1,897,500 SHARES
UNIVERSAL AMERICAN FINANCIAL CORP.
COMMON STOCK
1,897,500 shares of Common Stock, par value $.01 per share (the "Common Stock"),
of Universal American Financial Corp. "the Company" will be offered for sale
pursuant to the following plans maintained by the Company:
(i) 878,500 shares to employees of the Company and its subsidiaries
pursuant to the Company's Incentive Stock Option Plan, ("ISOP");
(ii) 500,000 shares to qualifying agents of the Company pursuant to
its Agents Stock Purchase Plan ("ASPP");
(iii) 250,000 shares to the Trustee of the Company's Deferred
Compensation Plan for Agents ("DCP"); and
(iv) 69,000 shares to directors of the Company pursuant to the
Company's Stock Option Plan for Directors ("SOPD").
(v) 200,000 shares to agents of the Company's subsidiaries and others
pursuant to its Non-qualified Stock Option Plans for Agents and Others
("NQSOP");
In the case of sales pursuant to the ISOP, the SOPD and the NQSOP, the Common
Stock will be offered at the option price provided in the particular grants
under the applicable Plan. In case of sales to the Trustee under the DCP, the
Common Stock will be offered at the Market Price, defined below. In the case of
sales pursuant to the ASPP, the Common Stock will be offered and sold at the Bid
Price, defined below.
The "Market Price" shall be the average of the closing price reported on
Nasdaq on each day during such twenty (20) day period on which a sale is so
reported and the "Bid Price" as to each sale of Common Stock shall be the
average of the closing Bid Price reported on Nasdaq and each of the twenty (20)
trading days proceeding such sale.
The entire proceeds of each such sale will be received by the Company with
no underwriting commission or discounts. The Company is paying the expenses of
the offering, estimated at $25,000.
The Common Stock is listed on the Nasdaq National Market under the symbol
"UHCO".
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE FACTORS SET FORTH IN "RISK FACTORS".
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is October 1, 1996
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The Company is a holding company which owns certain insurance company
subsidiaries domiciled in New York and Florida. The New York and Florida
insurance laws provide that no person may acquire control of the Company, and
thus indirect control of these insurance company subsidiaries, unless such
person has given prior written notice to such insurance company subsidiaries and
received the prior approval of the Superintendent of Insurance of the State of
New York or the Insurance Commission of the State of Florida, as the case may
be. Any purchaser or holder of voting securities of the Company possessing more
than a specified portion of the voting power of such voting securities -- 10% or
more under New York Law and 5% or more under Florida Law -- would be presumed to
have acquired such control, unless the relevant state insurance regulatory
agency, upon application, determines otherwise.
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at its regional offices in Chicago
(Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661) and in New York (Seven World Trade Center, 13th Floor, New York,
New York 10048). Any interested party may obtain copies of all or any portion of
such reports at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549.
Additional information regarding the Company and the shares of Common Stock
offered hereby is contained in the Registration Statement on Form S-2 and the
exhibits (the "Registration Statement") filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus,
which forms a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus concerning the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to such contract or other document filed with the Commission as an exhibit
to the Registration Statement, each such statement being qualified and
amplified, in all respects, by such reference. For further information,
reference is made to the Registration Statement which may be inspected without
charge at, and copies thereof may be obtained at prescribed rates from, the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549.
The Company furnishes to the holders of its Common Stock and its publicly
traded Common Stock Warrants, and will furnish to holders of its Common Stock,
after the close of each fiscal year, annual reports containing audited financial
statements with a report thereon by an independent certified public accountant.
Quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year may be furnished by the Company to the holders of
its Common Stock from time to time.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any document incorporated herein by reference, excluding exhibits. Requests
should be made to:
UNIVERSAL AMERICAN FINANCIAL CORP.
Mount Ebo Corporate Park
Box Twenty Three
Brewster, New York 10509
(914) 278-4094
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PROSPECTUS SUMMARY
THE COMPANY AND ITS BUSINESS
The Company is an insurance holding company representing the strategic
combination of two life insurance companies, American Progressive Life and
Health Insurance Company of New York ("American Progressive") and American
Pioneer Life Insurance Company ("American Pioneer" and together with American
Progressive, the "Insurance Subsidiaries"), and WorldNet Services Corp.
("WorldNet"), an international managed care company.
Information about the Company, its subsidiaries and its business is set
forth in the Company's Annual Report on Form 10-K, and, when applicable, its
Quarterly Reports on Form 10-Q and its Current Reports, on Form 8-K,
incorporated herein by reference. See "Documents Incorporated by Reference.
The principal executive office of the Company is located of Mount Ebo
Corporate Park, Box Twenty-Three, Brewster, New York 10509. The Company's
telephone number is (914) 278-4094.
USE OF PROCEEDS
The entire proceeds of this offering will be received by the Company, which
will pay the cost of the Offering, estimated at $25,000. The proceeds will be
used as working capital by the Company and its subsidiaries.
