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American Physicians Service Group, Inc.
1301 Capital of Texas Highway
Austin, Texas 78746
NOTICE OF 2003 ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 30, 2003
To Our Shareholders:
You are cordially invited to attend our 2003 Annual Meeting of
Shareholders to be held at Lakeway Inn Conference Resort, located at 101 Lakeway
Drive, Austin, Texas 78734, on Monday, June 30, 2003 at 8:30 a.m., Austin, Texas
time, for the following purposes:
(a) To elect five directors to serve on our board of directors;
(b) To transact any other business as may properly come before the
meeting or any adjournment(s) thereof.
The accompanying proxy statement contains information regarding, and a
more complete description of, the items of business to be considered at the
meeting.
Only shareholders of record of our common stock at the close of
business on May 13, 2003 are entitled to notice of, and to vote at, the meeting
or any adjournment(s) thereof.
You are cordially invited and urged to attend the meeting. If you are
unable to attend the meeting, we ask that you sign and date the accompanying
proxy and return it promptly in the enclosed self-addressed envelope. If you
attend the meeting, you may vote in person, if you wish, whether or not you have
returned your proxy. In any event, you may revoke your proxy at any time before
it is exercised in the manner described in the proxy statement.
By Order of our Board of Directors
W. H. HAYES
Secretary
Austin, Texas
May 25, 2003
AMERICAN PHYSICIANS SERVICE GROUP, INC.
1301 Capital of Texas Highway
Austin, Texas 78746
PROXY STATEMENT
for
2003 ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 30, 2003
Our board of directors hereby solicits your proxy for use at our 2003
Annual Meeting of Shareholders to be held at Lakeway Inn Conference Resort,
located at 101 Lakeway Drive, Austin, Texas 78734, on Monday, June 30, 2003 at
8:30 a.m., Austin, Texas time, and any adjournment(s) thereof. This solicitation
may be made in person or by mail, telephone, or telecopy by our directors,
officers, and employees, who will receive no extra compensation for
participating in this solicitation. In addition, we will reimburse banks,
brokerage firms, and other fiduciaries for forwarding solicitation materials to
the beneficial owners of our common stock held of record by such persons. We
will pay the entire cost of this solicitation. We expect to mail this proxy
statement and the enclosed form of proxy on or about May 25, 2003.
References in this report to "we", "us", "our", and the "Company" mean
American Physicians Service Group, Inc.
ANNUAL REPORT
Enclosed is our Annual Report to Shareholders for the year ended
December 31, 2002, including our audited financial statements. The Annual Report
to Shareholders does not form any part of the material for the solicitation of
proxies.
OUTSTANDING COMMON STOCK
Only shareholders of record at the close of business on May 13, 2003
are entitled to notice of, and to vote at, the meeting and any adjournment(s)
thereof. At May 13, 2003, we had outstanding and entitled to vote 2,127,130
shares of our common stock.
QUORUM; VOTING
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of our common stock is necessary to constitute a quorum
at the meeting. Abstentions and "broker non-votes" (i.e., shares held by brokers
or nominees that are represented at the meeting but with respect to which they
have no discretionary power to vote on a particular matter and have received no
instructions from the beneficial owners thereof or persons entitled to vote
thereon) will be counted in determining whether a quorum is present at the
meeting. If a quorum is not present or represented at the meeting, the
shareholders entitled to vote thereat, present in person or represented by
proxy, have the power to adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present or
represented. At any such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally notified.
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On all matters (including election of directors) submitted to a vote of
the shareholders at the meeting or any adjournment(s) thereof, each holder of
our common stock will be entitled to one vote for each share of our common stock
owned of record by such shareholder at the close of business on May 13, 2003.
Cumulative voting is not permitted in the election of our directors.
Proxies in the accompanying form which are properly executed and
returned and that are not revoked will be voted at the meeting and any
adjournment(s) thereof and will be voted in accordance with the instructions
thereon. Any proxy upon which no instructions have been indicated with respect
to a specified matter will be voted according to the recommendations of our
board of directors, which are contained in this proxy statement. Our board of
directors knows of no matters, other than those presented in this proxy
statement, to be presented for consideration at the meeting. If, however, other
matters properly come before the meeting or any adjournment(s) thereof, the
persons named in the accompanying proxy will vote such proxy in accordance with
their judgment on any such matters. The persons named in the accompanying proxy
may also, if they believe it advisable, vote such proxy to adjourn the meeting
from time to time.
