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As filed with the Securities and Exchange Commission on April 14, 2000
Registration No. 33-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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UNIVERSAL AMERICAN FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
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NEW YORK 6719/6311 11-2580136
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization Classification Code Number) Identification No.)
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Universal American Financial Corp.
6 International Drive, Suite 190
Rye Brook, NY 10573
914-934-5200
(Address, including zip code, and telephone number, including area code of
registrant's principal executive office)
Richard A. Barasch, President
Universal American Financial Corp.
6 International Drive, Suite 190
Rye Brook, NY 10573
914-934-5200
With a copy to
Irving I. Lesnick
Harnett Lesnick & Ripps P.A.
150 East Palmetto Park Road, Suite 500
Boca Raton, FL 33432
561-368-1995
(Address, including zip code, and telephone number, including
area code of agent for service)
Approximate date of Commencement of proposed sale to the public: as soon as
practicable following the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, (the "1933 Act") check the following box: [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 1 (a)(1)
of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the 1933 Act, please check the following box and list the
1933 Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the 1933 Act, check the following box and list the 1933 Act registration
statement number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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Title of each class of
securities to be Amount to be Proposed maximum Proposed maximum Amount
registered registered offering price per unit aggregate offering price of registration fee
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Common Stock, par 1,486,730 $3.15 TO $4.79 (1) $4,683,683 (2) $1,575.95 (3)
value $0.01 per share:
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(1) Maximum exercise price of options to which Common Stock is being offered.
1,310,952 shares are offered pursuant to options at exercise prices ranging from
$3.15 to $4.79 per share. The remaining 175,778 shares will be issued without
cash consideration.
(2) 175,778 shares are being offered with no cash consideration. While the
exercise price of the options under which the other 1,486,730 shares are being
offered vary as set forth in note 1, depending on the date of grant, none of the
programs under which options we be granting will terminate when options being an
aggregate option price of $4,050,000 granted and the other when options having a
total option price of $ 636,683 are granted. Thus, the maximum offering price is
the sum of these amounts, or $4,686,683.
(3) Calculated pursuant to Rule 457(g) on the basis of the last sale reported by
NASDAQ on April 11, 2000 of $3.813 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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UNIVERSAL AMERICAN FINANCIAL CORP.
Cross Reference Sheet showing the location in the Prospectus of information
required by items of Form S-2.
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1. Forepart of the Registration Facing Page, Cross
Statement and Outside Front Cover Reference Sheet and
Page of Prospectus.......................... Cover Page of
Prospectus
2. Inside Front and Outside Back Inside Front Cover
Cover Pages of Prospectus................... Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges
(a) Prospectus Summary.................... Prospectus Summary
(b) Address and Telephone Numbers......... Prospectus Summary
(c) Risk Factors.......................... Risk Factors
(d) Ratio of Earnings to Fixed
Charges............................... Not Applicable
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Not Applicable
6. Dilution.................................... Not Applicable
7. Selling Security Holders.................... Not applicable
8. Plan of Distribution ....................... How to Exercise
Unregistered Warrants
9. Description of Securities to be Description of
Registered.................................. Securities
10. Interest of Named Experts and Legal Matters and
Counsel..................................... Experts
11. Information with Respect to the Documents
Registrant ................................. Incorporated by
Reference
12. Incorporation of Certain Documents
Information by Reference.................... Incorporated by
Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities............................. Not applicable
</TABLE>
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PRELIMINARY PROSPECTUS DATED APRIL 14, 2000
1,486,730 SHARES
UNIVERSAL AMERICAN FINANCIAL CORP.
COMMON STOCK
1,486,730 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) up to 351,556 shares to agents of Pennsylvania Life Insurance
Company and PennCorp Life Insurance Company, subsidiaries of the Company,
of which up to 175,778 shares will be issued, subject to vesting
requirements as bonuses for meeting certain production goals and up to
175,778 shares will be sold pursuant to options granted to agents meeting
those production goals, all pursuant to the Company's Agent Stock Program
for Agents of Penn Union Companies (the "Agent Stock Plan");
(ii) up to 1,135,174 shares which will be issued pursuant to options
to be granted to qualifying Regional Managers and Regional Sub-Managers of
Pennsylvania Life Insurance Company and PennCorp Life Insurance Company
pursuant to the Company's Agent Equity Plan (the "Agent Equity Plan").
Shares to be issued upon exercise of options granted pursuant to the Agent Stock
Plan and the Agent Equity Plan, the Common Stock will be sold at the price
provided in the applicable Plan. (See "Description of Plans Under Which Common
Stock is Being Offered ")
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".
