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As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-34786
1,486,730 SHARES
UNIVERSAL AMERICAN FINANCIAL CORP.
COMMON STOCK
Universal American Financial Corp. will offer up to 1,486,730 shares of common
stock, par value $.01 per share, to certain agents, regional managers and
regional submanagers of two of its subsidiaries: Pennsylvania Life Insurance
Company and PennCorp Life Insurance Company subsidiaries. Universal will offer
these shares through its Agent Stock Plan and its Regional Equity Plan, both
described later in this prospectus.
The Agent Stock Plan includes both stock bonuses and stock options; the
Regional Equity Plan consists of stock options. The exercise prices of the stock
options range from $3.62 for options earned in 1999 to $4.79 for options earned
in 2001.
The Company will receive the entire proceeds of the exercise of the
stock options with no underwriting commissions or discounts.
The common stock is listed on the Nasdaq National Market under the
symbol "UHCO". The closing price reported on July 10, 2000 was $3.75.
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 August 18, 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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PROSPECTUS SUMMARY................................................................................................1
UNIVERSAL................................................................................................1
USE OF PROCEEDS..........................................................................................1
THE OFFERING.............................................................................................1
RISK FACTORS.............................................................................................2
NASDAQ SYMBOL............................................................................................2
RISK FACTORS......................................................................................................2
RISKS RELATED TO THE 1999 ACQUISITIONS...................................................................2
THE RISK THAT UNIVERSAL WILL BE UNABLE TO COMPETE SUCCESSFULLY...........................................3
THE RISK THAT HEALTH CARE REFORM LEGISLATION WILL ADVERSELY AFFECT
UNIVERSAL'S SALES VOLUME AND PROFITABILITY......................................................4
THE RISK THAT OTHER ASPECTS OF GOVERNMENT REGULATION MIGHT AFFECT
PROFITABILITY OR MARKET VALUE...................................................................4
THE RISK THAT TAX LAW CHANGES WILL ADVERSELY AFFECT SALES AND
PROFITABILITY...................................................................................5
THE RISK THAT UNIVERSAL'S INVESTMENTS AND PREMIUM FLOW WILL NOT MEET ITS
LIQUIDITY REQUIREMENTS. ........................................................................5
THE RISK THAT THE FUTURE BENEFIT PAYMENTS WILL EXCEED RESERVES ..........................................5
THE RISKS OF RELYING ON REINSURANCE TO INCREASE THE VOLUME OF UNIVERSAL'S
INSURANCE ......................................................................................5
RISKS RESULTING FROM CONTROL BY CAPITAL Z................................................................6
RISKS OF DECREASE IN VALUE OF COMMON STOCK CAUSED BY CHANGE OF CONTROL
PROVISIONS......................................................................................6
MARKET IN PUBLICLY TRADED SECURITIES..............................................................................7
EFFECT OF FUTURE SALES OF ADDITIONAL SHARES..............................................................7
USE OF PROCEEDS...................................................................................................8
ADDITIONAL INFORMATION............................................................................................8
DOCUMENTS INCORPORATED BY REFERENCE......................................................................8
REGISTRATION STATEMENT...................................................................................9
HOW TO OBTAIN DOCUMENTS INCORPORATED BY REFERENCE AND REGISTRATION
STATEMENTS......................................................................................9
ANNUAL REPORTS..........................................................................................10
DESCRIPTION OF PLANS UNDER WHICH
COMMON STOCK IS BEING OFFERED...........................................................................10
THE AGENT STOCK PLAN FOR AGENTS OF PENNSYLVANIA LIFE AND PENNCORP LIFE
CANADA. .......................................................................................10
NUMBER OF SHARES TO BE AWARDED. ...............................................................10
OPTIONS. ......................................................................................10
VESTING REQUIREMENTS...........................................................................11
DURATION OF PLAN. .............................................................................11
REGIONAL EQUITY PLAN FOR REGIONAL MANAGERS AND SUB-MANAGERS OF
PENNSYLVANIA LIFE AND PENNCORP LIFE CANADA ....................................................11
NUMBER OF OPTIONS TO BE AWARDED. ..............................................................11
VESTING REQUIREMENTS...........................................................................12
DURATION OF PLAN. .............................................................................12
</TABLE>
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<TABLE>
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DESCRIPTION OF SECURITIES........................................................................................12
GENERAL ...............................................................................................12
PREFERRED STOCK.........................................................................................13
COMMON STOCK............................................................................................13
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND OF NEW YORK LAW..................................13
TRANSFER AGENT..........................................................................................14
LEGAL MATTERS....................................................................................................15
EXPERTS ........................................................................................................15
</TABLE>
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PROSPECTUS SUMMARY
UNIVERSAL AND ITS BUSINESS
Universal is an insurance holding company owning nine companies that issue
life and health insurance and two companies which act as administrators of
business for insurance companies.
