<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
[ ] Confidential for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
UNIVERSAL AMERICAN FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
UNIVERSAL AMERICAN FINANCIAL CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 7, 2000
TO THE STOCKHOLDERS OF
UNIVERSAL AMERICAN FINANCIAL CORP.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
UNIVERSAL AMERICAN FINANCIAL CORP. will be held at The Penn Club, 30 West 44th
Street, New York, New York 10036, at 10:30 A.M. on June 7, 2000, or at any
adjournment thereof (the "Annual Meeting"), for the following purposes:
1. To elect nine directors to hold office until the next annual
election of directors or until their successors are elected and
qualified.
2. To consider and act upon such other business as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 26, 2000
will be entitled to vote at the Annual Meeting.
IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY IN ORDER THAT YOUR SHARES MAY BE VOTED FOR YOU AS SPECIFIED.
By order of the board of directors
JOAN M. FERRARONE
Secretary
Dated: May 22, 2000
Rye Brook, New York
<PAGE> 3
UNIVERSAL AMERICAN FINANCIAL CORP.
6 INTERNATIONAL DRIVE
RYE BROOK, NEW YORK 10573-1068
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 7, 2000
------------------------
The Annual Meeting of Stockholders of UNIVERSAL AMERICAN FINANCIAL CORP.
(the "Company") will be held at The Penn Club, 30 West 44th Street, New York,
New York 10036, at 10:30 A.M. on June 7, 2000 for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This statement is
furnished in connection with the solicitation by the Company of proxies to be
used at the Annual Meeting or at any and all adjournments of such meeting.
If a proxy in the accompanying form is duly executed and returned, the
shares represented by such proxy will be voted as specified. Any person
executing the proxy may revoke it prior to its exercise either by letter
directed to the Company at its principal executive office, 6 International
Drive, Rye Brook, New York 10573 or in person at the Annual Meeting. The
approximate date on which this Proxy Statement and the accompanying proxy first
will be sent or given to stockholders is May 22, 2000.
VOTING RIGHTS
On April 26, 2000 (the "Record Date"), the Company had outstanding one
class of voting securities, namely 46,792,995 shares of common stock, $.01 par
value. Holders of the common stock are entitled to one vote for each share
registered in their names at the close of business on the Record Date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 26, 2000
as to the number of shares of common stock beneficially owned by (i) each person
known by the Company to own beneficially more than 5% of the Company's common
stock ("5% Holder"), (ii) each person who is a director of the Company or a
nominee for election as such director, and (iii) all persons as a group who are
directors or a nominee for election as such director and officers of the
Company, and as to the percentage of outstanding shares held by them on that
date. Unless otherwise indicated, each such beneficial owner holds the sole
voting and investment power with respect to shares of common stock outstanding.
The Company's common stock is the only class of voting securities outstanding.
<PAGE> 4
<TABLE>
<CAPTION>
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER STATUS OWNERSHIP(A) OF CLASS
- ------------------------------------ --------- ------------ --------
<S> <C> <C> <C>
Capital Z Financial Services Fund II, L.P. 5% Holder 26,144,060(b) 55.9%
("Capital Z")
54 Thompson Street
New York, New York 10012
UAFC, L.P. 5% Holder 2,399,415 5.1%
30 North LaSalle Street
Chicago, Illinois 60602
Richard A. Barasch Director 2,745,032(c) 5.8%
6 International Drive
Rye Brook, NY 10573
Bradley E. Cooper Director --(b) *
54 Thompson Street
New York, New York 10012
Susan S. Fleming Director --(d) *
54 Thompson Street
New York, New York 10012
Mark M. Harmeling Director 17,500(e) *
108 Chestnut Street
North Reading, MA 01864
Bertram Harnett Director 147,451(f) *
105 East Palmetto Park Road
Boca Raton, FL 33432
Patrick McLaughlin Director 41,500(g) *
100 Chetwynd Drive
Rosemont, PA 19010
Robert A. Spass Director --(b) *
54 Thompson Street
New York, New York 10012
Richard Veed Director 5,500(h) *
30 North LaSalle Street
Chicago, IL 60602
Robert F. Wright Director 415,945(i) 1.0%
57 West 57th Street
New York, New York 10019
Directors and Officers as a Group (13 persons) 6,984,916 14.6%
</TABLE>
* Percent of class is less than 1%
(a) The Securities and Exchange Commission has defined "beneficial owner" of a
security to include any person who has or shares voting power or investment
power with respect to any such security or who has the right to acquire
beneficial ownership of any security within 60 days. The percentages are
therefore based on the 46,792,995 shares of common stock outstanding as of
April 26, 2000 plus common stock issuable with respect to options and
warrants held by the person whose percentage of ownership is being
calculated which are presently exercisable.
(b) Robert A. Spass and Bradley E. Cooper, who are directors of the Company, are
partners of Capital Z Partners Ltd., the ultimate general partner of Capital
Z. In addition, Mr. Spass and Mr. Cooper each own 9.9% of the voting capital
stock of Capital Z Partners, Ltd. No person or entity owns 10% or more of
the voting capital stock of Capital Z Partners. Ltd. Mr. Spass and Mr.
