UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. [_])
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
UNIVERSAL AMERICAN FINANCIAL CORP.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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UNIVERSAL AMERICAN FINANCIAL CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 2004
TO THE SHAREHOLDERS OF
UNIVERSAL AMERICAN FINANCIAL CORP.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
UNIVERSAL AMERICAN FINANCIAL CORP. will be held at the Penn Club, 30 West 44th
Street, New York, New York 10036, at 9:30 a.m. (local time) on Wednesday, May
26, 2004, or at any adjournment thereof (the "Annual Meeting"), for the
following purposes:
1. To approve a proposal to amend our certificate of incorporation to
increase the authorized shares of common stock.
2. To approve a proposal to increase the number of shares issuable
under our Universal American Financial Corp. 1998 Incentive
Compensation Plan.
3. To elect nine directors to hold office until the next annual
election of directors or until their successors are elected and
qualified.
4. To consider and act upon such other business as may properly come
before the meeting or any adjournment thereof.
All shareholders are invited to attend the Annual Meeting. Only
shareholders of record at the close of business on April 5, 2004 will be
entitled to vote at the Annual Meeting. A list of these shareholders will be
available at the Company's headquarters, 6 International Drive Rye Brook, New
York 10573-1068 before the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE AS SOON AS
POSSIBLE. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON,
EVEN THOUGH YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.
By order of the Board of Directors,
/s/ Joan M. Ferrarone
JOAN M. FERRARONE
Secretary
Dated: May 10, 2004
Rye Brook, New York
-----------------------------------
This proxy statement and the accompanying proxy card are being mailed to
Company shareholders beginning about May 10, 2004.
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UNIVERSAL AMERICAN FINANCIAL CORP.
6 INTERNATIONAL DRIVE
RYE BROOK, NEW YORK 10573-1068
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 2004
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GENERAL INFORMATION
This proxy statement is furnished to the shareholders of Universal
American Financial Corp., a New York corporation (the "Company"), in connection
with the solicitation of proxies for use at the Company's Annual Meeting of
Shareholders, or at any and all adjournments of such meeting (the "Annual
Meeting")
The Annual Meeting of Shareholders will be held at the Penn Club, 30 West
44th Street, New York, New York 10036, at 9:30 a.m. (local time) on Wednesday,
May 26, 2004.
This proxy statement and the accompanying form of proxy are first being
sent on or about May 10, 2004 to shareholders of record at the close of business
on April 5, 2004.
VOTING RIGHTS AND SOLICITATION
Only shareholders of record at the close of business on April 5, 2004, are
entitled to notice of, and to vote at the 2004 Annual Meeting. On that day,
there were issued and outstanding 54,207,096 shares of Common Stock (after
deducting an aggregate of 212,000 shares held in treasury). Each share has one
vote.
Election of Directors.
Under New York law, the affirmative vote of the holders of a plurality of
the shares of common stock voted at the meeting is required to elect each
director. Consequently, only shares that are voted in favor of a particular
nominee will be counted toward the nominee's achievement of a plurality. Shares
present at the meeting that are not voted for a particular nominee or shares
present by proxy where the shareholder properly withholds authority to vote for
the nominee, including broker non-votes, will not be counted toward the
nominee's achievement of a plurality.
Approval of Amendment to Certificate of Incorporation.
Approval of the amendment to our certificate of incorporation requires the
affirmative vote of the holders of a majority of the outstanding common shares.
Any shares not voted (whether by abstention, broker non-vote or otherwise) have
no impact on the vote.
Approval of an Increase of the Number of Shares Issuable Under Our
Universal American Financial Corp. 1998 Incentive Compensation Plan (the
"1998 ICP").
Approval of an increase of the number of shares issuable under the 1998
ICP requires the affirmative vote of the holders of a majority of the
outstanding common shares. Any shares not voted (whether by abstention, broker
non-vote or otherwise) have no impact on the vote.
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The cost of preparing, assembling, and mailing the proxy material and of
reimbursing brokers, nominees, and fiduciaries for the out-of-pocket and
clerical expenses of transmitting copies of the proxy material to the beneficial
owners of shares held of record by such persons will be borne by us. We do not
intend to solicit proxies other than by use of the mail, but certain of our
officers and regular employees, without additional compensation, may use their
personal efforts, by telephone or otherwise, to obtain proxies.
VOTING BY PROXY
When voting for the election of director nominees, you may (a) vote for
all director nominees as a group, (b) vote for all of the director nominees as a
group, except those nominees whose names you specify, or (c) withhold your vote
for all director nominees as a group. When voting for any other item to be voted
on at the Annual Meeting, you may vote FOR or AGAINST the item or you may
ABSTAIN from voting. All shares represented by valid proxies received and not
revoked before they are exercised will be voted in the manner specified in the
proxies. If nothing is specified, the proxies will be voted FOR each of the
proposals.
You may revoke your proxy at any time before it is exercised:
- by giving written notice of revocation to the Secretary of the
Company,
- by submitting a subsequently dated and properly completed proxy, or
- by attending the Annual Meeting and revoking your proxy. Your
attendance at the Annual Meeting will not by itself revoke you
proxy.
VOTING SHARES HELD IN COMPANY STOCK PLANS
Shares of our common stock held by Company employees who participate in
the Universal American Financial Corp. 401(k) Savings Plan (the "401(k) Savings
Plan") are held of record and are voted by the trustees of the 401(k) Savings
Plan. Participants in the 401(k) Savings Plan may instruct plan trustees as how
to vote shares allocated to their accounts by voting by proxy. The trustees of
the 401(k) Savings Plan will vote shares as to which they have not received
direction in accordance with the terms of the 401(k) Savings Plan.
SHAREHOLDERS' PROPOSALS FOR 2005 ANNUAL MEETING
Any shareholder proposals, including director nominations that are
intended to be considered for inclusion in the proxy statement for the 2005
annual meeting of shareholders, must be received by the Company no later than
the close of business on December 15, 2004. Any proposal received after that
date will not be included in the Company's proxy materials for 2005. In
addition, all proposals for inclusion in the 2005 proxy statement must comply
with all of the requirements of Rule 14a-8 under the Securities Exchange Act of
1934, as amended.
In accordance with our bylaws, no proposal may be presented at the 2005
annual meeting of shareholders unless the Company receives advance notice of the
proposal by February 15, 2005. Proposals should be sent to the Secretary of the
Company, Six International Drive, Rye Brook, New York, 10573. Nominations for
director must be accompanied by written consent to being named in the proxy
statement as a nominee and to serving as a director if elected. All proposals
must comply with certain requirements set forth in the Company's bylaws, a copy
of which may be obtained from the Secretary of the Company.
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ITEMS TO BE ACTED UPON BY SHAREHOLDERS
PROPOSAL 1
PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors of the Company (the "Board") has approved and
recommends that the shareholders approve at the Annual Meeting a proposal to
amend paragraph (a) of Article Fourth of the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation") to increase the number of
authorized shares of common stock, par value $0.01 per share, from 80,000,000
shares to 100,000,000 shares. The Board believes that the proposed amendment to
the Certificate of Incorporation shown below is in the best interests of the
Company and its shareholders:
"(a) The total number of shares which the Corporation is to be authorized
to issue is 102,000,000, consisting of 100,000,000 shares of common stock of the
par value of $.01 each, and 2,000,000 shares of Preferred Stock of the par value
of $1.00 each."
The Company is currently authorized to issue 82,000,000 shares of capital
stock, divided into 80,000,000 shares of common stock, $.01 par value per share,
and 2,000,000 shares of preferred stock, $1.00 par value per share. As of April
5, 2004, 54,207,096 shares of Common Stock were outstanding, after deducting an
aggregate of 212,000 shares held by the Company in treasury. Approximately 5.5
million shares of our common stock were reserved for issuance upon exercise of
outstanding options under the Company's stock options plans. As of April 5,
2004, there were no shares of our preferred stock issued or outstanding.
REASONS FOR THE PROPOSAL
The Board has concluded that increasing the number of authorized shares of
common stock will give the Company the ability to react quickly to future growth
opportunities for the Company. Although the Board has no specific plans or
commitments for the issuance of any of the additional shares that would be
authorized by the amendment, the Board believes that the increase in the number
of authorized shares will provide flexibility for actions the Company might wish
to take, such as paying for acquisitions with stock of the Company, equity
offerings to raise capital, distributing stock splits or stock dividends and
granting new awards under employee benefit plans.
CERTAIN EFFECTS OF THE PROPOSAL
If our shareholders approve the proposed amendment, the Board may issue
such shares without further shareholder action except as required by law,
regulation, or applicable NASDAQ Stock Market requirements. The additional
shares, when issued, will have the same voting and other rights as the Company's
presently authorized common stock. The holders of common stock do not have
preemptive rights to subscribe for additional shares of common stock.
Furthermore, in certain instances, the issuance of additional shares of
common stock may have a dilutive effect on earnings per share and on the equity
and voting power of existing security holders of the Company's capital stock. It
may also adversely affect the market price of the Company's common stock.
However, if additional shares are issued in transactions whereby favorable
business opportunities are provided and allow the Company to pursue its business
plans, the market price of common stock may increase.
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ANTI-TAKEOVER EFFECTS AND OTHER PROVISIONS
Although the Board has no present intention of issuing any additional
shares of common stock as an anti-takeover step, the issuance of additional
common shares could be used to create impediments to or otherwise discourage
persons attempting to gain control of the Company. For example, the issuance of
additional shares could be used in a manner that would dilute the voting power
of shares then outstanding. Shares of common stock could also be issued to
persons or entities that would support the Board in opposing a takeover bid
which the Board determines to be not in the best interests of the Company, its
shareholders, and its employees.
EFFECTIVE DATE
If approved by our shareholders, the amendment to our Certificate of
Incorporation would become effective upon the filing with the Secretary of State
of New York of a certificate of amendment, which filing is expected to take
place shortly after the shareholders approve the amendment.
VOTE REQUIRED
The affirmative "FOR" vote by the holders of a majority of the outstanding
common stock entitled to vote is required to approve this amendment to the
Company's Certificate of Incorporation.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL 2
PROPOSAL TO INCREASE THE NUMBER OF SHARES ISSUABLE UNDER OUR
UNIVERSAL AMERICAN FINANCIAL CORP. 1998 INCENTIVE COMPENSATION PLAN
The Board has approved and recommends that the shareholders approve at the
Annual Meeting a proposal to amend the 1998 ICP to increase the number of shares
of common stock authorized for issuance under the 1998 ICP by 2,500,000 shares.
The Board believes that attracting and retaining key employees of the
Company and its subsidiaries, as well as directors, agents and other persons who
provide services to the Company and its subsidiaries is essential to the
Company's growth and success. In addition, the Board believes that the long term
success of the Company is enhanced by a competitive and comprehensive
compensation program, which may include tailored types of incentives designed to
motivate and reward such persons for outstanding service, including awards that
link compensation to applicable measures of the Company's performance and the
creation of shareholder value. Such awards will enable the Company to attract
and retain key employees as well as directors, agents and other persons who
provide services to the Company and enable such persons to acquire and/or
increase their ownership in the Company and thereby align their interests with
the interests of the Company's shareholders.
REASONS FOR THE PROPOSED AMENDMENT
The primary reason for the proposed amendment to increase the number of
shares of our common stock authorized for issuance under the 1998 ICP is to
provide sufficient shares for continued issuance of grants under the 1998 ICP.