THE OFFERING
Securities Offered:
1,897,500 Shares of Common Stock, of which
200,000 shares are reserved for sale pursuant to the NQSOP,
878,500 shares are reserved for sale pursuant to the ISOP,
69,000 shares are reserved for sale pursuant to the SOPD,
500,000 shares are reserved for sale pursuant to the ASPP, and
250,000 shares are reserved for sale to the Trustee of the DCP.
Securities Outstanding Prior to the Offering:
Common Stock 6,957,532 Shares (1)
Series B Preferred Stock 400 Shares
1999 Warrants 2,695,381(2)
Securities to be Outstanding after Completion of the Offering:
Common Stock 8,855,032 Shares (3)
Series B Preferred Stock 400 Shares
1999 Warrants 2,695,381(2)
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(1) Does not include 1,897,500 shares of Common Stock reserved for issuance
under the Plans, or 1,777,777 shares of Common Stock reserved for issuance
on conversion of the Series B Preferred Stock.
(2) Each Warrant is exercisable for the purchase of one share of Common Stock
for $1.00, subject to adjustment pursuant to anti-dilution provisions, and
expires on December 31, 1999. 679,621 of the 1999 Warrants are registered
under the Securities Act and the Exchange Act. See "Description of
Securities" for a description of the Warrants.
(3) Does not include 1,777,777 shares of Common Stock reserved for issuance on
conversion of the Series B Preferred Stock.
RISK FACTORS
An investment in the securities offered hereby involves substantial risk.
See "Risk Factors".
NASDAQ SYMBOLS
Common Stock UHCO
1999 Warrants UHCOW
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RISK FACTORS
The securities being offered hereby involve substantial risks. Prospective
investors, prior to making an investment, should carefully consider all of the
information contained in this Prospectus and in particular the following risks
and speculative factors inherent in and affecting the business of the Company
and the Offering.
COMPETITION
Most of the markets in which the Company competes are highly competitive.
The Insurance Subsidiaries are in direct competition with a large number of
insurance companies, many of which offer a greater number of products through a
greater number of agents and have greater resources than the Company. This
competitive environment could result in lower premiums, less favorable
underwriting terms and conditions, loss of underwriting opportunities and
reduced profitability.
Increased public and regulatory concerns regarding the financial stability
of insurance companies have resulted in policyholders placing greater emphasis
upon company ratings and have created some measure of competitive advantage for
insurance carriers with higher ratings. American Pioneer is currently rated "B+"
and "BBBq" and American Progressive "B" and "Bq" by A.M. Best and Standard and
Poors, respectively,(1) which may have an adverse impact on their ability to
compete with higher rated companies. If those ratings were downgraded from their
current levels, sales of the Company's products could be adversely affected.
HEALTH CARE REFORM
From time to time numerous proposals have been introduced in Congress and
the state legislatures to reform the current health care system. Proposals have
included, among other things, employer-based insurance systems, subsidized
premiums for lower income people, "managed competition" among health plans,
programs to regulate policy availability and affordability and public and
private programs. Changes in health care policy could significantly affect the
Company's health insurance business.
Whether or not Congress passes any of these measures in the foreseeable
future, it is likely that these items will reappear on the legislative agenda in
the near future. Federal comprehensive major medical, if implemented, could
partially or fully replace some of the Company's current products. Reform
proposals also could involve standardization of major
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(1) According to A.M. Best's published material, a "B+" or "B" rating is
assigned to companies which, in its opinion, have achieved very good (B+)
or adequate (B) overall performance when compared to the standards it has
established. Such companies have a good (B+) or adequate (B) ability to
meet their obligations to policyholders, but as to the (B) rating their
financial strength may be susceptible to unfavorable changes underwriting
or economic conditions.
According to Standard & Poors' published material, a rating of BBB or
B means that the Company is currently able to meet policyholder
obligations, but as to the B rating, such ability is especially vulnerable
to adverse economic and underwriting conditions. The addition of the
qualifier "q" means that the rating is based solely on the rated company's
publicly available information.
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medical or long-term care coverages, impose mandated or target loss ratios or
rate regulation, require the use of community rating or other means that limit
the ability of insurers to differentiate among risks, or mandate utilization
review or other managed care concepts to determine what benefits would be paid
by insurers. These or other proposals could increase or decrease the level of
competition among health insurers. In addition, changes could be made in
Medicare that could necessitate revisions in the Company's Medicare Supplement
products. Other potential initiatives, designated to tax insurance premiums or
shift medical care costs from government to private insurers, could have an
adverse effect on the Company's business. The Company is unable to predict what
changes to the country's health care system will be enacted, if any, or their
effects on the Company's business.
New York State enacted legislation in 1992 that requires all health
insurance sold to individuals and groups with less than 50 employees, to be
offered on an open enrollment and community rated basis effective April 1, 1993.
