AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 2004
Registration No. 333-03641
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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POST-EFFECTIVE AMENDMENT NO. 4
TO 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)
NEW YORK 11-2580136
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
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 Offices)
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RICHARD A. BARASCH, PRESIDENT
UNIVERSAL AMERICAN FINANCIAL CORP.
6 INTERNATIONAL DRIVE, SUITE 190
RYE BROOK, NY 10573
(914) 934-5200
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
114,986 SHARES
OF
UNIVERSAL AMERICAN FINANCIAL CORP.
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Common Stock, par value $0.01 per share
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We are offering up to 114,986 shares of our common stock, par value
$0.01 per share, to participants in, or, as applicable, the trustees of, the
following benefit plans which we maintain:
(i) up to 46,007 shares to our employees and employees of our subsidiaries
pursuant to our Incentive Stock Option Plan, which we also refer to in this
Prospectus as our Employee Option Plan;
(ii) up to 6,050 shares to our directors pursuant to our Stock Option Plan for
Directors, which we also refer to in this Prospectus as our Director Option
Plan;
(iii) up to 53,977 shares to agents of our subsidiaries and others pursuant to
our Non-qualified Stock Option Plans for Agents and Others, which we also refer
to in this Prospectus as our Agent Option Plan;
(iv) up to 4,213 shares to our qualifying agents pursuant to our Agents Stock
Purchase Plan; and
(v) up to 4,379 shares to the trustees of our Deferred Compensation Plan for
Agents, which we also refer to in this Prospectus as our Deferred Comp Plan.
The Employee Option Plan, Director Option Plan and Agent Option Plan
were created under the Universal American Financial Corp. 1998 Incentive
Compensation Plan, which we also refer to in this Prospectus as our 1998 Plan.
The shares of our common stock are listed on the Nasdaq National
Market under the ticker symbol "UHCO". On March 23, 2004, the closing sales
price of our common stock as reported on the Nasdaq National Market was $11.94
per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 1.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is March 24, 2004.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. 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.
TABLE OF CONTENTS
PAGE
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THE COMPANY...................................................................1
RISK FACTORS..................................................................1
USE OF PROCEEDS..............................................................11
PLAN OF DISTRIBUTION.........................................................12
DESCRIPTION OF PLANS.........................................................12
DESCRIPTION OF SECURITIES TO BE REGISTERED...................................16
SELLING SHAREHOLDERS.........................................................18
LEGAL MATTERS................................................................18
EXPERTS......................................................................18
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................18
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................20
i
THE COMPANY
We were incorporated in the State of New York in 1981 as a life and
accident & health insurance holding company. Collectively, our insurance
subsidiaries, which are domiciled in Florida, Pennsylvania, New York, Texas,
Kansas and Ontario, Canada, are licensed to sell life and accident & health
insurance and annuities in all fifty states, the District of Columbia, Puerto
Rico and all the provinces of Canada. These products are designed primarily for
the senior and self-employed markets. Our principal insurance products are
Medicare Supplement, fixed benefit accident and sickness disability insurance,
long term care, senior life insurance and fixed annuities. We distribute these
products through an independent general agency system and a career agency
system. Our administrative services company acts as a service provider for both
affiliated and unaffiliated insurance companies for senior market insurance and
non-insurance programs.
Our principal executive offices are located at 6 International Drive,
Suite 190, Rye Brook, New York 10573. Our telephone number is (914) 934-5200.
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 herein by reference, and in particular the following risks and
speculative factors inherent in and affecting our business and the offering.
Risks Related to Our Business
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OUR NET INCOME MAY DECLINE IF OUR PREMIUM RATES ARE NOT ADEQUATE.
We set the premium rates on our insurance policies based on facts and
circumstances known at the time we issue the policies and on assumptions about
numerous variables, including the actuarial probability of a policyholder
incurring a claim, the severity and duration of the claim, the mortality rate of
our policyholder base, the persistency or renewal rate of our policies in force,
our commission and policy administration expenses, and the interest rate earned
on our investment of premiums. In setting premium rates, we consider historical
claims information, industry statistics and other factors. If our actual claims
experience proves to be less favorable than we assumed and we are unable to
raise our premium rates, our net income may decrease.
We generally cannot raise our premiums in any state unless we first
obtain the approval of the insurance regulator in that state. We review the
adequacy of our premium rates regularly and file rate increases on our products
when we believe permitted premium rates are too low. When determining whether to
approve or disapprove our rate increase filings, the various state insurance
departments take into consideration our actual claim experience compared to
expected claims experience, policy persistency (which means the percentage of
policies that are in-force at certain intervals from the issue date compared to
the total amount originally issued), investment income and medical cost
inflation. If the regulators do not believe these factors warrant a rate
increase, it is possible that we will not be able to obtain approval for premium
rate increases from currently pending requests or requests filed in the future.
If we are unable to raise our premium rates because we fail to obtain approval
for a rate increase in one or more states, our net income may decrease. If we
are successful in obtaining regulatory approval to raise premium rates, the
increased premium rates may reduce the volume of our new sales and cause
existing policyholders to let their policies lapse. This would reduce our
premium income in future periods. Increased lapse rates also could require us to
expense all or a portion of the deferred policy costs relating to lapsed
policies in the period in which those policies lapse, reducing our net income in
that period.
1
OUR RESERVES FOR FUTURE POLICY BENEFITS AND CLAIMS MAY PROVE TO BE INADEQUATE,
REQUIRING US TO INCREASE LIABILITIES AND RESULTING IN REDUCED NET INCOME AND
SHAREHOLDERS' EQUITY.
We calculate and maintain reserves for the estimated future payment
of claims to our policyholders using the same actuarial assumptions that we use
to set our premiums. For our accident and health insurance business, we
establish an active life reserve plus a liability for due and unpaid claims,
claims in the course of settlement and incurred but not reported claims, as well
as a reserve for the present value of amounts not yet due on claims. Many
factors can affect these reserves and liabilities, such as economic and social
conditions, inflation, hospital and medical costs, changes in doctrines of legal
liability and extra-contractual damage awards. Therefore, the reserves and
liabilities we establish are necessarily based on extensive estimates,
assumptions and prior years' statistics. When we acquire other insurance
companies or blocks of insurance, our assessment of the adequacy of transferred
policy liabilities is subject to similar estimates and assumptions. Establishing
reserves is an uncertain process, and it is possible that actual claims will
materially exceed our reserves and have a material adverse effect on our results
of operations and financial condition. Our net income depends significantly upon
the extent to which our actual claims experience is consistent with the
assumptions we used in setting our reserves and pricing our policies. If our
assumptions with respect to future claims are incorrect, and our reserves are
insufficient to cover our actual losses and expenses, we would be required to
increase our liabilities resulting in reduced net income and shareholders'
equity.
WE MAY BE UNABLE TO SERVICE AND REPAY OUR DEBT OBLIGATIONS IF OUR SUBSIDIARIES
CANNOT PAY SUFFICIENT DIVIDENDS OR MAKE OTHER CASH PAYMENTS TO US.
We are an insurance holding company whose assets principally consist
of the capital stock of our operating subsidiaries, substantially all of which
is pledged to our bank lenders. Because our principal outstanding indebtedness
has been incurred by our parent company, our ability to make interest and
principal payments on our outstanding debt is dependent upon the ability of our
subsidiaries to pay cash dividends or make other cash payments to our parent
company. Our subsidiaries will be able to pay dividends to our parent company
only if they earn sufficient profits and, in the case of our insurance company
subsidiaries, they satisfy the requirements of the state insurance laws relating
to dividend payments and the maintenance of required surplus, to which they are
subject. During the fiscal year ended December 31, 2003, our non-insurance
subsidiary provided us $11.9 million in cash payments and the insurance
subsidiaries provided $2.8 million in cash to their intermediate holding
company, which was paid to our parent company in the form of interest payments
on the intermediate holding company's surplus note held by our parent.