As of March 31, 2004, a total of 7.3 million shares were eligible for grant
under the 1998 ICP, of which 4.9 million shares were reserved for delivery under
outstanding Awards (as defined below) under the 1998 ICP, 2.1 million shares had
been issued pursuant to previous Awards and 0.3 million shares reserved for
issuance under future Awards. On April 27, 2004, the closing price of the
Company's common stock, as reported by NASDAQ, was $11.50 per share.
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The Board believes that the availability of an adequate number of shares
under the 1998 ICP has been, and in the future, will continue to be, an
important factor in attracting and retaining key employees, directors, agents
and other persons who provide services to the Company.
DESCRIPTION OF THE 1998 ICP
The following is a brief summary of the 1998 ICP, which is qualified in
its entirety by reference to the full 1998 ICP. You can obtain a copy of the
1998 ICP by writing to the Secretary of the Company at our address set forth in
the Notice appearing before this proxy statement. The 1998 ICP is also available
on our website at http://www.uafc.com by reference to Exhibit A of the Proxy
Statement dated April 28, 1998, which is accessed through SEC Filings under the
Investor Relations section of our website.
TYPES OF AWARDS
The 1998 ICP provides for grants of stock options, stock appreciation
rights ("SARs"), restricted stock, deferred stock, other stock-related awards,
and performance or annual incentive awards that may be settled in cash, stock,
or other property (collectively, "Awards").
The 1998 ICP superseded the Universal Holding Corp. Incentive Stock Option
Plan, the Universal American Financial Corp. Stock Option Plan For Directors,
and the Non-Qualified Stock Option Plan for Agents and Others (the "Pre-existing
Plans"), although previously granted awards will remain outstanding in
accordance with their terms and the terms of the Pre-existing Plans.
The following is a summary of the current sub-plans for which Awards are
currently granted under the 1998 ICP:
Awards to Employees:
GRANTS OF RESTRICTED STOCK - This sub-plan provides for a grant of
restricted stock to employees, which vests over time based upon continued
service with the Company.
ANNUAL BONUS OPTION GRANTS - This sub-plan provides for a grant of options
to management as part of the Company's annual bonus program. These options are
issued with a strike price equal to the fair market value at the date of grant
and vest based on the terms of the annual bonus program, as approved by the
Compensation Committee of the Board each year.
NEW HIRE OPTION GRANTS - This sub-plan provides for a grant of options to
new employees. These options are issued with strike price equal to fair market
value at the date of grant. The vesting period for these options is determined
at the discretion of management, but generally takes place over no less than 3
years.
Awards to Non-Employee Directors:
ANNUAL OPTION AWARD - This sub-plan provides for a grant of options to
non-employee directors of the Company and its subsidiaries. These options are
issued with a strike price equal to fair market value at the date of grant and
vest over three years.
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Awards to Agents:
ANNUAL BROKERAGE AGENT OPTION AWARD - This sub-plan provides for a grant
of options to brokerage agents based on production. These options are issued
with a strike price equal to 125% of fair market value at the date of grant and
vest one-third upon issuance, two-thirds after one year and 100% after two
years.
ANNUAL CAREER MANAGER OPTION AWARD - This sub-plan provides for a grant of
options to regional managers of Pennsylvania Life Insurance Company and PennCorp
Life Insurance Company based on production. These options are issued with a
strike price equal to 110% or 125% of fair market value at the date of grant and
vest one third upon issuance, two thirds after one year and 100% after two
years.
ANNUAL CAREER AGENT RESTRICTED STOCK AWARD - This sub-plan provides for a
grant of stock to agents of Pennsylvania Life Insurance Company and PennCorp
Life Insurance Company based on production. This award vests 100% on the second
anniversary of the award date and shares are held by the Company until vested.
AGENT STOCK PURCHASE PLAN - Pursuant to this sub-plan, qualifying agents
may purchase shares of our common stock, at a price equal to fair market value
on the date of purchase.
AGENT DEFERRED COMPENSATION PLAN - Pursuant to this sub-plan, qualifying
agents may elect to defer receipt of commissions. Under the terms of the
sub-plan, agent deferrals receive a Company matching contribution of 25% of the
amount deferred, subject to certain limits. Agent deferrals and Company matching
contributions are then used to purchase shares of our common stock at a price
equal to fair market value on the date of purchase.
REGIONAL GENERAL AGENTS EQUITY PARTICIPATION PLAN - Pursuant to this
sub-plan, qualifying agents can earn bonuses which, at their election, can be
used to purchase shares of our common stock at a price equal to fair market
value on the date of purchase. There is no vesting on the shares acquired
through bonus deferrals until the fifth anniversary of the award, at which point
they become 100% vested.
The above summary of sub-plans is not intended to be an all inclusive
listing of the use of equity based compensation for employees, directors, agents
and other persons who provide services to the Company. The above sub-plans may
be modified or cancelled at the discretion of management and the Board, in
accordance with their terms. In addition, individual awards and/or new sub-plans
may be added at the discretion of management and the Board, subject to the
overall limits of the 1998 ICP as amended, to provide appropriate incentives for
those eligible individuals.
SHARES SUBJECT TO THE 1998 ICP
Currently, under the 1998 ICP, the total number of shares of the Company's
common stock reserved and available for delivery in connection with Awards is:
(i) 1.5 million, plus (ii) the number of shares of common stock subject to
awards under the Preexisting Plans that become available (generally due to
cancellation or forfeiture) after the effective date of the 1998 ICP, plus (iii)
13% of the number of shares of common stock issued or delivered by the Company
during the term of the 1998 ICP (excluding any issuance or delivery in
connection with Awards, or any other compensation or benefit plan of the
Company); provided, however, that the total number of shares of our common stock
with respect to which incentive stock options ("ISOs") may be granted shall not
exceed 1.5 million. All shares of our common stock delivered in connection with
Awards under the 1998 ICP consist of authorized and unissued shares or treasury
shares. As of March 31, 2004, a total of 7.3 million shares were eligible for
grant under the current 1998 ICP. If the proposal is approved, the Company will
be able to award an additional 2.5 million shares, for a total of 9.8 million
shares under the 1998 ICP, as amended.
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ADMINISTRATION
Subject to the terms and conditions of the 1998 ICP and the approval of
the Board, the Compensation Committee administers the 1998 ICP and is authorized
to:
- Select Award recipients,
- Determine the type and number of Awards to be granted,
- Determine the number of shares of our common stock to which Awards
will relate,
- Specify times at which Awards will be exercisable or settleable
(including performance conditions that may be required as a
condition thereof),
- Set other terms and conditions of such Awards,
- Prescribe forms of Award agreements,
- Interpret and specify rules and regulations relating to the 1998
ICP, and
- Make all other determinations that may be necessary or advisable for
the administration of the 1998 ICP.
The 1998 ICP provides that Compensation Committee members shall not be
personally liable, and shall be fully indemnified, in connection with any
action, determination, or interpretation taken or made in good faith under the
1998 ICP.
ANNUAL PER-PERSON LIMITATIONS
The 1998 ICP imposes individual limitations on the amount of certain
Awards in order to comply with Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Under these limitations, during any fiscal year
the number of options, SARs, shares of restricted stock, shares of deferred
stock, shares of common stock issued as a bonus or in lieu of other obligations,
and other stock-based Awards granted to any one participant may not exceed one
million shares for each type of such Award, subject to adjustment in certain
circumstances. The maximum cash amount that may be earned as a final annual
incentive award or other annual cash Award in respect of any fiscal year by any
one participant is $5 million, and the maximum cash amount that may be earned as
a final performance award or other cash Award in respect of a performance period
other than an annual period by any one participant on an annualized basis is $5
million.
The Compensation Committee is authorized to adjust the number and kind of
shares available for Awards under the 1998 ICP, subject to the aggregate share
limitations and annual limitations and subject to outstanding Awards (including
adjustments to exercise prices, number of shares subject to options and other
affected terms of Awards) in the event that a dividend or other distribution
(whether in cash, shares, or other property), recapitalization, forward or
reverse stock split, reorganization, merger, consolidation, spin-off,
combination, share repurchase, or share exchange, or other similar corporate
transaction or event affects the common stock so that an adjustment is
appropriate. The Compensation Committee is also authorized to adjust performance
conditions and other terms of Awards in response to these kinds of events, for
compliance with changes in applicable laws or regulations, or accounting
principles.
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ELIGIBILITY
Executive officers, directors, and other officers and employees of the
Company or any of its subsidiaries, as well as other persons who provide
services to the Company or any of its subsidiaries, are eligible to be granted
Awards under the 1998 ICP. The number of individuals eligible for participation
in future Awards is summarized as follows:
Eligible
for Estimated Estimated
Group Future Value of Number
Awards * Awards * Of Units *
---------- ---------- ----------
Executive Officers:
Richard A. Barasch 1 $ 150,000 14,500
Gary W. Bryant 1 150,000 14,500
Robert A. Waegelein 1 150,000 14,500
Jason J. Israel 1 150,000 14,500
William E. Wehner 1 100,000 9,500
---------- ---------- ----------
Executive Officers as a Group 5 800,000 67,500
Other Employees 100 1,000,000 390,000
Directors 8 225,000 36,000
Insurance Company Subsidiary Directors 8 75,000 12,000
Agents and other non-employees 200 550,000 212,000
---------- ---------- ----------
Total 321 $2,650,000 717,500
========== ========== ==========
* Amounts estimated based upon participation in prior Awards.
The Compensation Committee will recommend and the Board will determine the
number and type of Awards pursuant to the terms of the 1998 ICP, subject to the
limitations therein.
STOCK OPTIONS AND SARS
The Compensation Committee is authorized to grant stock options, including
ISOs, which can result in potentially favorable tax treatment to the
participant, non-qualified stock options (i.e., stock options not qualifying as
ISOs), and SARs entitling the participant to receive the excess of the fair
market value of a share of common stock on the date of exercise over the grant
price of the SAR. The exercise price per share subject to an option and the
grant price of an SAR is determined by the Compensation Committee, but must not
be less than the fair market value of a share of common stock on the date of
grant (except to the extent of in-the-money Awards or cash obligations
surrendered by the participant at the time of grant). The maximum term of each
option or SAR, the times at which each option or SAR will be exercisable, and
provisions requiring forfeiture of unexercised options or SARs at or following
termination of employment generally is fixed by the Compensation Committee,
except no option or SAR may have a term exceeding ten years. Options may be
exercised by payment of the exercise price in cash, common stock, outstanding
Awards, or other property (possibly including notes or obligations to make
payment on a deferred basis) having a fair market value equal to the exercise
price, as the Compensation Committee may determine from time to time. Methods of
exercise and settlement and other terms of the SARs are determined by the
Compensation Committee.
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RESTRICTED AND DEFERRED STOCK
The Compensation Committee is authorized to grant restricted stock and
deferred stock. Restricted stock is a grant of common stock which may not be
sold or disposed of, and which may be forfeited in the event of certain
terminations of employment and/or failure to meet certain performance
requirements prior to the end of a restricted period specified by the
Compensation Committee. A participant granted restricted stock generally has all
of the rights of a shareholder of the Company, including the right to vote the
shares and to receive dividends thereon, unless otherwise determined by the
Compensation Committee. An Award of deferred stock confers upon a participant
the right to receive shares at the end of a specified deferral period, subject
to possible forfeiture of the Award in the event of certain terminations of
employment and/or failure to meet certain performance requirements prior to the
end of a specified restricted period (which restricted period need not extend
for the entire duration of the deferral period). Prior to settlement, an Award
of deferred stock carries no voting or dividend rights or other rights
associated with share ownership, although dividend equivalents may be granted,
as discussed below.
