they were entered into at arms length and did not violate our Code of Business Conduct and Ethics. As of December 31, 2008, Michael Karfunkel and George Karfunkel withdrew all their funds from the Hedge Funds.
Corporate Office Lease Agreement
In June 2002, we entered into a lease for approximately 9,000 square feet of office space at 59 Maiden Lane in downtown Manhattan from 59 Maiden Lane Associates, LLC, an entity which is wholly owned by Michael Karfunkel and George Karfunkel. We paid annual rent of approximately $348,000 for this space in fiscal 2007. At the time we entered into the lease we were privately held and did not have an Audit Committee. Effective January 1, 2008, we entered into an amended lease whereby we increased our leased space to 14,807 square feet and extended the lease through December 31, 2017; the rent increased to $621,894 for the period from January 1, 2008 to
December 31, 2012, and then $666,315 for the period from January 1, 2013, to December 31, 2017. The Audit Committee reviewed and approved this most recent extension of the lease.
In 2008, we entered into a lease for approximately 5,000 square feet of office space in Chicago, Illinois from 33 West Monroe Associates, LLC, an entity which is wholly owned by Michael Karfunkel and George Karfunkel. The Audit Committee reviewed and approved the lease agreement. We paid approximately $123,000 for the year ended 2008.
Barry Karfunkel Employment Relationship
Barry Karfunkel, an analyst with LTCM until January 31, 2009, earned $280,000 in salary in 2008. Barry Karfunkel is the son of Michael Karfunkel and the brother-in-law of Barry D. Zyskind. Our Audit Committee has reviewed Barry Karfunkels employment relationship and has determined that it is an arms length relationship and that it does not violate our Code of Business Conduct and Ethics.
American Stock Transfer & Trust Company
Our transfer agent, American Stock Transfer & Trust Company, was formerly controlled by Michael Karfunkel and George Karfunkel, both of whom remain officers of American Stock Transfer & Trust Company.
Maiden Agreements
Reinsurance Agreement
Maiden is a Bermuda insurance holding company formed by Michael Karfunkel, George Karfunkel and Barry Zyskind. Messrs. Karfunkel and Mr. Zyskind invested $50 million in Maiden and had an initial 18.6% ownership interest in Maiden, assuming the exercise of all common stock purchase warrants. Maiden Insurance Company, Ltd. (Maiden Insurance), a wholly-owned subsidiary of Maiden, is a class 3 Bermuda insurance company.
On January 20, 2009, Messrs. Karfunkel participated in a private placement of 260,000 units (the Units), each Unit consisting of $1,000 principal amount of capital securities of Maiden Capital Financing Trust, a trust established by Maiden Holdings North America, Ltd., and 45 common shares, $.01 par value, of Maiden for a purchase price of $1,000.45 per Unit (the TRUPS Offering). Approximately 62% of the securities in the TRUPS Offering were placed privately with Messrs. Karfunkel and the remainder with several existing institutional Maiden investors. After the completion of the TRUPS Offering, Messrs. Karfunkel and Mr.
Zyskind and their respective charitable foundations and grantor retained annuity trusts have a combined 30.1% ownership interest, inclusive of full exercise of common stock purchase warrants, in Maiden.
