SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted
by Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
UNICO AMERICAN CORPORATION
----------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------------------
Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
UNICO AMERICAN CORPORATION
23251 Mulholland Drive
Woodland Hills, California 91364-2732
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Thursday, May 27, 2004
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of Unico
American Corporation (the "Company") to be held at the Woodland Hills Hilton and
Towers at Warner Center, 6360 Canoga Avenue, Woodland Hills, California 91367,
at 2:00 p.m. local time, to consider and act upon the following matters:
1. The election of seven (7) directors to hold office until the next
annual meeting of shareholders and thereafter until their successors
are elected and qualified; and
2. The transaction of such other business as may properly be brought
before the meeting.
The Board of Directors has fixed the close of business on April 9, 2004, as the
record date for the determination of shareholders who will be entitled to notice
of and to vote at the meeting. The voting rights of the shareholders are
described in the Proxy Statement.
IT IS IMPORTANT THAT ALL SHAREHOLDERS BE REPRESENTED AT THE ANNUAL MEETING.
SHAREHOLDERS WHO DO NOT PLAN TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO
VOTE, DATE, AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING POSTAGE-PAID AND
ADDRESSED RETURN ENVELOPE. PROXIES ARE REVOCABLE AT ANY TIME, AND SHAREHOLDERS
WHO ARE PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON IF
THEY SO DESIRE.
By Order of the Board of Directors,
/s/ Erwin Cheldin
------------------
Erwin Cheldin
Chairman of the Board, President, and
Chief Executive Officer
Woodland Hills, California
April 19, 2004
UNICO AMERICAN CORPORATION
--------------------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
May 27, 2004
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Unico American Corporation, a Nevada corporation
(the "Company"), for use at the Annual Meeting of Shareholders of the Company to
be held at the Woodland Hills Hilton and Towers at Warner Center, 6360 Canoga
Avenue, Woodland Hills, California 91367 on May 27, 2004, at 2:00 p.m. local
time. Accompanying this Proxy Statement is a proxy card, which you may use to
indicate your vote as to each of the proposals described in this Proxy
Statement.
All proxies that are properly completed, signed, and returned to the Company
prior to the Annual Meeting, and which have not been revoked, will be voted. A
shareholder may revoke his or her proxy at any time before it is voted either by
filing with the Secretary of the Company at its principal executive offices a
written notice of revocation or a duly executed proxy bearing a later date, or
by appearing in person at the Annual Meeting and expressing a desire to vote his
or her shares in person.
The close of business on April 9, 2004, has been fixed as the record date for
the determination of shareholders entitled to notice of and to vote at the
Annual Meeting or any adjournment thereof. As of the record date, the Company
had outstanding 5,489,815 shares of common stock, the only outstanding voting
securities of the Company. For each share held on the record date, a shareholder
is entitled to one vote on all matters to be considered at the Annual Meeting.
The Company's Articles of Incorporation do not provide for cumulative voting.
Directors are elected by a plurality of the votes cast and abstentions and
broker non-votes are counted for the purposes of determining the existence of a
quorum at the meeting, but not for purposes of determining the results of the
vote.
The Company will bear the cost of the Annual Meeting and the cost of soliciting
proxies, including the cost of preparing, assembling and mailing the proxy
material. In addition to solicitation by mail, officers and other employees of
the Company may solicit proxies by telephone, facsimile, or personal contact
without additional compensation.
The Company's principal executive offices are located at 23251 Mulholland Drive,
Woodland Hills, California 91364-2732. The approximate mailing date of this
Proxy Statement and the Company's proxy card is April 19, 2004.
ELECTION OF DIRECTORS
The Company's By-Laws provide for a range of three to eleven directors and allow
the Board of Directors to set the exact number of authorized directors within
that range. The current number of authorized directors established by the Board
of Directors is seven (7). Directors are elected at each Annual Meeting of
Shareholders to serve thereafter until their successors have been duly elected
and qualified. Each nominee is currently a director, having served in that
capacity since the date indicated in the following table. All nominees have
advised the Company that they are able and willing to serve as directors. If any
nominee refuses or is unable to serve (an event which is not anticipated), the
persons named in the accompanying proxy card will vote for another person
nominated by the Board of Directors. Unless otherwise directed in the
accompanying proxy card, the persons named therein will vote FOR the election of
the seven nominees listed in the following table.
1
The following table provides certain information as of April 9, 2003, for each
person named for election as a director, which includes all executive officers
of the Company:
First
Present Position with Company or Elected
Name Age Principal Occupation and Prior History Director
---- --- -------------------------------------- --------
Erwin Cheldin 72 President and Chief Executive Officer 1969
since 1969. Chairman of the Board since
1987.
Cary L. Cheldin 47 Executive Vice President since 1991. 1983
Vice President 1986 to 1991 and
Secretary 1987 to 1991.
Lester A. Aaron, CPAv 58 Treasurer and Chief Financial Officer 1985
since 1985. Secretary 1991 to 1992.
George C. Gilpatrick 59 Vice President, Management Information 1985
Systems, since 1981. Secretary since 1992.
David A. Lewis, CPCU 82 Retired insurance executive with over 40 1989
years insurance experience. The last 27
years were with the Transamerica Group of
insurance companies.