- The nine insurance subsidiaries are: American Progressive Life and
Health Insurance Company of New York, American Pioneer Life Insurance
Company, American Exchange Life Insurance Company , Constitution Life
Insurance Company, Peninsular Life Insurance Company, Pennsylvania Life
Insurance Company, PennCorp Life Insurance Company of Canada, Marquette
National Life Insurance Company, and Union Bankers Insurance Company.
The last six were acquired by Universal on July 30, 1999.
- The two business administrators are WorldNet Services Corp. and
American Insurance Administration Group, Inc. They are each licensed by
state insurance departments to perform administrative services for
insurance companies. American Insurance Administration Group, Inc. was
acquired on January 6, 2000.
Historical information about Universal, American Progressive, American
Pioneer, American Exchange and WorldNet and their business is set forth in
Universal's annual report on Form 10-K for 1999. Historical information about
the other six insurance subsidiaries, are set forth in Universal's proxy
statement dated July 12, 1999. The Form 10-K and the relevant portion of the
proxy statement referred to in this paragraph, are incorporated in this
prospectus by reference. See "Documents Incorporated by Reference"
Universal's principal executive office is at 6 International Drive,
Suite 190, Rye Brook, NY 10573. Its telephone number is (914) 934-5200.
USE OF PROCEEDS
Universal and its subsidiaries will use the entire proceeds of this
offering, net of the cost of the offering, estimated at $25,000, as working
capital.
THE OFFERING
Securities Offered. Up to 1,486,730 Shares of common stock, to
be offered as follows: Agent Stock Plan - bonuses -
up to 175,778 shares Agent Stock Plan - options - up
to 175,788 shares Regional Equity Plan - options - up
to 1,135,174 shares
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 the shares reserved for issuance
under this prospectus or 4,152,894 shares reserved for issuance under
other Universal plans.
(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.
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RISK FACTORS
The securities offered involve substantial risk. See "Risk Factors".
NASDAQ SYMBOL
Common Stock UHCO
RISK FACTORS
The securities being offered hereby involve substantial risks.
Prospective investors, before 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 Universal's business and the offering.
RISKS RELATED TO THE 1999 ACQUISITIONS.
On July 30, 1999, Universal acquired all of the outstanding shares of
common stock of six insurance company subsidiaries of PennCorp Financial Group.
This acquisition was approved by the Pennsylvania, North Carolina and Texas
Insurance Departments, and by the Office of the Superintendent of Financial
Institutions of Canada. The acquired life insurance companies are:
<TABLE>
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Name of Insurance Company State or province in which incorporated
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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>
Universal raised the $130.5 million required for the acquisitions by
issuing common stock for $92.8 million and borrowing $70 million as a term loan.
The term loan was part of an $80 million bank credit facility. Universal has not
as yet borrowed any of the remaining $10 million under the credit facility.
Universal expects that the 1999 acquisition will enable it to expand
its product and policyholder base, generating growth which will allow it to
achieve long-term economies of scale, to cut costs and increase profits.
However, there is no guarantee that these benefits will materialize.
The factors that could prevent Universal from realizing these benefits
and could possibly materially and adversely affect its financial condition and
results of operation, include the following:
- The Risk that Universal May Not Benefit From Pennsylvania
Life's Agency System.
Before the 1999 acquisitions, Universal distributed its
insurance products only through independent agents and brokers who sold
insurance for a number of insurers in addition to Universal's
subsidiaries. Pennsylvania Life and PennCorp Life distribute their
products through what are known as career agents, which is a system of
regional managers and agents who largely sell only the products of the
insurer to which they are contracted. Prior to Universal's acquisition,
there was a stagnation of production in this system.