During the third quarter of 2007, the Company and Maiden entered into master agreement, as amended, by which our Bermuda affiliate, AmTrust International Insurance, Ltd. (AII), and Maiden Insurance, entered into a quota share reinsurance agreement (the Reinsurance Agreement) by which (a) AII retrocedes to Maiden Insurance an amount equal to 40% of certain premium written by our U.S., Irish and U.K. insurance companies (the AmTrust Ceding Insurers), net of the cost of unaffiliated inuring reinsurance (and in the case of our U.K. insurance subsidiary IGI, net of commissions) and 40% of related losses and (b) AII
transferred to Maiden Insurance 40% of the AmTrust Ceding Insurers unearned premium reserves, effective as of July 1, 2007, with respect to current lines of business, excluding risks for which the AmTrust Ceding Insurers
net retention exceeds $5,000 (Covered Business). We also agreed to cause AII, subject to regulatory requirements, to reinsure any insurance company which writes Covered Business in which we acquire a majority interest to the extent required to enable AII to cede to Maiden Insurance 40% of the premiums and losses related to such Covered Business. The Agreement further provides that AII receives a ceding commission of 31% of ceded written premiums for Covered Business. The Reinsurance Agreement has an initial term of three years and will automatically renew for successive three year terms thereafter, unless either AII or Maiden Insurance
notifies the other of its election not to renew not less than nine months prior to the end of any such three year term. In addition, either party is entitled to terminate on thirty days notice or less upon the occurrence of certain early termination events, which include a default in payment, insolvency, change in control of AII or Maiden Insurance, run-off, or a reduction of 50% or more of the shareholders equity of Maiden Insurance or the combined shareholders equity of AII and the AmTrust Ceding Insurers.
Effective June 1, 2008, the master agreement was amended that AII agreed to cede and Maiden Insurance agreed to accept and reinsure Retail Commercial Package Business, which the Company, through Affiliates, commenced writing effective June 1, 2008, in connection with our acquisition of Unitrin Business Insurance. AII ceded 100% of the unearned premium related to in-force Retail Commercial Package Business and losses related thereto at the acquisition date and 40% the Companys net written premium and losses on Retail Commercial Package Business written or renewed on or after the effective date. The $2.0 million maximum liability for a single
loss provided in the Reinsurance Agreement is not applicable to Retail Commercial Package Business. We received a ceding commission of 34.375% for Retail Commercial Package Business. We recorded approximately $114.7 million and approximately $59.1 million of ceding commission income during the years ended December 31, 2008 and 2007, respectively, as a result of this agreement.
Effective July 1, 2007, AmTrust, through a subsidiary, entered into a reinsurance brokerage agreement with Maiden. Pursuant to the brokerage agreement, AmTrust provides brokerage services relating to the Reinsurance Agreement for a fee equal to 1.25% of reinsured premium. The brokerage fee is payable in consideration of AII Reinsurance Broker Ltd.s brokerage services. We recorded approximately $5.5 million and approximately $3.1 million of brokerage commission during the years ended December 31, 2008 and 2007, respectively.
In February 2009, AII and Maiden Insurance amended the Reinsurance Agreement to clarify that (i) AII would offer Maiden Insurance the opportunity to reinsure Excess Retention Business, which is defined as a policy issued by an insurance subsidiary with respect to which the insurance subsidiarys retention is greater than $5 million and (ii) the deduction for the cost of inuring reinsurance from Affiliate Subject Premium ceded to Maiden Insurance is net of ceding commission. In addition, the Reinsurance Agreement has been amended by deleting the limitation on Maiden Insurances maximum liability in respect of a single loss, which, under
certain circumstances, was $2.0 million. Pursuant to the Reinsurance Agreement, as amended, AII and Maiden share, proportionally, in all premium and losses ceded thereunder.
Asset Management Agreement
Effective July 1, 2007, AmTrust, through a subsidiary, entered into an asset management agreement with Maiden, pursuant to which we provide investment management services to Maiden. Pursuant to the asset management agreement, we earn an annual fee equal to 0.35% per annum of average invested assets plus all costs incurred. Effective April 1, 2008, the investment management services fee has been reduced to 0.20% per annum and is further reduced to 0.15% per annum if the average invested assets exceed $1 billion. As a result of this agreement, the Company recorded approximately $1.4 million and approximately $0.9 million of investment management fees
for the years ended December 31, 2008 and 2007, respectfully.
Services Agreement
AmTrust, through its subsidiaries, entered into services agreements in 2008, pursuant to which it provides certain marketing and back office services to Maiden. Pursuant to the services agreements, we earn a fee equal to reimburse the Company for its costs plus 8%. We recorded approximately $1.2 million for the year ended 2008 as a result of this agreement.