Warren D. Orloff 69 Retired actuary with over 40 years' 2001
experience specializing in retirement
plans. From 1990 until retiring in 1997,
he was an independent actuarial consultant
for pension administration firms. He is a
Fellow of Society of Actuaries, Fellow of
Conference of Consulting Actuaries, and
member of Academy of Actuaries.
Donald B. Urfrig 62 Consulting engineer in the areas of 2001
project management and integrated product
development since 1996. In addition, he
is also a private investor and owner of
commercial and agricultural businesses for
the past 32 years. From 1963 to 1996
worked in the aerospace industry in both
technical and management positions.
Except for Cary Cheldin, who is the son of Erwin Cheldin, none of the executive
officers or directors of the Company are related to any other officer or
director of the Company. The executive officers of the Company are elected by
the Board of Directors and serve at the pleasure of the Board.
Messrs. Erwin Cheldin, Cary L. Cheldin, Lester A. Aaron and George C. Gilpatrick
who hold approximately 51.0% of the voting power of the Company have agreed to
vote the shares of common stock held by each of them so as to elect each of them
to the Board of Directors and to vote on all other matters as they may agree. As
a result of this Agreement, the Company is a "Controlled Company" as defined in
the National Association of Securities Dealers ("NASD") Marketplace Rule
4350(c)(5). A Controlled Company is exempt from the requirements of NASD
Marketplace Rule 4350(c) requiring that (i) the Company have a majority of
independent directors on the Board of Directors, (ii) the Compensation Committee
be composed solely of independent directors, (iii) the compensation of the
executive officers be determined by a majority of the independent directors or a
compensation committee comprised solely of independent directors and (iv)
director nominees be elected or recommended either by a majority of the
independent directors or a nominating committee comprised solely of independent
directors.
During the year ended December 31, 2003, the Company's Board of Directors held
one meeting. Non-employee directors receive $2,000 each quarter as compensation
for the committee meetings they attend and $1,000 for each board meeting they
attend. Except for George C. Gilpatrick, all incumbent directors attended 75% or
more of the combined total meetings of the Board of Directors and the committees
on which they served.
2
The Board of Directors has established an Audit Committee presently consisting
of David A. Lewis, Warren D. Orloff and Donald B. Urfrig. The Audit Committee of
the Board of Directors oversees matters involving the independent accountants
and the integrity of the Company's financial reporting process. The Audit
Committee met four times during the year ended December 31, 2003, and held one
meeting subsequent to the year ended December 31, 2003, to discuss accounting
and financial statement matters related to the year ended December 31, 2003. Mr.
Lewis, Mr. Orloff and Mr. Urfrig are independent as defined in the NASD listing
standards. The Board of Directors has determined that the Company does not have
an "Audit Committee Financial Expert", as defined by the SEC, serving on the
Audit Committee. The Board of Directors believes that the members of the Audit
Committee are able to read and understand financial statements of the Company,
are familiar with the Company and its business, and are capable of fulfilling
the duties and responsibilities of an Audit Committee without the necessity of
having an "Audit Committee Financial Expert" as a member.
The Board of Directors has also established a Compensation Committee presently
consisting of Messrs. Cary Cheldin, Aaron, and Orloff. This Committee considers
and recommends to the Board of Directors compensation for executive officers.
The Compensation Committee held one meeting during the year ended December 31,
2003.
The Company does not have a Nominating Committee of the Board of Directors. The
Board of Directors presently consists of only seven members and has not added a
new member since 2001. Since the executive officers control approximately 51% of
the voting power of the outstanding common stock of the Company and occupy four
of the seven seats on the Board of Directors, the Board of Directors believes
that it is appropriate not to have a Nominating Committee. If there were a new
nominee for Director to be considered, it is expected that all of the Directors
would participate in the process. The Board of Directors does not have a formal
policy with regard to the consideration of any director candidates recommended
by shareholders. The Board of Directors, however, would consider qualified
nominees recommended by shareholders. Shareholders who wish to recommend a
qualified nominee should submit complete information as to the identity and
qualifications of the person recommended to the Secretary of the Company at
23251 Mulholland Drive, Woodland Hills, California 91364-2732. Absent special
circumstances, the Board of Directors will continue to nominate qualified
incumbent Directors whom the Board of Directors believes will continue to make
important contributions to the Board of Directors. The Board generally requires
that nominees be persons of sound ethical character, be able to represent all
shareholders fairly, have no material conflicts of interest, have demonstrated
professional achievement, have meaningful experience and have a general
appreciation of the major business issues facing the Company. The Board of
Directors does not have a formal process for identifying and evaluating nominees
for Director.
Communications with the Board of Directors
------------------------------------------
The Company provides a process for shareholders to send communications to the
Board of Directors or any of the Directors. Shareholders may send written
communications to the Board of Directors or any Director, c/o Secretary, Unico
American Corporation, 23251 Mulholland Drive, Woodland Hills, California 91364.
All communications will be compiled by the Secretary of the Company and
submitted to the members of the Board of Directors or to the individual Director
to whom it was addressed on a periodic basis. The Company does not have a policy
with regard to Directors' attendance at the Annual Meeting of Shareholders.
Three of the Directors attended the 2002 Annual Meeting of Shareholders.