This legislation has had a limited effect on the Company's business, primarily
on the Medicare supplement and senior hospital cash business being written by
American Progressive, as well as a limited amount of its other in force medical
insurance. The adoption of similar legislation in certain other states,
particularly where the Company writes or has in force major medical insurance in
the issuance of which the Company relies upon medical underwriting could have an
adverse effect and could require the Company to curtail or eliminate the writing
of such business.
GOVERNMENT REGULATION
American Progressive and American Pioneer are subject to regulation and
supervision by the Insurance Departments of their domiciliary states, New York
and Florida, as well as the Insurance Departments of each of the other states in
which they are admitted. Such supervision and regulation are largely for the
benefit and protection of policyholders and not shareholders. Such regulation
and supervision by the Insurance Departments extend, among other things, to the
declaration and payment of dividends, the setting of rates to be charged for
certain accident & health insurance, the granting and revocation of licenses to
transact business, approval of forms, establishment of reserve requirements,
regulation of maximum commissions payable, and the form and content of
statutorily-mandated financial statements.
The Company is also regulated under the Insurance Holding Company Statutes
of the States of New York and Florida. These laws require prior regulatory
agency approval of changes in control of an insurer and of certain transactions
within the holding company structure. The New York Insurance Law provides that
no corporation or other person, except an authorized insurer, may acquire
control of a New York domiciled insurer, such as American Progressive, or of the
holding company of such an insurer, such as the Company, unless it has given
notice to such insurer and has obtained prior written approval of the
Superintendent of Insurance for such acquisition. Under the New York law, any
owner of 10% or more of the outstanding voting securities of the Company would
be presumed to have acquired control of the Company, unless such presumption is
rebutted. The Florida Insurance Law requires any person acquiring 5% or more of
the voting stock of a Florida domiciled insurance company, such as American
Pioneer, or the holding company of such an insurer, such as the Company, to give
notice to the Florida Insurance Commissioner before consummation of such
acquisition, and provides that the Insurance Commissioner may prohibit or
require reversal of such an acquisition in certain cases.
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OTHER POSSIBLE CHANGES IN LEGISLATION
Since insurance is a regulated business, with a high public profile, it is
always possible that legislation may be enacted which would have an adverse
effect on the Company's business.
The statutory disability benefits insurance ("DBL") sold by American
Progressive is mandatory pursuant to Article 9 of the New York Workers
Compensation Law. This benefit has been revised by the New York State
Legislature on several occasions since its adoption and the benefits provided
under such statute have been increased. If future laws reduce the requirement
for employers to provide this type of insurance, such laws might have an adverse
effect on the Company's writing of DBL business. However, the Company is not
aware that any such legislation is being actively considered by the New York
State Legislature at this time.
Another important portion of the Company's insurance business is the sale
of deferred annuities and certain life insurance products, which are attractive
to purchasers in part because policyholders generally are not subject to federal
income tax on increases in the value of an annuity or life insurance contract
until some form of distribution is made from the contract. From time to time,
Congress has considered proposals to reduce or eliminate the tax advantages of
annuities and life insurance which, if enacted, might have an adverse effect on
the ability of the Company to sell the affected products in the future. The
Company is not aware that Congress is actively considering any legislation that
would reduce or eliminate the tax advantages of annuities or life insurance;
however, it is possible that the tax treatment of annuities or life insurance
could change by legislation or other means (for example, by Internal Revenue
Service regulations or judicial decisions).
Certain changes in insurance and tax laws and regulations could have a
material adverse effect on the operations of insurance companies. Specific
regulatory developments which could have a material adverse effect on the
operation of the insurance industry include, but are not limited to, the
potential repeal of the McCarran-Ferguson Act (which exempts insurance companies
from a variety of federal regulatory requirements), and adoption of laws, such
as those already in force in New York limiting insurer's ability to medically
underwrite and rate health insurance policies or to exclude pre-existing
conditions from coverage. In addition, the administration of such regulations is
vested in state agencies which have broad powers and are concerned primarily
with the protection of policyholders.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the expertise of certain of the key officers
of the Company and its subsidiaries, including Richard A. Barasch, Marvin
Barasch and Gary W. Bryant. If the Company were to lose the services of any of
these key officers, and they were not replaced by persons of similar ability and
dedication, its business could be adversely affected. None of these key
employees has an employment contract with the Company. The Company is the
beneficiary of an insurance policy, issued by an unrelated insurer, with a face
amount of $1 million, on the life of Richard A. Barasch.
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INVESTMENT PERFORMANCE
The assets of the Company are invested primarily in government and
corporate fixed maturity securities and cash equivalents. Under GAAP, fixed
maturity securities owned by life insurance companies are classified in three
categories depending upon whether the Company intends to hold them until
maturity, regards them as available for sale or intends to trade such
securities. All of the fixed maturity securities held by the Insurance
Subsidiaries are in the available for sale category and are carried at fair
value. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity" in the Documents Incorporated by Reference.
The Company has invested in a limited number of non-investment grade fixed
maturity securities, which provide higher yields than investment grade
securities. Further information about these investments and disclosures as to
any of the Company's investments which were in default with respect to either
interest or principal is set forth in the Documents Incorporated by reference.