25
Note Payable Collateral for Proportionate Share of Reinsurance Obligation
In conjunction with the Reinsurance Agreement, AII entered into a loan agreement with Maiden Insurance during the fourth quarter of 2007, whereby, Maiden Insurance will lend to AII from time to time the amount of obligation of the AmTrust Ceding Insurers that AII is obligated to secure, not to exceed an amount equal to Maiden Insurances proportionate share of such obligations to such AmTrust Ceding Insurers in accordance with the reinsurance agreement. We are required to deposit all proceeds from the advances into a sub-account of each trust account that has been established for each AmTrust Ceding Insurer. To the extent of the loan, Maiden
Insurance shall be discharged from providing security for its proportionate share of the obligations as contemplated by the reinsurance agreement. If an AmTrust Ceding Insurer withdraws loan proceeds from the trust account for the purpose of reimbursing such AmTrust Ceding Insurer, for an ultimate net loss, the outstanding principal balance of the loan shall be reduced by the amount of such withdrawal. The loan agreement was amended in February 2008 to provide for interest at a rate of LIBOR plus 90 basis points and is payable on a quarterly basis. Each advance under the loan is secured by a promissory note. Advances totaled approximately $168 million as of December 31, 2008. The Company recorded approximately $0.7 million of interest expense during 2008.
Other Reinsurance Agreement
Effective January 1, 2008, Maiden became a participating reinsurer in the first layer of our workers compensation excess of loss program, which provides coverage in the amount of $9 million per occurrence in excess of $1 million, subject to an annual aggregate deductible of $1.25 million. Maiden, which is one of two participating reinsurers in the layer, has a 45% participation. Maiden participates in the first layer of the excess of loss program on the same market terms and conditions as the other participant.
Principal Shareholders Consolidation
AmTrust Financial Group, Inc. (AFG) was the principal shareholder of the Company, owning approximately 24,089,286 shares of common stock of the Company (the Common Stock). Messrs. Michael Karfunkel, George Karfunkel and Barry Zyskind directly or indirectly held approximately 37.5%, 37.5% and 25.0%, respectively, of AFG. To simplify the stock ownership of AmTrust, two mergers were consummated, in 2007, whereby AFG and G/MK Acquisition Corp. were merged with and into a wholly owned subsidiary of AmTrust. AFG and G/MK Acquisition Corp. were primarily shell holding companies with no other assets, except for common stock. As a
result, we issued and delivered 24,088,000 shares of Common Stock in exchange for 24,089,286 shares of Common Stock held by AFG, which shares were then issued in proportion to their respective AFG holdings: Michael Karfunkel received 9,033,000 shares, George Karfunkel received 9,033,000 shares, Barry Zyskind received 6,022,000, and the remaining 1,286 shares were returned to the treasury of the Company. The mergers had no impact on our financial position, results of operations or cash flows for the year ended 2007.
26
REPORT OF THE AUDIT COMMITTEE
The Audit Committees role includes the oversight of our financial, accounting and reporting processes; our system of internal accounting and financial controls; and our compliance with related legal and regulatory requirements. The Audit Committee oversees the appointment, engagement, termination and oversight of our independent auditors, including conducting a review of their independence; reviewing and approving the planned scope of our annual audit; overseeing our independent auditors audit work; reviewing and pre-approving any audit and non-audit services that may be performed by our independent auditors; reviewing with management and
our independent auditors the adequacy of our internal financial and disclosure controls; reviewing our critical accounting policies and the application of accounting principles; and monitoring the rotation of partners of our independent auditors on our audit engagement team as required by law. The Audit Committee establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit Committees role also includes meeting to review our annual audited financial statements and quarterly financial statements with management and our independent auditors.
Each member of the Audit Committee meets the independence criteria prescribed by applicable law and the rules of the SEC and NASDAQ for audit committee membership and is an independent director within the meaning of applicable NASDAQ listing standards. Each Audit Committee member meets the NASDAQs financial literacy requirements, and the Board has further determined that Mr. Gulkowitz is an Audit Committee financial expert, as defined in 401(h) of Regulation S-K promulgated by the SEC and also meets the NASDAQs professional experience requirements. The Audit Committee acts pursuant to a written charter, which
complies with the applicable provisions of the Sarbanes-Oxley Act of 2002 and related rules of the SEC and NASDAQ, which can be found on our website at
www.amtrustgroup.com.