Each matter submitted to the shareholders requires the affirmative vote
of a majority of the shares entitled to vote and present in person or by proxy.
If you abstain from voting on a proposal, your abstention will have the effect
of a negative vote on such proposal. Broker non-votes will have the effect of a
negative vote on any proposal.
REVOCATION OF PROXY
You have the power to revoke your proxy at any time before the shares
it represents are voted. A revocation will be effective upon receipt, at any
time before the meeting is called to order, by our Secretary of either (a) an
instrument revoking your proxy or (b) a proxy duly executed by you bearing a
later date than the preceding proxy. Additionally, you may change or revoke a
previously executed proxy by voting in person at the meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
Pursuant to our bylaws, our board of directors has, by resolution,
fixed the number of directors at five, and five directors will be elected. All
nominees will be elected to hold office until our next annual meeting of
shareholders and until his successor is duly elected and qualified, or until his
earlier death, resignation or removal.
Should any nominee for director become unwilling or unable to accept
nomination or election, the proxies will be voted for the election, in his
stead, of such other persons as our board of directors may recommend or our
board of directors may reduce the number of directors to be elected. We have no
reason to believe that any nominee named above will be unwilling or unable to
serve.
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Nominees
Director of
Name Age Company Since
Brad A. Hummel 46 2003
Jackie Majors 69 2003
Robert L. Myer 54 1996
William A. Searles 60 1989
Kenneth S. Shifrin 54 1987
Mr. Hummel has been a director since January 2003. He had previously
served in that capacity from June 1999 to December 2001. He has been President,
Chief Executive Officer and a director of Prime Medical Services, Inc., or
Prime, since June 2002. From October 1999 until June 2002, Mr. Hummel had been
Executive Vice President and Chief Operating Officer of Prime. He was employed
by Diagnostic Health Services, Inc., a provider of mobile and fixed base imaging
services, from 1984 to 1999, most recently as President and Chief Executive
Officer. From 1981 to 1984, Mr. Hummel was an associate with Covert, Crispin and
Murray, a Washington, D.C. and London-based management consulting firm.
Mr. Majors has been a director since March 2003. He previously served
on our board of directors from 1989 through 1993. Mr. Majors was a director and
President of Prime from 1989 until his retirement in 1996. He was an independent
business consultant from 1986 to 1989 and our Vice President-Merger and
Acquisitions from 1984 to 1986.
Mr. Myer has been a director of ours since 1996. He has served as a
consultant to Americo Life, Inc., or Americo, a life insurance company, since
1998. Before the sale of certain of his insurance related businesses to Americo
in 1998, he was President and Chief Executive Officer of College Insurance
Group, Inc., an insurance holding company which owned 100% of Annuity Service
Corp. and Financial Assurance Life Insurance Company. Annuity Service Corp.
managed and administered tax qualified plan annuity and life insurance business
for several insurance companies. Financial Assurance Life Insurance Company was
a provider of annuity and life insurance products.
Mr. Searles has been a director of ours since 1989. He has been an
independent business consultant since 1989. Before then, he spent 25 years with
various Wall Street firms, the last ten of which were with Bear Stearns (an
investment banking firm) as an Associate Director/Limited Partner. He has served
as a director of Prime since 1989, as Chairman of the Board of Investment
Services since May 1998, as a director of Uncommon Care since September 1998 and
as a director of Probex Corp., a re-refiner which converts waste oil into
premium quality base oil, since December 1999.
Mr. Shifrin has been our Chairman of the Board since March 1990. He has
been our President and Chief Executive Officer since March 1989 and he was
President and Chief Operating Officer from June 1987 to February 1989. He has
been a director of ours since February 1987. From February 1985 until June 1987,
Mr. Shifrin served as our Senior Vice President - Finance and Treasurer. He has
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been Chairman of the Board of Prime since 1989. Mr. Shifrin is a member of the
World Presidents Organization.