DIVIDEND EQUIVALENTS
The Compensation Committee is authorized to grant dividend equivalents
conferring on the participant the right to receive, currently or on a deferred
basis, cash, shares, other Awards, or other property equal in value to dividends
paid on a specific number of shares or other periodic payments. Dividend
equivalents may be granted on a free-standing basis or in connection with
another Award, may be paid currently or on a deferred basis, and, if deferred,
may be deemed to have been reinvested in additional shares, Awards, or other
investment vehicles specified by the Compensation Committee.
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS
The Compensation Committee is authorized to grant shares as a bonus free
of restrictions, or to grant shares or other Awards in lieu of obligations to
pay cash under other plans or compensatory arrangements, subject to such terms
as the Compensation Committee may specify.
OTHER STOCK-BASED AWARDS
The 1998 ICP authorizes the Compensation Committee to grant Awards that
are denominated or payable in, valued by reference to, or otherwise based on or
related to shares of common stock. Such Awards might include convertible or
exchangeable debt securities, other rights convertible or exchangeable into
shares of common stock, purchase rights for shares of our common stock, Awards
with value and payment contingent upon performance of the Company or any other
factors designated by the Compensation Committee, and Awards valued by reference
to the book value of shares of common stock or the value of securities of or the
performance of specified subsidiaries. The Compensation Committee determines the
terms and conditions of such Awards, including consideration to be paid to
exercise Awards in the nature of purchase rights, the period during which Awards
will be outstanding, and forfeiture conditions and restrictions on Awards.
PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS
The right of a participant to exercise or receive a grant or settlement of
an Award, and the timing thereof, may be subject to such performance conditions
as may be specified by the Compensation Committee. In addition, the 1998 ICP
authorizes specific annual incentive Awards, which represent a conditional right
to receive cash, shares or other Awards upon achievement of pre-established
performance goals during a specified one-year period. Performance Awards and
annual incentive Awards granted to persons the Compensation Committee expects
will, for the year in which a deduction arises, be among the Chief Executive
Officer and four other most highly compensated executive officers of the
Company, will, if so intended by the Compensation Committee, be subject to
provisions intended to qualify such Awards as
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"performance-based compensation" not subject to the limitation on tax
deductibility by the Company under Code Section 162(m).
The performance goals to be achieved as a condition of payment or
settlement of a performance Award or annual incentive Award will consist of (i)
one or more business criteria and (ii) a targeted level or levels of performance
with respect to each such business criteria. In the case of performance Awards
intended to meet the requirements of Code Section 162(m), the business criteria
used must be one of those specified in the 1998 ICP, although for other
performance awards the Compensation Committee may specify any other criteria.
The business criteria specified in the 1998 ICP are: (1) earnings per share; (2)
revenues; increase in revenues; the excess of all or a portion of revenues over
operating expenses (which may exclude expenses determined by the Compensation
Committee at the time performance goals are established); (3) cash flow; (4)
cash flow return on investment; (5) return on net assets, return on assets,
return on investment, return on capital, return on equity; (6) economic value
added; (7) operating margin; (8) net income; pretax earnings; pretax earnings
before interest, depreciation, amortization and/or incentive compensation;
pretax operating earnings; operating earnings (with or without investment gains
or losses); (9) total shareholder return; (10) reduction in costs; (11) increase
in the fair market value of common stock; and (12) any of the above goals as
compared to the performance of a published or special index selected by the
Compensation Committee, which may, but need not, select the Standard & Poor's
500 Stock Index or a group of comparator companies.
In granting annual incentive or performance Awards, the Compensation
Committee may establish unfunded Award "pools," the amounts of which will be
based upon the achievement of a performance goal or goals using one or more of
the business criteria described in the preceding paragraph. During the first 90
days of a fiscal year or performance period, the Compensation Committee will
determine who will potentially receive annual incentive or performance Awards
for that fiscal year or performance period, either out of the pool or otherwise.
After the end of each fiscal year or performance period, the Compensation
Committee will determine the amount, if any, of the pool, the maximum amount of
potential annual incentive or performance Awards payable to each participant in
the pool, and the amount of any potential annual incentive or performance Award
otherwise payable to a participant. The Compensation Committee may, in its
discretion, determine that the amount payable as a final annual incentive or
performance Award will be increased or reduced from the amount of any potential
Award, but may not exercise discretion to increase any such amount intended to
qualify under Code Section 162(m).
Subject to the requirements of the 1998 ICP, the Compensation Committee
will determine other performance Award and annual incentive Award terms,
including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions, and the form of settlement.
NON-EMPLOYEE DIRECTOR OPTIONS
Unless otherwise determined by the Board, each non-employee director will
be granted an option to purchase 4,500 shares of our common stock upon his or
her initial election to the Board and at each annual meeting of shareholders
occurring three months or more thereafter at which he or she qualifies as a
non-employee director. Unless otherwise determined by the Board, 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. Any such initial or annual options granted to
non-employee directors expire at the earlier of 10 years after the date of the
grant or 3 months after the date the participant ceases to serve as a director
of the Company for any reason.
11
OTHER TERMS OF AWARDS
Awards may be settled in the form of cash, common stock, other Awards, or
other property, in the discretion of the Compensation Committee. The
Compensation Committee may require or permit participants to defer the
settlement of all or part of an Award in accordance with such terms and
conditions as the Compensation Committee may establish, including payment or
crediting of interest or dividend equivalents on deferred amounts, and the
crediting of earnings, gains, and losses based on deemed investment of deferred
amounts in specified investment vehicles. The Compensation Committee is
authorized to place cash, shares, or other property in trusts or make other
arrangements to provide for payment of the Company's obligations under the 1998
ICP. The Compensation Committee may condition any payment relating to an Award
on the withholding of taxes and may provide that a portion of any shares or
other property to be distributed will be withheld (or previously acquired shares
or other property surrendered by the participant) to satisfy withholding and
other tax obligations. Awards granted under the 1998 ICP generally may not be
pledged or otherwise encumbered and are not transferable except by will or by
the laws of descent and distribution, or to a designated beneficiary upon the
participant's death, except that the Compensation Committee may, in its
discretion, permit transfers for estate planning or other purposes.
Awards under the 1998 ICP are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Compensation Committee may, however, grant Awards in exchange for other Awards
under the 1998 ICP, awards under other plans of the Company, or other rights to
payment from the Company, and may grant Awards in addition to and in tandem with
such other Awards, awards, or rights as well.
ACCELERATION OF VESTING
The Compensation 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 in the case of a "change in
control" of the Company except to the extent otherwise determined by the
Compensation Committee at the date of grant or thereafter. In addition, the
Compensation Committee may provide that the performance goals relating to any
performance-based Award will be deemed to have been met upon the occurrence of
any change in control. Upon the occurrence of a change in control, except to the
extent otherwise determined by the Compensation Committee at the date of grant
or thereafter, the holder of the options may elect to receive cash in lieu of
shares based on a defined "change in control price," which will be the higher of
(i) the cash and fair market value of property that is the highest price per
share of common stock paid (including extraordinary dividends) in any change in
control transaction or in any liquidation of shares of common stock following a
sale of substantially all of the assets of the Company, or (ii) the highest fair
market value per share of common stock (generally based on market prices) at any
time during the 60 days before and 60 days after a change in control. "Change in
control" is defined in the 1998 ICP to include a variety of events, including
significant changes in the stock ownership of the Company or a significant
subsidiary, changes in the Board, certain mergers and consolidations of the
Company or a significant subsidiary, and the sale or disposition of all or
substantially all the consolidated assets of the Company.
AMENDMENT AND TERMINATION OF THE 1998 ICP
The Board may amend, alter, suspend, discontinue, or terminate the 1998
ICP or the Compensation Committee's authority to grant Awards without further
shareholder approval, except shareholder approval must be obtained for any
amendment or alteration if required by law or regulation or under the rules of
any stock exchange or automated quotation system on which the shares are then
listed or quoted. For example, shareholder approval will not be deemed to be
required under laws or regulations, such as those relating to ISOs, that
condition favorable treatment of participants on such approval, although
12
the Board may, in its discretion, seek shareholder approval in any circumstance
in which it deems such approval advisable. Thus, shareholder approval will not
necessarily be required for amendments that might increase the cost of the 1998
ICP or broaden eligibility. Unless earlier terminated by the Board, the 1998 ICP
will terminate at such time as no shares remain available for issuance under the
1998 ICP and the Company has no further rights or obligations with respect to
outstanding Awards under the 1998 ICP.
FEDERAL INCOME TAX IMPLICATIONS OF THE 1998 ICP
Due to the complexity of the applicable provisions of the Code, this
summary sets forth only general tax principles affecting Awards which may be
granted under the 1998 ICP. The general tax principles discussed below are
subject to changes that may be brought about by future legislation or by
regulations and administrative rulings, which may be applied on a retroactive
basis. Special rules may apply to recipients of Awards stock who are subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended.
Stock Appreciation Rights
The tax consequences of the grant of an SAR are generally as follows: (i)
at the time an SAR is granted, a participant will not recognize any taxable
income; (ii) at the time of exercise of an SAR, the participant will recognize
ordinary income equal to the cash or the fair market value of the shares of
common stock received at that time. Subject to the rules concerning
deductibility of compensation, the Company will be allowed an income tax
deduction equal to the amount that the holder of an SAR recognizes as ordinary
income upon the exercise of an SAR.
Stock Options - Incentive Stock Options
Under currently applicable provisions of the Code, as a general rule: (i)
at the time an ISO is granted, the participant will not recognize any taxable
income, and (ii) at the time of exercise of the ISO, no taxable income will be
realized by the participant.
If common stock received upon exercise of an ISO is sold or otherwise
disposed of more than two years from the date the ISO was granted and more than
one year after the shares of common stock were received upon exercise of the
ISO, then: (i) the difference between the option exercise price paid and the
sale price paid to the participants for the shares will result in long-term
capital gain or loss to the participant, and (b) no deduction will be allowed to
the Company for federal income tax purposes in connection with the grant or
exercise of the ISO. Different rules apply to participants who are subject to
the alternative minimum tax. For example, the amount by which the fair market
value of the stock acquired by exercising an ISO exceeds the exercise price is
considered a "preference" and included in the calculation of alternative minimum
tax.
If common stock received upon exercise of an ISO is sold or otherwise
disposed of before the holding period described above is satisfied (called a
"disqualifying disposition"), then the participant will recognize ordinary
income at the time of the sale or other disposition in an amount equal to the
lesser of: (a) the difference between the option exercise price and the fair
market value of the shares at the time the option was exercised, and (b) the
difference between the option exercise price and the amount realized upon the
sale or other disposition of the shares. In addition, the participant will
recognize short-term or long-term capital gain, depending upon whether the
holding period for the shares is more or less than one year, to the extent of
any excess of the amount realized upon the sale or other disposition of the
shares over the fair market value of the shares upon exercise of the option. In
the event of a disqualifying disposition, we will be allowed a tax deduction
equal to the amount of the ordinary income recognized by the participant,
subject to satisfying the rules concerning deductibility of compensation.