In making the 1999 acquisition Universal believed that it
could revitalize the Pennsylvania Life and PennCorp Life agency
systems, increase their production, and utilize them to distribute
Universal's
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insurance products. There is a risk that Universal will be unable to
increase the sales of these agency systems and that the use of this
distribution channel will disrupt the brokerage distribution system of
the other Universal insurance subsidiaries. These results could impair
Universal's expectation of increased sales and economics of scale
expected to flow from the 1999 acquisitions.
- The Risk that Universal May be Unable to Integrate the Acquired
Subsidiaries and Realize Economies of Scale.
At the time of the 1999 acquisitions, Universal's insurance
subsidiaries operated from offices in Orlando and Pensacola, Florida
and to a lesser extent, Universal's office in Rye Brook, N.Y. The
acquired insurance subsidiaries operated from offices in Raleigh, North
Carolina and Toronto, Canada. American Insurance Administration Group,
Inc. was located in Clearwater, Florida. Universal is in the process of
closing down the acquired Raleigh and Clearwater locations, and
consolidating operations in Orlando, Pensacola and Toronto. Universal
believes that these changes will reduce the cost of its insurance
operations and enable it to handle the increased volume of sales
expected to be generated by the combined companies at a lower per unit
cost. There is a risk that the changes Universal is making will result
in unexpected disruptions in operations that will reduce or reverse the
expected savings and a risk that the anticipated increased sales will
not materialize, reducing or eliminating the expected economies of
scale.
- The Risk that Universal Will Be Unable to Make Its Loan Payments.
In order to help finance the 1999 acquisitions, Universal
borrowed $70 million as a term loan from a group of banks, which have
also agreed to lend it up to an additional $10 million on a revolving
loan basis. In order to make the required interest and principal
payments on this debt, Universal will have to receive payments from its
subsidiaries. The subsidiaries will be able to make the necessary
payments only if they earn sufficient profits and, in the case of the
insurance subsidiaires, satisfy the requirements of the state insurance
laws to which they are subject. If Universal is unable to make the
required payments on its debt, it would suffer adverse financial
effects, such as being forced to sell assets at depressed prices to
raise the required funds.
THE RISK THAT UNIVERSAL WILL BE UNABLE TO COMPETE SUCCESSFULLY
Most of the markets in which Universal operates are highly
competitive. The insurance subsidiaries are in direct competition with a large
number of insurance companies, many of which offer a greater number of products
through a greater number of agents and have greater resources than Universal.
This competitive environment could result in lower premiums, less favorable
underwriting terms and conditions, loss of sales 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 ratings to the insurance subsidiaries as follows:
- American Pioneer, American Progressive and Pennsylvania Life
Bankers have been assigned a B+ rating, which means, according
to Best's published material, that the company, in its
opinion, has demonstrated very good overall performance when
compared to the standards Best has established. In assigning
this rating, A.M. Best reviews the company's 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.
Best's ratings are based upon factors relevant to
policyholders, agents, insurance brokers and intermediaries
and are not directed to the protection of investors.
Constitution Life and Union Bankers have also been assigned B+
ratings, but do not now issue new policies.
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- Peninsular Life, which is not now issuing new policies, has
been assigned a "FPR5" rating, which means, according to
Best's published material that, in its opinion, the company
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.
- The other insurance subsidiaries have not yet been assigned
ratings, in the case of Canada because Best does not rate
foreign insurers.
For more current information, consult the subsequent reports of Universal which
are incorporated by reference by the section headed "Documents Incorporated by
Reference."
THE RISK THAT HEALTH CARE REFORM LEGISLATION WILL ADVERSELY AFFECT UNIVERSAL'S
SALES VOLUME AND PROFITABILITY
From time to time numerous proposals have been introduced in Congress
and state legislatures to reform health care systems. Proposals have included,
among other things, employer-based insurance systems, subsidized premiums for
lower income people, government sponsorship of buying groups to negotiate with
health plan providers and programs to regulate policy availability and
affordability.
For example, 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 without regard to customer medical history and at rates which do not
classify insureds by medical history. This legislation has to date had a limited
adverse effect on American Progressive's business, primarily on the Medicare
supplement and senior hospital cash policies. However, the adoption of similar
legislation in other states, where Universal writes or has in force
substantially more health insurance written on the basis of customer medical
history or at rates which classify insureds by medical history, could have an
adverse effect on the profitability of such business.