Collectively, these amounts were sufficient to satisfy our parent company's debt
obligations. Our domestic insurance subsidiaries have the ability to provide an
additional $12.9 million of cash to their intermediate holding company parent
during 2004 without regulatory approval in the form of ordinary dividends. Such
additional cash could be passed through to our parent company in the form of
repayment of principal on a surplus note from the intermediate subsidiary to our
parent company. We believe that our subsidiaries will continue to have the
ability to make cash payments to cover the parent company's debt obligations,
however, any non-payment of such obligations would have a material adverse
effect on our results of operations, financial condition and business.
2
CAPITAL CONSTRAINTS COULD RESTRICT OUR ABILITY TO SUPPORT OUR PREMIUM GROWTH.
Our continued growth is dependent upon our ability to continue to
support premium growth through the expansion of our markets and our network of
agents while at the same time maintaining sufficient levels of capital and
surplus to support that growth. Our new business growth typically results in
reduced income (or net losses on some products) on a statutory basis during the
early years of a policy, due primarily to differences in accounting practices
between statutory accounting principles and accounting principles generally
accepted in the United States. The resulting reduction in statutory surplus can
limit our ability to generate new business due to statutory restrictions on
premium to surplus ratios and required statutory surplus parameters. In
addition, some states, such as Florida, limit an insurer's ability to write
certain lines of business if gross and net premiums written would exceed a
specified percentage of surplus. Moreover, substantially more capital than the
statutory minimums are needed to support our level of premium growth and to
finance acquisitions. If we cannot generate sufficient capital and statutory
surplus to maintain minimum statutory requirements and support our growth, we
could be restricted in our ability to generate new premium revenue.
THE AVAILABILITY OF REINSURANCE ON ACCEPTABLE TERMS AND THE FINANCIAL STABILITY
OF OUR REINSURERS COULD IMPACT OUR ABILITY TO MANAGE RISK AND INCREASE THE
VOLUME OF INSURANCE THAT WE SELL.
We utilize reinsurance agreements with larger reinsurers to mitigate
insurance risks that we underwrite.
We enter into reinsurance arrangements with unaffiliated reinsurance
companies to limit our exposure on individual claims and to limit or eliminate
risk on our non-core or under-performing blocks of business. As of December 31,
2003, we ceded to reinsurers 35% of our gross annualized premium in force.
Reinsurance arrangements leave us exposed to two risks:
(i) Credit risk, which exists because reinsurance does not relieve us
of our liability to our insureds for the portion of the risks ceded to
reinsurers. We are exposed to the risk of a reinsurer's failure to pay in full
and in a timely manner the claims we make against them in accordance with the
terms of our reinsurance agreements. Although we have never experienced the
failure of a reinsurer to pay in full and in a timely manner any material claims
we have presented to them, such a failure to pay material amounts owed to us
could expose our insurance company subsidiaries to liabilities in excess of
their reserves and surplus and could expose them to insolvency proceedings. The
failure of a reinsurer to make claims payments to us could materially and
adversely affect our results of operations and financial condition and our
ability to make payments to our policyholders.
(ii) Replacement risk, which exists because a reinsurer may cancel
its participation on new business issued on advance notice. As a result, we
would need to find reinsurance from another source to support our level of new
business. The amount and cost of reinsurance available to us is subject, in
large part, to prevailing market conditions beyond our control. Because our
current reinsurance facilities are non-cancelable for business in force,
non-renewal or cancellation of a reinsurance arrangement affects only new
business and the reinsurer remains liable on business reinsured prior to
non-renewal or cancellation.
3
Recently, we have begun to reduce the amount reinsurance ceded on new
business, particularly on our Medicare Supplement/Select business. We believe
that we have sufficient capital to support more of our new business. However, we
still rely on reinsurance for certain of our new long term care business and the
new life insurance business being written through our recently acquired
Guarantee Reserve Life Insurance Company field force. In the event that current
reinsurers cancel their participation on new business we would seek to replace
them, possibly at higher rates. If we are not able to reinsure our long-term
care products on acceptable terms, we would evaluate whether it remains viable
to continue to offer these products. In addition, if we are not able to reinsure
our life insurance products on acceptable terms, we would consider limiting the
amount of such new business issued.
A failure to obtain reinsurance on acceptable terms would allow us to
underwrite new business only to the extent that we are willing and able to bear
the exposure to the new business on our own.
OUR FINANCIAL STRENGTH RATING IS LOWER THAN SEVERAL DISTRIBUTORS' MINIMUM
ACCEPTABLE RATING AND CAN AFFECT OUR COMPETITIVENESS AND RESULTS OF OPERATIONS.
Increased public and regulatory concerns regarding the financial
stability of insurance companies have resulted in policyholders placing greater
emphasis upon financial strength ratings and have created some measure of
competitive advantage for insurance companies with higher ratings. Our ability
to expand and to attract new business is affected by the financial strength
ratings assigned to our insurance company subsidiaries by independent insurance
industry rating agencies, such as A.M. Best Company, Inc. Some distributors such
as financial institutions, unions, associations and affinity groups may not sell
our products to these groups unless the rating of our insurance company
subsidiary writing the business improves to at least an "A-" from their current
"B++." The lack of higher A.M. Best ratings for our insurance company
subsidiaries could adversely affect sales of our products. In addition, any
future downgrade in our ratings may cause our policyholders to allow their
existing policies to lapse. Increased lapse rates would reduce our premium
income and would also cause us to expense fully the deferred policy costs
relating to lapsed policies in the period in which those policies lapsed,
reducing net income in that period. Any future downgrade in our ratings also may
cause some of our agents to sell less of our products or to cease selling our
policies altogether.
FAILURE TO MAINTAIN OUR INFORMATION SYSTEMS COULD ADVERSELY AFFECT OUR BUSINESS.
Our business depends significantly on effective information systems,
and we have different information systems for our various operating segments.
Our information systems require an ongoing commitment of significant resources
to maintain and enhance existing systems and develop new systems in order to
keep pace with continuing changes in information processing technology, evolving
industry and regulatory standards, and changing customer preferences. In
addition, we have outsourced the operation of our data center to an independent
third party and may from time to time obtain additional services or facilities
from other independent third parties. Dependence on third parties for these
services and facilities may make our operations vulnerable to their failure to
perform as agreed.
In connection with our acquisition activities over the last year, we
acquired numerous policies which required conversion to our systems. To date,
these conversions have been substantially completed without any significant
issues or delays.
4
However, failure to convert additional policies that may be acquired
in the future and to maintain effective and efficient information systems could
cause the loss of existing customers, difficulty in attracting new customers,
difficulty in attracting and retaining agents, difficulty in integrating the
operations of acquired businesses, customer and provider disputes, regulatory
issues and increases in administrative expenses.
THERE IS NO ASSURANCE THAT WE WILL CONTINUE TO BE SUCCESSFUL IN MANAGING OUR
GROWING OPERATIONS OR IN INTEGRATING ACQUIRED COMPANIES INTO OUR OPERATIONS.
As part of our strategy, we have experienced, and expect to continue
to experience, considerable growth through acquisitions and our internal
efforts. The rapid growth in the size and complexity of our operations has
placed, and will continue to place, significant demands on our management,
operations systems, accounting systems, internal controls systems and financial
resources. Acquisitions involve numerous additional risks, some of which we have
experienced in the past, including: (i) difficulties in integrating operations,
technologies, products, systems and personnel of the acquired company; (ii)
diversion of financial and management resources from existing operations; (iii)
potential increases in policy lapses; (iv) potential losses from unanticipated
litigation or levels of claims; and (v) inability to generate sufficient revenue
to offset acquisition costs. Our ability to manage our growth and compete
effectively will depend, in part, on our success in addressing these demands and
risks. Any failure by us to effectively manage our growth could have a material
adverse effect on our business, financial condition or results of operations.