Code of Ethics
--------------
The Company has adopted a Code of Ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of the Code of
Ethics may be obtained, without charge, upon written request to the Secretary,
Unico American Corporation, 23251 Mulholland Drive, Woodland Hills, California
91364.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 9 2004, the names and holdings of
all persons who are known by the Company to own beneficially more than 5% of its
outstanding common stock, its only class of outstanding voting securities, and
the beneficial ownership of such securities held by each Director, nominee for
Director, and all Executive Officers and Directors as a group. Unless otherwise
indicated, the Company believes that each of the persons and entities set forth
below has the sole power to vote and dispose of the shares listed opposite his
or its name as beneficially owned by him or it.
3
Amount Beneficially Owned
-------------------------
(1) (1)
Options Percent
Without Currently Of
Name of Beneficial Owner Options Exercisable Total Class
------------------------ ------- ----------- ----- -----
Certain Beneficial Owners
-------------------------
Erwin Cheldin (2) 2,334,550 0 2,334,550 42.5%
23251 Mulholland Drive,
Woodland Hills, CA 91364
Schwartz Investment Counsel, Inc.,
and Schwartz Investment Trust,
on behalf of its series Funds,
Schwartz Value Fund, and Ave Maria
Catholic Values Fund (3) 529,145 529,145 9.6%
Wellington Management Co., LLP (4) 400,000 400,000 7.3%
75 State Street, Boston, MA 02109
General Re Corporation (5) 392,302 392,302 7.1%
695 East Main Street,
Stamford, CT 06904
Dimensional Fund Advisors, Inc. (6) 373,900 373,900 6.8%
1299 Ocean Avenue,
Santa Monica, CA 90401
FMR Corp. (7) 309,000 309,000 5.6%
82 Devonshire Street,
Boston, MA 02109
Executive Officers, Directors, and
Nominees for Director
---------------------
Erwin Cheldin (2) 2,334,550 0 2,334,550 42.5%
Cary L. Cheldin (2) 204,860 0 204,860 3.7%
Lester A. Aaron (2) 150,171 0 150,171 2.7%
George C. Gilpatrick (2) 110,717 0 110,717 2.0%
David A. Lewis 3,000 0 3,000 0.1%
Warren D. Orloff 0 0 0 0.0%
Donald B. Urfrig 20,000 0 20,000 0.4%
All executive officers & directors
as a group (7 persons) 2,823,298 0 2,823,298 51.4%
(1) Includes for each person or group, shares issuable upon exercise of
presently exercisable options or options exercisable within 60 days held
by such person or group.
(2) Messrs. Erwin Cheldin, Cary L. Cheldin, Lester A. Aaron and George C.
Gilpatrick have agreed to vote all of the shares of common stock owned by
them aggregating 2,800,298 shares or approximately 51.0% of the
outstanding common stock so as to elect each of them to the Board of
Directors and to vote on all other matters as they may agree. The
agreement terminates upon the earlier of such time as the group owns less
than 50% of the outstanding shares of the common stock of the Company or
April 15, 2019.
(3) Per Schedule 13G dated February 17, 2004.
(4) Per Schedule 13G dated February 12, 2004. Of the 400,000 shares
beneficially owned, Wellington Management Company, LLP, does not have
sole voting power over the shares, has shared voting power over 141,200
shares, and has shared power to dispose or to direct the disposition of
400,000 shares.
(5) Per Schedule 13G dated February 17, 2004. Of the 392,302 shares
beneficially owned, General Re Corporation does not have sole voting
power over the shares, has shared voting power over 392,302 shares, and
has shared power to dispose or to direct the disposition of 392,302
shares.
(6) Per Schedule 13G dated February 6, 2004.
(7) Per Schedule 13G dated February 14, 2000. Of the 309,000 shares
beneficially owned, FRM Corp. does not have sole or shared voting power
over the shares, and has sole power to dispose or to direct the
disposition of 309,000 shares.
4
EXECUTIVE COMPENSATION AND OTHER INFORMATION
--------------------------------------------
Summary of Executive Compensation
---------------------------------
The following table sets forth information for years ended December 31, 2003,
2002, and 2001 as to executive compensation paid to the chief executive officer
and the other executive officers of the Company.
SUMMARY COMPENSATION TABLE
--------------------------
All Other
Name and Principal Position Year Annual Compensation Compensation (*)
--------------------------- ---- -------------------
Salary Bonus
($) ($) ($)
--- --- ---
Erwin Cheldin 2003 300,000 - 35,294
President, Chief Executive 2002 300.000 - 30,000
Officer and Chairman of 2001 431,375 - 35,000
the Board
Cary L. Cheldin 2003 275,000 25,000 35,294
Executive Vice President 2002 275,000 25,000 30,000
2001 330,000 25,000 35,000
Lester A. Aaron 2003 180,000 45,000 35,294
Treasurer and Chief 2002 180,000 40,000 30,000
Financial Officer 2001 171,000 40,000 35,000
George C. Gilpatrick 2003 170,000 40,000 35,294
Vice President and 2002 170,000 40,000 30,000
Secretary 2001 165,000 40,000 35,000
(*) Represents amounts contributed or accrued to the person's account under
the Company's Profit Sharing Plan and the Company's Money Purchase
Plan, all of which are vested. During the year 2001, the amount
contributed to each executive officer's account under the Profit
Sharing Plan and Money Purchase Plan was $25,500 and $9,500,
respectively. During the year 2002, the amount contributed to each
executive officer's account under the Profit Sharing Plan and Money
Purchase Plan was $17,000 and $13,000, respectively. During the year
2003, the amount contributed to each executive officer's account under
the Profit Sharing Plan and Money Purchase Plan was $20,000 and
$15,294, respectively. The Company's Profit Sharing Plan and Money
Purchase Plan both have a March 31 fiscal year end (see "Retirement
Plans").