THE BOARD RECOMMENDS THAT YOU VOTE FOR EACH NOMINEE FOR DIRECTOR.
COMPENSATION OF DIRECTORS
Nonemployee directors receive a fee of $1,500 for each board meeting and
$250 for each committee meeting they attend. Mr. Myer has requested that we
contribute his fees to a charity of his choice. Mr. Shifrin does not receive
separate compensation for his services as a director. Directors are eligible to
receive stock option grants under our 1995 Incentive and Non-Qualified Stock
Option Plan. In 2002 Mr. Myer was granted options for 35,000 shares of our
common stock and Mr. Searles was granted options for 50,000 shares of our common
stock. Mr. Shifrin received options for 75,000 shares of our common stock, as
reported in the "Options Granted in 2002" chart of the "Executive Compensation"
section of this proxy statement.
CERTAIN ADDITIONAL INFORMATION CONCERNING OUR BOARD OF DIRECTORS
No family relationships exist among our officers or directors. Except
as indicated above with respect to Prime and except for Mr. Searles'
directorship with Probex Corp., no director is a director of any company with a
class of securities registered pursuant to Section 12 of the Exchange Act, or
subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Our board of directors held five meetings during 2002, and each
director attended at least 75% of (a) the total number of our board meetings
held during 2002 (or, if shorter, during the period he served as a director) and
(b) except as noted below, the total number of meetings held by all committees
of the board on which he served during 2002 (or, if shorter, during the period
he served as a director).
Our board of directors has an audit committee that, during 2002,
consisted of two directors. Mr. Myer served on the committee along with former
directors Mr. Still and his successor, Mr. Robshaw. These directors are, and
were, "independent" as defined in Rule 4200(a)(15) of the National Association
of Securities Dealers' listing standards. The audit committee held three
meetings during 2002. Mr. Myer was unable to attend one meeting. The audit
committee meets with our independent auditors, reviews our financial statements,
and selects our independent auditors for each fiscal year. The committee has
been expanded to three independent members for 2003. The current members are Mr.
Hummel, Mr. Majors and Mr. Myer.
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Our board has a compensation committee which, in 2002, consisted of two
directors, Mr. Myer and Mr. Searles. The compensation committee held one meeting
during 2002. The compensation committee determines the compensation of our
executive officers and directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Set forth below is information concerning aggregate cash compensation
earned during each of our last three fiscal years by our Chief Executive Officer
and each of our other most highly compensated executive officers who received in
excess of $100,000 in salary and bonuses during any of the last three years, who
we will refer to as our named executive officers.
Annual Compensation Long Term
------------------- Compensation Awards
-------------------
All Other
Securities Compensation
Name and Principal Fiscal Salary Bonus Underlying ($) (1)
Position Year ($) ($) Options (#)
------------------------- ----------- ---------- --------- ------------------ ----------------
Kenneth S. Shifrin, 2002 293,751 476,000 75,000 3,996
Chairman, President and
Chief Executive Officer 2001 275,004 50,000 -- 2,677
2000 266,670 37,500 50,000 1,480
William H. Hayes, Senior 2002 126,246 50,000 35,000 3,996
Vice President- Finance,
Secretary and Chief
Financial Officer 2001 114,996 20,000 -- 2,677
2000 114,996 17,500 20,000 1,480
Maury L. Magids, Senior 2002 180,000 228,529 15,000 --
Vice President - Insurance
2001 179,588 120,200 10,000 --
2000 169,992 36,000 10,000 --
(1) Consists of our matching contributions to our 401(k) plan with respect to
such officer.
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OPTIONS GRANTED IN 2002
The following table provides information related to options granted to
the named executive officers during 2002. We do not have any outstanding stock
appreciation rights.
Individual Grants
-----------------------------------------------------------------------------------------
Number of
securities Percent of
underlying total options
Options granted to Exercise Expiration
Name granted (#) employees in Price ($/Sh) Date
(1) fiscal year
-------------------------- --------------- --------------- -------------- -----------
-------------------------- --------------- --------------- -------------- -----------
Kenneth S. Shifrin 75,000 41% $3.58 1/25/07
William H. Hayes 35,000 19% $3.58 1/25/07
Maury L. Magids 15,000 8% $4.39 3/27/07
-----------------------------------------------------------------------------------------
(1) These options were granted at the closing price on the date of grant.