WE MAY NOT BE ABLE TO FIND SUITABLE ACQUISITION CANDIDATES.
Part of our business strategy is to make acquisitions that will be
accretive to income and advance our strategic mission. Since 1990, we have
acquired ten insurance companies, two administrative companies and four blocks
of insurance premium. Additionally, on March 9, 2004, we entered into a
definitive agreement to acquire Heritage Health Systems, Inc., a privately owned
managed care company that operates Medicare Advantage plans in Houston and
Beaumont, Texas, for approximately $98 million in cash. We currently expect to
close this acquisition in the second quarter of 2004.
We continue to evaluate possible acquisition transactions on an
ongoing basis, and at any given time, we may be engaged in discussions with
respect to possible acquisitions. We cannot assure you that we will be able to
find suitable acquisition candidates and close the transactions. Factors that
might preclude closing transactions include the inability to reach a definitive
agreement with the seller, the inability to obtain financing on acceptable
terms, and the discovery of material issues with the acquisition candidate as a
result of our due diligence investigation. If we cannot find suitable
acquisition candidates or are not successful in completing acquisitions, we may
not be able to sustain our recent historical growth rates.
CHANGES IN THE EXCHANGE RATE BETWEEN THE U.S. DOLLAR AND THE CANADIAN DOLLAR MAY
IMPACT OUR RESULTS.
We publish our consolidated financial statements in U.S. dollars.
However, portions of our operations are transacted using the Canadian dollar as
the functional currency. As of and for the twelve months ended December 31,
2003, approximately 13% of our assets, 12% of our revenues and 21% of our income
before realized gains and taxes were derived from our Canadian operations.
Accordingly, our earnings and shareholders' equity are affected by fluctuations
in the value of the U.S. dollar as compared to the Canadian dollar. Although
this risk is somewhat mitigated by the fact that both the assets and liabilities
for our Canadian operations are denominated in Canadian dollars, we are still
subject to losses resulting from currency translation that will impact our
reported consolidated financial condition, results of operations and cash flows
from year to year.
5
A SIGNIFICANT AMOUNT OF OUR ASSETS IS INVESTED IN FIXED INCOME SECURITIES AND IS
SUBJECT TO MARKET FLUCTUATIONS.
Our investment portfolio consists substantially of fixed income
securities. The fair market value of these assets and the investment income from
these assets fluctuate depending on general economic and market conditions. The
fair market value of our investments in fixed income securities generally
increases or decreases in an inverse relationship with fluctuations in interest
rates, while net investment income realized by us from future investments in
fixed income securities will generally increase or decrease with interest rates.
In addition, actual net investment income and/or cash flows from investments
that carry prepayment risk (such as mortgage-backed and other asset-backed
securities) may differ from those anticipated at the time of investment as a
result of interest rate fluctuations. Because substantially all of our fixed
income securities are classified as available for sale, changes in the market
value of our securities are reflected in our balance sheet. Similar treatment is
not available for liabilities. Therefore, interest rate fluctuations could
adversely affect our results of operations and financial condition.
WE MAY BE REQUIRED TO REFUND OR REDUCE PREMIUMS IF OUR PREMIUM RATES ARE
DETERMINED TO BE TOO HIGH.
Insurance regulators require that we maintain minimum statutory loss
ratios on some of the policies that we sell. We must therefore pay out, on
average, a specified minimum percentage of premiums as benefits to
policyholders. State regulations also mandate the manner in which insurance
companies may compute loss ratios and the manner in which compliance is measured
and enforced. If our policies are not in compliance with state mandated minimum
loss ratios, state regulators may require us to refund or reduce premiums.
Insurance regulators require that we submit annual filings to show compliance.
As of the date hereof, we have made all the required annual filings, none of
which ever required us to refund or reduce premiums.
Risks Related to Our Industry
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WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH COMPETITORS THAT HAVE GREATER
RESOURCES THAN WE DO.
We sell our products in highly competitive markets. We compete with
large national insurers, smaller regional insurers and specialty insurers. Many
insurers are larger and have greater resources and higher financial strength
ratings than we do. In addition, we are subject to competition from insurers
with broader product lines. We also may be subject, from time to time, to new
competition resulting from changes in Medicare benefits, as well as from
additional private insurance carriers introducing products similar to those
offered by us. Our future success will depend, in part, on our ability to
effectively enhance our current products and claims processing capabilities and
to develop new products in the changing health care environment on a timely and
cost-effective basis.
6
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IF WE CANNOT RECRUIT AND RETAIN
INSURANCE AGENTS.
We distribute our products principally through career agents and
independent agents who we recruit and train to market and sell our products. We
also engage managing general agents from time to time to recruit agents and
develop networks of agents in various states. We compete with other insurance
companies for productive agents, primarily on the basis of our financial
position, support services, compensation and product features.
We believe we can meet these competitive pressures by offering a high
level of service to our field force and by developing specialized products and
marketing approaches. We also believe that our policies and premium rates as
well as the commissions paid to our sales agents are generally competitive with
those offered by other companies selling similar types of products. In addition,
our insurance subsidiaries operate at lower policy acquisition and
administrative expense levels than other insurance companies, allowing us to
have competitive rates while maintaining underwriting margins. However, it can
be more difficult to successfully compete with larger insurance companies that
have higher financial strength ratings than we do for productive agents.
Our business and ability to compete will suffer if we are unable to
recruit and retain insurance agents or if we lose the services provided by our
managing general agents.
GOVERNMENTAL REGULATION COULD AFFECT OUR PROFITABILITY.
Our insurance company subsidiaries are subject to regulation and
supervision by the insurance departments of their domiciliary jurisdictions.
Each is also subject to regulation and supervision by the insurance department
of each of the other states in which they are admitted to do business. 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 by our insurance company subsidiaries, the setting of rates to be
charged for some types of insurance, the granting and revocation of licenses to
transact business, the licensing of agents, monitoring market conduct, approval
of forms, establishment of reserve requirements, regulation of maximum
commissions payable, mandating some insurance benefits, market conduct and
claims practices, maintenance of minimum surplus requirements, and the form and
content of financial statements required by statute. Our failure to comply with
legal or regulatory restrictions could result in our inability to engage in some
businesses or an obligation to pay fines or make restitution, which could affect
our profitability.
State insurance regulators and the National Association of Insurance
Commissioners continually reexamine existing laws and regulations, and may
impose changes in the future that materially adversely affect our business,
results of operations and financial condition. In particular, rate rollback
legislation and legislation to control premiums, policy terminations and other
policy terms may affect the amount we may charge for insurance premiums. Some
states currently limit rate increases on long term care insurance products and
other states have considered doing so. Because insurance premiums are our
primary source of income, our net income may be reduced by any of these changes.
7
RECENTLY ENACTED AND PENDING OR FUTURE LEGISLATION COULD ALSO AFFECT OUR INCOME.
During recent years, the health insurance industry has experienced
substantial changes, primarily caused by healthcare legislation. Recent Federal
and state legislation and legislative proposals relating to healthcare reform
contain features that could severely limit or eliminate our ability to vary our
pricing terms or apply medical underwriting standards with respect to
individuals, which could increase our loss ratios and decrease our
profitability.
In 2003, Congress passed the Medicare Prescription Drug, Improvement
and Modernization Act of 2003. Although there are several components to this
Medicare reform bill that may have an impact on our Medicare Supplement
business, two fundamental components will be most relevant. First, the bill
establishes a prescription drug benefit under Medicare and a mechanism for
private insurers to offer this program. Second, the bill contains significant
incentives designed to improve current Medicare + Choice (now to be known as
Medicare Advantage) plans, and to encourage new Medicare Advantage plans to
enter the market on a favorable basis. The legislation may create some downward
pressure on our Medicare Supplement sales starting in 2004, largely because the
increased government reimbursements for managed care plans will encourage HMOs
to add benefits to existing plans or add new plans, in more jurisdictions. In
addition, an increase in the market acceptance of Medicare Advantage plans may
adversely affect our persistency. Nevertheless, we believe that many seniors
will continue to want full choice and non-restricted access, as opposed to
managed care plans, and we believe that Medicare Supplement and Medicare Select
plans will remain viable options under the new legislation. If the legislation
leads to a significant increase in the number of Medicare beneficiaries enrolled
in health maintenance organizations, sales of our Medicare Supplement products
may decrease since the product provides benefits that supplement the coverage
provided by traditional Medicare. This could have a material adverse effect on
our business, financial condition and results of operations.