Federal program comprehensive major medical insurance, widely
discussed, but not adopted, could partially or fully replace some of Universal's
current products, reducing sales and profits. Other frequent reform proposals
include standardization of coverages, greater rate regulation, relating premiums
to target loss ratios and adopting procedures for third party review of claim
decisions.
Adoption of these or other proposals could increase the level of
competition among health insurers or the cost of doing business, which could
force Universal to reduce its writings or withdraw from some markets, reducing
its sales and its profitability. In addition, changes could be made in Medicare
that could necessitate revisions in Universal's Medicare supplement products,
which could also adversely affect premium volume and profitability.
THE RISK THAT OTHER ASPECTS OF GOVERNMENT REGULATION MIGHT AFFECT PROFITABILITY
OR MARKET VALUE
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 Life. 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 financial statements required by
statute. Changes in these regulations could adversely affect Universal's
profitability or the market value of its shares.
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THE RISK THAT TAX LAW CHANGES WILL ADVERSELY AFFECT SALES AND PROFITABILITY.
Universal sells deferred annuities and some forms of life insurance
products, which are attractive to purchasers in part because policyholders
generally are not subject to federal income tax on increases in policy values
until some form of distribution is made. 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 Universal's
ability to sell the affected products. To the best of Universal's knowledge,
Congress is not now 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, Internal Revenue Service regulations, or judicial decisions. Such
changes might reduce Universal's sale of life and annuity products and their
profitability.
THE RISK THAT UNIVERSAL'S INVESTMENTS AND PREMIUM FLOW WILL NOT MEET ITS
LIQUIDITY REQUIREMENTS.
Universal seeks to make both long-term and short-term investments so as to
achieve the best investment returns consistent with the preservation of capital
and the maintenance of liquidity adequate to meet payment of policy benefits and
claims.
Universal believes it maintains adequate amounts of cash and short-term
investments to fund expected policy benefits and surrenders, and does not expect
to have to sell securities prematurely for such purposes. It may, however,
decide to sell securities as a result of changes in interest rates, credit
quality, the rate of prepayment or other similar factors.
A significant increase in market interest rates could result in a
situation in which Universal is required to sell securities at depressed prices
to fund payments to policyholders. Since Universal carries all its bonds at fair
value, Universal expects that these securities would be sold with no material
impact on its net equity, but such sales might reduce profitability.
THE RISK THAT THE FUTURE BENEFIT PAYMENTS WILL EXCEED RESERVES
Universal has established reserves for claims and future policy
benefits based on accepted actuarial practices. By care in underwriting new
policies and sharing risk with reinsurance companies, it has attempted to limit
the risk that its actual payments of death benefit and benefits will not exceed
its reserves. The reserves are, however, only actuarial estimates and it is
possible that Universal's claim experience could be worse than anticipated, so
that its reserves may prove to be insufficient. If this were to happen, it could
result in reduced operating profits and even operating losses.
THE RISKS OF RELYING ON REINSURANCE TO INCREASE THE VOLUME OF UNIVERSAL'S
INSURANCE
Universal is able to assume insurance risks beyond the level which its
capital and surplus would support by transferring substantial portions of such
risks to other, larger insurers through reinsurance contracts. These reinsurance
arrangements, which are the usual practice in the insurance industry, leave
Universal exposed to two risks:
- The credit risk, which exists because reinsurance does not relieve
Universal of its liability to its insureds for the portion of the risks
ceded to reinsurers. Although Universal 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 materially adverse effect on
Universal's financial condition.
- The amount and cost of reinsurance available to Universal is subject,
in large part, to prevailing market conditions beyond Universal's
control. Universal's current reinsurance facilities generally are
subject to annual renewal and cancellation on 90 days notice.
Non-renewal or cancellation of a reinsurance
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arrangement affects only new business and the reinsurer remains liable
on business reinsured prior to non-renewal or cancellation. If
Universal were to be unable to maintain or replace its reinsurance
facilities on acceptable terms upon their expiration and were unwilling
to bear the associated increase in exposure on new business, it would
have to reduce the amount of its new business.