Options for all board members, including Mr. Shifrin, vest in two
annual installments beginning one year after the date of grant. All
other options vest in three annual installments beginning one year
after the date of grant.
AGGREGATED OPTION EXERCISES DURING 2002 AND OPTION VALUES AT DECEMBER 31, 2002
The following table provides information related to options exercised
by the named executive officers during 2002 and the number and value of
unexercised options held at December 31, 2002. We do not have any outstanding
stock appreciation rights.
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at
at Fiscal Fiscal
Year-End Year-End (2)
-------------------------------- -------------------------------
Shares Acquired
Name on Exercise (#) Value Realized Exercisable Unexercisable Exercisable Unexercisable
($)(1) (#) (#) ($) ($)
---------------------- ------------------- ------------------ ------------- --------------- ------------- ---------------
Kenneth S. Shifrin -- -- 148,000 92,000 108,937 93,812
William H. Hayes -- -- 58,000 42,000 42,062 41,388
Maury L. Magids -- -- 24,000 26,000 22,500 22,500
(1) The Value Realized is calculated by subtracting the per share exercise
price of the option from the closing price of our common stock on the
date of exercise and multiplying the difference by the number of shares
of our common stock acquired upon exercise.
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(2) The Value of Unexercised In-the-Money Options is before any income
taxes and is determined by aggregating for each option outstanding as
of December 31, 2002 the amount calculated by multiplying the number of
shares underlying such option by an amount equal to the closing price
of our common stock on December 31, 2002, which was $4.25, less the
exercise price of such option.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Mr. Shifrin and Mr.
Hayes. Each of these agreements provides for the payment of a base salary,
eligibility for performance bonuses as determined by our board of directors, and
such other benefits as are available to our other salaried employees. Mr.
Shifrin's agreement provides for a monthly salary, currently $25,000, and
terminates April 1, 2007. Mr. Hayes' agreement provides for a monthly salary,
currently $10,833, and terminates April 1, 2005. Each of the agreements entitles
the employee to receive lump-sum payments in the event the agreements are
terminated by us without cause or by the employee following a "change in
control" of us, as defined in the agreements. These payments are the greater of
(a) for Mr. Shifrin, five times, and for Mr. Hayes, three times, their
respective average annual cash compensation earned for the past five years, or
(b) the total cash compensation that would otherwise have been payable to them
throughout the remainder of the term of their employment agreements assuming
their current compensation, including the amount of any bonuses for the
immediately preceding calendar year, would have remained the same throughout the
remainder of the term of their employment agreements.
INDEMNITY AGREEMENTS
We have entered into indemnity agreements with our directors and
certain of our officers. The agreements generally provide that, to the extent
permitted by law, we must indemnify each such person for judgements, expenses,
fines, penalties and amounts paid in settlement of claims that result from the
fact that such person was our officer, director or employee. In addition, our
articles of incorporation and certain of our subsidiaries' articles of
incorporation provide for certain indemnifications and limitations on director
liability.
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EQUITY COMPENSATION PLAN INFORMATION
As of December 31, 2002
Number of Securities
Remaining Available
Number of Securities To be For Future Issuance Under
Issued Upon Exercise of Weighted Average Exercise Equity Compensation Plans
Plan category Outstanding Options, Price of Outstanding (Excluding Securities
------------- Warrants and Rights Options, Warrants and Reflected in Column (a))
------------------- -------------- ------------------------
(a) Rights (c)
------
(b)
Equity compensation plans
approved by security 939,000 $3.51 549,500
holders...
Equity compensation plans not
approved by security -- $-- --
holders...
Total... 939,000 $3.51 549,500
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Company is engaged in several highly competitive industries. For
the Company to succeed, the Company believes that it must be able to attract and
retain qualified executives. To achieve this objective, we have structured an
executive compensation policy tied to operating performance that we believe has
enabled the Company to attract and retain key executives.