ASSET LIABILITY MATCHING
The Company's investment policy is to balance the portfolio between
long-term and short-term investments so as to continue to achieve investment
returns consistent with the preservation of capital and maintenance of liquidity
adequate to meet payment of policy benefits and claims. This asset liability
matching policy includes the continuous analysis of market conditions and other
factors pertaining to its invested assets. The Company maintains adequate
amounts of cash and short-term investments to fund expected policy benefits and
surrenders. It therefore does not have to sell securities for such purposes.
However, it may decide to sell securities as a result of changes in interest
rates, credit quality, prepayment speeds, or other similar factors. Moreover, a
significant increase in market interest rates might result in a situation in
which the Company is required to sell securities at depressed prices to fund
such payments to policyholders. Since the Company classifies all of its fixed
maturity portfolio as available for sale, which are carried at fair value, it is
expected that these securities would be sold with no material impact on the net
equity of the Company. As required by certain state insurance departments, the
Company performs tests to assess the impact of various interest rate and lapse
rate scenarios on the adequacy of the assets held to meet policyholder
liabilities. The results of these tests are disclosed in the Documents
Incorporated by Reference.
MORTALITY, MORBIDITY AND RESERVES
Through underwriting and reinsurance, the Company has attempted to
limit its mortality and morbidity exposure, and has established reserves for
claims and future policy benefits based on accepted actuarial methodologies.
There can be no assurance, however, that these reserves will prove to be
correctly estimated so that the Company will not experience adverse mortality or
morbidity experience which would result in operating losses.
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RELIANCE ON REINSURANCE
In order to reduce risk and to increase its underwriting capacity, the
Company obtains reinsurance from reinsurers. The Company is subject to credit
risk with respect to its reinsurers because reinsurance does not relieve the
Company of its liability to its insureds for the risks ceded to reinsurers.
Although the Company places its reinsurance with reinsurers it believes to be
financially stable, a reinsurer's subsequent insolvency or inability to make
payments under the terms of a reinsurance treaty could have a material adverse
effect on the Company.
The amount and cost of reinsurance available to companies specializing in
life and accident & health insurance are subject, in large part, to prevailing
market conditions beyond the control of the Company. The Company's ability to
provide insurance at competitive premium rates and coverage limits on a
continuing basis depends to a significant extent upon its ability to obtain
adequate reinsurance in amounts and at rates that will not adversely affect its
competitive position.
No assurances can be given as to the Company's ability to maintain its
current reinsurance facilities, which generally are subject to annual renewals
and 90-day cancellation. Such renewal or cancellation affects new business only,
and the reinsurer remains liable on all business insured prior to non-renewal or
cancellation as long as it remains in force. If the Company were unable to
maintain or replace its reinsurance facilities upon their expiration and were
unwilling to bear the associated increase in exposure on new business, the
Company would need to reduce the amount of new business that it could
underwrite.
WORLDNET'S LOSSES
WorldNet has had operating losses since its inception in January 1992.
Although management has reduced expenses of this subsidiary, no assurance can be
given that WorldNet's losses will not continue to occur. The amount of such
losses is disclosed in the Documents Incorporated by Reference.
CONTROL BY OFFICERS AND DIRECTORS AND BENEFITS TO BALP
The officers and directors of the Company now own, directly and through
Barasch Associates Limited Partnership ("BALP"), approximately 44% of the
Company's outstanding stock entitled to vote for election of directors. This
percentage may decrease upon completion of the Offering, but BALP will remain in
control of the Company. Moreover, pursuant to the terms of a shareholder's
agreement among BALP, Wand and certain partners in BALP, BALP has the right to
require Wand to vote its shares for all directors designated by BALP, except one
director, who will be designated by Wand. Accordingly, BALP will control the
majority of the vote for all but one director for the foreseeable future.
In addition, BALP and certain partners in BALP have options and warrants to
purchase 2,632,020 additional shares of the Company's Common Stock, which, to
the extent exercised, would increase the ownership of Common Stock by such
persons.
Accordingly, BALP is able to elect a majority of the Board of Directors of
the Company and to approve or disapprove any corporate action submitted to a
vote of the Company's shareholders.
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POSSIBLE ANTI-TAKEOVER EFFECTS OF THE RESTATED
CERTIFICATE OF INCORPORATION
The Company's Restated Certificate of Incorporation contains certain
provisions that may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that a shareholder of the Company might consider
to be in the best interest of the Company or its shareholders. These provisions:
(a) classify the Company's Board of Directors into three classes, each of which
serves for a different three-year period, and (b) require the affirmative vote
of two-thirds of the voting power of all outstanding shares of Common Stock
(rather than the 50% provided by statute), for approval of a merger or
consolidation of a corporation in certain cases. In addition, the New York
Business Corporation Law contains certain anti-takeover provisions. See
"Description of Securities--Certain Provisions of Certificate of Incorporation,
Bylaws and New York Law".
