Harris is also a
director and shareholder of Strategica Capital Corp., a merchant banking firm
("Strategica Capital"). Mr. Jack D. Burstein, a director of the Company, is the
President of Strategica Capital. Mr. Harris has agreed to devote such time as is
necessary, and in any event no less than 80% of his business time, to the
affairs of the Company.
WILLIAM R. DRESBACK has been Chief Financial Officer and Secretary of the
Company since May 1993 and Senior Vice President of the Company since February
1997. From 1986 to 1992, Mr. Dresback served as Chief Financial Officer of Cobb
Partners Financial, Inc. (previously a wholly-owned subsidiary of The Walt
Disney Company), a national financial services company primarily involved in the
mortgage banking, construction and real estate development businesses. From 1981
to 1986, Mr. Dresback served as Senior Vice President and Chief Financial
Officer of International Financial Services, Inc. (a subsidiary of The Torchmark
Corporation), an international financial services company primarily involved in
the financial planning, life insurance and securities brokerage businesses. From
1969 to 1981, Mr. Dresback was employed by KPMG Peat Marwick LLP where he was
responsible for managing the firm's South Florida Insurance Practice.
NANCY RYAN has been a Vice President and the Assistant Secretary of the
Company since July 1992. Ms. Ryan has over 12 years of experience in the
commercial insurance industry. Ms. Ryan served as a Vice President of Jardine
Insurance Brokers New York, Inc. from February 1992 until January 1994. From
1988 until February 1992, she served as a Vice President of Alexander &
Alexander of New York, Inc. (a wholly-
2
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owned subsidiary of A&A Services, Inc.), a global insurance brokerage
organization. Since 1984, Ms. Ryan has also served as a Vice President of
International Insurance Group, Inc. Ms. Ryan devotes approximately 50% of her
business time to the affairs of the Company.
STUART J. GORDON has been a director of the Company since 1995. Mr. Gordon
has been a partner at the law firm of Metzger, Hollis, Gordon & Alprin since
1989. Previously, Mr. Gordon served as the Special Assistant to the Comptroller
of the Currency, Deputy Chairman and Treasurer of the United States Senate
campaign of Daniel Patrick Moynihan, the first Administrative Assistant and
Chief of Staff to Senator Moynihan (in Washington, D.C.) and Deputy Finance
Chairman of the presidential campaign of Senator John Glenn. Mr. Gordon was
appointed by the Governor of the State of Maryland to the Foster Care Review
Board and served as a member of the Board of Governors of Daytop Village. Mr.
Gordon serves as a member of the Board of Advisors of the Independent College
Fund of New York.
JACK D. BURSTEIN has been a director of the Company since January 1997. Mr.
Burstein has been the Chairman and President of each of Strategica Group, Inc.,
a merchant bank ("Strategica Group") and Strategica Capital, an affiliate of
Strategica Group and a merchant bank, since 1992. Mr. Harris is a limited
partner in Strategica Capital. From 1984 to present, Mr. Burstein has served as
Chief Executive Officer and President of American Capital Corp., a savings and
loan holding corporation, and as Chief Executive Officer of TransCapital
Financial Corporation, a savings and loan holding corporation. Prior to such
time, Mr. Burstein was a senior partner in the accounting firms of Schecter
Beame Burstein Price & Co. and Seidman & Seidman, respectively.
MAXWELL M. RABB has been a director of the Company since January 1997. Mr.
Rabb has been of counsel to the law firm of Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel since 1991 and was a partner in the law firm of Stroock, Stroock
& Lavan from 1958 to 1981 and from 1989 to 1991. Mr. Rabb served as the United
States Ambassador to Italy from 1981 to 1989. In addition, Mr. Rabb serves as a
director of the Sterling National Bank, MIC Industries, Inc., Liberty Cable
Company, Inc., Black Hole Technologies, Inc., Data Software and Systems, Inc.,
and CompuTower.
D. MARK OLSON has been Chief Operating Officer and Vice Chairman of
Preferred Employers Group, Inc., a wholly-owned subsidiary of the Company
("PEGI"), since July 1997. Prior to his employment with PEGI, from 1996 to 1997
Mr. Olson served as President, Chief Executive Officer and a director of PCA
Solutions, Inc., a workers' compensation third party administration company.
From 1987 to 1993, Mr. Olson served as Chairman, President and Chief Executive
Officer of Invest Financial Corporation, a Kemper Financial Services ("KFS")
subsidiary, and later as national director of sales for KFS. From 1993 to 1996,
he served as a consultant to several of the nation's largest insurance and asset
management companies.