Cooper each disclaims beneficial ownership of all shares of the Company's
common stock that are beneficially owned by Capital Z.
(c) Includes 340,500 shares of common stock that would be received upon the
exercise of 340,500 stock options held by Richard Barasch. Also includes
the following shares of which Mr. Barasch disclaims beneficial ownership:
1,024,728 shares of common stock which are held
2
<PAGE> 5
directly by, or in trust for, members of his immediate family; and 392,396
shares of common stock which are held in an irrevocable trust for the
benefit of the Harnett family (the "Barasch Universal Trust") of which
Richard Barasch is trustee.
(d) Ms. Fleming is a principal of Capital Z and disclaims beneficial ownership
of all shares of common stock beneficially owned by Capital Z.
(e) Includes 9,500 shares of common stock that would be received upon the
exercise of 9,500 stock options held by Mr. Harmeling.
(f) Includes 21,500 shares of common stock that would be received up on the
exercise of 21,500 stock options held by Bertram Harnett. Does not include
shares and warrants held by the Barasch Universal Trust, of which Mr.
Harnett disclaims beneficial ownership.
(g) Includes 7,500 shares of common stock that would be received upon the
exercise of 7,500 stock options held by Mr. McLaughlin.
(h) Includes 5,500 shares of common stock that would be received upon the
exercise of 5,500 stock options held by Mr. Veed. Does not include any
indirect ownership through UAFC, L.P. by Mr. Veed who is a partner of AAM
Capital Partners, L.P., ("AAM") in a partnership that owns an interest in
UAFC, L.P.
(i) Includes 20,500 shares of common stock that would be received upon the
exercise of 20,500 stock options held by Robert Wright.
ELECTION OF DIRECTORS
The restated Certificate of Incorporation and the By-Laws of the Company
provide for a board of directors of not less than three members, with the number
of members to be as set by the board of directors. Each director is elected for
a term of one year, ending at the next annual meeting of the Shareholders, and
until his or her successor is elected and qualifies, subject to earlier removal.
The number of directors has been fixed by the board at nine. All of the present
directors are nominees for election by the holders of the Company's common
stock.
SHAREHOLDERS' AGREEMENT
The Company, Capital Z, U.A.F.C., Richard Barasch and several other
shareholders of the Company entered into a shareholders' agreement on July 30,
1999. The shareholders' agreement contains "first offer," "tag-along" and
"drag-along" provisions. The "first offer" provisions require that each party to
the shareholders' agreement, before making any sale or transfer of Company
shares, with the exceptions noted below, first offer them to Richard Barasch and
Capital Z. The first offer requirement does not apply to certain intra-family
transfers or to pledges and other transfers of less than 2% of the Company's
outstanding common stock at any one time, or 2.5% of such outstanding shares,
when aggregated with the other transfers by the shareholder and his, her or its
permitted transferees. The "tag-along" provision allows the holder of stock to
include his, her or its stock in a sale of common stock initiated by another
party to the shareholders' agreement. "Drag-along" rights permit a selling party
to the shareholders' agreement to force the other parties to the shareholders'
agreement to sell a proportion of the other holder's shares in a sale arranged
by the selling shareholder.
The shareholders' agreement requires Capital Z, Richard Barasch and AAM
to vote for the nine members of the Company's board of directors nominated as
follows: Capital Z-four, Richard Barasch-two, AAM-one and the Company-two.
Because of Capital Z's majority stock ownership, Capital Z also effectively
controls the election of the two directors that the Company is entitled to
nominate. The ability to nominate directors may be adjusted based upon the
amount of common stock owned by each such shareholder. The ability of Richard
Barasch to nominate directors is also affected by his continued employment with
the Company. In addition, the ability to nominate
3
<PAGE> 6
directors is not transferable, except that Capital Z may transfer its right to a
third-party buyer who acquires 10% or more of the outstanding common stock of
the Company from Capital Z.
Pursuant to the terms of the shareholders' agreement, Capital Z is
entitled to representation on the audit committee and the compensation committee
of the board of directors, provided that it continues to hold at least 10% of
the outstanding common stock of the Company.
Each party to the shareholders' agreement has agreed for two years
following the closing not to vote his or its shares in favor of a merger where
the Company's shareholders would receive consideration other than in the form of
shares of the surviving entity.