The Restated Certificate of Incorporation also gives the holders of the
Series B Preferred Stock the right to require the shares to be redeemed if the
Company is party to a merger or consolidation or to certain sales of assets.
See the Documents Incorporated by Reference for a discussion of the
requirement of insurance department approval of any acquisition of control of
the Company, which may have the effect of discouraging any such acquisition.
MARKET IN PUBLICLY TRADED SECURITIES
The Company's Common Stock is currently listed on the Nasdaq National
Market. See the Documents Incorporated by Reference for information as to its
average daily trading volume.
EFFECT OF FUTURE SALES OF ADDITIONAL SHARES
The following shares of the Company's Common Stock are, or when issued will
be, freely tradeable on the over-the-counter market: (i) The Common Stock being
registered, (ii) the Company's presently outstanding Common Stock which have
been registered under the Securities Act, and (iii) the 679,621 shares of such
Common Stock which will be issuable upon exercise of the 1999 Warrants which are
so registered.
In addition, (i) those outstanding shares of Common Stock which have not
been registered under the Securities Act (ii) the shares of Common Stock
issuable pursuant to the 2,015,760, 1999 Warrants which are not registered under
the Securities Act, and (iii) the 1,777,777 shares of Common Stock issuable upon
conversion of the outstanding Series B Preferred Stock are, or may become,
eligible for sale by certain holders either (x) under Rule 144 of the Securities
Act, subject to the volume and timing requirements of Rule 144 or (y) pursuant
to registration rights granted to the holders thereof. The Company may also at
any time in the future issue additional Common Stock or securities convertible
into Common Stock, in transaction which are registered under the Securities Act
or in transactions, exempt from such registration. In either case, the resulting
Common Stock would either immediately be freely tradeable or may become so
tradeable in the future.
An increase in the number of shares of Common Stock that become available
for sale in the public market may adversely affect the trading price of the
Common Stock in the public market and could impair the Company's ability to
raise additional capital through the future sale of its equity securities.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby will be used by the Company for working capital.
DESCRIPTION OF PLANS UNDER WHICH COMMON STOCK IS BEING OFFERED
INCENTIVE STOCK OPTION PLAN ("ISOP"). 878,500 shares of Common Stock will
be offered for sale to employees of the Company and its subsidiaries pursuant to
the Company's Incentive Stock Option Plan ("ISOP"). The ISOP was approved by the
shareholders of the Company in April 1983 and amended in May 1987, June 1989,
June 1994 and June 1995. It is intended to provide an additional means of
providing incentive to executives and other "key salaried employees" of the
Company (which is defined under Section 422 of the Tax Code as employees of the
Company and its subsidiaries).
ISOP grants, within the limits of the Option Plan, the recipients of
options, the number of options to be granted under the Plan and the purchase
price and terms of each option, are determined, in its discretion, by the Board
of Directors of the Company, on the recommendation of the Compensation
Committee, except that in the case of options granted for services to American
Progressive, such determination must be made on the recommendation of the Board
of Directors of that subsidiary. The price for the shares covered by each option
is required to be not less than 100% of the fair market value at the date of
grant. Options expire five years (if granted prior to June 1994) or 10 years (if
granted after that date) from the date of grant or termination and become
exercisable in installments as determined by the Board of Directors, commencing
one year after date of grant.
STOCK OPTION PLAN FOR DIRECTORS("SOPD"). 69,000 shares of Common Stock will
be offered for sale pursuant to the Company's Stock Option Plan for Directors
("SOPD"). The SOPD, which was approved by the Company's shareholders in 1992,
authorizes the Board to grant an option to purchase 1,000 shares of Common Stock
to each director of the Company who has completed a year of service as a
Director since the date of the last grant. Options under the SOPD are granted at
the market value of the Common Stock on the day of the grant, become exercisable
one year after they are granted and expire 10 years after.
AGENTS STOCK PURCHASE PLAN ("ASPP"). 500,000 shares of Common Stock will be
offered for sale to qualifying agents of the Company pursuant to its Agents
Stock Purchase Plan ("ASPP"). In order to qualify for participation in this
Plan, an agent must meet certain qualifications established by the Company from
time to time. Qualifying agents may purchase shares under the ASPP no more
frequently then quarterly. Shares may be purchased under the ASPP only in whole
numbers of shares, and payment must be made upon delivery of the certificates
for the shares. Shares purchased under the ASPP may not be transferred, except
by gift, for six months after purchase. The Company may decline to accept
further orders from an agent if it believes that the agent is using the Plan to
purchase shares other than for bona-fide long term investment. Shares will be
sold under the ASPP at a price equal to their "Bid Price," which is defined by
the Plan as the average of the closing Bid Price reported on Nasdaq, if any, on
each of the twenty (20) trading days proceeding such sale.