All directors of the Company serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified. All
officers of the Company serve at the discretion of the Board of Directors,
subject to rights, if any, under contracts of employment with the Company. See
"Executive Compensation--Employment Agreements." There are no family
relationships among the directors and executive officers of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers, directors and
persons who beneficially own more than 10% of a registered class of the
Company's equity securities to file certain reports regarding ownership of, and
transactions in, the Company's securities with the Securities and Exchange
Commission (the "SEC"). These officers, directors and stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
reports that they filed with the SEC. Based solely on a review of copies of such
reports received by the Company, the Company believes that for the year ended
December 31, 1997 all Section 16(a) reports required to be filed by the
executive officers, directors and 10% stockholders of the Company
3
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were filed on a timely basis other than (i) Mr. Harris, the Chairman of the
Board, Chief Executive Officer and President of the Company, who failed to
timely file a Form 4 with respect to a stock option grant that occurred in
August 1997 and a Form 5 with respect to two gift transactions that occurred in
October 1997 and November 1997, respectively and (ii) Mr. Dresback, a Senior
Vice President, Chief Financial Officer and Secretary of the Company, who failed
to timely file a Form 4 with respect to two stock option grants that occurred in
February 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid to, or earned by, the Company's Chief Executive Officer and
each of the other most highly compensated executive officers of the Company for
the three years ended December 31, 1997 whose total annual salary and bonus
exceeded $100,000 (collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------------- UNDERLYING
OTHER ANNUAL OPTIONS /
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) SARS (#)
- ------------------------------------------------- --------- ----------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Mel Harris(1).................................... 1997 116,729 -- -- 275,000
Chairman of the Board, Chief Executive 1996 250,000 -- -- --
Officer and President 1995 -- -- 270,000(2) --
William R. Dresback.............................. 1997 150,000 -- -- 50,000
Senior Vice President, Chief Financial Officer 1996 125,000 -- -- --
and Secretary 1995 100,000 -- -- --
Howard Odzer(3).................................. 1997 190,000 -- -- --
President of PEGI 1996 100,000 -- -- --
1995 100,000 -- 270,000(2) --
</TABLE>
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(1) Mr. Harris serves as Chairman of the Board and Chief Executive Officer of
the Company pursuant to an employment agreement. See "Executive
Compensation--Employment Agreements."
(2) Reflects cash dividends paid to such person pursuant to that certain Amended
and Restated Shareholders Agreement dated as of May 15, 1995, by and among
the Company, Mr. Harris and Mr. Odzer.
(3) Mr. Odzer resigned as President of PEGI effective May 30, 1998.
4
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth certain information concerning the grant of
stock options in 1997 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENTAGE TO TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE PRICE
NAME GRANTED EMPLOYEES IN 1997 ($/SHARE) EXPIRATION DATE
- ---------------------------------- ------------------- ----------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Mel Harris(1)..................... 275,000 34.7% 7.75 August 20, 2004
William R. Dresback(2)............ 25,000 3.2 7.25 February 5, 2002
William R. Dresback(3)............ 25,000 3.2 7.25 February 5, 2001
Howard Odzer(4)................... -- -- -- --
</TABLE>
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(1) No options are immediately exercisable. 275,000 options are exercisable in
five equal installments of 55,000, commencing August 20, 1998, subject to
the terms of the option agreement issued pursuant to the Company's 1996
Employee Stock Option Plan.
(2) Pursuant to the terms of a stock option agreement issued pursuant to the
Company's 1996 Employee Stock Option Plan, 15,000 of such options are
immediately exercisable, and 10,000 options are exercisable in two equal
installments commencing on February 5, 1999 and on the next anniversary
thereof.
(3) Pursuant to the terms of a stock option agreement issued pursuant to the
Share Escrow Agreement, 18,750 of such options are immediately exercisable,
and 6,250 options are exercisable on February 5, 1999.
(4) Mr. Odzer resigned as President of PEGI effective May 30, 1998.
AGGREGATE OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
The following table sets forth certain information concerning the Named
Executive Officers with respect to the number of shares covered by exercisable
and unexercisable stock options at December 31, 1997 and the aggregate value of
exercisable and unexercisable "in-the-money" options at December 31, 1997. No
options were exercised by the Named Executive Officers in 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END AT FISCAL YEAR-END(1)
--------------------- ---------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Mel Harris........................................................... --/275,000 --/--
William R. Dresback.................................................. 33,750/16,250 --/--
Howard Odzer......................................................... -- --
</TABLE>
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(1) The value of unexercised "in-the-money" options is equal to the difference
between the closing bid price of the Common Stock on the Nasdaq SmallCap
Market as of December 31, 1997 ($7.00) and the option exercise price per
share, multiplied by the number of shares subject to options.
DIRECTOR COMPENSATION
Directors do not receive compensation for their services as directors of the
Company, but are reimbursed for all reasonable out-of-pocket expenses incurred
in connection with each Board of Directors meeting attended. In addition, all
directors are eligible for grants of stock options pursuant to the Company's
1996 Employee Stock Option Plan and a Share Escrow Agreement dated February 5,
1997, among the Company, Mr. Odzer and the escrow agent named therein (the
"Share Escrow Agreement").
5
<PAGE>
As of December 31, 1997, the Company has granted options to three of its
directors under the 1996 Employee Stock Option Plan and the Share Escrow
Agreement, representing an aggregate of options to purchase 75,000 shares of
common stock, par value $.01 per share, of the Company ("Common Stock"). In
February 1997, pursuant to the 1996 Employee Stock Option Plan, each of Messrs.