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH IN "RISK
FACTORS".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR 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 April 14, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY........................................................... 1
The Company and Its Business........................................... 1
Use of Proceeds........................................................ 1
The Offering........................................................... 2
Risk Factors........................................................... 2
Nasdaq Symbol.......................................................... 2
RISK FACTORS................................................................. 3
The 1999 Acquisition................................................... 3
Competition............................................................ 5
Health Care Reform..................................................... 6
Government Regulation.................................................. 8
Other Possible Changes in Legislation.................................. 9
Investment Performance................................................ 10
Asset Liability Matching.............................................. 10
Mortality, Morbidity and Reserves..................................... 11
Reliance on Reinsurance............................................... 11
Control by Capital Z ................................................. 12
Possible Anti-Takeover Effects of the Restated Certificate of
Incorporation, Insurance Law Provisions and of the 1998 Plan.... 13
Market in Publicly Traded Securities.................................. 13
Effect of Future Sales of Additional Shares .......................... 14
USE OF PROCEEDS............................................................. 14
ADDITIONAL INFORMATION ..................................................... 15
Documents Incorporated by Reference................................... 15
Registration Statement................................................ 16
How to Obtain Documents Incorporated by Reference and Registration
Statements...................................................... 17
Annual Reports........................................................ 18
DESCRIPTION OF PLANS UNDER WHICH COMMON STOCK IS BEING OFFERED.............. 18
Agent Stock Plan for Agents of Pennsylvania Life and PennCorp Canada
(the "Agent Stock Plan")........................................ 18
Number of Shares to be Awarded. ..................................... 18
Option Awards. ....................................................... 19
Vesting Requirements. ............................................... 19
Duration of Plan. ................................................... 20
Agent Equity Plan for Regional Managers and Sub-Managers of
Pennsylvania Life and PennCorp Canada ("Regional Equity Plan").. 20
Number of Options To Be Awarded. ................................... 20
Vesting Requirements. .............................................. 21
Duration of Plan. ................................................... 22
DESCRIPTION OF SECURITIES................................................... 22
General............................................................... 22
Preferred Stock....................................................... 22
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Common Stock.......................................................... 23
Certain Provisions of Certificate of Incorporation, Bylaws and New
York Law........................................................ 23
Transfer Agent........................................................ 25
LEGAL MATTERS............................................................... 25
EXPERTS..................................................................... 26
</TABLE>
The Company is a holding company which owns certain insurance company
subsidiaries domiciled in Florida, Pennsylvania, New York, North Carolina, Texas
and Ontario, Canada. The insurance laws of these jurisdictions 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 regulatory authority of domiciliary jurisdiction. Any purchaser or holder of
voting securities of the Company possessing more than a specified portion of the
voting power of such voting securities -- 5% under Florida Law, 10% under the
laws of the other United States jurisdictions, and 10% under Canadian Law --
would be presumed to have acquired such control, unless the relevant state
insurance regulatory agency, upon application, determines otherwise.
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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PROSPECTUS SUMMARY
THE COMPANY AND ITS BUSINESS
The Company is an insurance holding company representing the strategic
combination of nine life insurance companies (collectively, the "Insurance
Subsidiaries"), and WorldNet Services Corp. ("WorldNet") and American Insurance
Administration Group, Inc. ("AIGA"), third-party administrators. The Insurance
Subsidiaries are: American Progressive Life and Health Insurance Company of New
York ("American Progressive"), American Pioneer Life Insurance Company
("American Pioneer"), American Exchange Life Insurance Company ("American
Exchange"), Constitution Life Insurance Company ("Constitution Life"),
Peninsular Life Insurance Company ("Peninsular Life"), Pennsylvania Life
Insurance Company ("Pennsylvania Life"), PennCorp Canada Insurance Company of
Canada ("PennCorp Canada"), Marquette National Life Insurance Company
("Marquette"), and Union Bankers Insurance Company ("Union Bankers"). The latter
six Insurance Subsidiaries were acquired by the Company on July 30, 1999 and
AIGA was acquired on January 6, 2000.
Historical information about the Company, American Progressive, American
Pioneer, American Exchange and WorldNet and their business is set forth in the
Company's Annual Report on Form 10-K for 1999, and subsequent Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K. Historical information about the
Company's other Insurance Subsidiaries, for periods prior to their acquisition
on July 30, 1999, and unaudited Pro Forma Financial Information about the
Company's other Insurance Subsidiaries, giving effect to the acquisition of
these subsidiaries as of January 1, 1999, are set forth in the Company's Proxy
Statement dated July 12, 1999. Future information about the Company, its
subsidiaries and its business will be set forth in its future Form 10-Ks, 10-Qs
and 8-Ks. All of the relevant Annual, Quarterly and Current Reports on Forms
10-K, 10-Q and 8-K and the relevant portion of the Proxy Statement referred to
in this paragraph, and any amendments thereto, are incorporated herein by
reference. See "Documents Incorporated by Reference"
The principal executive office of the Company is located at 6
International Drive, Suite 190, Rye Brook, NY 10573. The Company's telephone
number is (914) 934-5200.
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.
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THE OFFERING
Securities Offered. Up to 1,486,730 Shares of Common Stock, of which
Up to 351,556 Shares are reserved for sale pursuant to
the Agent Stock Plan,
and
Up to 1,135,174 Shares are reserved for sale pursuant
to the Regional Equity Plan.
Securities Outstanding Prior to the Offering:
Common Stock 46,733,696 Shares (1)
Securities to be Outstanding after Completion of the Offering:
Common Stock 48,220,426 Shares (2)
(1) As of March 31, 2000. Does not include 1,135,174 shares of Common Stock
reserved for issuance under the Plans or 4,152,894 shares reserved for
issuance under other plans maintained by the Company.
(2) Assumes the issuance of all of the shares offered hereby, but does not
include 4,152,894 shares reserved for issuance under other plans maintained
by the Company.
RISK FACTORS
An investment in the securities offered hereby involves substantial risk.
See "Risk Factors".
NASDAQ SYMBOL
Common Stock UHCO
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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 including the documents incorporated by
reference, and in particular the following risks and speculative factors
inherent in and affecting the business of the Company and the Offering.
THE 1999 ACQUISITION.