RISKS RESULTING FROM CONTROL BY CAPITAL Z
As a result of the stock issuance to help finance the 1999 Acquisition,
56% of Universal's outstanding common stock as of June 30, 2000 is owned by
Capital Z Financial Services Fund II, L.P., a private investing entity, and its
affiliates. Universal's Board consists of nine directors. Under a shareholders
agreement entered into on July 30, 1999, among Capital Z and certain other
shareholders, including Richard A. Barasch, Universal's Chairman, President and
CEO, and AAM Capital Partners, L.P., the parties are obligated to vote for
directors as follows:
- four by Capital Z,
- two by Mr. Barasch,
- one by AAM and
- two by Universal.
Because of Capital Z's majority stock ownership, Capital Z also effectively
controls the election of the two directors that Universal is entitled to
nominate. Thus, Capital Z is able to elect a majority of Universal's Board of
Directors and to approve or disapprove any corporate action submitted to a vote
of its shareholders. This concentration of ownership and control by Capital Z
could delay or prevent an advantageous change in control of Universal, or have a
depressive effect on the trading market for the its common stock.
RISKS OF DECREASE IN VALUE OF COMMON STOCK CAUSED BY CHANGE OF CONTROL
PROVISIONS
The market price of Universal's common stock may also be adversely
affected by anti-takeover provisions of its certificate of incorporation,
statutory change-of-control provisions, and change- of-control provisions of its
1998 Incentive Compensation Plan.
- Universal's certificate of incorporation and the New York Business
Corporation Law to which Universal is subject contain certain
anti-takeover provisions, which are intended to make it more difficult
for control of Universal to be obtained by a bidder who has not been
approved by its board of directors. These provisions are discussed
below under "Certain Provisions of Certificate of Incorporation and New
York Law" .
- Universal is also regulated as an insurance holding company by the
jurisdictions in which its insurance company subsidiaries are
incorporated. These laws require prior approval by the regulators of
changes in control of an insurer. Generally, these laws require notice
to the insurer and prior written approval of the insurance regulator of
the jurisdiction in which the insurance company is organized. Under
these laws anyone acquiring a specified percentage of Universal's
outstanding voting securities would be presumed to have acquired
control of Universal, unless such presumption is rebutted. The
specified percentage is 5% under Florida insurance law, and 10% under
the insurance laws of the other relevant jurisdictions.
- Universal's 1998 incentive compensation plan which was approved by its
shareholders in June, 1998, generally provides for immediate vesting of
all awards, including stock options, restricted stock and stock
appreciation rights, in the event of a "change of control", "Change in
control" is defined in the 1998 Plan as: (i) the acquisition by any
person, as defined in the plan, of securities of Universal having 30%
or more of the combined voting power of the outstanding securities of
Universal, or a subsidiary; (ii) certain
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changes in the composition of the Board; (iii) a merger or
consolidation as a result of which existing shareholders own less than
50% of the voting securities of the entity surviving the merger, (iv)
the sale or disposition of substantially all of Universal's assets, or
(v) any other event which the board determines would materially alter
the status of the Universal or its ownership. These provision may
hinder the efforts of a potential buyer of control of the Company, or a
substantial block of stock in it, thus possibly depriving existing
stockholders of a favorable market opportunity.
MARKET IN PUBLICLY TRADED SECURITIES
Universal's Common Stock has been traded in the over-the-counter market
and quoted on the Nasdaq National Market under the symbol UHCO since May 12,
1983. The following table sets forth the high and low sales prices per share of
Common Stock as reported on the Nasdaq National Market for the periods
indicated.
<TABLE>
<CAPTION>
Common Stock
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High Low
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1997
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First Quarter 2-31/64 1-3/4
Second Quarter 2-5/8 1-3/4
Third Quarter 2-5/8 1-7/8
Fourth Quarter 3-1/4 2
1998
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First Quarter 3 2-3/8
Second Quarter 2-15/16 2-5/16
Third Quarter 2-7/8 2-1/8
Fourth Quarter 2-7/8 2
1999
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First Quarter 4 3
Second Quarter 4 3-2/64
Third Quarter 5-3/16 3-3/38
Fourth Quarter 4-13/16 3-3/8
2000
--------------------------------------
First Quarter 4-1/2 3-3/4
Second Quarter 4-1/16 3-1/2
</TABLE>
As of July 10, 2000, there were approximately 1,500 holders of record
of the Common Stock. On August 11, 2000, the bid and ask sales pries for the
Common Stock were $3-13/16 and 3-7/8. From January 1, 2000 to June 30, 2000, the
average daily volume of sales reported on the Nasdaq National Market was 10,046
shares.