Gordon, Burstein and Rabb received options to purchase 12,500 shares of Common
Stock at $7.25 per share, exercisable until February 7, 2002. All of the stock
options granted to directors in 1997 pursuant to the 1996 Employee Stock Option
Plan vest at a rate of 20% per year, over a period of five years commencing in
February 1998. In February 1997, pursuant to the Share Escrow Agreement, each of
Messrs. Gordon, Burstein and Rabb received options to purchase 12,500 shares of
Common Stock at $7.25 per share, exercisable until February 7, 2001. All of the
stock options granted to directors in 1997 pursuant to the Share Escrow
Agreement vest at a rate of 25% per year, over a period of four years commencing
in February 1998.
EMPLOYMENT AGREEMENTS
In January 1997, the Company entered into a one-year employment agreement
with Mr. Harris pursuant to which he serves as Chairman of the Board of
Directors and Chief Executive Officer of the Company. The agreement is subject
to automatic one-year extensions absent notice of non-renewal from either party.
In January 1998, the agreement was automatically renewed for an additional
one-year period. Pursuant to the agreement, Mr. Harris is entitled to receive an
annual salary of $150,000 and is also entitled to receive perquisites similar to
perquisites made available to other senior executives of the Company and
reimbursement for all business expenses related to the Company. Mr. Harris has
agreed to devote such time as is necessary, and in any event no less than 80% of
his business time, to the affairs of the Company. The agreement contains, among
other things, customary non-compete and non-solicitation provisions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 27, 1998 with respect
to the beneficial ownership of (i) any person known to the Company to be the
beneficial owner of more than 5% of any class of voting securities of the
Company, (ii) each director of the Company, (iii) each of the Named Executive
Officers of the Company (named in the Summary Compensation Table of this Annual
Report under the heading "Executive Compensation") and (iv) all directors and
executive officers of the Company as a group (7 persons).
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(2) CLASS(2)
- ------------------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Mel Harris(1)(3)........................................................ 2,751,764 58.2%
Howard Odzer(1)(4)...................................................... 1,111,765 23.5
William R. Dresback(1)(5)............................................... 33,750 *
Stuart J. Gordon(6)..................................................... 5,625 *
Jack D. Burstein(7)..................................................... 5,625 *
Maxwell M. Rabb(8)...................................................... 5,625 *
Mellon Bank Corporation(9).............................................. 471,400 10.0
All directors and executive officers as a group (7 persons) (10)........ 2,840,889 59.3
</TABLE>
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* Less than 1%.
(1) The business address of each such person is Preferred Employers Holdings,
Inc., 10800 Biscayne Boulevard, Miami, Florida 33161.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. In accordance with Rule 13d-3 under
the Exchange Act, a person is deemed to be the beneficial owner of
6
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securities that can be acquired by such person within sixty days from the
date of determination upon the exercise of warrants or options. Each
beneficial owner's number of shares and percentage ownership as set forth
above is determined by assuming that options or warrants that are held by
such person (but not those held by any other person) which are exercisable
within sixty days from the date listed above have been exercised. See
"Certain Relationships and Related Transactions."
(3) Includes (i) 88,235 shares held of record by Francine Harris, the wife of
Mr. Harris, (ii) 88,235 shares held of record by Francine Harris, as
custodian for Jamie Jo Harris, the daughter of Mr. and Mrs. Harris, (iii)
1,111,765 shares held of record by Howard Odzer pursuant to which Mr. Harris
has an irrevocable proxy to vote such shares, subject to the terms thereof,
and (iv) 123,529 shares held of record by Ronald Rothstein, the step-brother
of Mr. Odzer, pursuant to which Mr. Harris has an irrevocable proxy to vote
such shares, subject to the terms thereof. Mr. Harris may be deemed to have
voting control over such shares and may be deemed to be the beneficial owner
thereof. Mr. Harris disclaims beneficial ownership of (a) 88,235 shares held
of record by Francine Harris, the wife of Mr. Harris and (b) 88,235 shares
held of record by Francine Harris, as custodian for Jamie Jo Harris, the
daughter of Mr. and Mrs. Harris. The shares of Common Stock owned by each of
Mr. Harris and Mr. Odzer are subject to the terms and provisions of a
stockholders' agreement among the parties which includes among other things,
a right of first refusal to purchase the other's shares subject to certain
exceptions contained therein. Does not include options to purchase 275,000
shares of Common Stock which vest over a period of five years beginning in
August 1998. See "Certain Relationships and Related Transactions."
(4) Mr. Harris has voting control over the 1,111,765 shares held of record by
Mr. Odzer, of which 300,000 shares have been placed in escrow pursuant to
the terms of the Share Escrow Agreement. As a result, such shares have been
included in the 2,751,764 shares beneficially owned by Mr. Harris. The
Compensation Committee of the Board of Directors of the Company has
investment power over the 300,000 shares placed in escrow under the Share
Escrow Agreement. See footnote 3 above. See "Certain Relationships and
Related Transactions."