On July 30, 1999, Universal acquired all of the outstanding shares of
common stock of certain subsidiaries of PennCorp Financial Group ("PFG"),
including six insurance companies (the "Penn Union Companies") and certain other
assets as follows (the "Penn Union Acquisition"). The Penn Union Acquisition
received the approvals of the Pennsylvania, North Carolina and Texas Insurance
Departments (the states in which the U.S. Penn Union Companies are domiciled)
and the approval of the Office of the Superintendent of Financial Institutions
of Canada ("OSFI"), the regulatory body for the Canadian operations of the Penn
Union Companies. The Penn Union Companies are:
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Name of Insurance Company State or Province of Domicile
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Pennsylvania Life Insurance Company Pennsylvania
Peninsular Life Insurance Company North Carolina
Union Bankers Insurance Company Texas
Constitution Life Insurance Company Texas
Marquette National Life Insurance Company Texas
PennCorp Life Insurance Company Ontario, Canada
</TABLE>
The aggregate purchase price for the Penn Union Acquisition was $130.5
million in cash. It was financed with $92.8 million of proceeds from the sale of
common stock described below, and from the $70 million term loan portion of an
$80 million credit facility entered into on July 30, 1999. None of the $10
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million revolving loan facility included in this credit facility was drawn at
closing nor has been drawn upon to date. The proceeds of the financing in excess
of the $130.5 million purchase price were used to retire an existing Universal
bank loan, to contribute to the surplus Pennsylvania Life, for transaction
expenses and for working capital.
The sale of common stock referred to above was pursuant to a Share
Purchase Agreement entered into between the Company and Capital Z Financial
Services Fund II, L.P. ("Capital Z"), which was amended on July 2, 1999 (as
amended, the "Share Purchase Agreement"). Under the Share Purchase Agreement,
Capital Z agreed to purchase up to 28,888,888 shares of Universal common stock
for a purchase price of up to $91.0 million (the "Capital Z Transaction"). The
Share Purchase Agreement received the approvals of the Insurance Departments of
all of the jurisdictions in which the Insurance Subsidiaries owned by the
Company prior to the Penn Union Acquisition are domiciled. The stockholder
approvals required for the closing of the Share Purchase Agreement were given on
July 27, 1999.
On July 30, 1999, the Capital Z Transaction closed with Capital Z
purchasing 25,707,552 shares of common stock for $80,978,790 ($3.15 per share).
As contemplated in the Share Purchase Agreement, certain members of management
and agents of Universal and the Penn Union Companies and holders of Universal's
Series C Preferred Stock preemptive rights purchased 3,753,189 shares of common
stock for $11,822,545, all at $3.15 per share. A total of 29,460,741 shares were
issued for total proceeds of $92,801,334. The transaction expenses incurred with
the Share Purchase Agreement amounted to $6,963,662 and were charged to paid-in
capital. These included a transaction fee and expense reimbursement of
$5,120,896 paid to an affiliate of Capital Z, $1,375,000 of which was paid by
issuing 436,508 shares of common stock of the Company.
The acquisition of the Acquired Companies is expected to enable the
Company to expand its product and policyholder base, generating growth which
will allow the Company to achieve long-term economies of scale, to cut costs and
increase profits. However, there is no guarantee that these benefits will
materialize.
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The factors that could prevent the Company from realizing these benefits
and could possibly materially and adversely affect the Company's financial
condition and results of operation, include:
- - The Company may not be successful in coordinating and integrating the
operations and business enterprises of the Company and the Acquired
Companies and, consequently, the Company may not realize the expected
benefits of the acquisition.
- - The Company will have to service a greater amount of debt incurred in
connection with the acquisition which will require dividend payments from
the Insurance Subsidiaries and the ability of its subsidiaries to make
such dividend payments is subject to certain legal restrictions. Greater
leverage presents a greater degree of financial risk and the failure of
the Company to meet its debt obligations would likely have a significant
adverse financial impact on the Company.
- - The primary strategic reason for the acquisition was to add a new
distribution channel to the Company -- namely, the career agency system of
Pennsylvania Life. This career agency system, which will continue to write
business with Pennsylvania Life, will operate independently from the
general agency system that will continue to write business through the
other Insurance Subsidiaries of the Company. The addition of this new
channel is expected to have no effect on the compensation or operations of
the general agency system. However, the change in the Company's operating
strategy caused by the utilization of the career sales force of
Pennsylvania Life may not be successful.
- - The anticipated long-term economies of scale may fail to materialize,
adversely affecting the Company's cash flow and earnings before taxes.
COMPETITION
Most of the markets in which the Company competes are highly competitive.
The Insurance
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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. As of the date of this Prospectus, A.M.
Best & Co., a leading insurance company rating agency, has assigned a "B+"1
rating to American Pioneer, American Progressive, Constitution Life,
Pennsylvania Life and Union Bankers. A.M. Best has rated Peninsular Life
"FPR5".2 The other Insurance Subsidiaries are not rated by A.M. Best. For more
current information, consult the subsequent reports of the Company which are
incorporated by reference. See "Documents Incorporated by Reference." 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,
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1 In evaluating a company's financial and operating performance, A.M. Best
reviews profitability, leverage and liquidity as well as the quality of the book
of business, the adequacy and soundness of reinsurance programs, the quality and
estimated market value of assets, reserve adequacy and the experience and
competence of management. A.M. Best's ratings are based upon factors relevant to
policyholders, agents, insurance brokers and intermediaries and are not directed
to the protection of investors. According to A.M. Best's published material, a
"B+" rating is assigned to companies which, in its opinion, have demonstrated
very good overall performance when compared to the standards it has established.