During 2002, the Compensation Committee was comprised of two
non-employee directors, Robert L. Myer and William A. Searles.
During 2002, the Compensation Committee had primary responsibility for
determining executive compensation levels. The board of directors as a whole
maintains a philosophy that a significant component of both annual and long-term
compensation of executive officers, including that of the Chief Executive
Officer, should be linked to measurable performance. A portion of the management
compensation has been comprised of bonuses, based on operating and stock price
performance, with a particular emphasis on the attainment of planned objectives.
Accordingly, in years in which performance goals are achieved or exceeded,
executive compensation tends to be higher than in years in which performance is
below expectations. Stock options are granted from time to time to members of
management, based primarily on such person's potential contribution to the
Company's long-term growth and profitability. The Committee feels that options
are an effective incentive to create value for shareholders since the value of
an option bears a direct relationship to our stock price. The Committee further
recognizes that long-term performance is becoming an increasingly more important
component of overall executive compensation.
9
For 2002, our executive compensation program, including that of the
Chief Executive Officer, consisted of base salary, a cash bonus based on current
year performance and long-term stock option awards, all of which relates to the
achievement of specific current and long-term goals. Specifically, the cash
bonus paid to the executives of our subsidiaries was based upon achieving, among
other things, a targeted pretax income. The Chief Executive Officer was paid a
bonus for 2002 based upon implementing short and long-term initiatives for
improving the Company's return on investment.
One of the Company's primary objectives is financial performance that
achieves several long-term goals, including earnings-per-share growth, revenue
growth, stock price growth and a proper diversification of business risks. The
Committee believes that its compensation policy promotes those objectives and
that compensation levels during 2002 adequately reflect the Company's
compensation goals and policies.
Compensation Committee: Robert L. Myer and
William A. Searles
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PERFORMANCE GRAPH
The graph below compares, assuming $100 was invested on December 31,
1997 and assuming the reinvestment of any dividends, our cumulative total
shareholder return with the total shareholder returns of all NASDAQ stocks (the
"NASDAQ Total") and of all stocks (the "Peer Index") contained in the following
three NASDAQ indexes (with each index being given equal weight): Financial,
Health Services and Insurance.
[OBJECT OMITTED]
The following is a table representation of the performance graph depiced on
page 11 fo the print version of the proxy.
PEER
FYE NASDAQ INDEX APSG
---------- ----------- ----------- ------------
12/31/02 86.339 101.612 59.635
12/31/01 124.885 104.357 51.930
12/31/00 157.417 96.035 21.053
12/31/99 261.484 80.053 51.754
12/31/98 140.990 91.065 63.159
12/31/97 100.000 100.000 100.000
11
AUDIT COMMITTEE REPORT
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") was comprised of two directors in 2002 and operates under a written
charter adopted by the Board. The Committee, among other things,
o reviews with the independent auditors and management the adequacy of the
Company's accounting and financial reporting controls;
o reviews with management and the independent auditors significant
accounting and reporting principles, practices and procedures
applied in preparing the Company's financial statements;
o discusses with the independent auditors their judgment about the
quality, not just the acceptability, of the Company's accounting
principles used in the Company's financial reporting;
o reviews the activities and independence of the independent auditors;
o reviews and discusses the audited financial statements with management
and the independent auditors and the results of the
audit; and
o appoints independent auditors.
It is the responsibility of our executive management to prepare financial
statements in accordance with accounting principles generally accepted in the
United States of America and of our independent auditors to audit those
financial statements.
In this context, the Committee has reviewed and held discussions with
management and the independent auditors regarding the Company's 2002 financial
statements. Management represented to the Committee that our consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America, and the Committee has
reviewed and discussed the consolidated financial statements with management and
the independent auditors. The Committee discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61
(Codification of Statements on Auditing Standards).
In addition, the Committee has discussed with the independent auditors
the auditor's independence from the Company and management and has received the
written disclosure and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). Further, the Committee has considered whether the provision of
non-audit services by the independent auditors is compatible with maintaining
the auditor's independence.
The Committee meets with the independent auditors, with and without
management present, to discuss the results of their examinations, the
evaluations of our internal controls, and the overall quality of our financial
reporting.