We have reviewed and discussed the audited financial statements with management and with our independent auditors. We met with our independent auditors, with and without management present, to discuss results of their examinations, their evaluation of our internal controls, and the overall quality of our financial reporting.
We have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees. In addition, we received the written disclosures from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees and discussed with the independent auditors their independence, including a review of both audit and non-audit fees.
Based upon the review and discussions described in the preceding paragraph, we recommended to our Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC.
|
|
|
|
|
The Audit Committee
Abraham Gulkowitz (Chairman)
Donald T. DeCarlo
Isaac M. Neuberger
|
|
|
April 1, 2009
|
27
PROPOSAL 2:
RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee has appointed the firm of BDO Seidman, LLP, independent accountants, to be our independent auditors for the fiscal year ending December 31, 2009. Although not required by our bylaws or otherwise, the Board believes it is appropriate to seek shareholder ratification of this appointment. If ratification is not obtained, the Audit Committee intends to continue the employment of BDO Seidman, LLP at least through the end of the fiscal year ending December 31, 2009, but will consider shareholder input for future appointments.
A representative of BDO Seidman, LLP will be present at the Annual Meeting and will have the opportunity to make a statement if he or she desires to do so and to respond to appropriate questions from shareholders.
Before making its recommendation to the Board for appointment of BDO Seidman, LLP, the Audit Committee carefully considered that firms qualifications as independent auditors for us, which included a review of BDO Seidman, LLPs performance last year, as well as its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee expressed satisfaction with BDO Seidman, LLP in these respects.
Audit and Non-Audit Fees
Our Audit Committee approves the fees and other significant compensation to be paid to our independent auditors for the purpose of preparing or issuing an audit report or related work. Our Audit Committee also preapproves all auditing services and permitted non-audit services, including the fees and terms thereof, to be performed for us by our independent auditors, subject to the de minimis exceptions for non-audit services described in the Exchange Act. Our Audit Committee delegates to our Audit Committee Chair preapproval authority for non-audit services up to $25,000 subject to subsequent approval by the full Audit Committee at its next scheduled
meeting. Our Audit Committee reviewed and discussed with BDO Seidman, LLP the following fees for services rendered for the 2008 fiscal year and considered the compatibility of non-audit services with BDO Seidman, LLPs independence. The following table presents the aggregate fees billed for professional services rendered to us by BDO Seidman, LLP, our principal auditors, and BDO International affiliate firms, for 2008 and 2007. Other than as set forth below, no professional services were rendered or fees billed by BDO Seidman, LLP or its international affiliates during 2008 and 2007.
|
|
|
|
|
BDO Seidman, LLP
|
|
2008
|
|
2007
|
Audit Fees
(1)
|
|
$
|
2,175,270
|
|
|
$
|
1,665,000
|
|
Audit-Related Fees
(2)
|
|
|
|
|
|
|
|
|
Tax Fees
(3)
|
|
|
6,330
|
|
|
|
|
|
All Other Fees
(4)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,181,600
|
|
|
$
|
1,665,000
|
|
|
(1)
|
Audit fees relate to professional services rendered for: (i) the audit of our annual financial statements and the reviews of our quarterly financial statements for the fiscal years ended December 31, 2008 and 2007, (ii) the reviews of our consolidated financial statements included in our Form 10-Q quarterly reports and (iii) services performed in connection with filings of registration statements and securities offerings.
|
|
(2)
|
Audit-related fees relate to services rendered to us primarily related to benefit plan audits.
|
|
(3)
|
Tax fees relate to services rendered to us for tax compliance, tax planning and advice.
|
|
(4)
|
Other services performed include certain advisory services in connection with accounting research and do not include any fees for financial information systems design and implementation.