EFFECT OF FUTURE SALES OF ADDITIONAL SHARES
The following shares of Universal's common stock are, or when issued
will be, freely tradeable:
- Universal's presently outstanding common stock which has been
registered under the Securities Act.
- the common stock reserved for issuance under Universal's employee stock
option plans and other plans, which is registered under the Securities
Act, and
- the common stock being registered here.
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Additional outstanding shares of common stock which have not been registered
under the Securities Act, are or may become eligible for sale by holders either
- under the volume and timing requirements of Rule 144, or
- pursuant to registration rights granted to their holders.
Universal 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.
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 Universal from the sale of the common stock offered by
this prospectus will be used for working capital.
ADDITIONAL INFORMATION
DOCUMENTS INCORPORATED BY REFERENCE
Universal is subject to the information requirements of the Securities
Exchange Act of 1934, as amended and in accordance with that statute files
periodic reports, proxy statements and other information with the Securities and
Exchange Commission.
The following documents filed by Universal with the Securities and
Exchange Commission are incorporated herein by reference:
- Universal's annual report on Form 10-K for the year ended December 31,
1999, Commission file no. 0- 11321, and all annual reports and
amendments to annual reports filed after the date of this prospectus.
- Universal's quarterly report on Form 10-Q for the quarter ended June
30, 2000 or the most recent such quarterly report, if any, filed after
the filing of the latest annual report referred to above.
- 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 Universal's proxy statement, dated July 12, 1999, and
the unaudited pro forma financial statement contained on pages 69 to 76
of such proxy statement; and
- Universal's proxy statement dated May 22, 2000, and all proxy
statements and amendments to proxy statements filed after the date of
this prospectus.
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 Universal's expectations at the time such documents are filed with
the Securities and Exchange Commission. To the extent any of the information
contained in the Documents Incorporated by Reference is a "forward-looking
statement", 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. These include, among others:
- actual execution of management's business plan;
- the condition of the insurance market;
- the pricing of products and services;
- overall economic trends, including interest rate trends;
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- stock market activity, employment levels, changes in technology,
changes in insurance laws and regulations;
- other factors beyond Universal's control, and other factors identified
in cautionary statements included in the documents incorporated by
reference.
Any statement contained in a document incorporated in this prospectus
by reference which is dated before 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 in this prospectus modifies or supersedes such statement.
Any statement in this 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 after 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:
- Universal's most recent Form 10-K,
- 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,
- Universal's most recent proxy statement, and
- any amendments to any such report or proxy statement.
Universal will provide without change to each person to whom this prospectus is
delivered, upon written or oral request of such person, a copy of all other
documents incorporated by reference into this prospectus. Such copies will not
include exhibits to such documents, unless the exhibits are specifically
requested.
REGISTRATION STATEMENT
Additional information regarding Universal and the common stock offered by
this prospectus is contained in the registration statement on Form S-2 and the
exhibits thereto filed with the Commission under the Securities Act of 1933, as
amended, of which this 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 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.
Requests for any document incorporated in this prospectus by reference,
should be made to:
Universal American Financial Corp.
6 International Drive
Suite 190
Rye Brook, NY 10573
Attn: Corporate Secretary
(914) 934-5200
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The registration statement, and the reports, proxy statements and other
information filed by Universal, with the Commission can be read and copied at
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 Commission 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.
ANNUAL REPORTS
Universal 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 Universal to the holders of its common
stock from time to time.
DESCRIPTION OF PLANS UNDER WHICH
COMMON STOCK IS BEING OFFERED
THE AGENT STOCK PLAN FOR AGENTS OF PENNSYLVANIA LIFE AND PENNCORP LIFE CANADA.
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 Life Canada
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. In addition, in each
such year each such agent will be granted an option on the terms set out below
to purchase the same number of shares as are issued to that agent in that year.
Both the stock and the options issued to the agents to the vesting requirements
set out below.
NUMBER OF SHARES TO BE AWARDED.
Stock will be issued to each agent who qualifies based on the agent's
annualized new business production written with each of the companies in
accordance with the following formula:
(1) Each agent's annualized new business production will be multiplied
by a percentage ranging from 1%, in the case of agents with such production of
$25,000 to $49,999, to 3%, in the case of agents with such production of
$150,000 and more.