Option/SAR Grants in Last Fiscal Year
-------------------------------------
No stock options or stock appreciation rights were granted to any executive
officer during the year ended December 31, 2003.
Options/SAR Exercises in Last Fiscal Year and Unexercised Options/SAR at
Fiscal Year End
---------------
No stock options or stock appreciation rights were exercised by any executive
officer during the year ended December 31, 2003, and no options or stock
appreciation rights were held by any executive officer at December 31, 2003.
Omnibus Stock Plan
------------------
The Company's 1999 Omnibus Stock Plan (the "1999 Plan") that covers 500,000
shares of the Company's common stock (subject to adjustment in the case of stock
splits, reverse stock splits, stock dividends, etc.) was adopted by the Board of
Directors in March 1999 and approved by shareholders on June 4, 1999. The 1999
Plan is divided into a Stock Option Program under which eligible persons may be
granted options to purchase shares of common stock, a Stock Appreciation Program
under which eligible persons may be granted the right to receive a payment in
the form of cash, stock or a combination of the foregoing, and a Restricted
Stock Program under which eligible persons may be issued shares of common stock
directly either through an immediate purchase or as a bonus. The 1999 Plan and
each Program are administered by the Board of Directors or a committee
authorized by the Board and consisting of at least two directors each of whom is
not an officer or employee of the Company and meets the qualifications set forth
in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended.
Presently, the 1999 Plan is being administered by the Board of Directors.
5
Employees, consultants, advisors and directors of the Company are eligible to
participate in the 1999 Plan. However, only employees are entitled to receive
"incentive stock options" (as provided in Section 422 of the Internal Revenue
Code of 1986, as amended) under the Stock Option Program. Under the Stock Option
Program, both incentive stock options and options which do not qualify as
incentive stock options may be granted. The term of an option may not exceed ten
years (or five years in the case of the grant of an incentive stock option to a
holder of more than ten percent (10%) of the outstanding common stock). The
exercise price per share of common stock under an option may not be less than
the fair market value of the common stock on the date of the option grant. In
the case of the grant of an incentive stock option to a holder of more than 10%
of the outstanding common stock, the exercise price may not be less than 110% of
the fair market value of the common stock on the date of the option grant. Under
the Stock Appreciation Program, stock appreciation rights may be granted
separately or in tandem with a stock option. Stock appreciation rights entitle
the holder thereof to receive upon exercise of such right without payment to the
Company an amount which is not greater than the fair market value of a share of
common stock on the date of exercise of the stock appreciation right over the
fair market value of a share of common stock on the date of grant of the stock
appreciation right. Under the Restricted Stock Program, the Company may issue
shares of its common stock directly to eligible persons for consideration
consisting of cash, notes or past services rendered by the recipient. The
purchase price of the shares may not be less than the fair market value of the
Company's common stock on the date of issue. If a recipient terminates his or
her employment or other arrangements with the Company before the shares are
fully vested, then the recipient is required to surrender to the Company for
cancellation all unvested shares and the Company must repay the recipient cash
or cash equivalent consideration paid by him or her for those unvested shares
and cancel the unpaid principal balance, if any, on any promissory notes
attributable to surrender the shares.
In the event of a "change of control event" as defined in the 1999 Plan, all
unvested options, stock appreciation rights and restricted stock issuances will
immediately become exercisable or vest, as the case may be. The 1999 Plan
administrator may override the acceleration of these rights either in the
agreement setting forth those rights or prior to the "change of control event."
A "change of control event" occurs if (a) more than twenty percent (20%) of the
Company's common stock or combined voting power is acquired by a person or
entity other than Mr. Erwin Cheldin, the Company or an employee benefit plan of
the Company, but not including any acquisition directly from the Company; (b) a
majority of the Company's Board of Directors ceases to consist of the present
directors or persons whose election or nomination was approved by a majority of
the then incumbent Board of Directors (excluding any director who assumes his or
her position as a result of an actual or threatened proxy contest); (c) the
Company is reorganized, merged or consolidated into another entity; or (d) the
shareholders approve the liquidation or dissolution of the Company or the sale
of all or substantially all of its assets; unless with respect to (c) or (d),
after the event more than eighty percent (80%) of the common stock or the
outstanding voting securities of the Company, the surviving company or the
company that purchases the Company's assets is still held by persons who were
formerly the shareholders of the Company, and no person or entity other than Mr.
Erwin Cheldin, the Company, any employee benefit plan of the Company or the
resulting company or a twenty percent (20%) shareholder prior to the transaction
holds more then twenty percent (20%) of such company's common stock or combined
voting power.
All outstanding options, stock appreciation rights and/or unvested stock
issuances under the 1999 Plan will terminate upon consummation of (a) a
dissolution of the Company or (b) in case no provision has been made for the
survival, substitution, exchange or other settlement of any outstanding option,
stock appreciation rights and/or unvested stock issuances, a merger or
consolidation of the Company with another corporation in which the shareholders
of the Company immediately prior to the merger will own less than a majority of
the outstanding voting securities of the surviving corporation after the merger,
or a sale of all or substantially all of the assets and business of the Company
to another corporation.