CHANGE IN CONTROL
On July 30, 1999, the Company sold 25,707,552 shares of Company common
stock to Capital Z for $80,978,790. The sale was pursuant to a Share Purchase
Agreement dated December 31, 1998, as amended by an Amendment dated July 27,
1999 ("UA Stock Purchase Agreement"). In addition, the Company issued 436,507
shares of Company common stock to an affiliate of Capital Z in part payment of
the affiliate's fee under the UA Stock Purchase Agreement. As a result, Capital
Z and affiliates owned 60.7% of the outstanding common stock of the Company on
July 30, 1999. The decrease in Capital Z's percentage ownership from July 30,
1999 to April 26, 2000 was due to the issuance of additional shares by the
Company.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive a fee of $500 for
each meeting of the board or committee meeting attended, unless the committee
meeting is held immediately prior to or after a board meeting. In that case, a
non-employee director will receive a $250 fee for the committee meeting. In
addition, directors are reimbursed for their travel and related expenses in
connection with serving as board members.
Beginning in 2000, directors will receive a fee of $1,000 for each
meeting of the board or committee meeting attended, unless the committee meeting
is held immediately prior to or after a board meeting. In addition, they will
receive a retainer of $5,000 per year, payable quarterly. The Chairman of the
Audit Committee and the Chairman of the Investment Committee will receive an
additional fee of $15,000.
In 1999, each director was eligible to be granted options under the
Universal American Financial Corp. 1998 Incentive Compensation Plan, and on
November 17, 1999, each eligible director was granted options to purchase 4,500
shares of common stock at an exercise price of $4.00, for a total of 36,000
options granted. In addition, although the 1998 Incentive Compensation Plan
superceded all other incentive compensation plans, options previously granted
under the Stock Option Plan for Directors, adopted in 1992, will remain
outstanding in accordance with their terms. Under the Stock Option Plan for
Directors, options were granted on June 30th of each year to each eligible
director in office at that time at the rate of 1,000 options for each year of
service on the board since the last grant and became exercisable one year after
grant.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has an audit committee, a transaction committee,
a compensation committee and an executive committee. The audit committee is
empowered to consult with the Company's independent auditors with respect to
their audit plans and to review their audit report and the accompanying
management letters. The transaction committee reviews and recommends to the
board on certain capital transactions entertained by the Company. The
compensation committee reviews and determines compensation, including incentive
stock option grants, of officers of the Company. The executive committee has the
authority to act between board meetings on behalf of the board, on all matters
allowed by law.
4
<PAGE> 7
During the fiscal year ended December 31, 1999, there were six meetings
of the board of directors, three meetings of the audit committee and one meeting
of the compensation committee. Each incumbent director attended more than 75% of
the aggregate of the total number of meetings of the board of directors and of
the meetings of each committee of which he was a member.
LISTING OF DIRECTORS
The following table sets forth certain information concerning the
directors of the Company, all of whom are nominees for election as such
directors.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY, PRESENT PRINCIPAL OCCUPATION OR
NAME AGE EMPLOYMENT AND THE PAST FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ----------------------------------------------------------
<S> <C> <C>
Richard A. Barasch 46 Director, Chairman of the Board (since December 1997),
President and Chief Executive Officer of the Company;
Director and President of American Progressive; and Chairman
of the Board of all other Insurance Subsidiaries and of
WorldNet. Mr. Barasch has been a director and executive
officer of the Company since July 1988, President since
April 1991 and Chief Executive Officer since June 15, 1995.
He has held his positions with the Company's subsidiaries
since their acquisition or organization by the Company.
Bradley E. Cooper 33 Mr. Cooper is a Partner and co-founder of Capital Z. Prior
to joining Capital Z, Mr. Cooper served in similar roles at
Insurance Partners, L.P. ("Insurance Partners") and
International Insurance Investors, L.P. Prior to the
formation of Insurance Partners, Mr. Cooper was a Vice
President of International Insurance Advisors, Inc. and was
an investment banker in the Financial Institutions Group at
Salomon Brothers, Inc. Mr. Cooper currently serves on the
board of directors of Superior National Insurance Group,
Highlands Insurance Group, CERES Group, Inc., and American
Capital Access Holdings.
Susan S. Fleming 29 Ms. Fleming is a Principal of Capital Z. Prior to joining
Capital Z, Ms. Fleming served as Vice President of Insurance
Partners and was an investment banker in the Mergers and
Acquisitions Financial Institutions Group at Morgan Stanley
& Co. Ms. Fleming currently serves on the Board of Directors
of CERES Group, Inc.
Mark M. Harmeling 47 Director of the Company since July 1990 and director of
American Progressive since December 1992. Mr. Harmeling has
been President of Bay State Realty Advisors since January
1994 and previously President of Intercontinental Real
Estate Corporation, a real estate management and development
company for more than the past five years. Mr. Harmeling is
also a director of the following companies: Rochester
Shoetree Corporation (since 1988) and Applied Extrusion
Technologies (since 1987).