13
Stock Options - Non-Incentive Stock Options
Some options granted under the 1998 ICP are not intended to qualify as
ISOs. Under currently applicable law, as a general rule: (i) at the time a
non-ISO is granted, the participant will not recognize any taxable income; and
(ii) upon the exercise of the option, the participant will recognize ordinary
income in the amount by which the fair market value of the common stock at the
time of exercise exceeds the option exercise price. When a participant sells
shares acquired by the exercise of a non-ISO, the difference between the amount
received and the adjusted tax basis of the shares will be gain or loss. Such
gain will be long-term or short-term capital gain, depending upon whether the
holding period for such shares is more or less than one year.
The Company will generally be allowed an income tax deduction equal to the
amount that the participant recognizes ordinary income upon exercise of a
non-ISO, subject to satisfying the rules concerning deductibility of
compensation. The Company is not entitled to a deduction on amounts taxed as
income to the participant upon a sale or other disposition of shares of common
stock received upon exercise of a non-ISO.
Other Awards
With respect to Awards granted under the 1998 ICP that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
With respect to Awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the first time
the shares or other property becomes transferable or is not subject to a
substantial risk of forfeiture, whichever occurs earlier. A participant may
elect to be taxed at the time of receipt of restricted shares or other
restricted property rather than upon lapse of restrictions on transferability or
substantial risk of forfeiture, but if the participant subsequently forfeits
such shares or property, the participant would not be entitled to any tax
deduction, including as a capital loss, for the value of the shares or property
on which he previously paid tax. The participant must file such election with
the Internal Revenue Service within 30 days of the receipt of the shares or
other property. The Company generally will be entitled to a deduction in an
amount equal to the ordinary income recognized by the participant.
Awards that are granted, accelerated or enhanced upon the occurrence of a
change in control may give rise, in whole or in part, to "excess parachute
payments" within the meaning of Code Section 280G and, to such extent, will be
non-deductible by the Company and subject to a 20% excise tax by the
participant.
14
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information relating to equity securities
authorized for issuance under the Company's equity compensation plans as of
December 31, 2003:
NUMBER OF WEIGHTED-AVERAGE NUMBER OF SECURITIES
SECURITIES TO EXERCISE REMAINING AVAILABLE
BE ISSUED UPON PRICE OF FOR FUTURE ISSUANCE
EXERCISE OF OUTSTANDING UNDER EQUITY
OUTSTANDING OPTIONS, COMPENSATION PLANS
OPTIONS, WARRANTS WARRANTS (EXCLUDING SECURITIES
PLAN CATEGORY AND RIGHTS AND RIGHTS EFLECTED IN COLUMN (A))
- ------------------------------ ----------------- ---------------- -----------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 5,458,305(1) $ 4.18 357,586(2)
Equity compensation plans not
approved by security holders 201,124(3) $ 3.98 0(4)
----------------- ---------------- -----------------------
Total 5,659,429 $ 4.17 357,586
================= ================ =======================
(1) Consists of shares of our common stock to be issued upon the exercise of
options granted pursuant to the 1998 ICP.
(2) Securities remaining available for issuance under the 1998 ICP. See above
for a description of the 1998 ICP. Shares of our common stock may also be
issued in connection with SARs, restricted stock and other Awards.
(3) Consists of shares of our common stock to be issued upon the exercise of
options granted pursuant to the Career Agent Stock Plan and the Regional
Equity Plan For Career Agency Managers filed on Form S-2.
(4) The Career Agent Stock Plan and the Regional Equity Plan For Career Agency
Managers were terminated as of December 31, 2001.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS PROPOSAL.
15
PROPOSAL 3
ELECTION OF DIRECTORS
Our Restated Certificate of Incorporation and our By-Laws provide for a
board of directors of not less than three members, with the number of members to
be as set by the Board. Each director is elected for a term of one year, ending
at the next annual meeting of our shareholders, and until his or her successor
is elected and qualifies, subject to earlier removal. The Board has fixed the
number of directors at nine. All of our present directors are nominees for
election by the holders of our common stock. The following table sets forth
certain information concerning our nominees for election as directors:
POSITION WITH THE COMPANY, PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE THE PAST FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------- ----- -------------------------------------------------------------------------------
Richard A. Barasch (1) 50 Mr. Barasch has served as a Director since July 1988, as Chairman since
December 1997, as President since April 1991 and as Chief Executive Officer
since June 1995. He is also Chairman of the Board of all of our
subsidiaries and has held executive positions with our subsidiaries since
their acquisition or organization.
Bradley E. Cooper (1)(2)(3) 37 Mr. Cooper has served as a Director since July 1999. Mr. Cooper is a
Senior Vice President, Director, Partner and co-founder of Capital Z, which
owns 46.5% of our outstanding common stock. Prior to joining Capital Z,
Mr. Cooper served in similar roles at Insurance Partners, L.P. from 1994 to
1998 and International Insurance Advisors, L.P. from 1990 to 1994. Mr.
Cooper currently serves on the board of directors of CERES Group, Inc. and
PXRE Group, Ltd.
Mark M. Harmeling (3)(6) 51 Mr. Harmeling has served as a Director since July 1990. He has also served
as Director of American Progressive from 1992 to 1999. Mr. Harmeling is
self employed in the real estate industry. He was previously a Managing
Director of TA Associates Realty, a pension fund advisory firm from 2001 to
2003. From 1997 to 2001, Mr. Harmeling was employed by AG Spanos
Companies. Mr. Harmeling is also a Director of Rochester Shoetree
Corporation and Applied Extrusion Technologies, Inc.
Bertram Harnett (1)(2) 81 Mr. Harnett has served as a Director since 1996. Mr. Harnett has been a
practicing lawyer since 1948 and has been President of the law firm of
Harnett Lesnick & Ripps P.A., Boca Raton, Florida and its predecessors
since 1988. He is the author of treatises on insurance law and is a
retired Justice of the New York State Supreme Court.
Linda H. Lamel(3)(4)(5) 60 Ms. Lamel is an attorney and consultant in private practice. She was CEO
of Claims online, a technology company specializing in insurance claims
processing, from 2000 to 2002. From 1997 to 2000, Ms. Lamel was Executive
Director of the Risk and Insurance Management Society, and from, 1988 to
1996, was Vice-President of TIAA-CREF.
16
POSITION WITH THE COMPANY, PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE THE PAST FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------- ----- -------------------------------------------------------------------------------
Eric W. Leathers(a) 30 Mr. Leathers is a Principal of Capital Z, which owns 46.5% of our
outstanding common stock. Prior to joining Capital Z in August 1998, Mr.
Leathers was an investment banker with Donaldson, Lufkin & Jenrette, where
he specialized in mergers and acquisitions, corporate financings, and
private equity transactions within the insurance industry.
Patrick J. McLaughlin 46 Mr. McLaughlin has served as a Director since January 1995. Mr. McLaughlin
(1)(2)(4)(5) has been a Managing Director of Emerald Capital Group, Ltd., an asset
management and consulting firm specializing in the insurance industry, since
April 1993.
Robert A. Spass (1)(6) 48 Mr. Spass has served as a Director since July 1999. Mr. Spass is the
Chairman of the Board, a Partner and co-founder of Capital Z, which owns
46.5% of our outstanding common stock. Prior to founding Capital Z, Mr.
Spass was the Managing Partner and co-founder of Insurance Partners, L.P.
from 1994 to 1998. Prior to the formation of Insurance Partners, L.P., Mr.
Spass was President and CEO of International Insurance Advisors L.P. from
1990 to 1994. Mr. Spass serves on the board of directors of CERES Group,
Inc., Endurance Holdings, Inc., Aames Financial Corp. and USI Holdings
Corporation.
Robert F. Wright (4)(5)(6) 78 Mr. Wright has served as a Director since June 1998. Mr. Wright has been
President of Robert F. Wright Associates, Inc. since 1988. Prior to that,
Mr. Wright was a senior partner of the public accounting firm of Arthur
Andersen LLP. Mr. Wright is Director of Reliance Standard Life Insurance
Company (and its affiliates), GVA Williams, The Navigators Group, Inc. and
USI Holdings Corporation.
- --------------------
(1) Member of the Executive Committee.
(2) Member of the Investment Committee.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
(5) Member of the Transaction Committee.
(6) Member of the Nominating and Governance Committee.
(a) Mr. Leathers was appointed to the Board on February 13, 2004, upon the
recommendation of the Nominating and Governance Committee and approval by
the remainder of the Board, to fill the seat previously held by Ms.
Fleming, who resigned from the Board on the same date. Mr. Leathers was
recommended, pursuant to the Shareholders' Agreement (see below), by
Capital Z, a shareholder that beneficially owns 46.5% of our common stock.
17
SHAREHOLDERS' AGREEMENT
The Company, Capital Z, Richard Barasch (the Chairman and Chief Executive
Officer of the Company) and several other shareholders the Company entered into
a shareholders' agreement on July 30, 1999 (the "Shareholders' Agreement"). The
Shareholders' Agreement requires that all proposed sales/transfers by the other
shareholders who are party to the Shareholders' Agreement must first be offered
to Richard Barasch and Capital Z, including its affiliates. However, pledges and
some other transfers by any party to the Shareholders' Agreement of less than 1%
of Universal American's outstanding common stock at any one time, or 2.5% when
aggregated with the other transfers by the shareholder and his, her or its
permitted transferees of Universal American's outstanding common stock, are
permitted. The Shareholders' Agreement provides for tag-along and drag-along
rights under some circumstances. "Tag-along rights" allow the holder of stock to
include his, her or its stock in a sale of common stock initiated by another
party to the Shareholders' Agreement. "Drag-along rights" permit a selling party
to the Shareholders' Agreement to force the other parties to the Shareholders'
Agreement to sell a proportion of the other holder's shares in a sale arranged
by the selling shareholder.
Under the terms of the Shareholders' Agreement, of the nine members of
Universal American's board of directors, certain shareholders are permitted to
nominate directors as follows: Capital Z: four, Richard Barasch: two and
Universal American: two. Capital Z and Richard Barasch are each required to vote
for the director(s) nominated by the other. The right of Richard Barasch to
nominate directors is conditioned upon his continued employment with Universal
American. In addition, the right to nominate directors is not transferable,
except that Capital Z may transfer its right to a third-party buyer who acquires
10% or more of the outstanding common stock of Universal American from Capital
Z.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ALL NOMINEES FOR
ELECTION AS DIRECTORS.
BOARD MEETINGS AND COMMITTEES
The Board met nine times during 2003. In 2003, each of our directors
attended at least 75% of the meetings of the Board and the committees on which
he or she served. In addition, our policy is to encourage the members of the
Board to attend our Annual Meeting. The 2003 annual meeting was attended by of
eight of our Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Audit Committee, a Nominating and Governance Committee, a
Transaction Committee, a Compensation Committee, an Investment Committee and an
Executive Committee. Unless otherwise indicated, committee membership for each
of our Directors is identified in the table of Director Nominees in Proposal 3 -
Election of Directors.
Audit Committee
The Audit Committee is composed of Linda H. Lamel, Patrick J. McLaughlin
and Robert F. Wright. Each member of the Audit Committee is an independent
Director as determined by our Board, based on independence requirements under
Securities and Exchange Commission rules and regulations and the listing
requirements of NASDAQ In addition, the Board has determined that Robert F.
Wright is an "audit committee financial expert," as defined by Securities and
Exchange Commission rules and regulations.