(2) Then the product found in step (1) will be divided by the nominal
stock price then in effect to produce the number of shares which will be issued
to that agent, and the number of shares subject to the option granted to the
agent. The nominal stock prices are as follows:
<TABLE>
<CAPTION>
Year of Grant in Which
the Stock Is to Be
Year in which Issued Nominal
Earned and the Option Granted Stock Price
------ ---------------------- -----------
<S> <C> <C>
1999 2000 $3.62
2000 2001 $4.17
2001 2002 $4.79
</TABLE>
OPTIONS.
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At the same time common stock is issued to each agent, that recipient
agent will also be given an option to purchase one additional share of stock for
each share issued, with an exercise price equal to the nominal stock price used
to calculate the number of shares issued to the agent. These options 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 agent's appointment as an agent of either of the
participating insurance subsidiaries "for cause" or prior to the vesting date
and (ii) 30 days after the option becomes exercisable.
VESTING REQUIREMENTS.
The stock issued will become vested and options granted will become
exercisable on the earliest to occur on the following dates:
- January 1st of the second year after the end of the year in which the
stock issuance was earned,
- the agent's death or disability while still an agent of one or more of
the participating insurance subsidiaries, and
- the date on which a "change of control" of Universal, as defined in the
plan, occurs.
If the agent ceases to be an agent for either subsidiary prior to the vesting
date, all stock issued to that agent will revert back to Universal and all
options held by that agent will expire.
DURATION OF PLAN.
The Agent Stock Plan will terminate on the earlier of the following
dates:
- when the stock issuances and options earned with respect to the year
ended December 31, 2001 are issued or granted; and
- when the sum of the products of the number of shares issued in each
year multiplied by the nominal stock price applicable to such issuance
amounts to a total of $636,683.
REGIONAL EQUITY PLAN FOR REGIONAL MANAGERS AND SUB-MANAGERS OF PENNSYLVANIA
LIFE AND PENNCORP LIFE CANADA
Universal will sell up to 1,135,174 shares of common stock pursuant to
options granted and to be granted to certain regional managers and sub-managers
of Pennsylvania Life and PennCorp Life under Universal's Regional Equity Plan,
approved by the Board of Directors on July 12,1999. Under this plan, Universal
has granted and will grant options to individual managers and sub-managers to
purchase shares of Universal's common stock for meeting certain increase in
production goals in each of the years 1999, 2000 and 2001. In each case
Universal will grant the options in the years following the year in which they
are earned. Each option will expire on the earliest of:
- the termination of the Manager's appointment as an agent of either
participating insurance subsidiary "for cause",
- 30 days after the termination of the Manager's appointment as an agent
of either participating insurance subsidiary, not for cause,
- 6 months after the termination of the Manager's appointment as an agent
of any of either participating insurance subsidiary by reason of death
or disability, and
- 5 years after the grant.
NUMBER OF OPTIONS TO BE AWARDED.
The plan sets forth the number of options available for grants in each
region and the allocation of those options among the managers and sub-managers
within the region.
While the regional manager involved, with Universal's approval, may amend
allocation of options within each
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region, no such amendment shall affect options already granted or earned by
eligible managers or sub-managers prior to the announcement of such an
amendment.
Universal will grant options based on the growth of premium, as defined
in the plan, achieved by each eligible manager or submanager over the preceding
calendar year, as follows:
<TABLE>
<CAPTION>
Growth in premium
over prior year Options to be granted
--------------- ---------------------
<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 Exercise Prices of the options under the Regional Equity Plan are:
<TABLE>
<CAPTION>
Year in which Year of Exercise
Earned Grant Price
-----------------------------------------
<S> <C> <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 will become exercisable on the
earliest of the following dates:
- the end of the second calendar year after the year with respect to
which the option was granted,
- the date of the option holder's death or disability, or
- the date on which a "change of control" of Universal, as defined in the
plan, occurs,
provided that the recipient manager or sub-manager has been an agent of one or
more of the participating insurance subsidiaries continuously from the date of
the grant until such date. If the manager or submanager ceases to be such an
agent at any time before his or her option becomes exercisable, the option
expires.
DURATION OF PLAN.