Bertram Harnett 76 Elected director of the Company and American Pioneer in June
1996 and had been a director of the Company previously (July
29, 1988 to February 9, 1989). Mr. Harnett is President of
the law firm of Harnett Lesnick & Ripps P.A., Boca Raton,
and its predecessors since 1988 and a practicing lawyer
since 1948. He is the author of treatises on insurance law
and is a former Justice of New York State Supreme Court.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY, PRESENT PRINCIPAL OCCUPATION OR
NAME AGE EMPLOYMENT AND THE PAST FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ----------------------------------------------------------
<S> <C> <C>
Patrick J. McLaughlin 41 Director of the Company since January 1995. Mr. McLaughlin
has been a Managing Director of Emerald Capital Group, Ltd.,
an asset management and consulting firm specializing in the
insurance industry, since April 1993. Prior to that he was
an Executive Vice President and Chief Investment Officer of
Life Partners Group, Inc. (April 1990 to April 1993),
Managing Director of Conning & Company (August 1989 to April
1990) and Senior Vice President and Chief Investment Officer
of ICH Corporation (March 1987 to August 1989).
Robert A. Spass 43 Mr. Spass is a Partner and co-founder of Capital Z. Prior to
founding Capital Z, Mr. Spass was the Managing Partner and
co-founder of Insurance Partners. Prior to the formation of
Insurance Partners, Mr. Spass was President and CEO of
International Insurance Advisors Inc. Prior to that, Mr.
Spass was a Director of Investment Banking at Salomon
Brothers and a Senior Manager for Peat Marwick Main & Co.
Mr. Spass serves on the board of directors of Highlands
Insurance Group, Superior National Insurance Group, CERES
Group, Inc and MMI Companies.
Richard Veed 47 Director of the Company since April 25, 1997; Mr. Veed has
been a Managing Partner of AAM Investment Banking Group,
Ltd. since October 1993. Prior to that he was President of
Guaranty Reassurance Corp. from September 1992 to May 1993
and a Partner at Arthur Anderson & Co. from 1987 to August
1992. He is also a director of HomeVest Financial Group,
Inc.
Robert F. Wright 74 Director of the Company since June 1998. Mr. Wright has been
President of Robert F. Wright Associates, Inc. since 1988.
Prior to that Mr. Wright was a senior partner of the public
accounting firm of Arthur Anderson & Co. from 1960 to 1988.
Mr. Wright is director of Hanover Direct, Inc., Reliance
Standard Life Insurance Company and its affiliates,
Deotexis, Inc., GVA Williams, The Navigators Group, Inc.,
Quadlogic Controls Corp., and U.S. Timberlands Company, L.P.
</TABLE>
All of the Company's officers and directors are elected annually for
one-year terms. All officers and directors hold office until their successors
are duly elected and qualified.
EXECUTIVE COMPENSATION, RELATED PARTY TRANSACTIONS AND
OTHER INFORMATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION AS OF DECEMBER
31, 1999
The compensation committee of the board of directors reviews and
approves the compensation of the Company's executive officers (including the
executive officers named in the management section below). The committee is made
up of four independent, non-employee members of the board. The objective of the
Company's compensation program is to provide a total compensation package that
will enable the Company to:
- - attract, motivate and retain outstanding individuals;
- - align the financial interests of those individuals with the interests of the
Company's shareholders;
6
<PAGE> 9
- - reward those individuals for increasing levels of profit and shareholder
value; and
- - encourage management's stake in the long-term performance and success of the
Company
In order to achieve these goals, the committee establishes a competitive
and appropriate total compensation package for each executive officer,
consisting primarily of four components -- base salary, annual bonus, stock
options and restricted stock awards. The committee conducts an annual review of
compensation relative to other life insurance companies and companies of similar
size in the financial industry.
Base Salaries
The committee establishes base salaries each year at a level intended to
be within the competitive market range of comparable companies. Other factors
considered in determining base salary include the responsibilities of the
executive officer, experience, length of service and individual performance.
During fiscal year 1999, base salaries of the executive officer group increased
an average of 20.2%. The committee believes that the base salaries of the
current executive officers are within or below the competitive market range of
comparable companies.
Cash Bonuses
The committee awards cash bonuses to the executive officers. The
criteria used to determine cash bonus levels include operating profits, new
business production and expenses relative to pre-determined budgets. The
executive officer group's fiscal year 1999 cash bonus was 31.1% of the group's
annual base salary.
Stock Options and Restricted Stock
An important component of the Company's executive compensation program
is the award of stock options and restricted stock. Restricted stock is stock in
the Company which the executive officer must hold for a period of time before it
can be sold. The committee believes that stock options and restricted stock
motivate the executive officers to remain focused on the overall long-term
performance of the Company. Generally the award of a stock option creates no
financial benefit to the executive unless there is appreciation in the price of
the Company's stock after the award date. The financial benefit of an award of
restricted stock can not be realized by the executive officer until the
restriction can be lifted from the stock, generally a minimum of two years. The
total number of restricted stock and stock options awarded to the executive
officer group during fiscal year 1999 amounted to 216,900 and 1,470,000, or 0.1%
and 5.5% of the average outstanding shares of the Company during 1999.