The primary function of the Audit Committee is to assist the Board in
monitoring (i) the integrity of the financial statements of the Company, (ii)
the independent auditor's qualifications and independence, (iii) the performance
of the Company's internal audit function and independent auditors, and (iv)
compliance by the Company with legal and regulatory requirements. The Committee
operates pursuant to a charter,
18
approved by the Audit Committee and the Board, which sets out the
responsibilities, authority and specific duties of the Audit Committee. The
charter specifies, among other things, the structure and membership requirements
of the Audit Committee, as well as the relationship of the committee to the
Company's independent auditors, the internal audit department, and management of
the Company. The Audit Committee charter is attached to this Proxy Statement as
Attachment A. The Audit Committee met seven times during 2003.
Compensation Committee
Our Compensation Committee has the oversight responsibility with respect
to executive compensation and works with management to develop clear
relationships between pay levels, financial performance and returns to
shareholders, in order to align the Company's compensation structure with its
organizational objectives. Further detail regarding the functions of the
Compensation Committee is provided below, under the heading "Report of the
Compensation Committee on Executive Compensation." The members of the
Compensation Committee are Bradley E. Cooper, Mark M. Harmeling and Linda H.
Lamel. The Board has determined that all of the members of the Compensation
Committee are independent Directors, as that term is defined by the NASDAQ
listing standards. The Compensation Committee met twice during 2003.
Executive Committee
Our Executive Committee has the authority to act between Board meetings on
behalf of the Board, on all matters allowed by law. The members of the Executive
Committee are Richard A. Barasch, Bradley E. Cooper, Bertram Harnett and Robert
A. Spass. The Executive Committee did not meet in 2003.
Investment Committee
Our Investment Committee reviews the Company's investment policy and
guidelines and portfolio performance. The members of the Investment Committee
are Bradley E. Cooper, Bertram Harnett and Patrick J. McLaughlin. The Investment
Committee met twelve times during 2003.
Nominating and Governance Committee
The Nominating and Governance Committee is composed of Robert F. Wright,
Mark M. Harmeling and Robert A. Spass, each of whom is independent as that term
is defined by the NASDAQ listing standards. The purpose of the Nominating and
Governance Committee is to make recommendations to the Board in order to assist
the Board with its responsibilities, including:
(i) the identification of individuals qualified to become Board members,
(ii) the selection of the director nominees for the next annual meeting
of shareholders,
(iii) the selection of director candidates to fill any vacancies on the
Board,
(iv) the development and recommendation to the Board of a set of
corporate governance guidelines and principles applicable to the
Company (the "Corporate Code of Ethics"),
(v) leading the Board in its annual review of the Board's performance
and to oversee the annual review of the Chief Executive Officer's
performance, and
(vi) the recommendation to the Board of director nominees for each
committee.
In so doing, the Committee will endeavor to maintain free and open means
of communication between the members of the Committee, other members of the
Board, and management of the Company.
The Nominating and Governance Committee considers potential nominees for
Board membership suggested by its members and other Board members, as well as by
members of management and
19
shareholders, when properly submitted in accordance with our bylaws. In
addition, the Company may, at the request of the Nominating and Governance
Committee, retain outside search firms to identify prospective Board nominees.
The Nominating and Governance Committee will review a summary of the
nominee's qualifications, including materials provided by outside search firms
or other parties. The Nominating and Governance Committee evaluates prospective
nominees against the standards and qualifications set out in the Nominating and
Governance Committee Charter, including:
o experience in corporate governance, such as an officer or former
officer of a publicly held company;
o experience in the Company's industry;
o experience as a board member of another publicly held company; and
o academic expertise in an area of the Company's operations.
The Nominating and Governance Committee also considers other relevant
factors as it deems appropriate, including the current composition of the Board,
the balance of management and independent directors, senior leadership
experience and the need for financial and accounting expertise. In additions,
each member of the Board must have sufficient time available to carry out the
significant responsibilities relating to serving on the Board. The Nominating
and Governance Committee makes a recommendation to the full Board as to the
persons who should be nominated by the Board, and the Board determines the
nominees after considering the recommendation and report of the Nominating and
Governance Committee.
The Nominating and Governance Committee will consider director candidates
recommended by any shareholder entitled to vote in the election of directors,
provided, however, that a shareholder may nominate a person for election as a
director at a meeting only if written notice of such shareholder's intent to
make such nomination has been provided to our Secretary as described above under
"Shareholder Proposals for 2005 Annual Meeting" in this Proxy Statement. The
Nominating and Governance Committee will review and evaluate such shareholder
nominations in the same manner as it evaluates all other nominees.
The Charter for the Nominating and Governance Committee was approved by
the Board on April 1, 2004 and is available on the Company's website at
www.uafc.com and to any stockholder who otherwise requests a copy in writing to
the Secretary of the Company at the address set forth in the Notice appearing
before this Proxy Statement. The Nominating and Governance Committee met twice
during 2003.
Transaction Committee
Our Transaction Committee reviews and makes recommendations to the Board
on certain capital and acquisition transactions entertained by us. The
Transaction Committee met once during 2003.
The information contained in this proxy statement with respect to the
Audit Committee charter, the Nominating and Governance Committee charter and the
independence of the non-management members of the Board shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall the information be incorporated by reference into any
future filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that we specifically incorporate it by reference in a
filing.
20
DIRECTOR INDEPENDENCE
In December 2003, the Board undertook a review of the independence of the
Directors of the Company in accordance with NASDAQ listing standards. During
this review, the Board considered transactions and relationships between each
director and any member of his or her immediate family and the Company, its
subsidiaries and affiliates. The Board also examined transactions and
relationships between directors or their affiliates and members of the Company's
senior management or their affiliates. The purpose of this review was to
determine whether any such relationships or transactions were inconsistent with
a determination that the director is independent.
As a result of this review, the Board affirmatively determined that seven
of the nine Directors are independent, as that term is defined by NASDAQ listing
standards. The non-independent Directors are Richard Barasch, chief executive
officer of the Company, and Bertram Harnett, a shareholder in Harnett, Lesnick &
Ripps, P.A. of Boca Raton, Florida, which was paid $490,258 in 2003 for legal
services rendered to the Company.
DIRECTOR COMPENSATION
Directors who are not our employees, except for Mr. Harnett, receive a fee
of $1,000 for each meeting of the Board or committee meeting attended, unless
the committee meeting is held immediately prior to or after a Board meeting. In
addition, Directors who are not our employees, except for Mr. Harnett, receive a
retainer of $5,000 per year, payable quarterly. The Chairman of our Audit
Committee and the Chairman of our Investment Committee each receive an
additional fee of $15,000. In addition, our Directors are reimbursed for their
travel and related expenses in connection with serving as Board members. In
2003, each of our Directors was eligible to be granted options under our 1998
ICP, and on June 3, 2003, each eligible Director was granted options to purchase
4,500 shares of common stock at an exercise price of $6.23, for a total of
36,000 options granted.
REVISION TO DIRECTOR COMPENSATION
Based on an independent study, the Compensation Committee recommended and
the Board approved changes to Director compensation, effective April 1, 2004.
The annual retainer for all directors who are not our employees was increased to
$10,000. Board and committee meeting fees are $1,000 for in person meetings and
$500 for telephonic meetings. The fees for the Chairs of the Audit and
Investment Committees were both increased to $20,000 per year. The Chairs of the
Compensation and the Nominating and Governance Committees will each begin to
receive fees of $10,000 per year. Eligible Directors will continue to be granted
options at each Annual Meeting to purchase 4,500 shares of common stock with a
market exercise price.
SHAREHOLDER COMMUNICATION WITH THE BOARD
Shareholders may communicate with the Board, any of its constituent
committees or any member thereof by means of a letter addressed to the Board,
its constituent committees or individual directors and sent care of Chairman of
the Nominating and Governance Committee at Universal American Financial Corp.,
Six International Drive, Rye Brook, New York, 10573. All shareholder
communications received by the Chairman of the Nominating and Governance
Committee will be forwarded to the addressees of such communications
accordingly.
21
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the financial reporting process on behalf of
the Board. The Audit Committee reviewed and discussed the audited financial
statements, including a discussion of the quality, not just the acceptability,
of the accounting principles, the reasonableness of significant adjustments and
the clarity of disclosures in the financial statements with management, which
has the primary responsibility for the financial statements.
Ernst & Young LLP, our independent auditor, is responsible for expressing
an opinion on the conformity of the Company's audited financial statements with
generally accepted accounting principles.
The Audit Committee has also discussed with Ernst & Young LLP the matters
required to be discussed by Statement of Auditing Standards No. 61
(Communications with Audit Committees), as amended, regarding the auditor's
judgments about the quality of our accounting principles as applied in its
financial reporting.
The Audit Committee received from Ernst & Young LLP the written
disclosures and the letter required by Independence Standards Board Standard No.
1, and has discussed with Ernst & Young LLP their independence, and considered
the compatibility of non-audit services with the auditors' independence.
The Audit Committee discussed with Ernst & Young LLP the overall scope and
plans for the respective audit. The Audit Committee met with Ernst & Young LLP,
with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. The Audit Committee held
seven meetings during fiscal year 2003.
Based upon the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2003 for filing with the U.S. Securities and
Exchange Commission, and selected Ernst & Young LLP as the independent auditor
for 2004.
Submitted by:
The Audit Committee of Universal American Financial Corp.
Robert F. Wright, Chairman
Linda H. Lamel
Patrick J. McLaughlin
The information contained in the foregoing report shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall the information be incorporated by reference into any
future filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the company specifically incorporates it by
reference in a filing.
22
FEES TO INDEPENDENT AUDITORS
The Audit Committee selected Ernst & Young LLP as our independent auditors
for 2004. Ernst & Young LLP are currently our independent auditors and served as
our independent auditors for 2002 and 2003. The following table presents fees
for services rendered by Ernst & Young LLP for each of the years ended December
31, 2003 and 2002. All such services were approved by the Audit Committee in
advance.
2003 2002
---------- ----------
Audit fees $1,120,000 $ 948,600
Audit related fees (1) 208,500 10,000
Tax fees (2) 144,220 79,645
All other fees (3) 59,700 15,824
---------- ----------
Total fees $1,532,420 $1,054,069
========== ==========
(1) Principally consisted of purchase GAAP accounting, SEC filing, 401(k)
audit and Sarbanes-Oxley reviews in 2003 and reserve control testing in
2002.
(2) Principally consisted of tax consultation and compliance assistance
services in both 2003 and 2002.
(3) Principally consisted of fees for review of audit workpapers by third
parties and actuarial services in 2003 and actuarial services in 2002.
The Audit Committee considered whether the provisions of the services
covered under "All other fees" above is compatible with maintaining the
independence of Ernst & Young LLP and concluded that the non-audit services
provided by Ernst & Young LLP was compatible with maintaining Ernst & Young
LLP's independence.
We have been advised by Ernst & Young LLP that substantially all of the
work done in conjunction with the audit of our financial statements for the year
ended December 31, 2003, was performed by permanent full time employees and
partners of Ernst & Young LLP.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire and will
be available to respond to appropriate questions.
PRE-APPROVAL POLICY
The Audit Committee is responsible for pre-approving all audit and
permissible non-audit services provided by the independent auditor. For audit
services, each year the independent auditor provides the Audit Committee with an
engagement letter outlining the scope of the audit services proposed to be
performed during the year and the cost for performing such services, which must
be formally approved by the Audit Committee before the audit commences.
The Audit Committee's policies require specific pre-approval of all other
permitted services. As provided by the Audit Committee's policies, the Audit
Committee has delegated to its chairman the authority to address any requests
for pre-approval of services between Audit Committee meetings, up to a maximum
of $25,000 per service engagement. The chairman must present any pre-approval
decisions to the full Audit Committee at its next scheduled meeting.