DEFERRED COMPENSATION PLAN ("DCP"). 250,000 shares of Common Stock will be
offered for sale to the Trustee of the Company's Deferred Compensation Plan for
Agents ("DCP"). Under this Plan, agents of the Company's insurance subsidiaries
may elect to defer
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receipt between 5% and 100% of their first year commission they thereafter earn
as such agents, which deferral will be matched by a contribution by the
applicable subsidiary of initially set at 25% of the amount of the deferral, up
to a maximum of 5% of the agent's commissions. Both the agent's participation in
the Plan and the Company's obligation to match the agent's deferral are subject
to the agent satisfying and continuing to satisfy minimum earning, production
and persistency standards. The DCP Plan provides that the amounts contributed by
the Company match vest over a period of years, if the agent continues to qualify
for participation. Half of all amounts forfeited because of failure of agents to
meet the vesting requirements are reallocated to those participants who continue
to qualify. The percentage of the "match" and the vesting period may be changed
from time to time as to future deferrals by the Company.
The amount of the deferral and the Company match as to each participant is
assumed to be invested in Company Common Stock, and the amount which each
participating agent can withdraw will vary with changes in the market value of
the Common Stock. To aid in the administration of the DCP the Company has
elected to make payments to a trustee equal to the amount of the deferrals and
the Company match. The trust will use the amount paid to him to purchase Common
Stock either in the open market or from the Company pursuant to their Offering,
and will sell shares of Common Stock when required to fund withdrawals from the
DCP or will distribute shares of Common Stock in kind. The amounts paid and
received by such trustee will be used to determine the market value of the
participants' interests. Notwithstanding the establishment of the trust, the
assets in the trust are the sole property of the Company and the participating
agents upon their withdrawal from the Plan, will be general creditors of the
Company for the value of their interest in the Plan.
NON-QUALIFIED STOCK OPTION PLAN FOR AGENTS AND OTHERS ("NQSOP"). 200,000
shares of Common Stock will be offered for sale to agents of the Company's
subsidiaries and others pursuant to its Non-qualified Stock Option Plan for
Agents and Others ("NQSOP"). This Plan, adopted by the Board of Directors of the
Company on December 14, 1995, as amended May 23, 1996, allows the Board to grant
options to purchase Common Stock to agents of the Company's insurance company
subsidiaries and to other persons as to whom the Board believes the grant of
such options will serve the best interests of the Corporation. The Plan
prohibits the grant of options thereunder to officers, directors or employees of
the Company or any of its subsidiaries while they are serving as such. No
options may be granted to agents of American Progressive unless the New York
State Superintendent of Insurance has approved or non-disapproved such grant.
The exercise price to be provided in options granted under the Plan is to be as
determined by the Board, but not less than the bid price reported on the Nasdaq
system on the date of the grant (or the next preceding business day on which
such a quote is available). Options granted under the NQSOP will have durations,
fixed by the Board, not to exceed ten (10) years and shall be transferable. The
Board has discretion to fix (i) any vesting conditions, (ii) administrative
provisions, (iii) anti-dilution provisions, and (iv) other provisions deemed
desirable by the Board, as well as to amend any provision fixed by it, provided
that no change or amendment shall adversely affect the option holder with
respect to the exercise price, vesting conditions, and duration of a grant once
made.
DESCRIPTION OF SECURITIES
GENERAL
Set forth below is a description of the material terms and provisions of
the equity securities of the Company. The following description does not purport
to be complete and is
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subject to and qualified in its entirety by reference to the Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), and the Bylaws,
as amended (the "Bylaws"), of the Company. The Certificate of Incorporation and
the Bylaws are filed or incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part.
PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of Preferred Stock. The
Board of Directors of the Company is authorized, without further shareholder
action, to divide any or all shares of the authorized Preferred Stock into
series and to fix and determine the designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. The only series of preferred stock outstanding is the Series B
Preferred Stock. There are presently no plans, agreements or understandings for
the authorization or issuance of any additional shares of preferred stock.
Series B Preferred Stock
Effective as of December 30, 1994, 400 shares of Series B Preferred Stock
were issued and are now outstanding, which may be converted into 1,777,777
shares of Common Stock.
Until converted, the Series B Preferred Stock ranks pari passu with the
Common Stock with respect to dividend rights, and ranks prior to the Common
Stock and any other class of capital stock or series of preferred stock later
created, with respect to redemption rights and rights on liquidation, winding up
and dissolution of the Company.
Each share of Series B Preferred Stock is convertible into Common Stock, at
the election of the holder. The Company may elect to redeem such shares if the
Company has raised at least $8 million by the sale of Common Stock at a price of
not less than $2.25 per share. For purposes of the conversion, each share of
Series B Preferred Stock is to be valued at ten thousand dollars ($10,000.00)
per share, to be converted to the equivalent number of shares of Common Stock at
a conversion price of $2.25 per share (subject to certain anti-dilution and
other adjustments).
Each holder of Series B Preferred Stock is entitled to vote on all matters
as to which shareholders of the Company are entitled to vote and to cast a
number of votes equal to the greatest number of whole shares of Common Stock
into which the holder's shares of Series B Preferred Stock is then convertible.