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Based on the reviews and discussions referred to above, the Committee
recommended to the Board that the audited financial statements be included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2002,
for filing with the Securities and Exchange Commission. The Committee believes
that the provision of services by the independent auditors for matters other
than the annual audit and quarterly reviews is compatible with maintaining the
auditor's independence.
Audit Committee: Brad Hummel
Jackie Majors
Robert L. Myer
DESIGNATION OF AUDITORS
Upon the recommendation of our audit committee, our board of directors
designated BDO Seidman, LLP to audit our books and accounts for the year ended
December 31, 2002. The audit committee has not yet selected our independent
auditors for 2003. Representatives of our independent auditors will be present
at the meeting to respond to appropriate questions, and they will have the
opportunity, if they desire, to make a statement.
Fees paid to our auditors' firm were comprised of the following:
2002 Financial Statements Audit Fees................ $102,052
--------
Financial Information Systems Design
and Implementation Fees provided in 2002....... --
All Other Fees, including tax preparation,
tax consulting and other accounting services
provided in 2002............................... $ 8,743
-------
On July 8, 2002, we dismissed KPMG LLP as our independent public accountants and
engaged BDO Seidman, LLP as our new independent public accountants. Our board of
directors approved the decision to change accountants.
During 2000 and 2001 and through the subsequent interim period ended July 8,
2002, we had no disagreements with KPMG LLP on any matter of accounting
principles, or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of KPMG LLP,
would have caused it to make reference to the subject matter of the disagreement
in connection with its reports.
The audit report of KPMG LLP on our consolidated financial statements as of and
for the years ended December 31, 2000 and 2001 did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
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CERTAIN SHAREHOLDERS
The following table sets forth certain information as of April 30, 2003
regarding the amount and nature of the beneficial ownership of our common stock
by (a) each person who is known by us to be the beneficial owner of more than
five percent of the outstanding shares of our common stock, (b) each of our
directors and nominees for director, (c) each of our executive officers named in
the Summary Compensation Table below, and (d) all of our officers and directors
as a group:
Amount and Nature
of Beneficial Percent
Name and Address of Ownership of
Beneficial Owner See Notes (1)(2) Class
--------------------------------------------------------------------------------
Kenneth S. Shifrin..................................587,617 25.5%
1301 Capital of Texas Highway
Austin, Texas 78746
Dimensional Fund Advisors Inc. (3)..................167,000 7.8%
1299 Ocean Ave., 11th Floor
Santa Monica, California 90401
Heartland Advisors, Inc. (4) .......................247,100 8.8%
790 North Milwaukee St.
Milwaukee, Wisconsin 53202
Duane K. Boyd (5)...................................168,053 7.7%
12708 Riata Vista Circle, Suite A-125
Austin, Texas 78727
W. H. Hayes.........................................137,500 6.3%
1301 Capital of Texas Highway
Austin, Texas 78746
Maury L. Magids......................................29,000 1.3%
1301 Capital of Texas Highway
Austin, Texas 78746
Robert L. Myer...................................... 87,000 4.0%
1301 Capital of Texas Highway
Austin, Texas 78746
William A. Searles.................................. 81,000 3.7%
1301 Capital of Texas Highway
Austin, Texas 78746
All officers and directors as
a group (9 persons) (6).......................... 966,156 37.2%
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(1) Except as otherwise indicated, and subject to community property laws
where applicable, each individual has sole voting and investment power
with respect to all shares owned by such individual.
(2) The number of shares of our common stock beneficially owned by our
officers and directors includes the following number of shares subject
to options that are presently exercisable or exercisable within 60 days
after May 15, 2003: Mr. Shifrin, 173,000; Mr. Hayes, 69,000; Mr.
Magids, 29,000; Mr. Myer, 72,000; Mr. Searles, 81,000. The number of
shares beneficially owned by all of our directors and officers as a
group, including the above-named directors, includes 466,000 shares
subject to options that are presently exercisable or exercisable within
60 days after May 15, 2003.