The Compensation Committee
Mark M. Harmeling, Chairman
Susan S. Fleming
Richard A. Veed
PERFORMANCE GRAPH
The Performance Graph compares the Company's cumulative total
shareholder return on its Common Stock for the five year period between December
31, 1994 to December 31, 1999, with the cumulative total returns of The Nasdaq
Stock Market ("NSM") and the Nasdaq Insurance Stocks ("NIS"). The comparison for
each period assumes that $100 was invested on December 31, 1994 in each of the
Company's Common Stock, the stocks included in The Nasdaq Stock Market Total
Return Index and the stocks included in the Nasdaq Insurance Stocks Total Return
Index.
7
<PAGE> 10
COMPARISON OF CUMULATIVE TOTAL RETURN
'[COMPARISON GRAPH]'
<TABLE>
<CAPTION>
UHCO NSM NIS
---- --- ---
<S> <C> <C> <C>
Dec. 94 100.00 100.00 100.00
Dec. 95 95.24 141.44 142.05
Dec. 96 80.95 173.92 161.92
Dec. 97 107.16 213.38 237.52
Dec. 98 100.00 299.95 211.18
Dec. 99 176.19 543.07 164.29
</TABLE>
MANAGEMENT
The following table shows the total compensation paid by the Company and
its subsidiaries to the Company's Chief Executive Officer and the three most
highly compensated executive officers of the Company and its subsidiaries for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal years ended December 31, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------------------
-------------------------- RESTRICTED STOCK ALL OTHER
NAME, AGE AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK $(1) OPTIONS COMPENSATION(2)
- -------------------------------- ---- -------- -------- ----------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Barasch (46) 1999 $475,000 $172,800 $115,200 637,500 $3,200
Chairman & Chief Executive 1998 375,000 60,000 60,000 168,000 3,200
Officer 1997 325,555 30,000 27,500 25,000 2,375
Gary W. Bryant (50) 1999 $250,000 $ 47,000 $ 47,000 307,500 $3,200
Senior Vice President of the 1998 225,000 27,000 27,500 115,000 3,200
Company and President of 1997 212,000 25,000 22,000 20,000 2,120
American Pioneer
Robert A. Waegelein (39) 1999 $200,000 $ 92,600 $ 28,400 262,500 $3,200
Sr. Vice President & 1998 150,000 20,000 20,000 70,000 3,200
Chief Financial Officer 1997 141,000 15,000 13,750 15,000 1,410
William E. Wehner (56) 1999 $175,000 $ 29,500 $ 29,500 217,500 $3,200
Exec. Vice President & 1998 165,000 20,000 20,000 70,000 3,200
Chief Operating Officer, 1997 155,000 15,000 13,750 15,000 1,550
of American Progressive
</TABLE>
- ---------------
(1) The executive officers were awarded shares of restricted stock of the
Company on various dates. These shares are shown at the fair market value of
the Company's common stock on the date of the award.
(2) The amounts in this column represent the value of common stock of the
Company contributed by the Company under the 401(k) plan to match
contributions to the plan on behalf of the executive officer.
8
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information about options to purchase
common stock granted to the executive officers named in the summary compensation
table during 1999:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO
GRANTED EMPLOYEES EXERCISE PRICE
NAME (#) IN 1999 ($/SHARE) EXPIRATION DATES
- ---- ---------- ---------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Richard A. Barasch 637,500 25.36% 3.15 - 4.09 August 1, 2009; April 1, 2010
Gary W. Bryant 307,500 12.23% 3.15 - 4.09 August 1, 2009; April 1, 2010
Robert A. Waegelein 262,500 10.44% 3.15 - 4.09 August 1, 2009; April 1, 2010
William E. Wehner 187,500 7.46% 3.15 - 4.09 August 1, 2009; April 1, 2010
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information about options to purchase
common stock exercised by the executive officers named in the summary
compensation table and the number and value of options each of those officers
held on December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Barasch -- -- 340,500 570,000 $640,303 $1,259,188
Gary W. Bryant -- -- 207,500 290,000 $416,003 $ 377,125
Robert A. Waegelein -- -- 160,000 242,500 $321,350 $ 311,375
William E. Wehner -- -- 155,000 202,500 $313,975 $ 263,438
</TABLE>
- ---------------
(1) Calculated using the market price on December 31, 1999 of $4.625 per share
and exercise prices ranging between $2.00 and $3.33 for exercisable options
and ranging between $2.25 and $3.15 for unexercisable options.
INCENTIVE STOCK OPTION PLAN
On May 28, 1998, the Company's shareholders approved its 1998 Incentive
Compensation Plan (the "1998 ICP"). The 1998 ICP superseded the Company's
Incentive Stock Option Plan, which had been approved by the shareholders in
April 1983 and amended in May 1987, June 1989, June 1994 and June 1995. Options
previously granted under the Company's Incentive Stock Option Plan will remain
outstanding in accordance with their terms and the terms of the respective
plans. The 1998 ICP provides for grants of stock options as well as stock
appreciation rights ("SARs"), restricted stock, deferred stock, other
stock-related awards, and performance or annual incentive awards that may be
settled in cash, stock, or other property ("Awards"). Executive officers,
directors, and other officers and employees of the Company or any subsidiary, as
well as other persons who provide services to the Company or any subsidiary, are
eligible to be granted Awards under the 1998 ICP. Under the 1998 ICP and the
previous Incentive Stock Option Plan, stock options ("Incentive Stock Options")
are granted to provide an additional means of providing incentive to executives
and other "key salaried employees" of the Company (which is defined under
section 422A of the Internal Revenue Code as employees of the Company and its
subsidiaries).