The holders of Series B Preferred Stock have the right, voting separately as a
class, to elect one director to the Board of Directors of the Company which, so
long as any shares of Series B Preferred Stock remain outstanding, will consist
of no more than 10 directors. See "Certain Relationships and Related
Transactions--Wand/Midland Transaction" for a discussion of the shareholders'
agreement giving Wand the right to designate a director after the conversion.
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COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value of $.01 per share. As of December 31, 1995, the Company had 6,957,532
issued and outstanding shares of Common Stock and 5,621,658 shares reserved for
issuance pursuant to outstanding options and warrants and the conversion of the
Series B Preferred Stock. Holders of Common Stock are entitled to such dividends
as may be declared by the Board of Directors from assets legally available for
that purpose and are entitled at all meetings of shareholders to one vote for
each share held by them, without provision for cumulative voting. In the event
of the liquidation of the Company, all assets available for distribution to the
holders of the Common Stock, after payment of the amount, if any, distributable
to the holders of preferred stock, are distributable among them according to
their respective holdings. The Common Stock is not redeemable and has no
preemptive rights. The Shares and all of the outstanding shares of Common Stock
are fully paid and nonassessable.
The Common Stock ranks pari passu with the Series B Preferred Stock with
respect to dividend rights, but is subject to liquidation preference in favor of
the Series B Preferred Stock and may be subject to dividend and liquidation
preference in favor of any other preferred stock which may hereafter be issued.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BYLAWS AND NEW YORK LAW
The Company's Restated Certificate of Incorporation provides for the
election of directors for terms of three years, staggered so that one-third of
the directors are elected each year. Such staggered voting tends to make it more
difficult to change control of the Company through proxy solicitation than would
be the case if all directors were elected annually. The Company's Restated
Certificate of Incorporation does not provide for cumulative voting;
accordingly, the holders of a majority of the shares voting each year can elect
all of the directors being elected in such year.
The Company's Restated Certificate of Incorporation provides that a merger
or consolidation of the Company with another corporation (the "Acquiror") which,
together with its affiliates (as defined in the Restated Certificate of
Incorporation) owns or controls, directly or indirectly, 5% or more of
outstanding voting power of the Company, or the sale of substantially all of the
Company's assets or business to the Acquiror, shall require the affirmative vote
of the holders of two-thirds of the voting power of all outstanding shares of
the Company's outstanding Common Stock, unless (a) such transaction was approved
by resolution of the Company's Board of Directors prior to the acquisition of 5%
of the outstanding shares by the Acquiror or its affiliates or (b) the Company
owns 50% or more of the total voting power of the Acquiror.
The Restated Certificate of Incorporation also requires the approval by the
vote of the holders of two-thirds of the total voting power of all outstanding
shares of any amendment which alters those sections which (a) provide for
staggered three (3) year terms for directors, (b) prohibit shareholders from
taking action by writing, in lieu of meetings, or (c) mandate shareholder
meetings upon the call of the Chairman of the Board or the President, or at the
request of a majority of the directors or at the request of holders of
two-thirds of the entire capital stock issued, outstanding and entitled to vote.
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<PAGE>
The Company is subject to several anti-takeover provisions under New York
law that apply to certain public corporations, including those organized under
New York law, namely Section 912 (Requirements Relating to Certain Business
Combinations) and Article 16 (Security Takeover Disclosure Act) of the New York
Business Corporation Act. Among other things, these provisions prohibit a
publicly-held New York corporation from engaging in a "business combination"
with an "interested shareholder" for a period of five years after the date of
the transaction in which the person became an interested shareholder, unless (a)
the business combination is approved by a majority of the non-interested
shareholders, (b) the transaction in which such person became an interested
shareholder was approved by the Board of Directors of the corporation, or (c)
the cash and other consideration to be issued to the holder of each share of
common stock of the corporation, valued as provided in the statute, is at least
equal to a per share value determined in a manner, and as of a date, provided in
the statute. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the shareholder. An "interested
shareholder" is a person who, together with affiliates and associates, owns (or,
in the case of affiliates and associates of the issuer, did own within the last
five years) 20% or more of the corporation's voting stock.
These provisions also require certain persons making a tender offer for a
takeover bid for outstanding shares of certain New York corporations to file a
registration statement with the Attorney General and with the corporation for
whose stock the tender is being made. The registration statement should include
the items designated in the statute. Additional requirements, as provided in the
statute, apply to takeover bids not subject to the requirements of Section 14(d)
of the Exchange Act. A "takeover bid" means the acquisition of or offer to
acquire, pursuant to a tender offer or request or invitation for tenders, any
equity security of a target company, if after acquisition, the offeror would,
directly or indirectly, be a beneficial owner of more than five percent of any
class of the issued and outstanding equity securities of such target company. A
"takeover bid" does not include (a) bids made by a dealer for his or her own
account in the ordinary course of business of buying and selling such security,
(b) an offer to acquire such equity security solely in exchange for other
securities, or the acquisition of such equity security pursuant to such offer,
for the sole account of the offeror, in good faith and not for the purpose of
avoiding this Section, and not involving any public offering of such other
securities within the meaning of Section four of title one of the Securities Act
of 1933, (c) any other offer to acquire an equity security, or the acquisition
of such equity security pursuant to such offer, for the sole account of the
offeror, from not more than fifty offerees, in good faith and not for the
purpose of avoiding provisions of this article, or (d) any offer, where prior to
making the offer, the offeror owns a majority of the voting equity securities of
the target company.