(5) Represents (a) options to purchase 15,000 shares of Common Stock issued
pursuant to the Company's 1996 Employee Stock Option Plan and (b) options to
purchase 18,750 shares of Common Stock issued pursuant to the Share Escrow
Agreement, all exercisable within 60 days from May 27, 1998.
(6) Represents (a) options to purchase 2,500 shares of Common Stock issued
pursuant to the Company's 1996 Employee Stock Option Plan and (b) options to
purchase 3,125 shares of Common Stock issued pursuant to the Share Escrow
Agreement, all exercisable within 60 days from May 27, 1998. Mr. Gordon's
business address is Duane Morris and Heckscher, 1667 K Street, Suite 700,
Washington D.C. 20006.
(7) Represents (a) options to purchase 2,500 shares of Common Stock issued
pursuant to the Company's 1996 Employee Stock Option Plan and (b) options to
purchase 3,125 shares of Common Stock issued pursuant to the Share Escrow
Agreement, all exercisable within 60 days from May 27, 1998. Mr. Burstein's
business address is Strategica Capital Corp., 1221 Bickell Avenue, Suite
2600, Miami, Florida 33131.
(8) Represents (a) options to purchase 2,500 shares of Common Stock issued
pursuant to the Company's 1996 Employee Stock Option Plan and (b) options to
purchase 3,125 shares of Common Stock issued pursuant to the Share Escrow
Agreement, all exercisable within 60 days from May 27, 1998. Mr. Rabb's
business address is Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919
3rd Avenue, 40th Floor, New York, New York 10022.
(9) Represents shares beneficially owned by Mellon Bank Corporation ("Mellon"),
Mellon Bank N.A ("Mellon N.A."), The Dreyfus Corporation ("Dreyfus"), and
Premier Aggressive Growth Fund ("Premier"). Mellon N.A., Dreyfus and Premier
are direct or indirect subsidiaries of Mellon. Mellon,
7
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Mellon N.A. and Dreyfus may be deemed to have sole voting and dispositive
power with respect to 471,400 shares of Common Stock and Premier may be
deemed to have sole voting and dispositive power with respect to 256,800 of
such shares. The business address of Mellon, Mellon N.A., Dreyfus and
Premier is c/o Mellon Bank Corporation, One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258. The information contained herein has been derived from
the Schedule 13G filed by such entities on January 27, 1998.
(10) Includes (a) 25,000 shares held of record by Ms. Ryan, (b) options to
purchase 6,000 shares of Common Stock issued to Ms. Ryan pursuant to the
Company's 1996 Employee Stock Option Plan and (c) options to purchase 7,500
shares of Common Stock issued to Ms. Ryan pursuant to the Share Escrow
Agreement, all of such options being exercisable within 60 days from May 27,
1998. The business address of Ms. Ryan is Preferred Employers Holdings,
Inc., 10800 Biscayne Boulevard, Miami, Florida 33161.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Burstein, a director of the Company, is the Chairman and President of
Strategica Group and Strategica Capital. Mr. Harris, Chairman of the Board,
Chief Executive Officer and President of the Company, is a director and
shareholder of Strategica Capital, an affiliate of Strategica Group. In March
1997, the Company paid to Strategica Group a fee of $50,000 as compensation for
its financial advisory and planning services provided in connection with the
Company's initial public offering of 1,725,000 shares of Common Stock (which was
consummated in February 1997). In April 1998, the Company also paid to
Strategica Group a fee of $150,000 as compensation for its financial advisory
and planning services provided in connection with the acquisition of
substantially all of the assets used or pertaining to the business of HSSI
Travel Nurse Operations, Inc.
In February 1997, the then existing stockholders (the "Exchanging
Stockholders") of PEGI, a corporation which conducted certain of the Company's
operations, effected a recapitalization whereby the Company exchanged 17,647.06
shares of Common Stock for each share of common stock of PEGI held by the
Exchanging Stockholders (the "Exchange"). As a result of the Exchange, PEGI
became a wholly-owned subsidiary of the Company. Pursuant to the Exchange, Mr.
Harris, Mr. Odzer, former President of PEGI, and Ms. Ryan, a Vice President and
the Assistant Secretary of the Company, received 1,450,000, 1,111,765 and 25,000
shares of Common Stock, respectively.
In February 1997, the Company, Mr. Harris and Mr. Odzer entered into a
Shareholders Agreement which provides for certain arrangements regarding
restrictions on the transferability of shares owned by them or by members of
their respective families and other matters (the "1997 Shareholders Agreement").
Under the 1997 Shareholders Agreement, the parties have agreed to reciprocal
rights of first refusal under certain circumstances with respect to the
disposition of shares of Common Stock held by Messrs. Harris and Odzer, certain
registration rights and indemnification with respect to Mr. Harris and Mr.
Odzer. The 1997 Shareholders Agreement also reaffirms the irrevocable proxy to
vote all of the shares held of record by Mr. Odzer, which was granted by Mr.
Odzer to Mr. Harris in May 1995.