Within the limits of the 1998 ICP, the Company's board of directors, in
its discretion, determines the participants, the number of options to be granted
and the purchase price and terms of each option. The price for the shares
covered by each option is required to be not less than 100%
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of the fair market value at the date of grant. Options expire five years 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.
During the year ended December 31, 1999, 2,524,000 Incentive Stock
Options were granted at exercise prices ranging between $3.15 and $4.25.
Incentive Stock Options to purchase 13,000 shares of Common Stock at exercise
prices ranging between $2.00 and $2.25 were canceled or expired. Incentive Stock
Options to purchase 12,500 shares of common stock were exercised at a price of
$2.00. As of March 31, 2000, Incentive Stock Options to purchase 1,192,250
shares were exercisable, none of which have since been exercised.
OTHER COMPENSATION
Pursuant to the UA Stock Purchase Agreement, the Company sold common
stock at $3.15 to certain members of management of the Company. The Company
agreed to assist members of management in the purchase of this stock on the
following basis:
1. For those whose purchase of shares exceeded $10,000, the Company
agreed to lend the employee an amount equal to the lesser of (i) the excess of
the total purchase price over $10,000 and (ii) 50% of the total purchase price
on the terms set forth below ("the Loan") to a maximum of $100,000.
2. The terms of the Loan are as follows:
a. The principal of the Loan will be due and payable on July 30,
2003, which is four years from the date of the Closing of the
Capital Z issuance (the "Closing"), subject to acceleration or
cancellation, as set forth below.
b. The Loan will carry interest at the prime rate published by the
Chase Manhattan Bank as its "prime rate," in effect from time to
time. Interest shall be payable annually, in arrears.
c. If the employee voluntarily terminates employment by the Company
or its subsidiaries prior to the due date of the Loan or fails to
pay interest when due, the Loan shall become immediately due and
payable.
d. The Loan shall be prepayable, in whole or in part, at any time
and from time to time, without penalty, with payment of the
interest accrued on the amount prepaid.
e. The Loan shall be secured by a pledge of all of the Company's
Stock purchased by the employee (the "Pledged Stock"), on the
following terms.
i. The Company stock will be subject to the pledge, regardless
of whether it is paid for with the proceeds of the Loan or
out of other funds. Any distributions with respect to the
shares pledged shall become part of the collateral.
ii. The pledge shall be perfected by the delivery to the
Company of the certificates for all of the pledged stock,
together with executed blank stock powers.
iii. In the event that the principal or interest on the Loan is
not paid when due, the Company may exercise all of the
rights of a pledgee under the New York Uniform Commercial
Code with respect to the pledged stock, in addition to all
other rights it may have to obtain payment of the amount
due to it.
iv. If, while the Pledged Stock is being held as security, the
employee wishes to sell any of it, the certificate or
certificates will be delivered in accordance with the
employee's written instructions, against the prepayment of
at least 125% of the portion of the outstanding balance of
the Loan (and the interest on the
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amount so prepaid) which bears the same proportion to the
total balance as the shares delivered bears to the total
number of Pledged Shares.
f. If, while still employed by the Company or one of its
subsidiaries and prior to the due date of the Loan, the closing
price reported for the common stock of the Company on the NASDAQ
National Market for each and every trading day during any period
of 60 consecutive calendar days is at least $9.50, which amount
is twice the closing price on the trading day before the Closing
(with appropriate adjustments for stock splits, stock dividends,
and other capital changes), the unpaid principal balance of the
Loan, as well as any interest accrued since the last interest
payment date, will be canceled. The income resulting from any
such cancellation will be treated as additional compensation paid
to the employee.
Loans were made to 32 members of management totaling $967,664 including
$78,750 to Richard A. Barasch, $87,500 to Gary W. Bryant, $50,000 to Robert A.
Waegelein, and $126,000 to William E. Wehner.
EMPLOYMENT AGREEMENTS
Employment Agreement with Richard A. Barasch
On July 30, 1999 the Company purchased from PennCorp Financial Group,
Inc ("PFG") all of the outstanding shares of common stock of certain direct and
indirect subsidiaries of PFG (the "Penn Union Transaction"). To finance part of
the purchase price Capital Z purchased 25,707,552 shares of the Company's common
stock on July 30, 1999 for approximately $80,978,790 (the "Capital Z Issuance").