The Health Insurance Portability and Accountability Act of 1996 (also
known as HIPAA) mandates guaranteed availability and renewability of health
insurance for certain employees and individuals; limits on termination options
and on the use of preexisting condition exclusions; prohibitions against
discriminating on the basis of health status; and requirements which make it
easier to continue coverage in cases where an employee is terminated or changes
employers. HIPAA also calls for the adoption of standards for the exchange of
electronic health information in an effort to encourage overall administrative
simplification and enhance the effectiveness and efficiency of the health care
industry. We do not believe that compliance with those aspects of HIPAA
currently in effect and those in the process of regulatory completion, if
adopted as currently proposed, will have a material adverse effect on our
financial condition or results of operations. However, HIPAA is far-reaching and
complex and proper interpretation and practice under the law continue to evolve.
Consequently, our efforts to measure, monitor and adjust our business practices
to comply with HIPAA are ongoing.
Effective October 1, 2003, the Federal government removed the
exemption for insurance companies as it relates to "Do Not Call" regulations.
Insurance companies are now required to develop their own "Do Not Call" lists
and reference state and Federal Do Not Call Registries, before making calls to
market insurance products. Approximately two thirds of the country's residential
telephone numbers are on the Federal registry, which could limit the marketing
calls made and potentially negatively impact sales.
8
The Federal government has drafted the portion of the USA PATRIOT Act
that will apply to insurance companies. It is expected to become effective in
mid 2004. Insurance companies will have to impose tighter processes and
procedures to more thoroughly verify its applicants, insureds, claimants and
premium payers in an effort to prevent money laundering.
In September 2003, the National Association of Insurance
Commissioners adopted the Senior Protection in Annuity Transaction Model
Regulation. It is expected that most states will adopt the regulation swiftly.
The model regulation imposes additional obligations on insurance producers and
their supervisors relating to annuity sales to customers age 65 and over. The
burden of demonstrating suitability of the recommended annuity is that of the
producer with oversight responsibilities imposed on the producer's supervisor
and the insurer. We are developing guidelines to distribute to our sales forces
to assist in complying with the regulations.
TAX LAW CHANGES COULD ADVERSELY AFFECT OUR SALES AND PROFITABILITY.
We sell 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, could make these products less attractive to consumers. We do not
believe that Congress is 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 as a result of legislation, Internal Revenue Service regulations, or
judicial decisions. The reduction or loss of these tax advantages could reduce
our sales of life and annuity products and their profitability.
INSURANCE COMPANIES ARE FREQUENTLY THE TARGETS OF LITIGATION, INCLUDING CLASS
ACTION LITIGATION, THAT COULD RESULT IN SUBSTANTIAL JUDGMENTS.
A number of civil jury verdicts have been returned against insurers
in the jurisdictions in which we do business involving insurers' sales
practices, alleged agent misconduct, discrimination and other matters.
Increasingly these lawsuits have resulted in the award of substantial judgments
against the insurer that are disproportionate to the actual damages, including
material amounts of punitive damages. In some states, juries have substantial
discretion in awarding punitive and non-economic compensatory damages which
creates the potential for unpredictable material adverse judgments in any given
lawsuit. In addition, in some class action and other lawsuits involving
insurers' sales practices, insurers have made material settlement payments. We
may also face lawsuits from insureds who dispute our refusal to pay claims made
by them. From time to time we are involved in such litigation or, alternatively,
in arbitration. We cannot predict the outcome of any such litigation or
arbitration. Because litigation and jury trials are inherently unpredictable and
some amounts sought by plaintiffs are large, there can be no assurance that any
litigation involving us will not have a material adverse effect on our business,
financial condition or results of operations.
9
Risks Related to Our Common Stock and the Offering
- --------------------------------------------------
LOW TRADING VOLUME, LIMITED LIQUIDITY AND PRICE VOLATILITY COULD AFFECT THE
MARKET PRICE OF OUR STOCK.
Our common stock has been included in the Nasdaq National Market
since May 12, 1983. As of February 27, 2004, the average daily volume of our
common stock traded in the Nasdaq National Market for the prior fifty-two week
period was approximately 144,000 shares. The relatively low trading volume and
limited market liquidity for our common stock may affect your ability to sell,
and the price at which you are able to sell, your common stock. We cannot
predict whether the market for our common stock will become more active
following the offering. Although several securities firms act as market-makers
for our common stock, a less active market for our common stock may cause the
price of our common stock to be more volatile than it otherwise would be. The
market price of our common stock could be subject to significant fluctuations in
response to our operating results, developments relating to us, our competitors,
the regulatory environment, claims experience, general economic conditions and
other external factors. In addition, in recent years the stock market in general
has experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of companies. These
market fluctuations, as well as general economic conditions, may adversely
affect the market price of our common stock.
WE ARE EFFECTIVELY CONTROLLED BY OUR PRINCIPAL SHAREHOLDER.
Approximately 47% of our outstanding common stock is owned by Capital
Z Financial Services Fund II, L.P., a private investing entity, and its
affiliates, which we collectively refer to in this Prospectus as Capital Z. Our
board of directors consists of nine members. Under a shareholders agreement we
entered into in 1999 with Capital Z and Richard A. Barasch, our Chairman and
CEO, the parties are obligated to vote for directors designated as follows:
- four nominated by Capital Z,
- two nominated by Mr. Barasch and
- three nominated by our board of directors.
Accordingly, Capital Z is able to exert a significant amount of
influence over our corporate actions, including any matters which require a vote
of our board of directors or our shareholders, and can disapprove matters
submitted to a supermajority vote of our shareholders. This concentration of
ownership and control by Capital Z could delay or prevent a change in control of
our holding company which change in control could be advantageous to other
shareholders, or depress the trading market for our common stock.
10
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, APPLICABLE STATE LAWS
AND THE UNIVERSAL AMERICAN FINANCIAL CORP. 1998 INCENTIVE COMPENSATION PLAN
COULD DELAY, DETER OR PREVENT A CHANGE OF CONTROL OF OUR COMPANY THAT OUR
SHAREHOLDERS MIGHT CONSIDER TO BE IN THEIR BEST INTERESTS AND MAY MAKE IT MORE
DIFFICULT TO REPLACE MEMBERS OF OUR BOARD OF DIRECTORS AND HAVE THE EFFECT OF
ENTRENCHING MANAGEMENT.
Certain provisions contained in our certificate of incorporation,
applicable state law provisions and change-of-control provisions contained in
the Universal American Financial Corp. 1998 Incentive Compensation Plan, which
we also refer to in this Prospectus as our 1998 Plan, may delay, defer, prevent
or render more difficult a takeover attempt that our shareholders might consider
to be in their best interests. For instance, they may prevent our shareholders
from receiving the benefit from any premium to the market price of our common
stock offered by a bidder in a takeover context. Even in the in the absence of a
takeover attempt, the existence of these provisions may adversely affect the
prevailing market price of our common stock if they are viewed as discouraging
takeover attempts in the future.
Our certificate of incorporation and the New York Business
Corporation Law contain anti-takeover provisions, which are intended to make it
more difficult for control of our holding company to be obtained by a bidder who
has not been approved by our board of directors.