Pursuant to a Share Escrow Agreement dated February 5, 1997, Mr. Odzer
placed 300,000 shares of the Company's Common Stock beneficially owned by him in
escrow for issuance upon exercise of stock options which have been granted by
him to certain directors, executives and other officers of the Company,
designated by the Compensation Committee.
In January 1996, the Company entered into a Cost Sharing Agreement with
International Insurance Group, Inc. ("IIG"), pursuant to which the Company
provides office space, equipment and other administrative services to IIG. IIG
is an insurance brokerage company which is wholly-owned by Mr. Harris, the
Chairman of the Board, Chief Executive Officer and President of the Company.
Under the Cost Sharing Agreement, the Company is entitled to receive from IIG
approximately $2,400 per month for
8
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rendering such services. Prior to January 1996, the Company provided these
services without reimbursement. For the year ended December 31, 1997, the
Company billed an aggregate of approximately $40,737 and received an aggregate
of $26,889 from IIG pursuant to the Cost Sharing Agreement.
In 1995, PEGI entered into a Stock Repurchase Agreement, dated as of May 15,
1995 (the "Repurchase Agreement"), with Mr. Odzer and Mr. Rothstein, a
step-brother of Mr. Odzer, pursuant to which PEGI agreed to repurchase from them
an aggregate of 30 shares of common stock of PEGI (529,412 shares of Common
Stock, as adjusted for the Exchange). The aggregate purchase price for such
shares was $600,000 (including interest) to be paid in 24 installments of
$25,000. In July 1995, pursuant to a subsequent letter agreement by and between
PEGI and Mr. Odzer, it was agreed that PEGI would not pay monthly installments
for the months of August 1995 through January 1996 and that payment of monthly
installments of $25,000 (including interest) would resume in February 1996. As
of December 31, 1997, PEGI paid the total amount of the balance of the purchase
price outstanding to Mr. Odzer which was $300,000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are included herewith unless otherwise
indicated:
<TABLE>
<CAPTION>
EXHIBITS PAGE
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<C> <S> <C>
3.1 Certificate of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 to
the Company's Registration Statement on Form SB-2, No. 333-14103).
3.2 By-Laws of the Company (Incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form SB-2, No. 333-14103).
4.1 Form of Representative Warrants (Incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form SB-2, No. 333-14103).
4.2 Specimen Common Stock Certificate (Incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form SB-2, No. 333-14103).
10.1 Form of the Company's 1996 Employee Stock Option Agreement (Incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form SB-2, No. 333-14103).
10.2 Form of Share Escrow Agreement among the Company, Baer Marks & Upham LLP and Howard Odzer
together with the Letter Agreement Regarding Additional Terms (Incorporated herein by reference
to Exhibit 10.2 to the Company's Registration Statement on Form SB-2, No. 333-14103).
10.3 Employment Agreement, dated May 15, 1995, between the Company and Howard Odzer (Incorporated
herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2, No.
333-14103).
10.4 Form of Employment Agreement between the Company and Mel Harris (Incorporated herein by reference
to Exhibit 10.4 to the Company's Registration Statement on Form SB-2, No. 333-14103).
10.5 Letter dated October 21, 1996, from the Company to New Hampshire Insurance Company regarding the
Reinsurance Agreement among P.E.G. Reinsurance Company, Ltd., The Insurance Company of the State
of Pennsylvania and other AIG Affiliates and Form of Reinsurance Agreement (Incorporated herein
by reference to Exhibit 10.5 to the Company's Registration Statement on Form SB-2, No.
333-14103).
10.6 Office Space Lease Agreement, dated August 1, 1994, between the Company and K/B Opportunity Fund
I, LP and PEGI (Incorporated herein by reference to Exhibit 10.6 to the Company's Registration
Statement on Form SB-2, No. 333-14103).
</TABLE>
9
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<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- -----
10.7 Form of Advisory Services Letter Agreement between the Company and the Representative
(Incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form
SB-2, No. 333-14103).
<C> <S> <C>
10.8 Stock Repurchase Agreement dated as of May 15, 1995, among the Company, Howard Odzer and Ronald
Rothstein (Incorporated herein by reference to Exhibit 10.8 to the Company's Registration
Statement on Form SB-2, No. 333-14103).
10.9 Cost Sharing Agreement dated January 3, 1996, between the Company and International Insurance
Group, Inc. (Incorporated herein by reference to Exhibit 10.9 to the Company's Registration
Statement on Form SB-2, No. 333-14103).
10.10 Form of Share Exchange Agreement among the Company and certain stockholders of PEGI listed
therein (Incorporated herein by reference to 10.10 to the Company's Registration Statement on
Form SB-2, No. 333-14103).
10.11 Amended and Restated Shareholders Agreement dated as of May 15, 1995, among the Company, Howard
Odzer and Mel Harris (Incorporated herein by reference to 10.11 to the Company's Registration
Statement on Form SB-2, No. 333-14103).
10.12 Form of Employment Agreement between the Company and Howard Odzer (Incorporated herein by
reference to Exhibit 10.12 to the Company's Registration Statement on Form SB-2, No. 333-14103).