23
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and recommends to the Board the
compensation of the Company's executive officers (including the executive
officers named in the Executive Compensation section below). The Compensation
Committee is made up of three independent, non-employee members of the board.
The objective of the Company's compensation program is to provide a total
compensation package that will enable the Company to:
- - attract, motivate and retain outstanding individuals;
- - align the financial interests of those individuals with the interests of
the Company's shareholders;
- - reward those individuals for increasing levels of profit and shareholder
value; and
- - encourage management's stake in the long-term performance and success of
the Company.
In order to achieve these goals, the Compensation Committee establishes a
competitive and appropriate total compensation package for each executive
officer, consisting primarily of four components - base salary, annual bonus,
stock options and restricted stock awards. The Compensation Committee conducts
an annual review of compensation relative to other life insurance companies and
companies of similar size in the financial industry.
BASE SALARIES
The Compensation Committee establishes base salaries each year at a level
intended to be within the competitive market range of comparable companies.
Other factors considered in determining base salary include the responsibilities
of the executive officer, experience, length of service and individual
performance. During fiscal year 2002, base salaries of our Chief Executive
Officer and four other most highly compensated executive officers (the "Named
Executive Officers") increased an average of 7.7% over 2002. The Compensation
Committee believes that the base salaries of the current executive officers are
within the competitive market range of comparable companies.
CASH BONUSES AND RESTRICTED STOCK BONUSES
The Compensation Committee makes recommendations to the Board for awards
of cash bonuses to the executive officers. The amount of cash bonuses and
restricted stock is primarily based upon the achievement of a certain level of
operating profits, but also includes criteria such as revenue production for
marketing executives and expenses relative to pre-determined budgets for
administrative executives. The fiscal year 2003 cash bonus to our Named
Executive Officers was, in the aggregate, 112.4% of their annualized base salary
at the date of the award. Restricted stock is stock in the Company which the
executive officer must hold for a period of time before it can be sold. The
financial benefit of an award of restricted stock may not be realized by the
executive officer until the restrictions can be lifted from the stock. The total
restricted stock awarded to the executive officer group during fiscal year 2003
amounted to 69,240 shares, or 0.1% of the average outstanding shares of the
Company during 2003.
STOCK OPTIONS
An important component of the Company's executive compensation program is
the award of stock options. The Compensation Committee believes that stock
options motivate the executive officers to remain focused on the overall
long-term performance of the Company. Generally the award of a stock option
creates no financial benefit to the executive unless there is appreciation in
the price of the Company's stock after the award date. There were no stock
options awarded to the Named Executive Officers during 2003.
24
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Barasch's compensation is governed by his employment agreement, dated
July 30, 1999, which provides the Compensation Committee discretion in
determining his base compensation and target bonuses. Mr. Barasch's base salary
for the twelve months from April 1, 2003 to March 31, 2004 was $721,000, an
increase of 3% over his base salary in the prior twelve months. In addition, Mr.
Barasch was awarded a cash bonus of $1,185,000, or 164% of his base salary,
based on the achievement of certain operating goals that had been set in the
previous year. Additionally, Mr. Barasch was awarded 14,837 shares of our common
stock, which vest over four years. For the twelve months beginning April 1,
2004, Mr. Barasch's salary was increased by 3% to $742,630 and his target bonus
was set at 150% of his base salary.
POLICY ON TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") provides that executive compensation in excess of $1.0 million paid to
certain of its executive officers in any calendar year must be performance-based
to be deductible for purposes of corporate income tax. The Compensation
Committee will continue to rely on performance-based compensation programs for
our executive officers. These programs will be designed to meet, in the best
possible manner, future corporate business objectives. However, the Compensation
Committee may award compensation that is not fully deductible if it determines
that such an award is consistent with its philosophy and in the best interests
of the Company and its shareholders.
The Compensation Committee
Mark M. Harmeling, Chairman
Bradley E. Cooper
Linda H. Lamel
The disclosure contained in the above section of this proxy statement is
not incorporated by reference into any of our filings under the Securities Act
of 1933 or the Securities Exchange Act of 1934 that incorporate filings or
portions thereof, (including this proxy statement or the "Executive
Compensation" section of this proxy statement) without specific reference to the
incorporation of this section of this proxy statement.
25
EXECUTIVE COMPENSATION
The following table shows the total compensation paid pursuant to
employment agreements by the Company and its subsidiaries to our Chief Executive
Officer and our four most highly compensated executive officers (the "Named
Executive Officers") for services rendered in all capacities to the Company and
its subsidiaries for the fiscal years ended December 31, 2003, 2002 and 2001:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ----------------------------------------------
RESTRICTED STOCK ALL OTHER
NAME, AGE AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK $ (1) OPTIONS COMPENSATION (2)
- -------------------------------- ---- ------ ----- ----------- ------- ----------------
Richard A. Barasch (50) 2003 $ 715,750 $1,185,000 $ 150,000 -- $ 4,000
Chairman & Chief Executive Officer 2002 653,440 735,000 375,000 13,417 4,000
2001 509,070 718,200 307,800 25,000 3,400
Gary W. Bryant (54) 2003 $ 333,250 $ 278,000 $ 150,000 -- $ 4,000
Executive Vice President & Chief Operating 2002 304,000 154,700 126,300 25,000 4,000
Officer 2001 283,250 135,100 57,900 45,000 3,400
Robert A. Waegelein (43) 2003 $ 265,000 $ 221,000 $ 150,000 -- $ 4,000
Executive Vice President & Chief Financial 2002 241,580 129,500 115,500 25,000 4,000
Officer 2001 214,240 110,600 47,400 45,000 3,400
Jason J. Israel (51)(3) 2003 $ 264,328 $ 217,000 $ 150,000 -- $ 4,000
President of CHCS, Inc. 2002 125,000 45,500 39,500 67,500 4,000
2001 -- -- -- -- 3,400
William E. Wehner (60) 2003 $ 220,250 $ 121,000 $ 100,000 -- $ 4,000
President of Pennsylvania Life Insurance 2002 211,300 75,250 72,250 15,000 4,000
Company 2001 198,275 70,070 30,030 30,000 3,400
- -------------------
(1) The Named Executive Officers were awarded restricted shares of our stock
on various dates. These shares are shown at the fair market value of our
common stock on the date of the award.
(2) The amounts in this column represent the value of our common stock
contributed by us under the 401(k) plan to match contributions to the plan
on behalf of the Named Executive Officer.
(3) Mr. Israel joined the Company in July 2002.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options to purchase common stock granted to the Named
Executive Officers during 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information about options to purchase
common stock exercised by the Named Executive Officers and the number and value
of options each of those officers held on December 31, 2003:
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END (#) FISCAL YEAR-END ($) (1)
------------------------------ ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Richard A. Barasch -- -- 738,183 248,234 $5,042,559 $1,587,476
Gary W. Bryant -- -- 447,500 157,500 $3,013,515 $ 917,250
Robert A. Waegelein -- -- 367,500 142,500 $2,446,875 $ 818,350
Jason J. Israel 31,500 36,000 $ 97,695 $ 117,180
William E. Wehner -- -- 328,000 112,000 $2,214,540 $ 658,935
- ----------
(1) Calculated using the closing bid price on December 31, 2003 of $9.90 per
share and exercise prices ranging between $2.00 and $6.45 for exercisable
options and ranging between $3.15 and $6.45 for unexercisable options.
26
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the Named
Executive Officers. The following chart summarizes certain terms of these
employment agreements:
NAMED EXECUTIVE CURRENT INITIAL EXPIRATION
OFFICER TITLE SALARY EMPLOYMENT TERM DATE
------- ----- ------ --------------- ----
Richard A. Barasch Chairman of the Board and Chief Executive $ 742,630 Three years July 30, 2005
Officer of the Company
Gary W. Bryant Executive Vice President and Chief Operating $ 370,000 Two years July 30, 2005
Officer of the Company
Robert A. Waegelein Executive Vice President and Chief Financial $ 320,000 Two years July 30, 2005
Officer of the Company
Jason J. Israel President of CHCS, Inc. $ 290,000 One year June 17, 2005
William E. Wehner President of Pennsylvania Life Insurance $ 228,660 Two years July 30, 2005
Company
Each employment agreement provides for automatic one-year extensions of
the term of the employment agreement unless the Company or the Named Executive
Officer party to such employment agreement provides the other party six months'
prior written notice before the expiration of any employment term. Each
employment agreement provides that the Named Executive Officer party to such
agreement will be paid an annual salary as determined by such agreement in
regular installments in accordance with the Company's usual payment practice.
Annual increases shall be determined at the discretion of the Board. In
addition, the Named Executive Officers will also receive an annual bonus based
on the achievement of goals established by the Board.
Additionally, the Named Executive Officers are eligible to receive an
additional compensation in the form of restricted stock and grants of stock
options in accordance with the 1998 ICP.
The Named Executive Officers are entitled to benefits under the Company's
employee benefit plans on the same basis as those benefits are made available to
other senior executives of the Company. All reasonable business expenses will be
reimbursed to the executives in accordance with Company policies. In addition,
each Named Executive Officer's employment agreement outlines his and the
Company's obligations under various termination events. Each employment
agreement also contains a non-compete clause covering the period of employment
and the twelve months following termination of employment.
The employment agreements also provide severance in the event of
termination of the Named Executive Officer by the Company without cause or if
the Named Executive Officer resigns for good reason as each such term is defined
in the employment agreements. Mr. Barasch's employment agreement provides that
he is entitled to, among other things, a lump sum payment equal to 2 times his
base salary plus the lesser of (i) his bonus for the fiscal year prior to
termination or (ii) his base salary. The employment agreements for Messrs.
Bryant, Israel, Waegelein and Wehner provide that they are entitled to, among
other things, a lump sum payment equal to the individual Named Executive
Officer's base salary.
In addition, Mr. Barasch's employment agreement provides that if is
terminated without cause or he resigns for "good reason" within 12 months after
a "change of control", as each such term is defined in his employment agreement,
then Mr. Barasch is entitled to receive, among other things, a lump sum payment
equal to two times his base salary (in addition to his severance noted above),
continued coverage under the Company welfare benefit plans available to senior
executives for an additional 12-month period, and the value of full vesting of
Mr. Barasch's account balance under the Company's 401(k) plan. Each employment
agreement for Messrs. Bryant, Israel, Waegelein and Wehner provides that if such
Named Executive
27
Officer is terminated without cause or resigns for "good reason" within 12
months after a "change of control", as each such term is defined in such Named
Executive Officer's employment agreement, then such Named Executive Officer is
entitled to receive, among other things, a lump sum payment equal to one-half
his base salary (in addition to their severance noted above), continued coverage
under the Company welfare benefit plans available to senior executives for an
additional 6-month period, and the value of full vesting of such Named Executive
Officer's account balance under the Company's 401(k) plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
The table below sets forth information regarding loans extended by us to
our Directors and executive officers. All indebtedness described below was
incurred prior to July 30, 2002, the date the United States Sarbanes-Oxley Act
of 2002 came into effect. In compliance with that legislation, no new personal
loans to directors or executive officers were made or arranged, and no existing
personal loans were renewed or modified, after July 30, 2002.