WARRANTS
1999 WARRANTS. Each of the 1999 Warrants entitles the holder to purchase
one share of the Company's Common Stock at a price of $1.00 at anytime prior to
December 31, 1999, subject to adjustments under anti-dilution provisions.
679,621 of the 1999 warrants are registered under the Exchange Act, and traded
on Nasdaq under the symbol "UHCOW". The holders of the 2,015,760 unregistered
1999 Warrants have "piggy-back" and "demand" registration rights. However, all
such persons who would have the right to register shares in this Offering have
waived any such right.
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<PAGE>
Each of the Warrants contain anti-dilution provisions in the event of
certain capital changes.
Holders of the Warrants have no voting rights and are not entitled to
dividends with respect to such Warrants. In the event of liquidation,
dissolution or winding up of the Company, holders of the Warrants are not
entitled to participate in the Company's assets.
TRANSFER AGENT
The transfer agent for the Company's Common Stock and the registered 1999
Warrants is American Stock Transfer & Trust Company.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Commission by the Company under its
former name, "Universal Holding Corp.") (File No. 0-11321) and all Annual
Reports hereafter filed and amendments thereto.
(b) All Quarterly Reports on Form 10-Q, and amendments thereto,
hereafter filed with the Commission by the Company.
(c) All Current Reports on Form 8-K, and amendments thereto, filed
with the Commission by the Company after the date of the most recent Form
10-K.
Any statement contained in a document incorporated by reference which is
dated prior to the date of this Prospectus herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any statement in the
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement in a document incorporated by
reference which is dated subsequent to the date of this Prospectus modifies or
supersedes such statement. Any statement modified or superseded shall not be
deemed, except as modified or superseded, to constitute part of this Prospectus.
This Prospectus shall be accompanied by the Company's most recent Form 10-K
as well as any Form 10-Q or Form 8-K filed for any period after the end of the
year for which the Form 10-K was filed, as well as any amendments to any such
Reports. The Company will provide to each person to whom this Prospectus is
delivered upon written or oral request of such person, a copy of the documents
incorporated by reference into this Prospectus (not including exhibits to such
documents unless the exhibits are specifically requested). No dealer,
salesperson or other person has been authorized to give any information or to
make any representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or any underwriter. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy to any
person in any jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any offer or sale
hereunder shall, under any circumstances, create any
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implication that there has been no change in the affairs of the Company or that
the information contained herein is correct as of any date subsequent to the
date hereof.
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby will be passed upon for the Company by the law firm of Harnett
Lesnick & Ripps, P.A., of Boca Raton, Florida.
Bertram Harnett, a shareholder in such law firm, may be deemed a beneficial
owner of a limited partnership interest in BALP (which may be regarded as a
controlling shareholder of the Company) and of an interest in the corporate
general partner of BALP. Mr. Harnett and Irving I. Lesnick, another shareholder
in such law firm, in the aggregate directly own 15,000 shares of the Company's
Common Stock, and non-qualified options to acquire 25,000 additional shares of
Common Stock. The law firm was paid $232,065 in 1995, on account of its legal
services to, as well as reimbursement for disbursements made on behalf of, the
Company.
EXPERTS
The financial statements and schedules of Universal Holdings Corp. and
subsidiaries as of December 31, 1995 and 1994, and for each of the years in the
three year period ended December 31, 1995, have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The report of KPMG Peat Marwick LLP on certain of such financial statements
and schedules refers to Universal Holdings Corp.'s adoption of the provisions of
the Financial Accounting Standards Board's Statements of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in 1994.
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<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell, or a solicitation of any offer to buy, the Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION..................................................... 2
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 4
USE OF PROCEEDS........................................................... 9
DESCRIPTION OF PLANS UNDER WHICH
COMMON STOCK IS BEING OFFERED........................................... 10
Incentive Stock Option Plan ("ISOP").................................. 10
Stock Option Plan for Directors("SOPD")............................... 10
Agents Stock Purchase Plan ("ASPP")................................... 10
Deferred Compensation Plan ("DCP").................................... 11
Non-Qualified Stock Option Plan for Agents
and Others ("NQSOP")................................................ 11
DESCRIPTION OF SECURITIES................................................. 12
DOCUMENTS INCORPORATED BY REFERENCE....................................... 15
LEGAL MATTERS............................................................. 16
EXPERTS................................................................... 16
1,897,500 SHARES
UNIVERSAL AMERICAN FINANCIAL CORP.
COMMON STOCK
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PROSPECTUS
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October 1, 1996