10.13 Agency Agreement dated September 1, 1994, among the Company, General Accident Insurance Company
of America ("GAIC") and certain affiliates of GAIC (Incorporated herein by reference to Exhibit
10.13 to the Company's Registration Statement on Form SB-2, No. 333-14103).
10.14 General Agency Agreement dated January 1, 1993, among the Company, The Insurance Company of the
State of Pennsylvania and certain affiliates of AIG (Incorporated herein by reference to Exhibit
10.14 to the Company's Registration Statement on Form SB-2, No. 333-14103).
*10.15 The Company's 1996 Employee Stock Option Plan.
10.16 Employment Agreement dated July 7, 1997, between the Company and D. Mark Olson (Incorporated
herein by reference to the Company's Current Report on Form 8-K, dated July 7, 1997 (filed on
July 9, 1997)).
10.17 Asset Purchase Agreement dated as of January 21, 1998, among HSSI Travel Nurse Operations, Inc.,
Hospital Staffing Services, Inc. and Preferred Employers Acquisition Corp. (Incorporated herein
by reference to the Company's Current Report on Form 8-K, dated March 6, 1998 (filed on March 16,
1998)).
**10.18 Shareholders Agreement dated as of February 11, 1997, among the Company, Howard Odzer and Mel
Harris.
*21.1 Subsidiaries of the Company.
*27.1 Financial Data Schedule.
</TABLE>
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* Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
** Filed herewith.
(b) Current Reports on Form 8-K.
None.
10
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PREFERRED EMPLOYERS HOLDINGS, INC.
By: /s/ WILLIAM R. DRESBACK
------------------------------------------
William R. Dresback, Senior Vice
President, Chief Financial Officer and
Secretary
Date: June 2, 1998
11
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EXHIBIT 10.18
SHAREHOLDERS AGREEMENT
This shareholders agreement (this "Agreement") is made as of February 11,
1997 by and among PREFERRED EMPLOYERS HOLDINGS, INC., having an address at 10800
Biscayne Boulevard, 10th Floor, Miami, Florida 33161 (together with Preferred
Employers Group, being the predecessor and a wholly-owned subsidiary of
Preferred Employers Holdings, Inc., the "Company"), MEL HARRIS, an individual
having an address at 10800 Biscayne Boulevard, Penthouse, Miami, Florida 33161
("Harris") and HOWARD ODZER, an individual having an address at 1399 Northeast
103rd Street, Miami Shores, Florida 33138 ("Odzer" and, together with Harris,
the "Shareholders").
WITNESSETH
WHEREAS, the Company and the Shareholders were parties to that certain
Amended and Restated Shareholders Agreement dated as of May 15, 1995 (the
"Original Shareholders Agreement"; capitalized terms not otherwise defined
herein shall have the meanings assigned thereto in the Original Shareholders
Agreement);
WHEREAS, the Company completed an initial public offering of its stock under
the Securities Act of 1933, as amended, pursuant to a prospectus dated February
5, 1997 (the "Offering");
WHEREAS, pursuant to the terms of the Original Shareholders Agreement, such
Agreement terminated immediately prior to completion of the Offering;
WHEREAS, the Company and the Shareholders desire to enter into this
Shareholders Agreement pursuant to Section 17(b) of the Original Shareholders
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. INDEMNIFICATION. (a) Each Shareholder (including here and hereinafter,
the heirs, executors, administrators or estate of such Shareholder) who is or
was a director, officer, agent or employee of the Company or who is or was
serving at the request of the Company in the position of a director, officer,
trustee, partner, agent or employee of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Company as of
right to the fullest extent permitted or authorized by current or future
legislation or by current or future judicial or administrative decision (but, in
the case of any future legislation or decision, only to the extent that it
permits the Company to provide broader indemnification rights than permitted
prior to the legislation or decision), against all fines, liabilities,
settlements, costs and expenses, including attorneys' fees, asserted against him
or incurred by him (whether arising out of actions or omissions occurring before
or after the date hereof) in his capacity as such director, officer, trustee,
partner, agent or employee, or arising out of his status as such director,
officer, trustee, partner, agent or employee. The foregoing right of
indemnification shall not be exclusive of other rights to which those seeking
indemnification may be entitled.
(b) Subject to the provisions of Section 1(c) hereof, costs, charges and
expenses (including reasonable attorneys' fees) incurred by a person referred to
in Section 1(a) hereof in defending a civil or criminal suit, action or
proceeding shall be paid promptly by the Company, as statements therefor are
received, in advance of the final disposition thereof, upon receipt of an
undertaking to repay all amounts advanced if it is ultimately determined that
the person is not entitled to be indemnified by the Company as authorized by
this Section 1.