As a condition of closing the Penn Union Transaction, an employment agreement
was entered into with Richard A. Barasch (the "Employment Agreement"). The
Employee Agreement provides that Mr. Barasch will continue to serve as the
Chairman of the Board and Chief Executive Officer of the Company for a period of
three years from the closing of the transaction. The Employment Agreement also
provides for an automatic one-year extension unless the Company or Mr. Barasch
provides the other party six months' prior written notice before the expiration
of the original three-year term.
Under the Employment Agreement, Mr. Barasch is entitled to receive an
annual base salary of $475,000 and any annual increases that may be determined
in the sole discretion of the board (the "Salary"). In 1999, Mr. Barasch is
entitled to receive an annual bonus equal to: (i) for the period prior to the
closing of the Capital Z issuance, a pro rated bonus based on the Company's
existing executive bonus plan plus (ii) the product of the Salary times a
fraction, the numerator of which is the number of days from the closing of the
Capital Z Issuance through the end of the fiscal year and the denominator of
which is 365 and shall be based upon the achievement of goals established by the
board in good faith consultation with Mr. Barasch. If goals are not established,
the amount will be determined by reference to the Company's existing executive
bonus plan. Commencing in the year 2000, and for each fiscal year during the
remaining employment term under the Employment Agreement, Mr. Barasch will be
eligible to earn a bonus based on criteria set by the compensation committee of
the board giving him an opportunity to earn a maximum bonus of up to 200% of his
salary.
Mr. Barasch received an initial grant of stock options to purchase
600,000 shares under Universal American Financial Corp.'s 1998 Incentive
Compensation Plan (the "1998 Incentive Plan") on the date of the closing of the
Capital Z Issuance. The options were granted to Mr. Barasch at $3.15 and have a
ten-year term. Options representing the right to purchase 400,000 shares vest
ratably over a five-year period and the remainder will vest on the seventh
anniversary of the grant date. The remainder, however, will become immediately
exercisable if Capital Z has achieved a compounded annual internal rate of
return on its equity interest in the Company of 30% by dates set forth in the
Employment Agreement. In the event that stock options are granted to Mr. Barasch
at prices below the fair market value on the date of the grant, an expense will
be
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recognized over the vesting period for the difference between the exercise price
of the stock option and the fair market price of the stock on the date of the
grant. The Employment Agreement includes customary severance provisions.
Other Employment Agreements
Simultaneously with the closing of the Penn Union Transaction, the
Company entered into employment agreements with 3 of its senior executives.
Under the terms of the agreements, the executives will serve the Company in a
position consistent with their position prior to the agreement for a period of
two years from the commencement date. The agreements allow for automatic one-
year extensions unless the Company or Executive provides the other party six
months prior written notice before the expiration of any employment term that
the employment term shall not be extended.
Each agreement provides that the executive will be paid an annual salary
as determined by the agreement in regular installments in accordance with the
Company's usual payment practice. Annual increases shall be determined at the
discretion of the board of directors. In addition, the executive will also
receive an annual bonus based on the achievement of goals established by the
board. If goals are not established, the amount will be established by reference
to the Company's existing executive bonus plan. The bonus shall be paid (i) 50%
in cash and (ii) 50% in Company common stock based on the market value of the
shares on the date of issuance. Market value means the 20-day average of the
closing price of the shares on NASDAQ, or, if the shares are not then traded on
NASDAQ, on such other national stock exchange on which the shares are
principally traded.
Each agreement also provides that the executive is entitled to a grant
of initial stock options under the Company's 1998 Incentive Compensation Plan.
The options were granted at $3.15 and have a ten-year term. Options vest ratably
over a four-year period and the remainder will vest on the seventh anniversary
of the grant date. The remainder, however, will become immediately exercisable
if Capital Z has achieved a compounded annual internal rate of return on its
equity interest in the Company of 30% by dates set forth in the employment
agreement. In the event that stock options are granted at prices below the fair
market value on the date of the grant, an expense will be recognized over the
vesting period for the difference between the exercise price of the stock option
and the fair market price of the stock on the date of the grant. The Employment
Agreement includes customary severance provisions.
Salaries and stock options granted under these employment agreements on
July 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SECURITIES UNDERLYING EXERCISE OF
1999 OPTIONS GRANTED BASE PRICE EXPIRATION
NAME SALARY (#) ($/SHARE) DATE
- ---- ------ --------------------- ----------- ----------
<S> <C> <C> <C> <C>
Gary W. Bryant $250,000 262,500 3.15 August 1, 2009
Robert A. Waegelein $200,000 225,000 3.15 August 1, 2009
William E. Wehner $175,000 187,500 3.15 August 1, 2009
</TABLE>
Under the agreements the executives will be entitled to benefits under
the Company's employee benefit plan on the same basis as those benefits are made
available to other senior executives of the Company. All reasonable business
expenses will be reimbursed to the executives in accordance with Company
policies.
In addition, the agreements outline the executive's and Company's
obligations under the various scenarios of early termination of the agreement.
The agreements also contain a non-compete clause covering the period of
employment and the twelve months following termination of employment.