AMOUNT
OUTSTANDING
NATURE OF NATURE OF THE AS OF THE LATEST
RELATIONSHIP BY REASON LARGEST AMOUNT OF TRANSACTION IN PRACTICABLE
OF WHICH SUCH PERSON'S INDEBTEDNESS WHICH THE INDEBTEDNESS DATE
INDEBTEDNESS IS REQUIRED TO BE OUTSTANDING AT ANYTIME WAS INCURRED RATE OF (APRIL 5, 2003)
NAME DESCRIBED DURING SUCH PERIOD (A) INTEREST (B) (C)
---- --------- ------------------ --- ------------ ---
Richard A. Barasch Director, Executive Officer $ 78,750 Loan to purchase stock 4.2% $ 0
of the Company
Gary A. Bryant Executive Officer $ 87,500 Loan to purchase stock 4.2% $ 0
of the Company
William E. Wehner Executive Officer $ 126,000 Loan to purchase stock 4.2% $ 0
of the Company
(a) On December 31, 1998, the Company executed a Share Purchase Agreement ("UA
Purchase Agreement") with Capital Z Financial Services Fund II, L.P.
("Capital Z"), which was amended on July 2, 1999.
Pursuant to the UA Purchase Agreement, certain members of management and
insurance agents of Universal American and of the companies acquired on
July 30, 1999 and holders of Series C Preferred Stock preemptive rights
purchased 3.8 million shares of common stock for $11.8 million (at a
purchase price of $3.15 per share). We provided loans to certain members
of management to purchase the shares of common stock.
(b) The interest rate charged is variable, based on the prime rate for
commercial loans.
(c) In accordance with the terms of each of the loan agreements, these loans
were repaid in cash on their due date of July 31, 2003.
RELATED PARTY TRANSACTIONS
Bertram Harnett, a director of the Company, is a shareholder in Harnett,
Lesnick & Ripps, P.A. of Boca Raton, Florida, which was paid $490,258 in 2003
for legal services rendered to the Company.
28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 5, 2004
with respect to the beneficial ownership of common stock by (i) each person
known by us to own beneficially more than 5% of our outstanding common stock
("5% Holder"), (ii) each person who is a Director of the Company or a nominee
for election as such Director, (iii) each of the Named Executive Officers and
(iv) all of our executive officers and directors as a group. Unless otherwise
indicated, each such beneficial owner holds the sole voting and investment power
with respect to shares of our common stock outstanding. The common stock is the
only class of voting securities outstanding.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------
NAME AND ADDRESS ACQUIRABLE
OF CURRENTLY WITHIN PERCENT OF
BENEFICIAL OWNER STATUS OWNED (A) 60 DAYS (B) CLASS (C)
---------------- ------ --------- ----------- ---------
Capital Z Financial Services 5% Holder 25,086,972 (e,g,h) 54,000 46.3%
Fund II, L.P.
54 Thompson Street
New York, New York 10012
Capital Z Financial Services 5% Holder 133,264 -- *
Private Fund II, L.P.
54 Thompson Street
New York, New York 10012
Wellington Management Co. L.L.P. 5% Holder 2,921,500 -- 5.4%
75 State Street
Boston, Massachusetts 02109
Richard A. Barasch 5% Holder, 2,556,062 (d) 753,367 6.0%
6 International Drive Director,
Rye Brook, New York 10573 Officer
Gary W. Bryant Officer 329,556 475,000 1.5%
600 Courtland Street
Orlando, Florida 32804
Bradley E. Cooper Director 34,216 (e) -- *
54 Thompson Street
New York, New York 10012
Mark M. Harmeling Director 31,808 29,500 *
108 Chestnut Street
North Reading, Massachusetts 01864
Bertram Harnett Director 951 (f) 26,500 *
150 East Palmetto Park Road
Boca Raton, Florida 33432
Jason J. Israel Officer 8,629 33,000 *
3050 Universal Boulevard
Weston, Florida 33331
Linda H. Lamel Director -- 1,500 *
150 East 61st Street
New York, New York 10021
Eric W. Leathers Director 1,455 (g) -- *
54 Thompson Street
New York, NY 10012
Patrick J. McLaughlin Director 39,500 27,500 *
100 Chetwynd Drive
Rosemont, Pennsylvania 19010
29
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------
NAME AND ADDRESS ACQUIRABLE
OF CURRENTLY WITHIN PERCENT OF
BENEFICIAL OWNER STATUS OWNED (A) 60 DAYS (B) CLASS (C)
---------------- ------ --------- ----------- ---------
Robert A. Spass Director 68,433 (h) -- *
54 Thompson Street
New York, New York 10012
Robert A. Waegelein Officer 239,012 395,000 1.2%
6 International Drive
Rye Brook, New York 10573
William E. Wehner Officer 382,840 346,000 1.3%
600 Courtland Street
Orlando, Florida 32804
Robert F. Wright Director 300,776 25,500 *
57 West 57th Street
New York, New York 10019
Directors and Officers as a Group
(13 persons) 3,993,238 2,112,867 10.8%
- ----------
* Percent of class is less than 1%
(a) The Securities and Exchange Commission has defined "beneficial owner" of a
security to include any person who has or shares voting power or
investment power with respect to any such security.
(b) Options to purchase shares that are presently or will become exercisable
within 60 days.
(c) The percentages are based on the 54,207,096 shares of common stock
outstanding (after deducting an aggregate of 212,000 shares held in
treasury) as of April 5, 2004 plus common stock issuable with respect to
options held by the person whose percentage of ownership is being
calculated which are presently or will become exercisable within 60 days.
(d) Includes the following shares of which Mr. Barasch disclaims beneficial
ownership: 1,024,728 shares of common stock which are held directly by, or
in trust for, members of his immediate family; and 409,561 shares of
common stock which are held in an irrevocable trust for the benefit of the
family of Bertram Harnett (the "Barasch Universal Trust") of which Richard
Barasch is trustee.
(e) Mr. Cooper, who is a director of the Company, is a shareholder of Capital
Z Partners, Ltd., the ultimate general partner of Capital Z. In addition,
Mr. Cooper owns 5.7% of the voting capital stock of Capital Z Partners,
Ltd. No person or entity owns 10% or more of the voting capital stock of
Capital Z Partners, Ltd. Mr. Cooper disclaims beneficial ownership of all
shares of the Company's common stock that are beneficially owned by
Capital Z.
(f) Does not include shares held by the Barasch Universal Trust, of which Mr.
Harnett disclaims beneficial ownership.
(g) Mr. Leathers is a principal of Capital Z Partners, L.P. (the immediate
general partner of Capital Z) and disclaims beneficial ownership of all
shares of common stock beneficially owned by Capital Z.
(h) Mr. Spass, who is a director of the Company, is a shareholder of Capital Z
Partners, Ltd., the ultimate general partner of Capital Z. In addition,
Mr. Spass owns 5.7% of the voting capital stock of Capital Z Partners,
Ltd. No person or entity owns 10% or more of the voting capital stock of
Capital Z Partners, Ltd. Mr. Spass disclaims beneficial ownership of all
shares of the Company's common stock that are beneficially owned by
Capital Z.
(i) Based on information filed with the Securities and Exchange Commission by
the beneficial owner on Schedule 13F.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires our directors and executive officers, and persons who own more
than ten percent of a registered class of our equity securities, to file with
the Securities and Exchange Commission and NASDAQ reports of ownership and
changes of ownership of our common stock and other equity securities. Officers,
directors and greater than ten percent shareholders are required by the
Securities and Exchange Commission to furnish us with copies of all Section
16(a) reports they file.
To our knowledge, based solely on review of the copies of such reports
furnished to Universal American or written representations that no other reports
were required, we believe that during the 2003 fiscal year all filing
requirements applicable to our officers, directors and greater than ten percent
shareholders were filed timely.
30
UNIVERSAL AMERICAN COMMON STOCK PRICE PERFORMANCE GRAPH
The Performance Graph compares the Company's cumulative total shareholder
return on its common stock for the five year period between December 31, 1998 to
December 31, 2003, with the cumulative total returns of The NASDAQ Stock Market
("NSM") and the NASDAQ Insurance Stocks ("NIS"). The comparison for each period
assumes that $100 was invested on December 31, 1998 in each of the Company's
common stock, the stocks included in The NASDAQ Stock Market Total Return Index
and the stocks included in the NASDAQ Insurance Stocks Total Return Index.
(GRAPH)
<Table>
<Caption>
1998 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------
Universal American Financial Corp. 100.00 176.19 150.02 258.67 221.68 377.14
Nasdaq Stock Market 100.00 185.43 111.83 88.76 61.37 91.75
Nasdaq Insurance Stocks 100.00 77.56 97.40 104.39 105.21 130.03
</Table>
The disclosure contained in the above section of the proxy statement is
not incorporated by reference into any of our prior filings under the Securities
Act of 1933 or the Securities Exchange Act of 1934, as amended, that
incorporated future filings or portions thereof, including this proxy statement
or the "Executive Compensation" section of this proxy statement.
OTHER MATTERS
As of the date of this Proxy Statement, the Board has no knowledge of any
business that will be presented for consideration at the Annual Meeting other
than that described above. If any proposal not set forth in the Proxy Statement
would be presented for action at the meeting, it is intended that the shares
represented by proxies will vote with respect to such matters in accordance with
the judgment of the persons voting them.
A copy of the Annual Report has been mailed to every shareholder as of the
Record Date. The Annual Report is not to be considered proxy-soliciting
material. If you do not receive the Annual Report, you may request a copy by
writing to: Director, Shareholder Relations, Six International Drive, Rye Brook,
New York, 10573-1068 or by calling (914) 934-5200.
By order of the Board of Directors
/s/ Joan M. Ferrarone
JOAN M. FERRARONE
Secretary
Dated: May 10, 2004
Rye Brook, New York
31
ATTACHMENT I
UNIVERSAL AMERICAN FINANCIAL CORP.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
ORGANIZATION
This charter governs the operations of the Audit Committee of Universal
American Financial Corp. (the "Company"). The committee shall review and
reassess the adequacy of the charter at least annually and recommend any changes
to the Board of Directors (the "Board"). Changes to be considered include those
that are necessary as a result of new laws and regulations.
The committee shall be appointed by the Board and shall be comprised of at
least three (3) directors who are in good standing, independent and financially
literate. No member may have participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at any time
during the past three years. The Board shall designate one member to serve as
Chairman and shall have power and authority to fill any vacancy in the
committee.
Members of the committee must meet the independence requirements under
Securities and Exchange Commission rules and regulations and the listing
requirements of NASDAQ. To be "independent", a member of the committee must not
be an officer or employee of the company or any of its subsidiaries or have any
relationship which, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. In addition, the Board has the affirmative responsibility to determine
that a director does not have any relationship that disqualifies him or her from
being independent. Specifically, to be "independent", committee members must
NOT:
a. have been employed by the Company or any of its affiliates for the current
year or any of the past three years;
b. have accepted or have a family member who has accepted any payments from
the Company or any of its affiliates during the current or any of the past
three fiscal year, other than compensation for service on the Board,
benefits under a tax-qualified retirement, or non-discretionary
compensation;
c. be, or have a Family Member who is, a current partner of the Company's
outside auditor or was a partner or employee of the Company's outside
auditor who worked on the Company's audit during any of the past three
years;
d. be a Family Member of an individual who is, or has been in any of the
past three years, employed by the Company or any of its affiliates as an
executive officer;
e. be, or have a Family Member who is, a partner in, or a controlling
shareholder or an executive officer of, any organization to which the
Company made, or from which the Company received payments for the property
or services in the current or any of the past three fiscal years (other
than those arising solely from investments in the Company's securities or
payments under a non-discretionary charitable contribution matching
program) that exceed five percent of the recipient's consolidated gross
revenues for that year, or $200,000, whichever is more; or
f. be, or have a Family Member who is, employed as an executive officer of
another entity where at any time during the past three years any of the
Company's executive officers served on that entity's compensation
committee.