|
28
Pre-Approval Policies and Procedures of the Audit Committee
Pursuant to its charter, the Audit Committee pre-approves all audit and permitted non-audit services, including engagement fees and terms thereof, to be performed for us by the independent auditors, subject to the exceptions for certain non-audit services approved by the Audit Committee prior to the completion of the audit in accordance with Section 10A of the Securities Exchange Act of 1934, as amended. The Audit Committee must also pre-approve all internal control-related services to be provided by the independent auditors. The Audit Committee will generally pre-approve a list of specific services and categories of services, including audit,
audit-related and other services, for the upcoming or current fiscal year, subject to a specified cost level. Any material service not included in the approved list of services must be separately pre-approved by the Audit Committee. In addition, all audit and permissible non-audit services in excess of the pre-approved cost level, whether or not such services are included on the pre-approved list of services, must be separately pre-approved by the Audit Committee.
The Audit Committee may form and delegate to a subcommittee consisting of one or more members (provided that such person(s) are Independent Directors) its authority to grant pre-approvals of audit, permitted non-audit services and internal control-related services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF BDO SEIDMAN, LLP AS OUR AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2009.
29
ADDITIONAL MATTERS
Shareholders Proposals for the 2010 Annual Meeting
A proposal by a shareholder intended for inclusion in our proxy materials for the 2010 Annual Meeting of Shareholders pursuant to Rule 14a-8 of the Exchange Act must be received by us at 59 Maiden Lane, 6th Floor, New York, New York 10038, Attn: Corporate Secretary, on or before January 13, 2010, in order to be considered for such inclusion. Shareholder proposals intended to be submitted at the 2009 Annual Meeting of Shareholders outside the framework of Rule 14a-8 will be considered untimely under Rule 14a-4(c)(1) if not received by us at the above address on or before March 29, 2010. If we do not receive notice of the matter by the applicable date,
the proxy holders will vote on the matter, if properly presented at the meeting, in their discretion.
Annual Report and Financial Statements
A copy of our Annual Report, which incorporates our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, including audited financial statements, is being sent to all our shareholders with this Notice of Annual Meeting of Shareholders and Proxy Statement on or about April 20, 2009.
Other Business
The Board does not intend to present, and has no knowledge that others will present, any other business at the Annual Meeting. However, if any other matters are properly brought before the Annual Meeting, it is intended that the holders of proxies will vote thereon in their discretion.
30
PROXY
AMTRUST FINANCIAL SERVICES, INC.
Annual Meeting of Shareholders to be held May 12, 2009
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Stephen Ungar and Barry D. Zyskind as proxies of the undersigned, with full power of substitution, to vote all of the shares of Common Stock of AmTrust Financial Services, Inc. (the Company) that the undersigned may be entitled to vote at the Annual Meeting of Shareholders of the Company to be held at our headquarters at 59 Maiden Lane, 6
th
Floor, New York, New York 10038, on May 12, 2009 at 10:00 am, and at any adjournment, postponement or continuation thereof, as set forth on the reverse side of this proxy card.
You are encouraged to specify your choices by marking the appropriate boxes. SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors recommendations.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
AMTRUST FINANCIAL SERVICES, INC.
May 12, 2009
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 NOMINEES
LISTED FOR DIRECTORS AND
FOR
THE FOLLOWING PROPOSAL.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
x
|
|
|
|
|
|
|
1.
|
|
Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOMINEES:
|
|
|
o
|
|
FOR ALL NOMINEES
|
|
o
Donald T. DeCarlo
o
Abraham Gulkowitz
o
George Karfunkel
o
Michael Karfunkel
o
Jay J. Miller
o
Isaac Neuberger
o
Barry D. Zyskind
|
|
|
o
|
|
WITHHOLD AUTHORITY FOR ALL NOMINEES
|
|
|
o
|
|
FOR ALL EXCEPT (See instructions below)
|
|
|
|
|
|
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:
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN
|
2.
|
|
Ratification of the appointment of BDO Seidman, LLP as Independent Auditor for the year ended December 31, 2009.
|
|
o
|
|
o
|
|
o
|
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the annual meeting and any adjournment, postponement or continuation thereof.
|
|
|
|
|
|
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.
|
|
o
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|