Companies rated B+ have a good ability to meet their obligations to
policyholders. The Insurance Subsidiaries are not known to be currently rated by
the Standard & Poors, Duff and Phelps or Moody's rating organizations.
2 According to A.M. Best's published material, an FPR5 rating is assigned
a company which, in its opinion, has a "good" ability to meet its obligations to
policyholders, based primarily on a quantitative evaluation of the company's
financial strength and operating performance.
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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 insurance, if implemented,
could partially or fully replace some of the Company's current products. Reform
proposals also could involve standardization of major 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, designed 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.
Since April 1, 1993, New York State has required all health insurance sold
to individuals and groups with less than 50 employees, to be offered on an open
enrollment and community rated basis. 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 other states where the Company writes or has in force health
insurance written on the basis of medical underwriting could have an adverse
effect on such business and could require the Company to curtail or eliminate
the writing of such business.
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GOVERNMENT REGULATION
The Insurance Subsidiaries are subject to regulation and supervision by
the Insurance Departments of their domiciliary jurisdictions -- Texas in the
case of American Exchange, Constitution Life, Marquette and Union Bankers,
Florida in the case of American Pioneer, New York in the case of American
Progressive, North Carolina in the case of Peninsular Life, Pennsylvania in the
case of Pennsylvania Life and provincial and federal law of Canada in the case
of PennCorp Canada. Each is also subject to regulation and supervision in the
Insurance Department 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 jurisdictions in which the Insurance Subsidiaries are domiciled. These
laws require prior regulatory agency approval of changes in control of an
insurer and of certain transactions within the holding company structure.
Generally, these laws provide that no one may acquire control of a domiciled
insurer, such as one of the Insurance Subsidiaries, 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 insurance regulator for such
acquisition. Under these laws any owner of a specified percentage of the
outstanding voting securities of the Company would be presumed to have acquired
control of the Company, unless such presumption is rebutted. The specified
percentage is 5% under Florida Insurance Law, 10% under the insurance laws of
New York, North Carolina, Pennsylvania and Texas, and 10% under Canadian law.
Any person intending to acquire such control must give notice to the affected
insurer and the Insurance Department of its domiciliary jurisdiction before
consummation of such acquisition. The Insurance Department may prevent 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.
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 an 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.
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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 generally
accepted accounting principles ("GAAP"), fixed maturity securities owned by life
insurance companies are classified in one of 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. The fixed maturity
securities held by the Insurance Subsidiaries are in the available for sale
category and are carried on the Company's books 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 expect to have to prematurely sell securities
for such purposes. However, it may decide to sell securities as a result of
changes in interest rates, credit quality, the rate of prepayment 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
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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.
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 estimated reserves will prove to be
sufficient or that the Company will not experience adverse mortality or
morbidity experience which would result in operating losses.
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
11
<PAGE> 17
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.
CONTROL BY CAPITAL Z
As a result of the transactions described above under the heading "1999
Acquisition", Capital Z now owns 55.9% of the Company's outstanding Common
Stock. The Company's Board consists of nine directors.
A Shareholders Agreement was entered into on July 30, 1999, between Capital Z
and certain other shareholders, including Richard A. Barasch, Chairman,
President and CEO of the Company, and AAM Capital Partners, L.P. ("AAM"),
affiliates of which own 2,399,414 shares of the Company's outstanding Common
Stock. Under this Shareholders Agreement, the parties are obligated to vote
their shares for the election of directors nominated as follows: Capital Z --
four; Mr. 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.
Thus, Capital Z 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.
12
<PAGE> 18
POSSIBLE ANTI-TAKEOVER EFFECTS OF THE RESTATED CERTIFICATE OF INCORPORATION,
INSURANCE LAW PROVISIONS AND OF THE 1998 PLAN
The concentration of ownership of the Company by Capital Z could delay or
prevent an advantageous change in control of the Company, or have a depressive
effect on the trading market for the Company's Common Stock.
See "Government Regulation" 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.
The Company's 1998 Incentive Compensation Plan which was approved by the
shareholders of the Company in June, 1998 (the "1998 Plan"), provides for
immediate vesting of all Awards under the Plan, including stock option,
restricted stock and stock appreciation rights, in the event of a "change of
control," unless otherwise provided in part under Awards. "Change in Control" is
defined in the 1998 Plan as: (i) the acquisition by any person (as defined) of
securities having 30% or more of the combined voting power of the outstanding
securities of the Company, or a subsidiary; (ii) certain changes in the
composition of the Board; (iii) a merger or consolidation as a result of which
the shareholders of the Company immediately before the merger or consolidation
own less than 50% of the voting securities of the entities or entities surviving
the merger or consolidation, (iv) the sale or disposition of substantially all
of the Company's assets, or (v) any other event which the Board determines would
materially alter the status of the Company or its ownership.
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.
13
<PAGE> 19
EFFECT OF FUTURE SALES OF ADDITIONAL SHARES
The following shares of the Company's Common Stock are, or when issued
will be, freely tradeable: (i) the Common Stock being registered, (ii) the
Common Stock reserved for issuance under employee stock option plans and other
plans maintained by the Company, which is registered under the Securities Act,
and (iii) the Company's presently outstanding Common Stock which has been
registered under the Securities Act. Additional outstanding shares of Common
Stock which have not been registered under the Securities Act, may become
eligible for sale by certain holders either (i) under Rule 144 of the Securities
Act, subject to the volume and timing requirements of Rule 144, or (ii) 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 transactions 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.