"Family Member" shall mean a person's spouse, parents, children and
siblings, whether by blood, marriage or adoption, or anyone residing in
such person's home.
To be financially literate, a member must be able to read and understand
fundamental financial statements, including the Company's balance sheet, income
statement and cash flow statement, or become able to do so within a reasonable
period of time after appointment to the committee. In addition, at least one
member of the committee shall be designated as the financial expert, which means
that member will have accounting or related financial management expertise,
requisite certification in accounting, or any other comparable experience or
background that results in such member's financial sophistication.
1
STATEMENT OF POLICY
The Audit Committee will have the responsibility to assist the Board of
Directors of the Company in fulfilling its responsibilities to the shareholders,
potential shareholders, the investment community, and others relating to the
Company's financial statements and the financial reporting process, the systems
of internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board.
In so doing, it is the responsibility of the committee to maintain free
and open means of communication among the committee, directors, independent
auditors, the internal auditors and financial management of the Company. In
discharging its role, the committee is empowered to inquire into any matter it
considers appropriate to carry out its responsibilities, with access to all
books, records, facilities and personnel of the Company. The committee has the
power to retain outside counsel, independent auditors or other advisors to
assist it in carrying out its activities, including compensation of the
committee's counsel, independent auditors and other advisors. The committee
shall have the sole authority to retain, compensate, direct, oversee and
terminate counsel, independent auditors, and other advisors hired to assist the
committee, who shall be accountable ultimately to the committee.
MEETINGS
The committee shall meet at least four times a year and each time the
Company proposes to issue a press release with its quarterly or annual earnings
information (these meetings may be combined with regularly scheduled meetings),
or more frequently as circumstances may require. The Audit Committee may ask
members of management or others to attend the meetings and provide pertinent
information as necessary. The agenda for each meeting shall be prepared by the
Chairman of the Audit Committee and, whenever reasonably practical, circulated
to each member prior to the date of the meeting. The committee shall keep
minutes of its proceedings. The committee shall conduct executive sessions with
the outside auditors, chief executive officer ("CEO") ,chief financial officer
("CFO"), chief internal audit executive ("CAE"), general counsel, outside
counsel, director of financial reporting, controller, and anyone else as desired
by the committee. Following each meeting of the committee and whenever so
requested by the Board, the committee shall report to the Board on the
committee's activities, findings and recommendations.
RESPONSIBILITIES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. In carrying out its
responsibilities, the committee shall establish and maintain flexible policies
and procedures in order to best react to changing conditions and circumstances.
The committee should take the appropriate actions to ensure that the Company's
corporate accounting and financial reporting are in accordance with all
requirements and are of the highest quality.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate or as the Board may request.
2
ATTACHMENT I
GENERAL
- - The committee shall discuss with management, the internal auditors and the
independent auditors the adequacy and effectiveness of the Company's
accounting and financial controls, including the Company's systems to
monitor the integrity of the Company's financial reporting process,
internal controls regarding finance and accounting compliance.
- - The committee shall inquire of management, the CAE, and the independent
auditors about significant risks or exposures facing the Company; assess
the steps management has taken or proposes to take to minimize and manage
such risks to the Company; and periodically review compliance with such
steps.
- - The committee shall inquire of the CEO and CFO regarding the "quality of
earnings" of the company from a subjective as well as an objective
standpoint.
- - The committee will monitor the independence and performance of the
Company's independent auditors.
- - The committee will provide a means of communication among the independent
auditors, management and the Board.
- - The committee will review and reassess the adequacy of the Audit Committee
Charter at least annually, submit the charter to the Board for approval
and have the document published at least every three years in accordance
with SEC regulations.
- - The committee shall review with management and the independent auditor the
effect of any regulatory and accounting initiatives, as well as
off-balance-sheet structures, if any.
- - The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K, including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
- - The committee shall review and approve all related party transactions
involving directors or executive officers and review potential conflict of
interest situations where appropriate.
- - The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall discuss
the results of the quarterly review and any other matters required to be
communicated to the committee by the independent auditors under generally
accepted auditing standards. The chair of the committee may represent the
entire committee for the purposes of this review with the prior consent of
the other members.
INDEPENDENT AUDITORS
- - The committee shall have a clear understanding with management, the Board
and the independent auditors that the independent auditors are ultimately
accountable to the board and the Audit Committee, as representatives of
the Company's shareholders.
- - The committee shall have the ultimate authority and responsibility to
evaluate and, where appropriate, replace the independent auditors.
- - Annually, the committee shall discuss with the auditors their independence
from management and the Company and the matters included in the written
disclosures required by the Independence Standards Board.
- - The committee needs to ascertain that the lead (or concurring) audit
partner from any public accounting firms performing audit services, serves
in that capacity for no more than five fiscal years of the Company. In
addition, ascertain that any partner other than the lead or concurring
partner serves no more than seven years at the partner level on the
Company's audit.
- - Annually, the committee shall review and recommend to the Board the
appointment of the Company's independent auditors, including the
establishment of the audit fees and pre-approval of any non-audit services
provided by the independent auditors, including tax services, before the
services are rendered.
3
ATTACHMENT I
- - The committee shall discuss with the independent auditors the overall
scope and plans for their respective audits including the adequacy of
staffing and compensation.
- - The committee shall meet separately with the independent auditors, with
and without management present, to discuss the results of their
examinations and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
- - The committee shall review with the independent auditors all critical
accounting policies and practices used by the company and all alternative
treatments of financial information within generally accepted accounting
principles that have been discussed with management of the company, the
ramifications of each alternative, and the treatment preferred by the
Company.
- - The committee shall review all material written communications between the
independent auditors and management, such as any management letter or
schedule of unadjusted differences.
- - The committee shall review with management and the independent auditors
the Company's annual financial statements and related footnotes, the
independent auditors' audit of the financial statements and their report
thereon, the independent auditors' judgments about the quality, not just
the acceptability, of the Company's accounting principles as applied in
its financial reporting, any significant changes required in the
independent auditors' audit plan, any serious difficulties or disputes
with management encountered during the audit, and matters required to be
discussed by Statement on Auditing Standards (SAS) No. 61, Communication
With Audit Committees (AICPA, Professional Standards, vol. 1, AU sec.
380), as amended, related to the conduct of the audit.
INTERNAL AUDIT DEPARTMENT
- - The committee shall review the organizational structure and qualifications
of the internal audit department ("IAD"), including reviewing the annual
scope and plan of the IAD, the appointment and annual reviews of the
senior IAD officer and summaries of findings prepared by the IAD together
with management's responses.
- - The committee shall review with the independent auditor, the controller of
the Company, and the CAE, the audit scope and plan of the internal
auditors and the independent auditors. Address the coordination of audit
efforts to assure the completeness of coverage, reduction of redundant
efforts, and the effective use of audit resources.
- - The committee shall review with management and the CAE, the significant
findings on internal audits during the year and management's responses
thereto, any difficulties the internal audit team encountered in the
course of their audits, including any restrictions on the scope of their
work or access to required information, any changes required in the scope
of their internal audit, the internal auditing department budget and
staffing, the IAD charter, the internal audit's compliance with the
Institute of Internal Auditors' (IIA's) Standards for the Professional
Practice of Internal Auditing (Standards).
LEGAL COMPLIANCE
- - On at least an annual basis, the committee will review with the Company's
counsel any legal matters that could have a significant impact on the
Company financial statements, the Company's compliance with laws
and regulations and inquiries received from regulators or governmental
agencies.
- - The committee shall periodically review the Company's code of conduct to
ensure that it is adequate and up-to-date.
- - The committee shall review with the CAE and the Company's general counsel
the results of their review of the monitoring of compliance with the
company's code of conduct.
- - The committee shall review the procedures for the receipt, retention, and
treatment of complaints received by the Company regarding accounting,
internal accounting controls, or auditing matters that may be submitted by
any party internal or external to the Company.
- - The committee shall review any complaints that might have been received,
current status, and resolution if one has been reached.
4
ATTACHMENT I
OTHER AUDIT COMMITTEE RESPONSIBILITIES
- - The committee shall consider, with management, the rationale for employing
audit firms other than the principal independent auditors.
- - The committee shall evaluate the independent auditors and the internal
auditors.
- - The committee shall review procedures for the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
- - The committee shall review any submissions that have been received, the
current status, and the resolution if one has been reached.
- - The committee shall annually prepare a report to shareholders as required
by the Securities and Exchange Commission. The report should be included
in the Company's annual proxy statement.
- - The committee shall perform any other activities consistent with this
Charter, the Company's by-laws and governing law, as the committee or the
board of directors deems necessary or appropriate.
- - The committee shall review with management the policies and procedures
with respect to officers' expense accounts and perquisites, including
their use of corporate assets, and consider the results of any review of
these areas by the internal auditor or the independent auditors.
- - The committee shall maintain minutes of meetings and periodically report
to the Board on significant results of the foregoing activities.
- - The committee will review its effectiveness.
5
ANNUAL MEETING OF SHAREHOLDERS OF
UNIVERSAL AMERICAN FINANCIAL CORP.
MAY 26, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 1 AND 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [x]
3. Election of Directors: (TO SERVE UNTIL THE NEXT ANNUAL ELECTION OF
DIRECTORS):
NOMINEES:
[ ] FOR ALL NOMINEES O Richard A. Barasch
O Bradley E. Cooper
[ ] WITHHOLD AUTHORITY O Mark M. Harmeling
FOR ALL NOMINEES O Bertram Harnett
O Linda H. Lamel
[ ] FOR ALL EXCEPT O Eric W. Leathers
(See instructions below)
O Patrick J. McLaughlin
O Robert A. Spass
O Robert F. Wright
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: 0
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.[]
FOR AGAINST ABSTAIN
1. Proposal to amend our certificate of [ ] [ ] [ ]
incorporation to increase the authorized
shares of common stock.
2. Proposal to increase the number of shares [ ] [ ] [ ]
issuable under our Universal American
Financial Corp. 1998 Incentive Compensation
Plan.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting, or any adjournment or adjournments
thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR ELECTION
OF DIRECTORS UNLESS OTHERWISE INDICATED.
Signature of Shareholder_____________________ Date:_____________ Signature of Shareholder___________________ Date:____________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person. [ ]
UNIVERSAL AMERICAN FINANCIAL CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 26, 2004
The undersigned shareholder of Universal American Financial Corp., hereby
appoints Richard Barasch and Robert Waegelein, and each of them, the proxies of
the undersigned with full power of substitution, to vote, as indicated herein,
all the shares of Common Stock of Universal American Financial Corp. standing in
the name of the undersigned at the close of business on April 5, 2004, at the
Annual Meeting of Shareholders of the Company to be held at The Penn Club, 30
West 44th Street, New York, New York 10036, at 9:30 a.m. on May 26, 2004, and at
any and all adjournments thereof, with all the powers the undersigned would
possess if then and there personally present, as more fully described in the
Proxy Statement for the meeting.
THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AS SET FORTH ON THE
REVERSE SIDE, UNLESS OTHERWISE INDICATED THERE.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)