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<PAGE> 15
401(K) PLAN
The executives named in the Summary Compensation Table, as well as
substantially all full-time employees of the Company and its subsidiaries, are
eligible to participate in the Universal American Financial Corp. 401(k) Savings
Plan ("Savings Plan"). The Savings Plan is a voluntary contributory plan under
which employees may elect to defer compensation for federal income tax purposes
under Section 401(k) of the Internal Revenue Code of 1986. The employee is
entitled to participate in the Savings Plan by contributing through payroll
deductions up to 20% of the employee's compensation. The Company may match the
employee's contribution up to 50% of the first 4% of the employee's compensation
which contribution will be made with Company common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Wand Partners L.P., an affiliate of Wand/Universal
Investments L.P., I and II, the holders of all of the outstanding Series B
Preferred Stock (which was converted to common stock in 1999), entered into a
financial advisory agreement, dated December 30, 1994, under which such Wand
affiliate rendered advisory services to the Company and was paid a fee of
$100,000 per year for such services reduced by any director's fees paid to the
director designated by Wand. Such services and fees were to continue as long as
Wand owns 500,000 shares of Common Stock or common stock equivalent. In
connection with the Capital Z Transaction, Wand agreed to terminate this
advisory agreement as of December 31, 1999 and Wand was paid $100,000 in 1999.
Bertram Harnett, a director of the Company, is a shareholder in Harnett,
Lesnick & Ripps P.A., which was paid $949,257 in 1999 for its legal services to,
as well as reimbursement for disbursements made, on behalf of the Company.
Robert F. Wright, a director of the Company, is the sole shareholder and
president of Robert F. Wright Associates, Inc., which has a consulting
arrangement with the Company. Through this consulting arrangement, Mr. Wright
was paid $25,661 in connection with his services as Chairman of the Audit
Committee, as well as reimbursement for disbursements made on behalf of the
Company.
ADDITIONAL INFORMATION
The board of directors does not intend to present to the meeting any
matters not referred to in the form of Proxy. If any proposal not set forth in
the Proxy Statement would be presented for action at the meeting, it is intended
that the shares represented by proxies will vote with respect to such matters in
accordance with the judgment of the persons voting them.
The Company's independent auditors for the fiscal year ended December
31, 1999 were Ernst & Young LLP. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
The Company must receive stockholder proposals with respect to the
Company's next Annual Meeting of Stockholders no later than February 1, 2001 to
be considered for inclusion in the Company's next Proxy Statement.
The cost of soliciting proxies in the accompanying form has been or will
be paid by the Company. In addition to solicitation by mail, arrangements may be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to their principals, and the
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<PAGE> 16
Company may reimburse them for their expenses in so doing. To the extent
necessary in order to assure sufficient representation, officers and regular
employees of the Company may engage (without additional compensation) in the
solicitation of proxies personally, by telephone or telegram.
A copy of the Annual Report has been mailed to every stockholder as of
the Record Date. The Annual Report is not to be considered proxy-soliciting
material.
By order of the board of directors
JOAN M. FERRARONE
Secretary
Dated: May 22, 2000
Rye Brook, New York
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<PAGE> 17
UNIVERSAL AMERICAN FINANCIAL CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 2000
The undersigned shareholder of Universal American Financial Corp.,
hereby appoints Richard Barasch and Robert Waegelein, and each of them, the
attorneys and proxies of the undersigned with full power of substitution, to
vote, as indicated herein, all the shares of Common Stock of Universal American
Finanical Corp. standing in the name of the undersigned at the close of
business on April 26, 2000, at the Annual Meeting of Shareholders of the
Company to be held at The Penn Club, 30, West 44th Street, New York, New York
10036, at 10:30 a.m. on June 7, 2000, and at any and all adjournments thereof,
with all the powers the undersigned would possess if then and there personally
present and especially (but without limiting the general authorization and
power hereby given) to vote as indicated on the following proposals, as more
fully described in the Proxy Statement for the meeting.
This Proxy will be voted for the election of directors as set forth on
the reverse side, unless otherwise indicated.
(Continued and to be signed on reverse side.)
<PAGE> 18
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
UNIVERSAL AMERICAN FINANCIAL CORP.
June 7, 2000
Please Detach and Mail in the Envelope Provided
[X] Please mark your
votes as in the
example.
Nominees: (To Serve until the next
annual election of directors):
FOR WITHHELD Richard A. Barasch
1. Election [ ] [ ] Bradley E. Cooper
of Susan S. Fleming
Directors: Mark M. Harmeling
Bartram Harnett
For except vote withheld from the Patrick J. McLaughlin
following Nominee(s): Robert A. Spass
Richard Veed
Robert F. Wright
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting, or any adjournment or
adjournments thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS and will be voted for
election of directors unless otherwise indicated.
SIGNATURE DATE SIGNATURE DATE
----------------- ----- ----------------- -----
Note: Signature(s) should be exactly as name or names appears on the proxy. If
stock is held jointly each holder should sign. If signing is by attorney,
trustee or guardian, please give full title.