(c) Promptly after a Shareholder (or his heirs, executors, administrators
and estate) (collectively, an "Indemnified Person") receives notice of the
commencement of any action or other proceeding in respect of which
indemnification or reimbursement may be sought under this Section 1, such
Indemnified Person will notify the Company thereof; but the omission so to
notify the Company shall not relieve the Company from any obligation under this
Section 1 unless, and only to the extent that, such omission results in
prejudice to the rights and interests of the Company. If any such action or
other proceeding shall be
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brought against any Indemnified Person, the Company shall, upon written notice
given reasonably promptly following the Indemnified Person's notice to the
Company of such action or proceeding, be entitled to assume the defense thereof
at the Company's expense with counsel chosen by the Company, provided, however,
that any Indemnified Person may at his own expense retain separate counsel to
participate in such defense. Notwithstanding the foregoing, such Indemnified
Person shall have the right to employ separate counsel at the Company's expense
and to control his own defense of such action or proceeding if (i) the Company
has failed promptly to assume the defense, or (ii) in the reasonable opinion of
counsel to the Company, there is a conflict of interest arising from the fact
that the same counsel is representing both the Company and the Indemnified
Person or there is a potential conflict of interest between the Company and such
Indemnified Person that would make such separate representation advisable. The
Company will not, without the prior written consent of the Indemnified Person,
settle, compromise or consent to the entry of any judgment in or otherwise seek
to terminate any pending or threatened claim, action or proceeding in respect of
which indemnification or reimbursement may be sought under this Section 1
(whether or not the Indemnified Person is a party thereto) unless such
settlement, compromise, consent or termination includes an unconditional release
of the Indemnified Person from all liability arising or that may arise out of
such claim, action or proceeding.
(d) If this Section 1 or any portion of it is invalidated on any ground by a
court of competent jurisdiction, the Company shall nevertheless indemnify each
Shareholder (and his heirs, executors, administrators and estate) to the fullest
extent permitted by all portions of this Section 1 that has not been invalidated
and to the fullest extent permitted by law.
(e) This Section 1 is intended for the benefit of, and shall be enforceable
by, the Shareholders (and the heirs, executors, administrators and estate of
such persons) and shall be binding on the Company and its respective successors
and assigns.
2. REGISTRATION RIGHTS; TAG-ALONG RIGHTS. The Company agrees that Odzer
(and/or members of Odzer's family or any entity owned by Odzer or Odzer's
family) shall be granted registration rights (including with respect to those
shares held in escrow pursuant to that certain Share Escrow Agreement dated
February 5, 1997, once such shares have been released from escrow) PARI PASSU
with those granted to Harris (and/or members of Harris' family), if any, pro
rata based on the number of shares of Stock owned by them at the time any such
rights are granted. In the event Harris (or members of Harris' family) proposes
to transfer any shares of Stock, to a bona fide third party purchaser, Harris
shall offer Odzer (and/or members of Odzer's family or any entity owned by Odzer
or Odzer's family) the right to participate in such transfer on a pro rata
basis, at the same price and upon identical terms and conditions, as such
proposed transfer by Harris.
3. RIGHT OF FIRST REFUSAL. (a) A Shareholder (the "Offering Shareholder")
who proposes to dispose of any shares of Stock shall give a notice (the
"Notice") signed by the offering Shareholder to the Company and on the same day
give Notice to the other Shareholder (the "Non-Offering Shareholder") of such
Offering Shareholder's proposed disposition; PROVIDED, HOWEVER, that no Notice
of any proposed disposition by sale of the offered Shares shall be valid unless
the Offering Shareholder shall have received prior to the date of the Notice an
offer therefor in writing from any BONA FIDE purchaser stating the price, terms,
and conditions of the proposed sale. The Notice shall specify the number of
shares (the "Offered Shares") the Offering Shareholder intends to dispose of,
identify and give the address of the person to whom the Offering Shareholder
proposes to dispose of the Offered Shares, and indicate the price, terms, and
conditions of the proposed disposition. The Company shall have the irrevocable
and exclusive first option, but not the obligation, to purchase all, but not
part, of the Offered Shares, at the price and upon any terms and conditions
equal to those offered by the prospective purchaser, provided that the Company
gives notice of its election to purchase the Offered Shares to the Offering
Shareholder within 30 days after the Company receives the Notice.
(b) If the Company does not elect to purchase all of the Offered Shares as
provided in Section 3(a) above, then the Offering Shareholders shall thereafter
provide the Non-Offering Shareholder with a notice (the "Second Notice") that
the Company has not so elected, and the Non-Offering Shareholder
2
<PAGE>
shall have the irrevocable and exclusive second option, but not the obligation,
to purchase all, but not part, of the Offered Shares, at the price and upon such
terms and conditions as those offered by the prospective purchaser. If the
Non-Offering Shareholder elects to purchase the Offered Shares he shall give
notice of such election to the Offering Shareholder within 10 days after the
receipt of the Second Notice by the Non-Offering Shareholder and the purchase
thereof shall be closed within 40 days after receipt of the Second Notice.