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.
14
<PAGE> 20
ADDITIONAL INFORMATION
DOCUMENTS INCORPORATED BY REFERENCE
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").
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, 1999, filed with the Commission (File No. 0-11321), and all Annual Reports
and amendments thereto hereafter filed;
(b) The combined financial statements of Certain Insurance Operations of
Penn Corp Financial Group, Inc., as of December 31, 1998 and 1997 and for each
of the three years then ending, contained on pages E-58 through E-106 of the
Company's Proxy Statement dated July 12, 1999 and the unaudited ProForma
Financial Statement contained on pages 69 to 76 of such Proxy Statement; and
(c) The Company's Proxy Statement dated November 17, 1999, and all Proxy
Statements and amendments thereto, hereafter filed.
The Documents Incorporated by Reference may contain statements which are
forward-looking and are identified by the use of forward-looking words or
phrases such as "intended," "will be positioned," "expects," is or are
"expected," "anticipates," and "anticipated." These forward-looking statements
are based on the Company's expectations at the time such documents are filed
with the Commission. To the extent any of the information contained in the
Documents Incorporated by Reference is a "forward-looking statement"
15
<PAGE> 21
as defined in Section 27A(i)(1) of the Securities Act of 1933, there are a
number of important factors that could cause results to differ materially from
those in the forward-looking statement. Realization of management's beliefs and
projections will depend on a number of factors, including management's
successful execution of its business plan; the condition of the insurance
market; the pricing of products and services; overall economic trends, including
interest rate trends; stock market activity; employment levels; changes in
technology; changes in insurance laws and regulations; other factors beyond the
Company's control, and other factors identified in cautionary statements
included in the Documents Incorporated by Reference.
Any statement contained in a document incorporated herein by reference
which is dated prior to the date of this Prospectus 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, and 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).
REGISTRATION STATEMENT
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 thereto (the "Registration Statement"), filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), of which
this
16
<PAGE> 22
Prospectus forms a part. This Prospectus 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, including statements in the Documents Incorporated by Reference
concerning the contents of any contract or other document are not necessarily
complete. In each instance where reference is made to such contract or other
document which is filed with the Commission as an exhibit to the Registration
Statement or a document incorporated by reference filed with the Commission as
an exhibit to the Registration Statement or document by reference, each
statement about such contract or other document is qualified and amplified, in
all respects, by such reference.
HOW TO OBTAIN DOCUMENTS INCORPORATED BY REFERENCE AND REGISTRATION STATEMENTS.
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.
6 International Drive
Suite 190
Rye Brook, NY 10573
Attn: Corporate Secretary
(914) 934-5200
The Registration Statement, and the reports, proxy statements and other
information filed by the Company with the Commission can be read and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission,
including the Company. The address of the Commission's Internet site is
http://www.SEC.gov.
17
<PAGE> 23
ANNUAL REPORTS
The Company furnishes to the holders of its Common Stock, after the close
of each fiscal year, an annual report 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.
DESCRIPTION OF PLANS UNDER WHICH
COMMON STOCK IS BEING OFFERED
AGENT STOCK PLAN FOR AGENTS OF PENNSYLVANIA LIFE AND PENNCORP CANADA (the "AGENT
STOCK PLAN").
Up to 351,556 shares of Common Stock will be offered pursuant to the Agent
Stock Plan, which was approved by the Board of Directors on July 12, 1999. Under
the Agent Stock Plan, agents of Pennsylvania Life and PennCorp Canada (each, an
"Insurer") will be issued up to 175,778 shares of Common Stock for meeting
certain production goals in each of the years 1999, 2000, and 2001 (the "Stock
Awards"). In addition, each such agent will be granted an option (the "Option
Awards") on the terms set out below to purchase the same number of shares, as
are included in the agent's Stock Awards each year. Both the Stock Awards and
the Option Awards will be subject to the vesting requirements set out below.
NUMBER OF SHARES TO BE AWARDED. Stock Awards will be based on the agent's
annualized new business production ("ANBP") written with each Insurer. Each
agent's ANBP will be multiplied by a percentage ranging from 1%, in the case of
agents with an ANBP of $25,000 to $49,999, to 3%, in the case of agents with an
ANBP of $150,000 and more to produce his or her Stock Award Amount. The Stock
Award Amount will be divided by the Nominal Stock Price then in effect to
produce the number of shares included
18
<PAGE> 24
in the Stock Award (and correspondingly the number of shares subject to the
Agent Options). The Nominal Stock Prices are as follows:
<TABLE>
<CAPTION>
Year in which Year of Grant Nominal Stock
Earned or Award Price
------ -------- -----
<S> <C> <C>
1999 2000 $3.62
2000 2001 $4.17
2001 2002 $4.79
</TABLE>
OPTION AWARDS. At the same time each agent's Stock Award is made, the
recipient agent will also be given the right to purchase one additional share of
stock for each share awarded, with an exercise price equal to the Nominal Stock
Price used to calculate the agent's Stock Award. These Option Awards will become
exercisable when, and if, the agent's Stock Award vests, and must be exercised
within thirty days thereafter. Each option will expire on the earlier of (i) the
termination of the Grantee's appointment as an agent of any of the Insurers "for
cause" or prior to the Vesting Date and (ii) 30 days after the option becomes
exercisable.