We are regulated as an insurance holding company by the jurisdictions
in which our 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 our
outstanding common stock or other voting securities would be presumed to have
acquired control of us, unless such presumption is rebutted. The specified
percentage is 5% under Florida insurance law, 10% under the insurance laws of
the other relevant United States jurisdictions (Kansas, New York, Pennsylvania
and Texas), and 10% under Canadian law.
Our 1998 Plan 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."
These provisions may operate to make it more difficult to replace
members of our board of directors and may have the effect of entrenching
management regardless of their performance. In addition, these provisions may
hinder the efforts of a potential acquiror to gain control of us, or a
substantial block of our stock, thus possibly depriving existing shareholders of
a favorable market opportunity.
USE OF PROCEEDS
We will receive the entire proceeds of this offering, consisting of
the applicable exercise price, bid price or market price, as described below in
the Description of Plans section, with no underwriting commission or discounts.
We and our subsidiaries will use the proceeds for working capital and for other
general corporate purposes. We will pay the expenses of the offering.
The selling shareholders will receive the proceeds of offerings made
by them pursuant to this Prospectus. See "Selling Shareholders".
11
PLAN OF DISTRIBUTION
We are offering and selling the shares of our common stock to plan
participants or, as applicable, plan trustees pursuant to the terms of the plans
described in this Prospectus. Sales will be effected from time to time in
accordance with, and at such prices as provided in, each of the plans and each
of the grants issued in connection with the plans. See "Description of Plans".
This Prospectus amends and supersedes our previously-filed
prospectuses contained in a registration statement on Form S-2 on May 13, 1996,
as amended by Amendment No. 1 thereto on November 1, 1999, Amendment No. 2
thereto on October 20, 2003 and Amendment No. 3 thereto on December 24, 2003,
registering the offer and sale of (i) up to 83,620 shares of common stock under
the Employee Option Plan, (ii) up to 33,550 shares of common stock under the
Director Option Plan, (iii) up to 139,867 shares of common stock under the Agent
Option Plan, (iv) up to 37,113 shares of common stock under the Agents Stock
Purchase Plan and (v) up to 35,447 shares of common stock under the Deferred
Comp Plan. This Prospectus amends the previous Plan of Distribution included in
the prospectus previously filed as part of the Form S-2 to reallocate the
remaining shares registered pursuant to this registration statement and to
decrease the total number of registered shares under this registration statement
to reflect the revised maximum number of shares remaining to be issued under
each of the plans. We have set forth the revised maximum number of shares to be
issued under each of the plans on the cover page of this Prospectus.
Certain selling shareholders who receive shares of our common stock
as participants in our Employee Option Plan, Director Option Plan and Agent
Option Plan are also offering shares of our common stock pursuant to this
Prospectus. See "Selling Shareholders".
DESCRIPTION OF PLANS
Universal American Financial Corp. 1998 Incentive Compensation Plan
- -------------------------------------------------------------------
On May 28, 1998, our shareholders approved the Universal American
Financial Corp. 1998 Incentive Compensation Plan. The 1998 Plan consists of our
Incentive Stock Option Plan, our Stock Option Plan for Directors and our
Non-qualified Stock Option Plan for Agents and Others.
The 1998 Plan superseded an earlier incentive stock option plan
initially approved by our shareholders in April 1983 and amended in May 1987,
June 1989, June 1994 and June 1995. Options previously granted under the older
incentive stock option plan will remain outstanding in accordance with their
terms and the terms of the plan. Our 1998 Plan provides for grants of stock
options, stock appreciation rights, restricted stock, deferred stock, other
stock-related awards, and performance or annual incentive awards that may be
settled in cash, stock, or other property.
12
The total number of shares of our common stock reserved and available
for delivery to participants in connection with awards under the 1998 Plan was
(i) 1.5 million, plus (ii) the number of shares of our common stock subject to
awards under preexisting plans that became available (generally due to
cancellation or forfeiture) after the effective date of the 1998 Plan, plus
(iii) 13% of the number of shares of our common stock issued or delivered by us
during the term of the 1998 Plan (excluding any issuance or delivery in
connection with awards, or any other compensation or benefit plan of ours),
provided, however, that the total number of shares of our common stock with
respect to which incentive stock options could be granted could not exceed 1.5
million. As of December 31, 2003, a total of 7.3 million shares were eligible
for grant under the 1998 Plan, of which 4.9 million shares were reserved for
delivery of outstanding options, 2.0 million shares had been issued pursuant to
previous awards and 0.4 million shares were reserved for issuance under future
awards at December 31, 2003.
Executive officers, directors, and other officers and employees of
ours or any of our subsidiaries, as well as other persons who provide services
to us or our subsidiaries, are eligible to be granted awards under the 1998
Plan, which is administered by our board of directors or a committee of the
board of directors established pursuant to the 1998 Plan.
The committee may, in its discretion, accelerate the exercisability,
the lapsing of restrictions, or the expiration of deferral or vesting periods of
any award, and such accelerated exercisability, lapse, expiration and vesting
shall occur automatically if we have a "change in control", except to the extent
otherwise determined by the committee at the date of grant or thereafter. The
committee has not yet exercised any of its discretions noted above.
The 106,034 shares of our common stock being offered for sale through
the Prospectus under the 1998 Plan are being offered under our Incentive Stock
Plan, our Stock Option Plan for Directors and our Non-Qualified Stock Option
Plan for Agents and Others described in the following sections.
INCENTIVE STOCK OPTION PLAN
Up to 46,007 shares of our common stock will be offered for sale
through this Prospectus to our employees and employees of our subsidiaries
pursuant to our Incentive Stock Option Plan, which is part of our 1998 Plan. Our
board of directors, on the recommendation of our Compensation Committee,
determines, within the limits of the applicable plan, the recipients of options,
the number of options to be granted under the plan and the purchase price and
terms of each option, are determined, in its discretion, except that in the case
of options granted for services to our subsidiary, American Progressive, such
determination must be made on the recommendation of American Progressive's board
of directors. Options are non-transferable, except in the event of death, and
expire on the earlier of ten years from the date of grant, one year from the
date of the grantee's death, or three months from the termination of the
grantee's employment. Options become exercisable in installments as determined
by our board of directors, commencing one year after date of grant. Option
shares may be exercised subject to the terms prescribed by the individual grant
agreement, however, options generally vest 50% after the first year and 50%
after the second year.
13
The price for the shares covered by each option is generally required
to be not less than 100% of the fair market value at the date of grant. However,
under an amendment to the 1998 Plan approved by the shareholders on July 27,
1999, we issued 2.3 million below market stock options with an exercise price of
$3.15 per share to certain employees and members of management in connection
with the closing of the sale of shares to Capital Z on August 1, 1999. During
2000, we issued an additional 0.2 million below market stock options with an
exercise price of $3.15 per share to certain relocated employees and members of
management on July 31, 2000. As of December 31, 2003, the number of these
options outstanding decreased to 1.8 million, through a combination of exercises
and employee terminations. These options generally vest 20% upon grant and 20%
each subsequent year. However, 0.5 million vest after seven years, subject to
certain criteria which could accelerate vesting to five years. These options
must be exercised not later than ten years after the date of the grant or
following earlier termination of employment.
STOCK OPTION PLAN FOR DIRECTORS
Up to 6,050 shares of our common stock will be offered for sale
through this Prospectus pursuant to our Stock Option Plan for Directors, which
is part of our 1998 Plan. Under the 1998 Plan, each non-employee director
receives an initial grant on options to purchase 4,500 shares upon election to
our board of directors, and an automatic grant of an additional 4,500 shares at
the close of each annual meeting of shareholders held more than three months
after the initial grant, as long as he or she continues to qualify under the
plan. The 1998 Plan also provides that the non-employee directors for our
subsidiary, American Progressive, will be granted an option to purchase 1,500
shares of our common stock at each annual meeting. Unless otherwise determined
by our board of directors, such options will have an exercise price equal to
100% of the fair market value per share on the date of grant and will become
exercisable in three equal installments after each of the first, second and
third anniversaries of the date of grant based on continued service as a
director. All options granted under our Director Option Plan expire ten years
after their grant. The number of shares to be granted, the exercise price and
other terms of Director Option Plan options under the 1998 Plan are subject to
change by resolution of our board of directors.