(3) Based on the Amendment to Schedule 13G filed by Dimensional Fund
Advisors Inc., or Dimensional, with the SEC on February 12, 2003,
Dimensional may be deemed to have beneficial ownership of 167,000
shares of our common stock as of December 31, 2002, all of which shares
are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(4) Based on Amendment No. 6 to Schedule 13G filed by Heartland Advisors
and William J. Nasgovitz with the SEC on February 12, 2003, Heartland
Advisors has sole voting power over 35,500 shares of our common stock
and sole investment power over 247,100 shares of our common stock, and
Mr. Nasgovitz has sole voting power over 187,200 shares of our common
stock.
(5) Mr. Boyd is an employee and a former officer of ours. The number of
shares beneficially owned by him includes shares held in family limited
partnerships, shares held as trustee for family trusts and 45,000
shares subject to options that are presently exercisable or exercisable
within 60 days after May 15, 2003.
(6) Includes the president and chairman of the board, if any, of each of
our consolidated subsidiaries.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
UNCOMMON CARE
On January 1, 1998 we invested in the preferred stock of Uncommon Care,
Inc., a developer and operator of specialized care facilities for individuals
with Alzheimer's disease. Certain of our officers, directors and employees also
invested in the common stock of Uncommon Care, paying the same price per share
for their investment as we did.
At the same time, these officers, directors and employees also
participated in a $2.4 million secured line of credit to Uncommon Care, with
15
each individual participant funding their pro rata portion of the line of
credit. We have subsequently extended two unsecured lines of credit totaling an
additional $2.45 million to Uncommon Care. Beginning July 1, 2001, we agreed to
take payments on the lines of credit in-kind, receiving Uncommon Care common
stock in place of cash. The officers, directors and employees who participated
in the line of credit did not participate in the in-kind program. Uncommon Care
has ceased making payments on all of these loans and is in default. At March 31,
2003, the preferred shares of Uncommon Care we hold, assuming conversions, plus
our common shares of Uncommon Care earned in-kind, amounted to approximately 42%
of the total voting power of Uncommon Care.
The investments by our officers, directors and employees were as
follows:
Name Title Initial Ownership %
---- ----- -------------------
William H. Hayes Senior Vice President-Finance, 0.38%
Secretary and Chief Financial Officer
Robert L. Myer Director 0.86%
William A. Searles Director 0.49%
Kenneth S. Shifrin Chairman, President and Chief 0.57%
Executive Officer
All others 1.24%
Mr. Searles is also a member of Uncommon Care's board of directors.
Asset Management
In May 1998, we formed APS Asset Management, Inc., or Asset Management,
of which we initially owned 95%. Asset Management was organized to manage fixed
income and equity assets for institutional and individual clients on a fee
basis. Certain of our officers, directors and employees also invested in Asset
Management, paying the same price per share as we did. Their investments are as
follows:
Name Title Initial Ownership %
---- ----- -------------------
George S. Conwill President of APS Investment 1%
Services, Inc., or Investment
Services, a wholly-owned subsidiary
of ours
William A. Searles Director and Chairman of Investment 1%
Services
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OTHER
During 2002, Mr. Searles also served as a director and Chairman of the
Board of Investment Services. For his additional director services, Mr. Searles
was paid monthly director fees of $6,000, plus a non-discretionary incentive
amount based on Investment Services achieving certain levels of return on
capital. His total compensation for these additional director duties was
$285,000 in 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, requires our directors and officers, and persons who own more
than 10% of a registered class of our equity securities, to file initial reports
of ownership and reports of changes in ownership with the Securities and
Exchange Commission, or the SEC, and the NASDAQ Smallcap Market. Such persons
are required by SEC regulation to furnish us with copies of all Section 16(a)
forms they file.
Based solely on review of the copies of such forms received by us with
respect to 2002, or written representations from certain reporting persons, we
believe that all filing requirements applicable to our directors and officers
and persons who own more than 10% of a registered class of our equity securities
have been complied with.
SHAREHOLDER PROPOSALS
Any of our shareholders meeting certain minimum stock ownership and
holding period requirements may present a proposal to be included in our proxy
statement for action at the annual meeting of shareholders to be held in 2004
pursuant to Rule 14a-8 of the Exchange Act. Such shareholder must deliver such
proposal to our principal executive offices no later than January 25, 2004,
unless we notify the shareholders otherwise. Only those proposals that are
appropriate for shareholder action and otherwise meet the requirements of Rule
14a-8 of the Exchange Act may be included in our proxy statement.