VESTING REQUIREMENTS. Both the Stock Awards shall become vested and Option
Awards granted under the Plan shall become exercisable on the earliest to occur
on the following dates (the Vesting Date): (i) January 1st of the second year
after the end of the year in which the award was earned, (ii) the agent's death
or disability while still an agent of one or more of the Insurers, and (iii) the
date on which a "change of control" of the Company as defined in the Plan
occurs. If the agent ceases to be an agent for either Insurer prior to the
Vesting Date, unvested Stock Awards will revert back to the Company and all
Option Awards will expire.
19
<PAGE> 25
DURATION OF PLAN. The Agent Stock Plan will terminate when any Stock
Awards and Option Awards are earned with respect to the year ended December 31,
2001; provided, however, that the Plan will terminate earlier when the sum of
the products of the number of shares issued as Stock Awards in each year
multiplied by the Nominal Stock Price applicable to such Awards amounts to a
total of $636,683.
AGENT EQUITY PLAN FOR REGIONAL MANAGERS AND SUB-MANAGERS OF PENNSYLVANIA LIFE
AND PENNCORP CANADA ("REGIONAL EQUITY PLAN").
Up to 1,135,174 shares of Common Stock will be offered pursuant to the
Company's Agent Equity Plan, approved by the Board of Directors on July 12,
1999. Under the Agent Equity Plan, certain Regional Managers and Sub-Managers of
Pennsylvania Life and PennCorp Canada (each an "Insurer") have been and will be
granted options ("Option Awards") to purchase shares of the Company's Common
Stock for meeting certain increase in production levels in each of the years
1999, 2000 and 2001. In each case the Options will be granted in the years
following the year in which they are earned. Each Option will expire on the
earlier of (i) the termination of the Grantee's appointment as an agent of any
of the Insurers "for cause", (ii) 30 days after the termination of the Grantee's
appointment as an agent of any of the Insurers, not for cause, (iii) 6 months
after the termination of the Grantee's appointment as an agent of any of the
Insurers by reason of death or disability, and (iv) 5 years after the grant.
NUMBER OF OPTIONS TO BE AWARDED. The number of Options available for
grants in each Region and an allocation of those Options among the Managers and
Sub-Managers within the Region are set forth in the Plan. While the allocation
of Options within the Regions may be amended by the Regional Manager involved,
with the approval of the Company, no such amendment shall affect Options already
granted, due, or earned by eligible agents prior to the announcement of such an
amendment.
Option Awards will be based on the growth of premium (defined in the Plan)
achieved by each
20
<PAGE> 26
eligible agent over the preceding calendar year, as follows:
<TABLE>
<CAPTION>
Growth in Premium Options to be Granted
Over Prior Year
- --------------------------------------------------
<S> <C>
Less than 5% None
5% 25% of Total Available Options
10% 33% of Total Available Options
15% 40% of Total Available Options
20% or more 50% of Total Available Options
</TABLE>
The Option Award Amount will be divided by the Exercise Price then in
effect to produce the number of options included in the Option Award. The
Exercise Prices are as follows:
<TABLE>
<CAPTION>
Year in which Year of Exercise
Earned Grant Price
- -----------------------------------------
<S> <C> <C>
1999 2000 US $3.62
2000 2001 US $4.17
2001 2002 US $4.79
</TABLE>
VESTING REQUIREMENTS. The Options granted under the Plan shall become
exercisable on the earliest of the following (i) the end of the second calendar
year after the year with respect to which the Option was granted, (ii) the date
of the Option holder's death, or (iii) the date on which a "change of control"
of the Company as defined in the Plan occurs, provided that the recipient
Manager or Sub-Manager has been an agent of one or more of the Insurers
continuously from the date of the grant until such date.
21
<PAGE> 27
DURATION OF PLAN. The Agent Equity Plan will terminate when any Options
earned with respect to the year ended December 31, 2001 are granted; provided,
however, that the Plan will terminate earlier as to Regions in the United States
when the aggregate Exercise Price of all Options granted under the Plan equals
U.S. $3,050,000, and as to Regions in Canada, when the aggregate Exercise Price
of all Options granted under the Plan equals U.S. $1 million.
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 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. There are presently no shares of preferred stock outstanding and no
plans, agreements or understandings for the authorization or issuance of any
preferred stock.
22
<PAGE> 28
COMMON STOCK
The Company is authorized to issue 80 million shares of Common Stock, par
value of $.01 per share. As of March 31, 2000, the Company 46,733,696 issued and
outstanding shares of Common Stock, 4,132,894 shares reserved for issuance
pursuant to outstanding options, 2,725,117 shares reserved for future issuance
under other plans maintained by the Company, and 1,486,730 shares reserved for
issuance hereunder. 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 offered hereby will be, and all of the outstanding shares of
Common Stock are, fully paid and nonassessable.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND NEW YORK LAW
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 sixty-six and two-thirds percent (66-2/3%) 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 Company's Restated Certificate of Incorporation also requires that the
following actions by the Company require approval of not less than sixty-six and
two-thirds percent (66-2/3%) of the total number of directors:
(a) (i) a merger or consideration of the Company or a material subsidiary,
or in which the Company's
23
<PAGE> 29
securities are being issued, in which the Company's shareholders do not own a
majority of the post-transaction voting securities entitled to elect the board
of directors; (ii) the sale of all or substantially all of the Corporation's
assets or properties; (iii) the disposition of any shares of a material
subsidiary or all or substantially all of the assets of such a subsidiary; (b)
changes the number of directors; (c) changes in the Certificate of
Incorporation; (d) electing or removing executive officers, or changing the
employment agreement entered into between Richard Barasch and the Company on
July 30, 1999; (e) dissolving the Company or seeking protection of bankruptcy
laws; and (f) approving dividends or other distributions with respect to Common
Stock.