These provisions of the 1998 Plan superseded, as to future grants,
the stock option plan for directors initially approved by our shareholders in
1992, which authorized our board of directors to grant an option to purchase
1,000 shares of our common stock to each of our directors who had completed a
year of service as a director since the date of the last grant.
NON-QUALIFIED STOCK OPTION PLAN FOR AGENTS AND OTHERS
Up to 53,977 shares of our common stock will be offered for sale
through this Prospectus to agents of the our subsidiaries and others pursuant to
our Non-qualified Stock Option Plan for Agents and Others, which is part of our
1998 Plan. The 1998 Plan authorizes stock option grants to persons other than
officers and employees of ours or our subsidiaries who provide services to us
and any of our subsidiaries. Under the 1998 Plan, the exercise price and other
terms of options granted under our Agent Option Plan will be determined by the
committee of our board of directors which administers our 1998 Plan.
14
These provisions of our 1998 Plan superseded, as to future grants, a
Non-qualified Stock Option Plan for Agents and Others, adopted by our board of
directors on December 14, 1995, and amended May 23, 1996, which allowed our
board of directors to grant options to purchase our common stock to agents of
our insurance subsidiaries and to other persons -- except officers, directors or
employees of ours or any of our subsidiaries while they are serving as such --
as to whom our board of directors believed the grant of such options will serve
the best interests of the corporation. When our 1998 Plan was adopted, 102,786
options were outstanding under the prior plan.
The exercise price in options granted under the plan is as determined
by our board of directors, but not less than the closing bid price reported on
the Nasdaq National Market system on the date of the grant (or the next
preceding business day on which such a quote is available). Such options granted
under our Agent Option Plan will have durations, fixed by our board of
directors, not to exceed ten years. Our board of directors has discretion to fix
(i) any vesting conditions, (ii) administrative provisions, (iii) anti-dilution
provisions and (iv) other provisions deemed desirable by our board of directors,
as well as to amend any provision fixed by it, provided that no change or
amendment shall adversely affect the option holder with respect to the exercise
price, vesting conditions and duration of a grant once made.
Agents were issued a total of 306,297 options with exercise prices
ranging between $6.41 and $7.40 in 2003 for 2002 sales performance, 233,700
options with exercise prices ranging between $4.75 to $8.55 per share in 2002
for 2001 sales performance and 159,600 options with an exercise price of $5.00
per share in 2001 for 2000 sales performance. These options vest in equal
installments over a three year period and expire five years from the date of
grant. Additionally, career agents were awarded stock grants of 37,189 shares
with a fair value of $5.92 in 2003 for 2002 production.
Agents Stock Purchase Plan
- --------------------------
Up to 4,213 shares of our common stock will be offered for sale
through this Prospectus to qualifying agents of our insurance subsidiaries
pursuant to our Agents Stock Purchase Plan. In order to qualify for
participation in this plan, an agent must meet certain qualifications
established by us from time to time. Qualifying agents may purchase shares under
the Agents Stock Purchase Plan no more frequently then quarterly. Shares may be
purchased under the Agents Stock Purchase Plan only in whole numbers of shares,
and payment must be made upon delivery of the certificates for the shares.
Shares purchased under the Agents Stock Purchase Plan may not be transferred,
except by gift, for six months after purchase. We may decline to accept further
orders from an agent if it believes that the agent is using the plan to purchase
shares other than for bona-fide long term investment. Shares under the Agents
Stock Purchase Plan will be offered and sold at the bid price, which is defined
the average of the closing bid prices of our common stock reported on the Nasdaq
National Market for the 20 previous trading days prior to any such sale.
Pursuant to the Agents Stock Purchase Plan, agents purchased 183,286
shares at a weighted average price of $6.20 in 2003, 30,250 shares at a weighted
average price of $6.30 per share in 2002 and 13,100 shares at a weighted average
price of $4.89 per share in 2001.
15
Deferred Compensation Plan for Agents
- -------------------------------------
Up to 4,379 shares of our common stock will be offered for sale
through this Prospectus to the trustees of our Deferred Compensation Plan for
Agents. Under this plan, agents of our insurance subsidiaries which have elected
to participate in our Deferred Comp Plan may elect to defer receipt between 5%
and 100% of their first year commission they thereafter earn as such agents,
which deferral will be matched by a contribution by the applicable subsidiary,
initially set at 25% of the amount of the deferral, up to a maximum of 5% of the
agent's commissions. Both the agent's participation in the plan and our
obligation to match the agent's deferral are subject to the agent satisfying and
continuing to satisfy minimum earning, production and persistency standards. Our
Deferred Comp Plan provides that the amounts contributed by our match vest over
a period of years, if the agent continues to qualify for participation. The
percentage of the "match" and the vesting period may be changed from time to
time as to future deferrals by us.
Under the terms of our Deferred Comp Plan, each of our participating
insurance subsidiaries will pay the deferral and the corresponding match to a
separate trust established for this purpose. Each of the trusts will use such
payments to purchase our common stock, either in the open market or from us
pursuant to this offering. The trusts will purchase our common stock from us at
fair market value, which is defined as the average of the closing prices of our
common stock reported on the Nasdaq National Market for the 20 previous trading
days prior to any such purchase. As a result of an amendment to our Deferred
Comp Plan, effective January 1, 2004, each trust will only distribute, in kind,
shares of the common stock deemed to be in an agent's account (to the extent
vested) as provided in our Deferred Comp Plan. Such distribution of shares will
be made following the earliest of (i) the termination of an agent's contractual
relationship with the Company, (ii) an agent reaching retirement age (as defined
in the plan) or (iii) an agent's death or disability. Notwithstanding the
establishment of the trusts, the assets in each of the trusts are the sole
property of the respective insurance subsidiaries and remain subject to the
claims of their general creditors. The participating agents, upon their
withdrawal from the plan, will be general creditors of our insurance
subsidiaries for the value of their interest in the plan to the extent, if any,
that such value is not paid by the trusts.
Agents deferred commissions and our matching contributions amounted
to $0.1 million in 2003, $0.2 million in 2002 and $0.2 million in 2001. From the
deferred commissions and matching contributions, the trustees acquired 21,786
shares at a weighted average price of $7.37 in 2003; 49,815 shares at a weighted
average price of $6.38 in 2002; and 41,205 shares at a weighted average price of
$5.89 in 2001.
DESCRIPTION OF SECURITIES TO BE REGISTERED
GENERAL
Set forth below is a description of the material terms and provisions
of our capital stock. The following description does not purport to be complete
and is subject to and qualified in its entirety by reference to our Restated
Certificate of Incorporation and our Amended and Restated Bylaws, both of which
are filed or incorporated by reference as exhibits to the registration statement
of which this Prospectus is a part.
16
COMMON STOCK
We are authorized to issue 80,000,000 shares of common stock, par
value $0.01 per share. As of March 22, 2004, we had 54,200,495 outstanding
shares of common stock. Holders of our common stock are entitled to such
dividends as may be declared by our 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 that we liquidate, all assets available for distribution to the
holders of our 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. Our common stock is not redeemable, not convertible
into any other securities, and has no preemptive rights or sinking fund
provisions. The shares offered in this Prospectus will be, and all of the
outstanding shares of our common stock are, fully paid and non-assessable.
PREFERRED STOCK
We are authorized to issue 2,000,000 shares of preferred stock, par
value $1.00 per share. Our board of directors is authorized, without further
shareholder action, to divide any or all shares of such 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 nor any plans, agreements or understandings for the issuance of any
shares of preferred stock or the authorization of additional shares of preferred
stock.