A shareholder who otherwise intends to present business at our 2004
annual meeting of shareholders must comply with the requirements set forth in
our bylaws, which require, among other things, that to bring business before our
2004 annual meeting, a shareholder must give written notice that complies with
our bylaws to our Secretary at our principal executive offices. A shareholder's
notice shall be timely if received by our Secretary no later than March 2, 2004
and no earlier than February 1, 2004, provided, however, if the 2004 annual
meeting is scheduled to be held on a date earlier than May 31, 2004 or later
than August 29, 2004, a shareholder's notice shall be timely if received by our
Secretary not later than the close of business on the 10th day following the day
on which a public announcement of the date of the 2004 annual meeting is first
made by us.
As a result, a notice of a shareholder proposal for the 2004 annual meeting,
submitted other than pursuant to Rule 14a-8, will be untimely if not received by
us within the time deadlines required by our bylaws as described above. As to
17
any such proposals, the proxies named in management's proxy for that meeting
will be entitled to exercise their discretionary authority on that proposal
unless we receive notice of the matter to be proposed within the time deadlines
required by our bylaws as described above. Even if proper notice is received on
a timely basis, the proxies named in management's proxy for that meeting may
nevertheless exercise their discretionary authority with respect to such matter
by advising shareholders of such proposal and how they intend to exercise their
discretion to vote on such matter to the extent permitted under Rule 14a-4(c)(2)
of the Exchange Act.
OTHER MATTERS
Our board of directors does not intend to bring any other matters before the
meeting and does not know of any matters which will be brought before the
meeting by others. However, if any other matters properly come before the
meeting, the persons named in the accompanying proxy will vote the proxies in
accordance with their judgment on such matters.
By Order of our Board of Directors
W. H. HAYES
Secretary
18
PROXY
AMERICAN PHYSICIANS SERVICE GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 30, 2003
The undersigned hereby (a) acknowledges receipt of the Notice of Annual
Meeting of Shareholders of American Physicians Service Group, Inc. (the
"Company") to be held on June 30, 2003 and the Proxy Statement in connection
therewith, each dated May 25, 2003, (b) appoints Kenneth S. Shifrin and William
H. Hayes, or either of them, as Proxies, each with the power to appoint a
substitute, (c) authorizes the Proxies to represent and vote, as designated on
the reverse, all the shares of Common Stock of American Physicians Service
Group, Inc. held of record by the undersigned on May 13, 2003, at such annual
meeting of shareholders and at any adjournment(s) thereof and (d) revokes any
Proxies heretofore given.
(Continued and to be signed on reverse side.)
19
ANNUAL MEETING OF SHAREHOLDERS OF
AMERICAN PHYSICIANS SERVICE GROUP, INC.
June 30, 2003
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach and mail in the envelope provided.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
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1. Election of Directors: 2. In their discretion, the Proxies are authorized
NOMINEES to vote upon such other business as may properly
come before the meeting or any adjournment(s)
thereof.
[ ] FOR ALL NOMINEES [ ] Brad A. Hummel
[ ] WITHHOLD AUTHORITY [ ] Jackie Majors THIS PROXY WILL BE VOTED AS DIRECTED, IF NO
FOR ALL NOMINEES SPECIFICATION IS INDICATED, THIS PROXY WILL BE
[ ] Robert L. Myer VOTED FOR THE ELECTION TO THE BOARD OF DIRECTORS
[ ] FOR ALL EXCEPT OF THE NOMINEES LISTED ON THIS PROXY AND, IN THE
(See instructions [ ] William A. Searles DISCRETION OF THE PROXIES, ON ANY OTHER BUSINESS
below)
[ ] Kenneth S. Shifrin
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: [ ]
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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. [ ]
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Signature of Stockholder ______________________ Date: ______________
Signature of Stockholder ______________________ Date ______________
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Note: This proxy must be signed exactly as the name appears hereon. 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.
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