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 or 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
24
<PAGE> 30
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.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is American Stock
Transfer & Trust Company.
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, Irving I. Lesnick and Judith A. Ripps, shareholders in
such law firm, in the aggregate directly own 85,304 shares of the Company's
Common Stock, and non-qualified options to acquire 30,500 additional shares of
Common Stock. A trust established by Mr. Harnett for the benefit of members of
his family, owns 50,000 shares of Common Stock in which Mr. Harnett disclaims
any beneficial interest. The law firm was paid $949,257 during the calendar year
1999, on account of its legal services to, as well as reimbursement for
disbursements made on behalf of, the Company and its subsidiaries.
25
<PAGE> 31
EXPERTS
The consolidated financial statements of Universal American Financial
Corp. and subsidiaries appearing in Universal American Financial Corp.'s Annual
Report (Form 10-K) for the year ended December 31, 1999, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing. The combined financial statements of Certain Insurance Operations of
PennCorp Financial Group, Inc., as of December 31, 1998 and 1997, and for each
of the years in the three-year period ended December 31, 1998, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
26
<PAGE> 32
================================================================================
1,486,730 Shares
UNIVERSAL AMERICAN FINANCIAL CORP.
Common Stock
-------------------------
PROSPECTUS
------------------------
April 14, 2000
================================================================================
27
<PAGE> 33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses of issuance and distribution of the securities being
offered are estimated, for purposes of this Offering, as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration Fee $ 2,000
NASD Fee (1) 5,000
Legal fees and expenses 5,000
Blue Sky fees and expenses 3,000
Accounting fees and expenses 5,000
Printing 2,000
Transfer agent fees 1,500
Miscellaneous expenses 1,500
-------
Total $25,000
=======
</TABLE>
(1) Fees are paid when securities are issued.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 722 and 723 of New York's Business Corporation Law
("BCL"), Article 16 of the Company By-Laws requires the Company to indemnify to
the greatest extent allowed by law, each of its directors, officers and
employees and persons serving as an officer, director, employee or agent of
another Corporation at the Company's request, against liability (whether by
judgment or settlement) and reasonable expenses (including attorney fees)
necessarily incurred in defending any action or proceeding, brought or
threatened against him, by reason of his service as such officer, director,
employee or agent.
The Company's Restated Certificate of Incorporation supplements the
indemnification rights of directors under the Company By-Laws so that no
director of the Corporation shall be held personally liable to the Corporation
or to its shareholders for damages for any breach of duty while acting as
director, unless (a) it is found, by a judgment of a court of competent
jurisdiction, or by other adjudication, (i) that said breach of duty, whether an
act or omission, was committed in bad faith, or involved intentional misconduct
or knowing violation of the law; (ii) that said director personally gained a
financial profit or other advantage to which the director was not legally
entitled; or (iii) that the director's acts violated Section 719 of the Business
Corporation Law; or that the act or omission was committed before the adoption
of such provision on October 16, 1988.
<PAGE> 34
Item 16. Exhibits.
<TABLE>
<S> <C>
5 Proposed opinion of Harnett Lesnick & Ripps P.A. regarding the legality of
the securities being registered.
10 Material Contracts. Material Contracts filed as exhibits to the Documents
Incorporated by Reference are incorporated as exhibits to this Form S-2 by
reference.
*11 Statement re computation of per share earnings. Statements re computation
of per share earnings presented in Documents Incorporated by References
are incorporated by reference.
21 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP
23.3 Consent of Harnett Lesnick & Ripps P.A.,
24 Powers of attorney (included on signature page).
</TABLE>
* Incorporated by reference as indicated.
ITEM 17. UNDERTAKINGS.
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
2. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made a post-effective amendment to this registration statement;
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the
<PAGE> 35
registration statement (or the most recent pos-effective amendment thereof)
which individually or in the aggregate represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (Section 230.424(b) of this chapter) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
3. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City and State of New York on the
14th day of April, 2000.
UNIVERSAL AMERICAN FINANCIAL CORP.
By:____________________________________
Richard A. Barasch, Chairman & CEO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the date indicated, by the
following persons in the capacities and on the dates indicated:
Each person whose signature appears below constitutes and appoints Richard
A. Barasch as his attorney-in-fact, with power of substitution for him in any
and all capacities, to sign this registration statement and any amendments and
post-effective amendments hereto, and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact or
his substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
<S> <C>
_________________________________ April 14, 2000
Richard A. Barasch, Chief
Chairman Executive
Officer, President and Director
(Principal Executive Officer)
_________________________________ April 14, 2000
Bertram Harnett, Director
_________________________________ April 14, 2000
Bradley Cooper, Director
_________________________________ April 14, 2000
Susan S. Fleming, Director
_________________________________ April 14, 2000
Mark M. Harmeling, Director
_________________________________ April 14, 2000
Patrick McLaughlin, Director
_________________________________ April 14, 2000
Robert Spass, Director
_________________________________ April 14, 2000
Richard Veed, Director
_________________________________ April 14, 2000
Robert Wright, Director
_________________________________ April 14, 2000
Robert A. Waegelein, Senior Vice
President and Chief Financial Officer
(Principal Accounting Officer)
</TABLE>
<PAGE> 1
EXHIBIT 5
HARNETT LESNICK & RIPPS P.A.