6
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
The following table shows the total number of outstanding options and shares
available for other future issuance of options under the Company's equity
compensation plans as of December 31, 2003.
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
Plan Category warrants, and rights rights reflected in column (a))
------------- -------------------- ------ ------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders:
1999 Omnibus Stock Plan 277,000 $5.216 213,000
Equity compensation plans not
approved by security holders: 0 0 0
------- ----- -------
Total 277,000 $5.216 213,000
======= ===== =======
Retirement Plans
----------------
Profit Sharing Plan
-------------------
During the fiscal year ended March 31, 1986, the Company adopted the Unico
American Corporation Profit Sharing Plan. Company employees who are at least 21
years of age and have been employed by the Company for at least two years are
participants in such Plan. Pursuant to the terms of such Plan, the Company
annually contributes for the account of each participant an amount equal to a
percentage of the participant's eligible compensation as determined by the Board
of Directors. Participants must be employed by the Company on the last day of
the plan year to be eligible for contribution. Participants are entitled to
receive distribution of benefits under the Plan upon retirement, termination of
employment, death or disability.
Money Purchase Plan
-------------------
During the year ended December 31, 1999, the Company adopted the Unico American
Corporation Money Purchase Plan. This plan covers the present executive officers
of the Company; namely Erwin Cheldin, Cary L. Cheldin, Lester A. Aaron, and
George C. Gilpatrick. Pursuant to the terms of such Plan, the Company annually
contributes for the account of each participant an amount equal to a percentage
of the participant's eligible compensation as determined by the Board of
Directors. However, amounts contributed to the Unico American Corporation Profit
Sharing Plan will be considered first in determining the actual amount available
under the Internal Revenue Service maximum contribution limits. Participants
must be employed by the Company on the last day of the plan year to be eligible
for contribution. Participants are entitled to receive distribution of benefits
under the Plan upon retirement, termination of employment, death or disability.
Compensation Committee Interlocks and
Insider Participation in Compensation Decisions
-----------------------------------------------
The Compensation Committee consists of the following Company directors: Cary L.
Cheldin, Lester A. Aaron, and Warren D. Orloff. Cary Cheldin is the son of Erwin
Cheldin, the President, Chief Executive Officer and Chairman of the Board.
During the year ended December 31, 2003, Cary Cheldin was the Executive Vice
President of the Company and Mr. Aaron was Treasurer and Chief Financial Officer
of the Company.
Executive Compensation Committee Report
---------------------------------------
The Company's compensation package for executive officers primarily consists of
a base salary, an annual incentive bonus, long-term incentive or non-cash awards
in the form of stock options, and contributions under the Profit Sharing and
Money Purchase Plans. The executive compensation program is designed to retain
and reward individuals who are capable of leading the Company in achieving its
business objectives. The Compensation Committee submits its recommendation to
the entire Board of Directors. The philosophy of the Compensation Committee is
to maintain a competitive base salary for executive officers and to provide an
incentive program that rewards executive officers for achieving certain
financial results. Base compensation is determined on a calendar year basis and
other incentives are determined when deemed appropriate.
7
When determining base compensation for the executive officers, the Committee
takes into account competitive pay levels in the industry with its emphasis on
the median of the survey data. The Committee recommends adjustments to base
compensation when it determines that an executive officer's base compensation is
not competitive.
When determining bonuses for the executive officers, the Committee first
evaluates, and gives primary weight to, the operational and financial
performance of the executive management team, including the chief executive
officer, as a group. After the team results are determined, individual
effectiveness in contributing to the achievement of those results is considered.
The financial results, which are reviewed by the Committee, include the
Company's net income, revenues and expenses.
The Committee's base compensation review determined that the base salary for the
chief executive officer was within a competitive range of others in the industry
and recommended that the 2003 base salary for the chief executive officer remain
at $300,000.
The Committee's bonus review considered and evaluated the losses incurred by the
Company during the fiscal years ended December 31, 2001, and December 31, 2002,
and determined that no bonus should be paid to the chief executive officer for
the year ended December 31, 2003. The committee also recommended that the
aggregate bonuses paid to all other executive officers for the year ended
December 31, 2003, remain approximately the same as the prior year.
Section 162(m) of the Internal Revenue Code, enacted as part of the Omnibus
Budget Reconciliation Act of 1993 (OBRA) limits to $1,000,000 the deductibility
for any year beginning after December 31, 1993, of compensation paid by a public
corporation to the chief executive officer and the next four most highly
compensated executive officers unless such compensation is performance based
within the meaning of Section 162(m) and the regulations thereunder. For the
year ended December 31, 2003, the Company does not contemplate that there will
be nondeductible compensation for the executive officers of the Company.
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
/s/ Cary L. Cheldin
/s/ Lester A. Aaron
/s/ Warren D. Orloff
Report of the Audit Committee
-----------------------------
Neither the following report of the Audit Committee nor any other information
included in this Proxy Statement pursuant to Item 7(d)(3) of Schedule 14A
promulgated under the Securities Exchange Act of 1934 or pursuant to Rule 306 of
Regulation S-K constitutes "soliciting material" and none of such information
should be deemed to be "filed" with the Securities and Exchange Commission or
incorporated by reference into any other filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates such information by reference
in any of those filings.