The plan will terminate when any options earned with respect to the
year ended December 31, 2001 are granted; provided, however, that it 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. $3.05 million 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
The following is a description of the material terms and provisions of
Universal's equity securities. The following description does not purport to be
complete and is subject to and qualified in its entirety by reference to
Universal's certificate of incorporation, as amended and the bylaws, as amended.
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.
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<PAGE> 16
PREFERRED STOCK
Universal 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.
COMMON STOCK
The Company is authorized to issue 80 million shares of common stock, par
value of $.01 per share. As of June 30, 2000, the Company had 8,072,209 issued
and outstanding shares of common stock, and 8,072,209 shares reserved for the
following purposes:
- 4,338,056 shares for issuance pursuant to outstanding options,
- 1,486,730 shares reserved for issuance hereunder, and
- 2,247,423 shares reserved for future issuance under other plans
maintained by the Company.
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 AND OF NEW YORK LAW
Universal's restated certificate of incorporation provides that the
affirmative vote of the holders of 66- 2/3% of the voting power of all of
Universal's outstanding common stock is required for the following transactions
with a party which owns 5% or more of such voting power, unless (a) such
transaction was approved by Universal's board of directors prior to the
acquisition of the 5% interest by the other party, or (b) Universal owns 50% or
more of the total voting power of the other party:
- a merger or consolidation of Universal with the other party or
- the sale of substantially all of Universal's assets or business to the
other party.
Universal's restated certificate of incorporation also requires that
the following actions require approval of not less than two thirds of the total
number of directors:
- a merger or consolidation of Universal or a material subsidiary, or in
which Universal's securities are being issued, in which Universal's
shareholders do not own a majority of the post-transaction voting
securities entitled to elect the board of directors;
- the sale of all or substantially all of Universal's assets or
properties;
- the disposition of any shares of a material subsidiary or all or
substantially all of the assets of such a subsidiary;
- a change the number of directors;
- a change in the certificate of incorporation;
- electing or removing executive officers, or changing the employment
agreement entered into between
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Richard A. Barasch and Universal on July 30, 1999;
- dissolving Universal or seeking protection of bankruptcy laws; and
- approving dividends or other distributions with respect to common
stock.
Universal is subject to the New York Business Corporation Act. Section
912 of this Act, entitled "Requirements Relating to Certain Business
Combinations," and Article 16, entitled Security Takeover Disclosure Act, may be
regarded as anti-takeover provisions. 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 one of the following conditions is met:
- the business combination is approved by a majority of the
non-interested shareholders,
- the transaction in which such person became an interested shareholder
was approved by the board of directors of the corporation, or
- 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.
As used in these provisions:
- a "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the shareholder; and
- 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 statute imposes additional
requirements to takeover bids not subject to the requirements of Section 14(d)
of the Exchange Act. As used in these provisions, "takeover bid" means the
acquisition of or offer to acquire, pursuant to a tender offer or request or
invitation for tenders, any equity security of a target company, if after
acquisition, the offeror would, directly or indirectly, be a beneficial owner of
more than five percent of any class of the issued and outstanding equity
securities of such target company. A "takeover bid" does not include
- bids made by a dealer for his or her own account in the ordinary course
of business of buying and selling such security;
- 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;
- 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
- 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 Universal's common stock is American Stock Transfer
& Trust Company.
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LEGAL MATTERS
The law firm of Harnett Lesnick & Ripps P.A., of Boca Raton, Florida
will pass upon certain legal matters in connection with the validity of the
securities offered by this prospectus for Universal.
Bertram Harnett, Irving I. Lesnick and Judith A. Ripps, shareholders in
such law firm, in the aggregate directly own 176,951 shares of the Company's
common stock, and non-qualified options to acquire 32,500 additional shares of
Common Stock. A trust established by Mr. Harnett for the benefit of members of
his family, owns 409,561 shares of common stock in which Mr. Harnett disclaims
any beneficial interest. Universal and its subsidiaries paid the law firm
$949,257 during the calendar year 1999, on account of its legal services and
reimbursement of disbursements.
EXPERTS
The consolidated financial statements of Universal American Financial
Corp. and subsidiaries appearing in Universal American Financial Corp.'s annual
report on 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.
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1,486,730 Shares
UNIVERSAL AMERICAN FINANCIAL CORP.
Common Stock
-------------------------
PROSPECTUS
------------------------
AUGUST 18, 2000