Nationsbank Tower
150 East Palmetto Park Road
Suite 150
Boca Raton, Florida 33432-4832
-----
(561) 368-1995
-----
Telecopier: (561) 368-4315
April 14, 2000
Universal American Financial Corp.
6 International Drive
Suite 190
Rye Brook, New York 10573
RE: 1,486,730 SHARES COMMON OF
UNIVERSAL HOLDING CORP. - $0.01 PAR VALUE
As counsel to Universal American Financial Corp. ("the Company"), we have
examined and are familiar with (1) the Restated Certificate of Incorporation of
the Company, with all amendments thereto, (2) the By-Laws of the Company, as
amended to date, (3) the Registration Statement on Form S-2 (Registration No.
_______), including the exhibits (the "Registration Statement"), and the
Prospectus forming a part of the Registration Statement, filed by the Company
with the Securities and Exchange Commission for the registration under the
Securities Act of 1933, as amended, of 1,486,730 shares of the Common Stock, par
value $0.01 each ("The Shares"), and (4) all corporate proceedings taken by the
Company in connection with the Registration Statement and the issuance and sale
of the Shares, subject to the Registration Statement becoming effective.
Based upon the foregoing, and upon the examination of such corporate
proceedings, documents and records as we have deemed necessary for the purposes
of this opinion, we are of the opinion that:
(1) the Company is duly organized and validly existing under the laws of
the State of New York;
<PAGE> 2
Universal American Financial Corp.
April 14, 2000
Page 2
(2) the Shares, when they have been issued by the Company as Agent Stock
Awards or upon exercise of Options under the Agent's Stock Plan or
the Regional Equity Plan and paid for, as set forth in the
Prospectus, will be, in the hands of the purchasers, duly issued,
fully paid for and non-assessable.
We hereby consent to the use of this opinion or reference thereto in that
Registration Statement and the Prospectus filed by the Company under the
Securities Act of 1933, as amended, in connection with the Shares.
Very truly yours,
HARNETT LESNICK & RIPPS P.A.
By: ____________________________________
Irving I. Lesnick, Vice President
<PAGE> 1
EXHIBIT 21
List of Subsidiaries:
<TABLE>
<CAPTION>
State of Percentage
Name Incorporation Owned
- -------------------------------------------- ------------- -----
<S> <C> <C>
American Progressive Life & Health Insurance New York 100%
Company
American Pioneer Life Insurance Company Florida 100%
American Exchange Life Insurance Company Texas 100%
Pennsylvania Life Insurance Company Pennsylvania 100%
Peninsular Life Insurance Company North Carolina 100%
Union Bankers Insurance Company Texas 100%
Constitution Life Insurance Company Texas 100%
Marquette National Life Insurance Company Texas 100%
PennCorp Life Insurance Company Ontario, Canada 100%
PFI, Inc. Delaware 100%
Quincy Coverage Corporation Delaware 100%
WorldNet Service Corp. Florida 100%
Security Health Provides, Inc. Delaware 50%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-2) and related Prospectus of Universal American
Financial Corp. and subsidiaries for the registration of 1,486,730 shares of its
common stock and to the incorporation by reference therein of our report dated
March 6, 2000, with respect to the consolidated financial statements and
schedules of Universal American Financial Corp. and subsidiaries included in its
Annual Report (Form 10-K) for the year ended December 31, 1999, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
April 11, 2000
<PAGE> 1
EXHIBIT 23.2
KPMG CONSENT
The Board of Directors
PennCorp Financial Group, Inc:
We consent to the incorporation by reference in the registration
statement on Form S-2 of Universal American Financial Corp. of our
report dated April 14, 1999, except as to Note 18 which is as of May 26, 1999,
with respect to the combined balance sheets of Certain Insurance Operations of
PennCorp Financial Group, Inc., as of December 31, 1998 and 1997, and the
related combined statements of income, changes in business equity,
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998, which report appears in the Proxy Statement of
Universal American Financial Corp. dated July 12, 1999. We also consent to the
reference of our firm under the heading "Experts" in the Form S-2.
KPMG LLP
Dallas, Texas
April 13, 2000
<PAGE> 1
EXHIBIT 23.3
HARNETT LESNICK & RIPPS P.A.
Nationsbank Tower
150 East Palmetto Park Road
Suite 150
Boca Raton, Florida 33432-4832
-----
(561) 368-1995
-----
Telecopier: (561) 368-4315
April 12, 2000
Universal American Financial Corp.
6 International Drive
Suite 190
Rye Brook, New York 10573
RE: POST EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION
STATEMENT NO. 333-03641
UNIVERSAL HOLDING CORP. - $0.01 PAR VALUE
We are counsel to Universal American Financial Corp. ("the Company"),in
connection with the Registration Statement on Form S-2 being filed
contemporaneously herewith for the registration under the Securities Act of
1933, as amended, of 1,486,730 shares of the Common Stock, par value $0.01 each
("The Shares").
We hereby consent to the use of our opinion which will be filed as an
exhibit to such Registration Statement and reference thereto in the Registration
Statement and the Prospectus filed by the Company under the Securities Act of
1933, as amended, in connection with the Shares.
Very truly yours,
HARNETT LESNICK & RIPPS P.A.
By: _____________________________________
Irving I. Lesnick, Vice President