Management is responsible for the Company's financial reporting process
including its system of internal control and for the preparation of consolidated
financial statements in accordance with accounting principles generally accepted
in the United States of America (GAAP). The Company's independent auditors are
responsible for auditing those financial statements. Our responsibility is to
monitor and oversee these processes. It is not our duty or our responsibility to
conduct auditing or accounting reviews or procedures. We are not employees of
the Company; and we may not be, and we may not represent ourselves to be or to
serve as, accountants or auditors by profession or experts in the fields of
accounting or auditing. Therefore, we have relied on management's representation
that the financial statements have been prepared with integrity and objectivity
and in conformity with GAAP and on the representations of the independent
auditors included in their report on the Company's financial statements. Our
oversight does not provide us with an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or policies, or appropriate internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. Furthermore, our considerations and discussions with management and
the independent auditors do not assure that the Company's financial statements
are presented in accordance with GAAP, that the audit of the Company's financial
statements has been carried out in accordance with auditing standards generally
accepted in the United States of America, or that the Company's independent
accountants are in fact "independent."
8
The Audit Committee has a written charter which was revised in 2004, a copy of
which is attached as Appendix A.
The Audit Committee has reviewed and discussed the audited financial statements
of the Company for the fiscal year ended December 31, 2003, with the Company's
management.
The Audit Committee has discussed with KPMG LLP the matters required to be
discussed pursuant to Statement on Auditing Standards No. 61 (Codification of
Statements on Auditing Standards, AU ss.380). Additionally, the Audit Committee
has received from KPMG LLP the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). The Audit Committee also has discussed with KPMG LLP matters
relating to their independence.
Based on the review and discussions described above, the Audit Committee
recommended to the Board of Directors of the Company that the audited financial
statements of the Company be included in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2003.
Members of the Audit Committee:
/s/ David L. Lewis
/s/ Warren D. Orloff
/s/ Donald B. Urfrig
Performance Graph
-----------------
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return of equity securities
traded on the National Association of Securities Dealers Automated Quotation
System (NASDAQ) and a peer group consisting of all NASDAQ property and casualty
companies. The comparison assumes $100.00 was invested on December 31, 1998, in
the Company's Common Stock and in each of the comparison groups, and assumes
reinvestment of dividends. It should be noted that this graph represents
historical stock price performance and is not necessarily indicative of any
future stock price performance.
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-------- -------- -------- -------- -------- --------
Unico American Corp. $100.0 62.4 53.7 49.3 29.3 51.9
NASDAQ Market Index $100.0 185.4 111.8 88.7 61.3 91.7
Peer Group Index $100.0 75.2 97.9 100.0 102.5 122.1
9
CERTAIN TRANSACTIONS
--------------------
The Company presently occupies a 46,000 square foot building located at 23251
Mulholland Drive, Woodland Hills, California, under a master lease expiring
March 31, 2007. The lease provides for an annual gross rental of $1,025,952.
Erwin Cheldin, the Company's president, chairman and principal shareholder, is
the owner of the building. On February 22, 1995, the Company signed an extension
to the lease with no increase in rent to March 31, 2007. The Company believes
that the terms of the lease at inception and at the time the lease extension was
signed were at least as favorable to the Company as could have been obtained
from unaffiliated third parties.
On November 15, 2002, the Company borrowed $500,000 from Erwin Cheldin, a
director and the Company's principal shareholder, president and chief executive
officer, and $250,000 from The Cary and Danielle Cheldin Family Trust. Cary L.
Cheldin is a director and the Company's executive vice president. In the quarter
ended June 30, 2003, the Company repaid the above-mentioned notes in full.
On September 30, 2003, Unico made a capital contribution of $2,500,000 to its
Crusader Insurance Company, its wholly owned subsidiary. This contribution was
made to ensure that Crusader's capital remained above $25,000,000. The funding
of Unico's capital contribution to Crusader was derived from available cash from
the Company's other operations and the proceeds of two notes. On September 29,
2003, the Company borrowed $1,000,000 from Erwin Cheldin, a director and the
Company's principal shareholder, president and chief executive officer, and
$500,000 from The Cary and Danielle Cheldin Family Trust. Cary L. Cheldin is a
director and the Company's executive vice president. The loans are represented
by notes that are due and payable upon demand of lender (on no less than
fourteen days' notice) and, if no demand is made, then the notes are payable in
full on September 28, 2007. The notes may be prepaid at any time without
penalty. The notes are unsecured and bear interest as follows: Interest on the
$1,000,000 note is 5% and is adjustable in April 1, 2004, and every third month
thereafter by adding a margin of one percentage point to the prime rate;
interest on the $500,000 note is 7% per annum. Interest is payable monthly on
both notes.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (SEC) initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors, and greater than 10% beneficial owners are
required by regulation of the SEC to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's knowledge, based solely on
review of copies of such reports furnished to the Company and written
representations that no other reports were required during the year ended
December 31, 2003, all Section 16(a) filing requirements applicable to its
executive officers, directors, and greater than 10% beneficial owners were
complied with.
APPOINTMENT OF AUDITORS
-----------------------
KPMG LLP has served as the Company's independent auditors since 1996. The Audit
Committee has selected them to continue as the Company's auditors and to audit
the books and other records of the Company for the year ending December 31,
2004. A representative of KPMG LLP is expected to attend the Annual Meeting of
Shareholders. Such representative will have the opportunity to make a statement
and will be available to respond to appropriate questions.