CERTAIN PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND OUR AMENDED
AND RESTATED BY-LAWS
Our Restated Certificate of Incorporation provides that the
affirmative vote of the holders of two-thirds of the voting power of all of our
outstanding capital stock is required for the following transactions with a
party which directly or indirectly through its affiliates owns 5% or more of
such voting power, unless such transaction was approved by our board of
directors prior to the acquisition of the 5% interest by the other party, or we
own 50% or more of the total voting power of the other party: (i) a merger or
consolidation of us with the other party or (ii) the sale of substantially all
of our assets or business to the other party. This provision of our Restated
Certificate of Incorporation cannot be altered, amended or repealed without the
affirmative vote of the holders of two-thirds of the voting power of all of our
outstanding capital stock.
Our Restated Certificate of Incorporation also requires that the
following actions require approval of not less than two thirds of the total
number of directors: (i) a merger or consolidation of us or a material
subsidiary of ours, or in which our securities are being issued, in which our
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 our assets or properties; (iii) the disposition of any shares of a
material subsidiary of ours or all or substantially all of the assets of such a
subsidiary; (iv) changing the authorized number of our directors; (v) amending
or modifying our certificate of incorporation or by-laws; (v) electing or
removing executive officers, or changing the employment agreement we entered
into with Richard A. Barasch; (vi) voluntarily dissolving or winding-up us or
any of our material subsidiaries or seeking protection of bankruptcy laws; and
(vii) approving dividends or other distributions with respect to our common
stock.
17
Under our Amended and Restated by-Laws, special meetings of our
stockholders shall be called by the Chairman of the Board or the president or
secretary at the request in writing of a majority of the Board of Directors, or
at the request of stockholders owning fifty (50%) percent of our entire capital
stock issued and outstanding and entitled to vote. Notice of any special meeting
must be given to stockholders not less than ten (10) nor more than sixty (60)
days before the date of the meeting. Business transacted at any special meeting
of stockholders is limited to the purposes stated in the notice. However, our
Restated Certificate of Incorporation permits stockholders to take action by
written consent in lieu of a meeting if such consent is signed by stockholders
holding a sufficient amount of outstanding shares to approve such action at any
meeting.
SELLING SHAREHOLDERS
This Prospectus may also be used by certain plan participants in our
Employee Option Plan, Director Option Plan and Agent Option Plan who wish to
resell shares received by them under such plans. Any such selling shareholder
will be named in a supplement to this Prospectus prior to the time of such
transaction.
LEGAL MATTERS
Certain legal matters with respect to the legality of the securities
offered hereby have been passed upon for us by the law firm of Harnett Lesnick &
Ripps P.A. As of the date of the registration statement, Bertram Harnett, Irving
I. Lesnick and Judith A. Ripps, shareholders in Harnett Lesnick & Ripps P.A., in
the aggregate directly own 951 shares of our common stock, and non-qualified
options to acquire 56,000 additional shares of our common stock. A trust
established by Mr. Harnett for the benefit of members of his family, in which
Mr. Harnett disclaims any beneficial interest, owns 409,561 shares of our common
stock.
EXPERTS
The consolidated financial statements of Universal American Financial
Corp. included in Universal American Financial Corp's Annual Report (Form 10-K)
for the year ended December 31, 2003, 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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Securities and Exchange Commission, which is also referred to as
the Commission, allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and later information filed with the
Commission will update and supersede this information. This Prospectus
incorporates by reference the document set forth below that we have previously
filed with the Commission. The document contains important information about us
and our finances.
We incorporate by reference our Annual Report on Form 10-K for the
fiscal year ended December 31, 2003 (designated as File No. 001-08506) filed
pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended,
which we refer to as the Exchange Act.
18
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such earlier statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus. Notwithstanding the foregoing, investors are entitled to
rely on statements and reports incorporated by reference herein at the time of
their investment, regardless of whether such statements or reports are later
modified or superseded.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Pursuant to Item 11(a) of Form S-2, concurrent with the delivery of
this Prospectus, we will furnish each purchaser with a copy of our most recent
annual report on Form 10-K. In addition, we will provide without charge to each
person to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the information that has been
incorporated by reference into this Prospectus or any registration statement
containing this Prospectus (other than exhibits to the information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that this Prospectus and any registration
statement containing this Prospectus incorporates). Such requests should be
directed to our Corporate Secretary at 6 International Drive, Suite 190, Rye
Brook, New York 10573, or by telephone at (914) 934-5200.
We are subject to the informational reporting requirements of the
Exchange Act, and in accordance therewith file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
further information on the operation of the Public Reference Room or for the
location of other regional offices. In addition, we are required to file
electronic versions of those materials with the Commission through its EDGAR
system. The Commission maintains a web site at http://www.sec.gov that contains
reports, proxy statements and other information that registrants, such as our
company, file electronically with the Commission. Our outstanding common stock
is presently quoted on the Nasdaq National Market under the symbol "UHCO" and
all reports, proxy statements and other information concerning us can be
inspected at the public reference facilities of the National Association of
Securities Dealers maintained at 1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the Commission a registration statement on Form
S-2 under the Securities Act of 1933, as amended, which is also referred to as
the Securities Act, with respect to the securities offered hereby. This
Prospectus, which constitutes part of the registration statement, omits certain
information contained in the registration statement as permitted by the rules
and regulations of the Commission. For further information with respect to us
and the securities offered hereby, reference is made to the registration
statement and the exhibits and the financial statements, notes and schedules
filed as part thereof or incorporated by reference therein, which may be
inspected at the public reference facilities of the Commission, at the addresses
set forth above. Statements made in this Prospectus concerning the contents of
any documents referred to herein are not necessarily complete, and in each
instance are qualified in all respects by reference to the copy of such document
incorporated by reference or filed as an exhibit to the registration statement.
19
IN CONNECTION WITH THE OFFERING DESCRIBED IN THIS PROSPECTUS, NO
PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL, OR AN OFFERING
OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER AT
ANY TIME SHALL IMPLY THAT THE INFORMATION PROVIDED HEREIN IS CORRECT AS OF ANY
TIME AFTER ITS DATE.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus or incorporated by reference
into this Prospectus and oral statements made from time to time by our
representatives constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are statements not based on historical information. They relate to future
operations, strategies, financial results or other developments. In particular,
statements using verbs such as "expect," "anticipate," "believe" or similar
words generally involve forward-looking statements. Forward-looking statements
include statements about development and distribution of our products,
investment spreads or yields, the impact of proposed or completed acquisitions,
the adequacy of reserves or the earnings or profitability of our activities.
Forward-looking statements are based upon estimates and assumptions that are
subject to significant business, economic and competitive uncertainties, many of
which are beyond our control and are subject to change. These uncertainties can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements. Whether or not actual results
differ materially from forward-looking statements may depend on numerous
foreseeable and unforeseeable risks and uncertainties, some of which relate
particularly to our business, such as our ability to set adequate premium rates
and maintain adequate reserves, our ability to compete effectively and our
ability to grow our business through internal growth as well as through
acquisitions. Other risks and uncertainties may be related to the insurance
industry generally, such as regulatory developments, industry consolidation and
general economic conditions and interest rates. For a discussion of these risks
and uncertainties, see "Risk Factors." We disclaim any obligation to update
forward-looking statements.
20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be borne by us in
connection with the offerings described in this registration statement. All such
expenses are estimates.