(c) If an Offering Shareholder gives the required Notice, and the Second
Notice, and the Company and the Non-Offering Shareholder do not elect, pursuant
to Sections 3(a) and 3(b) , to purchase the Offered Shares, the Offering
Shareholder may dispose of the Offered Shares to the person or persons, at the
price, and on the terms and conditions specified in the Notice, provided that
each such person acquiring the Offered Shares becomes a party to this Agreement
upon such acquisition, and any shares not so disposed of by such Offering
Shareholder may not thereafter be disposed of, except in compliance with the
terms and conditions of this Agreement.
(d) The provisions of Section 3 shall remain in effect for so long as Odzer
owns more than fifteen percent (15%) of the outstanding Stock of the Company.
Furthermore, the Proxy given as of May 15, 1995 shall continue irrevocable for
so long as this Section 3 remains in full force and effect.
(e) The provisions of Section 3 shall not apply to (i) any proposed
dispositions to be made pursuant to Rule 144 or any Registration Statement in
effect under the Securities Act of 1933, as amended, or (ii) any transfers by a
Shareholder of shares of Stock or beneficial interests therein to their
respective spouses, or other immediate family members, or to a trust or other
entity for the sole benefit of any of the foregoing; provided that any such
transferee agrees to be bound by the terms of this Agreement.
4. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth below (or to such other
address as the party shall have furnished in writing in accordance with the
provisions of this Section 4):
<TABLE>
<S> <C>
Mr. Harris: 10800 Biscayne Boulevard, Penthouse
Miami, Florida 33161
with a copy (which copy shall not constitute notice) to:
Donald J. Bezahler, Esq.
Baer Marks & Upham LLP
805 Third Avenue, 20th Floor
New York, New York 10022-7513
Mr. Odzer: 1399 Northeast 103rd Street
Miami Shores, Florida 33138
with a copy (which copy shall not constitute notice) to:
Thomas R. McGuigan, P.A.
Steel Hector & Davis
200 South Biscayne Blvd., 40th Floor
Miami, Florida 33131-2398
The Company: 10800 Biscayne Boulevard, 10th Floor
Miami, Florida 33161
with a copy (which copy shall not constitute notice) to:
Donald J. Bezahler, Esq.
Baer Marks & Upham LLP
805 Third Avenue, 20th Floor
New York, New York 10022-7513
</TABLE>
3
<PAGE>
Notice to the estate of any party shall be sufficient if addressed to the
party as provided in this Section 4. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
5. MISCELLANEOUS. (a) This Agreement may be amended at any time and from
time to time by unanimous written agreement of the Shareholders.
(b) This Agreement and the rights of the parties hereunder shall be governed
by, and construed in accordance with, the laws of the state of Florida, without
giving effect to rules governing conflicts of law.
(c) This Agreement and the rights and obligations hereunder, may not be
assigned and any such assignment shall be void and null. Except as otherwise
specifically provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties and their legal representatives, heirs,
administrators, executors, and successors.
(d) Captions and section headings contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit, or extend the scope
or intent of this Agreement or any provision hereof.
(e) If any provision of this Agreement or the application of any provision
to any person or circumstance shall be held invalid, the remainder of this
Agreement, or the application of that provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
(f) This Agreement may be executed in several counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
instrument.
(g) Except as otherwise set forth in this Agreement, including in Section
3(d) hereof, the provisions of this Agreement shall remain in effect for six (6)
years after Odzer last serves as a director, officer, agent or employee of the
Company, or at the request of the Company, serves as a director, officer,
trustee, partner, agent or employee of another corporation, partnership, joint
venture, trust or other enterprise.
6. ARBITRATION. (a) Any dispute or controversy arising out of or relating
to this Agreement, any document or instrument delivered pursuant to, in
connection with, or simultaneously with this Agreement, or any breach of this
Agreement or any such document or instrument shall be settled by arbitration to
be held in the County of Dade, State of Florida in accordance with the
Commercial Arbitration Rules then in effect of the American Arbitration
Association or any successor thereto, and judgment upon the award rendered by
the Arbitrator(s) may be entered in any Court having jurisdiction thereof. The
Arbitrator(s) may grant injunctions or other relief in such dispute or
controversy. The costs and expenses of such arbitration shall be assumed as
determined by the Arbitrator(s), and each party shall separately pay his own
attorneys' fees and expenses.
(b) Section 6 shall remain in effect for at least six (6) years after Odzer
last serves as a director, officer, agent or employee of the Company, or at the
request of the Company, serves as a director, officer, trustee, partner, agent
or employee of another corporation, partnership, joint venture, trust or other
enterprise.
(c) Notwithstanding anything contained herein to the contrary, any dispute
or controversy arising out of or relating to this Agreement with respect to
federal securities laws shall not be subject to arbitration as provided by this
Section 6.
4
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
11th day of February, 1997.
<TABLE>
<S> <C> <C> <C>
/s/ HOWARD ODZER
-------------------------------------------------
Howard Odzer
/s/ MEL HARRIS
-------------------------------------------------
Mel Harris
PREFERRED EMPLOYERS HOLDINGS, INC.
By: /s/ MEL HARRIS
---------------------------------------------
Name: Mel Harris
Title: Chairman of the Board and
Chief Executive Officer
</TABLE>
5