Audit Fees
----------
The aggregate fees billed by KPMG LLP for professional services rendered for the
audit of the Company's financial statements for the fiscal year ended December
31, 2003, and for the reviews of the financial statements included in the
Company's quarterly reports on Forms 10-Q for the fiscal year ended December 31,
2003, were approximately $148,000. The aggregate fees billed by KPMG LLP for
professional services rendered for the audit of the Company's financial
statements for the fiscal year ended December 31, 2002, and for the reviews of
the financial statements included in the Company's quarterly reports on Forms
10-Q for the fiscal year ended December 31, 2002, were approximately $140,000.
Audit Related Fees
------------------
The aggregate fees billed by KPMG LLP for professional services related to the
audit of the Company's financial statements for the fiscal years ended December
31, 2003 and 2002, exclusive of the of the fees disclosed under the section
audit fees above were $52,700 and $25,000, respectively. Audit related services
in both years included fees for Crusader's actuarial certification (required to
be filed with regulatory authorities) and the audit of the Company's Profit
Sharing Plan. Audit related services in 2003 also included services with respect
to reports
10
filed with the SEC. Audit related services in 2002 also included services
rendered with respect to the filing with the SEC of a registration statement on
Form S-8.
Tax Fees
--------
The aggregate fees billed for tax compliance, consulting and planning services
rendered by KPMG LLP for the years ended December 31, 2003 and 2002 were
approximately $22,700 and $21,000, respectively. These fees were primarily for
the preparation and review of the Company's income tax returns.
All Other Fees
--------------
Other than the fees for services described above, there were no additional fees
billed by KPMG LLP during the years ended December 31, 2003 and 2002
The policy of the Audit Committee is to pre-approve all audit and non-audit
services provided by KPMG, LLP.
OTHER MATTERS
-------------
The Board of Directors is not aware of any business to be presented at the
Annual Meeting except for the matters set forth in the Notice of Annual Meeting
and described in this Proxy Statement. Unless otherwise directed, all shares
represented by proxy holders will be voted in favor of the proposals described
in this Proxy Statement. If any other matters come before the Annual Meeting,
the proxy holders will vote on those matters using their best judgment.
SHAREHOLDERS' PROPOSALS
-----------------------
Shareholders desiring to exercise their right under the proxy rules of the
Securities and Exchange Commission to submit proposals for consideration by the
shareholders at the 2005 Annual Meeting are advised that their proposals must be
received by the Company no later than December 21, 2004, for inclusion in the
Company's Proxy Statement and form of proxy relating to that meeting. If a
shareholder intends to present a proposal at the 2005 Annual Meeting but does
not seek inclusion of that proposal in the Proxy Statement for that meeting, the
holders of proxies for that meeting will be entitled to exercise their
discretionary authority on that proposal if the Company does not have notice of
the proposal by March 5, 2005.
ANNUAL REPORT TO SHAREHOLDERS
-----------------------------
The Company's 2003 Annual Report on Form 10-K includes financial statements for
the year ended December 31, 2003, the year ended December 31, 2002, and the year
ended December 31, 2001, and is being mailed to the shareholders along with this
Proxy Statement. The Form 10-K is not to be considered a part of the soliciting
material.
By Order of the Board of Directors,
/s/ Erwin Cheldin
-----------------
Erwin Cheldin
Chairman of the Board, President
and Chief Executive Officer
Woodland Hills, California
April 19, 2004
11
APPENDIX A
----------
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF UNICO AMERICAN CORPORATION
I. AUDIT COMMITTEE PURPOSE
The Audit Committee has been established by the Board of Directors of Unico
American Corporation (the "Company") to monitor and oversee the accounting and
financial reporting procedures of the Company and the audits of the Company's
financial statements. In that regard, the Audit Committee shall be directly
responsible for the appointment, compensation, retention and oversight of the
work of the independent accountants engaged for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for
the Company.
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities and it has direct access to the independent
auditors as well as anyone in the organization. The Audit Committee has the
authority to engage or retain, at the Company's expense, independent legal,
accounting, or other consultants, experts or advisers it deems necessary to
carry out duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
The Audit Committee shall meet the size, membership, independence and experience
requirements under applicable statutes, rules and regulations and all applicable
requirements of the NASDAQ Stock Market for NASDAQ National Market issuers in
effect from time to time.
Audit Committee members shall be members of and appointed by the Board.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
Review Procedures
-----------------
1) Review and reassess the adequacy of this Charter at least annually and
recommend any proposed changes to the Board for approval.
2) Meet with the independent accountants following the annual audit to (a)
review with the independent accountants any problems or difficulties the
accountants may have encountered in connection with the audit, the adequacy of
the internal accounting controls, the financial and accounting personnel and, if
a management letter was provided by the independent accountants, the management
letter and the Company's response to that letter, (b) discuss any significant
changes to the Company's auditing or accounting principles and practices and
discuss any items required to be communicated by the independent auditors in
accordance with SAS 61, and (c) review and discuss with management and the
independent accountants the annual audited financial statements, including the
disclosures made in the management's discussion and analysis. Additionally, the
Audit Committee shall recommend to the Board whether or not to include the
audited financial statements in the Company's Form 10-K for the applicable
fiscal year.