Legal Fees and Expenses............................... $ 5,000
Accounting Fees and Expenses.......................... $ 5,000
Printing and Engraving Fees and Expenses.............. $ 2,000
Trustee and Transfer Agent Fees....................... $ 500
Miscellaneous......................................... $ 1,000
Total...................................... $ 13,500
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seventh of the our Restated Certificate of Incorporation
provides, in part, that except to the extent required by the New York Business
Corporation Law, also referred to as the BCL, no director of ours shall have any
personal liability to us or our stockholders for damages for any breach of duty
as such director, provided that each such director shall be liable under the
following circumstances: (i) in the event that a judgment or other final
adjudication adverse to such director establishes that his acts or omissions
were in bad faith, involved intentional misconduct or a knowing violation of law
or that such director personally gained in fact a financial profit or other
advantage to which such director was not legally entitled or that such
director's acts violated Section 719 of the BCL or (ii) for any act or omission
prior to the adoption of Article Seventh of our Restated Certificate of
Incorporation.
Article VI of the our Amended and Restated Bylaws provide, in part,
that we shall (subject to the terms thereof) indemnify any person, by reason of
the fact that such person is or was a director, officer or employee of ours, or
of any subsidiary or affiliate of ours, or served any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity at our request, against all loss and expense including, judgments,
fines (including excise taxes), amounts paid in settlement and attorneys' fees
and disbursements actually and necessarily incurred as a result of such action
or proceeding, or any appeal therefrom, and all legal fees and expenses incurred
in successfully asserting a claim for indemnification; provided, however, that
no indemnification may be made to or on behalf of any director, officer or
employee if a judgment or other final adjudication adverse to the director,
officer or employee establishes that such person's acts were committed in bad
faith or were the result of active and deliberate dishonesty and were material
to the cause of action so adjudicated, or that such person personally gained in
fact a financial profit or other advantage to which such person was not legally
entitled.
We may purchase and maintain insurance on behalf of any person
described in Article VI of our Amended and Restated Bylaws against any liability
which may be asserted against such person whether or not we would have the power
to indemnify such person against such liability under the provisions of Article
VI of the our Amended and Restated Bylaws or otherwise. We maintain and pay
premiums for directors' and officers' liability insurance policies.
II-1
We are incorporated under the laws of the State of New York. Sections
721-726 of Article 7 of the BCL provide for the indemnification and advancement
of expenses to officers and directors. Section 721 provides that indemnification
and advancement of expenses pursuant to the BCL are not exclusive of any other
rights an officer or director may be entitled to, provided that no
indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
Section 722(a) of the BCL provides that a corporation may indemnify
any officer or director made, or threatened to be made, a party to an action
other than one by or in the right of the corporation, including an action by or
in the right of any other corporation or other enterprise that any director or
officer of the corporation served in any capacity at the request of the
corporation, because he was a director or officer of the corporation, or served
such other corporation or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred as a result of such action, or any
appeal therein, if such director or officer acted in good faith for a purpose he
reasonably believed to be in, or in the case of service for any other
corporation or other enterprise, not opposed to, the best interests of the
corporation and, in criminal actions, had no reasonable cause to believe that
his conduct was unlawful.
Section 722(c) of the BCL provides that a corporation may indemnify
any officer or director made, or threatened to be made, a party to an action by
or in the right of the corporation by reason of the fact that he is or was an
officer or director of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation or other
enterprise, against amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense or settlement of such action, or in connection with
an appeal therein, if such director or officer acted in good faith for a purpose
which he reasonably believed to be in, or, in the case of service for another
corporation or other enterprise, not opposed to, the best interests of the
corporation. The corporation may not, however, indemnify any officer or director
pursuant to Section 722(c) in respect of (i) a threatened action or a pending
action that is settled or otherwise disposed of or (ii) any claim, issue or
matter for which the person has been adjudged to be liable to the corporation,
unless and only to the extent that the court in which the action was brought or,
if no action was brought, any court of competent jurisdiction, determines upon
application that the person is fairly and reasonably entitled to indemnity for
that portion of the settlement and expenses as the court deems proper.
Section 723 of the BCL provides that an officer or director who has
been successful on the merits or otherwise in the defense of a civil or criminal
action of the character set forth in Section 722 is entitled to indemnification
as permitted in such section. Section 724 of the BCL permits a court to award
the indemnification required by Section 722.
Section 725 provides for repayment of such expenses when the
recipient is ultimately found not to be entitled to indemnification. Section 726
provides that a corporation may obtain indemnification insurance indemnifying
itself and its directors and officers.
The foregoing is only a summary of the described sections of the New
York Business Corporation Law and is qualified in its entirety by reference to
such sections.
II-2
ITEM 16. EXHIBITS
The following exhibits have been filed as part of this registration
statement.
Exhibit Number Description of Exhibits
- -------------- -----------------------
4.1 Restated Certificate of Incorporation of Universal American
Financial Corp. (incorporated by reference to Exhibit 3.1 to
our Amendment No. 2 to the Registration Statement (No.
333-62036) on Form S-3 filed on July 11, 2001).
4.2 Amended and Restated By-Laws of Universal American Financial
Corp. (incorporated by reference to Exhibit A to our Current
Report on Form 8-K filed on August 13, 1999).
5 Opinion of Harnett Lesnick & Ripps P.A., legal counsel of
the registrant (previously filed).
10.1 Universal American Financial Corp. 1998 Incentive
Compensation Plan (incorporated by reference to Exhibit A to
our Definitive Proxy Statement on Form DEF 14A filed on
April 29, 1998).
23.1 Consent of Ernst & Young LLP, Independent Accountants (filed
herewith).
24 Power of Attorney (previously included as part of the
signature page to Amendment No. 3 to this registration
statement and incorporated herein by reference).
ITEM 17. UNDERTAKINGS
(a) 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;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-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 volume 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) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
II-3
(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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(b) The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the provisions detailed herein, or otherwise, the
registrant has been advised that in the opinion of the 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.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this
post-effective amendment no. 4 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the city of Rye Brook,
state of New York, on March 24, 2004.
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ Richard A. Barasch
-----------------------------------
Name: Richard A. Barasch
Title: Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard A. Barasch Chairman of the Board, President, Chief March 24, 2004
- ---------------------------------------- Executive Officer and Director (Principal
Richard A. Barasch Executive Officer)
/s/ Robert A. Waegelein Executive Vice President and Chief Financial March 24, 2004
- ---------------------------------------- Officer (Principal Financial and Accounting
Robert A. Waegelein Officer)
* Director March 24, 2004
- ----------------------------------------
Bradley E. Cooper
* Director March 24, 2004
- ----------------------------------------
Mark M. Harmeling
* Director March 24, 2004
- ----------------------------------------
Bertram Harnett
* Director March 24, 2004
- ----------------------------------------
Linda Lamel
* Director March 24, 2004
- ----------------------------------------
Eric Leathers
* Director March 24, 2004
- ----------------------------------------
Patrick J. McLaughlin
* Director March 24, 2004
- ----------------------------------------
Robert A. Spass
* Director March 24, 2004
- ----------------------------------------
Robert F. Wright
* By: /s/ Richard A. Barasch
-----------------------------------------
Name: Richard A. Barasch
Title: Attorney-In-Fact
EXHIBIT INDEX
Exhibit Number Description of Exhibits
- -------------- -----------------------
4.1 Restated Certificate of Incorporation of Universal American
Financial Corp. (incorporated by reference to Exhibit 3.1 to
our Amendment No. 2 to the Registration Statement (No.
333-62036) on Form S-3 filed on July 11, 2001).
4.2 Amended and Restated By-Laws of Universal American Financial
Corp. (incorporated by reference to Exhibit A to our Current
Report on Form 8-K filed on August 13, 1999).
5 Opinion of Harnett Lesnick & Ripps P.A., legal counsel of
the registrant (previously filed).
10.1 Universal American Financial Corp. 1998 Incentive
Compensation Plan (incorporated by reference to Exhibit A to
our Definitive Proxy Statement on Form DEF 14A filed on
April 29, 1998).
23.1 Consent of Ernst & Young LLP, Independent Accountants (filed
herewith).
24 Power of Attorney (previously included as part of the
signature page to Amendment No. 3 to this registration
statement and incorporated herein by reference).