3) In consultation with the management and the independent auditors, consider
the integrity of the Company's financial reporting processes and controls.
Discuss and review significant financial risk exposures and the steps management
has taken to monitor, control and report such exposures. Review significant
findings prepared by the independent auditors together with management's
responses. Review with management the adequacy of internal controls and
procedures that could materially affect the Company's financial statements. Such
reviews should include discussion with management and independent auditors of
significant issues regarding accounting principles, practices and judgments.
4) Review with management and the independent accountants any material financial
reporting issues and judgments made in connection with the preparation of the
Company's financial statements.
5) Discuss with management and the independent accountants any disagreements
that may arise between them regarding financial reporting. The Audit Committee
shall be responsible for resolving such disagreements.
6) Review and discuss with management and the independent accountants the
Company's quarterly financial statements prior to the filing of the related Form
10-Q.
A1
Independent Auditors
--------------------
7) Select, appoint (subject, if applicable, only to shareholder ratification)
and retain independent accountants for the Company. The Audit Committee shall
also pre-approve all services to be performed by and fees to be paid to the
independent accountants and the terms of their engagement, including both audit
and non-audit services. To the extent required by law, the Company shall provide
for appropriate funding as determined by the Audit Committee for payment of
compensation to the independent accountants so engaged by the Audit Committee
and for ordinary administrative expenses necessary or appropriate in carrying
out the Audit Committee's duties. The Audit Committee may delegate to one or
more Audit Committee members the authority to pre-approve non-audit services
between regularly scheduled meetings of the Audit Committee provided that such
approvals are reported to the Audit Committee at the next meeting. The
independent accountants shall report directly to the Audit Committee.
8) Receive and review periodic written reports from the independent auditors
delineating all relationships between the independent auditors and the Company.
On an annual basis, review and discuss with the independent auditors all
significant relationships they have with the Company that could impair the
auditors' independence. Discuss such reports and relationships with the
independent accountants, and, if so determined by the Audit Committee, take
appropriate action to satisfy itself as to the independence of the independent
accountants.
9) Receive periodic reports from the independent accountants relating to, among
other things, critical accounting polices and practices, alternative treatments
under GAAP, communications between the independent accountants and management of
the Company and reports of the effectiveness of the Company's internal controls
and/or other reports which may be required to be given by the independent
accountants to the Company and/or the Audit Committee.
10) Prior to the audit, review the independent auditors audit plan.
11) Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
12) Evaluate the performance of the independent accountants and, if so
determined by the Audit Committee, replace the independent accountants.
13) Meet periodically with the independent accountants in separate private
sessions to discuss any matters that the Audit Committee or the independent
accountants believe should be discussed.
Other Audit Committee Responsibilities
--------------------------------------
14) Meet at any time or from time to time with management personnel of the
Company or its subsidiaries, either individually (which sessions may be private)
or with one or more members thereof, to discuss any matters that the Audit
Committee or any one or more of such persons believes should be discussed.
15) Establish procedures for (a) the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters; and (b) the confidential, anonymous submission by
employees of the Company or any of its subsidiaries of concerns regarding
questionable accounting or auditing matters.
16) Meet with such frequency as the Audit Committee believes is reasonably
necessary and appropriate, taking into account appropriate circumstances. The
Audit Committee meetings may be separate and private as the Audit Committee may
determine.
17) Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's Annual Proxy Statement.
18) Perform any other activities consistent with this Charter, the Company's
By-laws and governing law, as the Committee or the Board deems necessary or
appropriate.
19) Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
A2
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF UNICO AMERICAN CORPORATION
The undersigned hereby constitutes and appoints LESTER A. AARON and CARY L.
CHELDIN, and each of them, with full power of substitution, the proxies of the
undersigned to represent the undersigned and vote all shares of common stock of
UNICO AMERICAN CORPORATION (the "Company"), which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Shareholders to
be held at the Woodland Hills Hilton and Towers at Warner Center, 6360 Canoga
Avenue, Woodland Hills, California 91367, on May 27, 2004, at 2:00 p.m. local
time and at any adjournments thereof, with respect to the matters described in
the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement,
receipt of which is hereby acknowledged, in the following manner.
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
(except as marked to the to vote all nominees
contrary below) listed below
ERWIN CHELDIN, CARY L. CHELDIN, LESTER A. AARON, GEORGE C. GILPATRICK,
DAVID A. LEWIS, WARREN D. ORLOFF, DONALD B. URFRIG
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME ON THE LIST ABOVE.
2. IN ACCORDANCE WITH THEIR BEST JUDGMENT, with respect to any other matters
which may properly come before the meeting and any adjournment or
adjournments thereof.
Please sign and date on reverse side.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED AS
DIRECTED HEREIN. When this proxy is properly executed and returned, the shares
it represents will be voted at the Annual Meeting in accordance with the choices
specified herein. IF NO CHOICES ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES.
DATED:________________________________, 2004
_______________________________________
(Signature)
_______________________________________
(Signature if jointly held)
Please date and sign exactly as your name or names
appear herein. If more than one owner, all should sign.
When signing as attorney, executor, administrator,
trustee or guardian, give your full title as such. If
the signatory is a corporation or partnership, sign the
full corporate or partnership name by its duly authorized
officer or partner.
PLEASE COMPLETE, SIGN, AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.