SCHEDULE 14A
(RULE 14A-101)
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)
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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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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UNICO AMERICAN CORPORATION
23251 Mulholland Drive
Woodland Hills, California 91364-2732
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Thursday, May 24, 2007
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 6, 2007, 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 20, 2007
UNICO AMERICAN CORPORATION
--------------------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
May 24, 2007
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 24, 2007, 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 6, 2007, 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 5,597,191 shares of common stock, the only outstanding voting
security 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 20, 2007.
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 6, 2007, 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 75 President and Chief Executive Officer 1969
since 1969. Chairman of the Board
since 1987.
Cary L. Cheldin 50 Executive Vice President since 1991. 1983
Vice President 1986 to 1991 and
Secretary 1987 to 1991.
Lester A. Aaron, CPA 61 Treasurer and Chief Financial Officer 1985
since 1985. Secretary 1991 to 1992.
George C. Gilpatrick 62 Vice President, Management Information 1985
Systems, since 1981. Secretary since 1992.
David A. Lewis, CPCU 85 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 72 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 65 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 35 years. From 1963 to 1996 he
worked in the aerospace industry in both
technical and management positions.
Except for Cary L. 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. Each of the executive officers, other than Erwin
Cheldin, serves in his present office pursuant to an employment agreement with
the Company. The employment agreement of Cary L. Cheldin terminates May 15,
2011, and the employment agreements of Messrs. Aaron and Gilpatrick expire May
15, 2009. Erwin Cheldin serves as President, Chairman of the Board of Directors
and Chief Executive Officer of the Company at the pleasure of the Board of
Directors
Messrs. Erwin Cheldin, Cary L. Cheldin, Lester A. Aaron, and George C.
Gilpatrick who hold approximately 50.03% 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 NASDAQ Stock Market ("NASDAQ") Marketplace Rule 4350(c)(5). A
Controlled Company is exempt from the requirements of NASDAQ 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, 2006, the Company's Board of Directors held
one meeting. Non-employee directors met without any management directors or
employees present four times during the year ended December 31, 2006.
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.
All incumbent directors attended 100% of the combined total meetings of the
Board of Directors and the committees on which they served.
2
The compensation of the Company's non-employee directors for the last completed
fiscal year is as follows:
Fees Earned
or Paid in
Cash Total
---- -----
Name $ $
---- - -
David A. Lewis, CPCU 9,000 9,000
Warren D. Orloff 9,000 9,000
Donald B. Urfrig 9,000 9,000
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 the accounting and financial reporting processes
of the Company and the audits of its financial statements. The Audit Committee
which has a written charter met four times during the year ended December 31,
2006, and held one meeting subsequent to the year ended December 31, 2006, to
discuss accounting and financial statement matters related to the year ended
December 31, 2006. The charter is attached as Appendix A. Messrs. Lewis, Orloff
and Urfrig are independent as defined in the NASDAQ 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,
2006. The Compensation Committee does not have a charter.
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 50% 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. Four
of the Directors attended the 2005 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.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth, as of April 6, 2007, 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.
Amount Percent
Beneficially Of
Name and Address of Beneficial Owner Owned Class
------------------------------------ ----- -----
Certain Beneficial Owners
-------------------------
Erwin Cheldin (1) 2,339,850 41.8%
23251 Mulholland Drive, Woodland Hills, CA 91364
Schwartz Investment Counsel, Inc., and Schwartz 513,845 9.2%
Investment Trust, on behalf of its series Funds,
Schwartz Value Fund, and Ave Maria Catholic
Values Fund (2)
3707 W. Maple Rd., Suite 100,
Bloomfield Hills, MI 48301
Dimensional Fund Advisors, Inc. (3) 507,843 9.1%
1299 Ocean Avenue, Santa Monica, CA 90401
FMR Corp. (4) 309,000 5.5%
82 Devonshire Street, Boston, MA 02109
Executive Officers, Directors, and Nominees for Director
Erwin Cheldin (1) 2,339,850 41.8%
Cary L. Cheldin (1) 204,860 3.7%
Lester A. Aaron (1) 150,567 2.7%
George C. Gilpatrick (1) 104,717 1.9%
David A. Lewis 3,000 0.1%
Warren D. Orloff 0 0.0%
Donald B. Urfrig 25,000 0.4%
All executive officers & directors as a group (7 persons) 2,827,994 50.5%
(1) 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 2,799,994 shares or approximately 50.03% 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.
(2) Per Schedule 13G dated February 12, 2007.
(3) Per Schedule 13G dated February 8, 2007.
(4) 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.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
--------------------------------------------
Compensation Discussion and Analysis
------------------------------------
Objectives and Overview
-----------------------
Our compensation package for executive officers at present primarily consists of
a base salary, an annual incentive bonus and contributions under the Profit
Sharing and Money Purchase Plans. Our executive compensation program is designed
to retain and reward individuals who are capable of leading the Company in
achieving its business objectives. Our philosophy is to maintain a competitive
base salary for executive officers
4
and to provide an incentive program that rewards executive officers based upon
their contribution to the Company's operational and financial performance. Base
compensation is determined on a calendar year basis, annual incentive bonuses
are paid in December of each year, and other incentives are determined when
deemed appropriate. The Compensation Committee reviews annually the compensation
of executive officers and submits its compensation recommendations to the entire
Board of Directors for its approval. In December 2006, the Compensation
Committee made its recommendations to the Board of Directors as to incentive
bonuses for 2006. These recommendations were approved by the Board of Directors.
The Compensation Committee usually makes its annual base compensation
recommendations to the Board of Directors sometime early in the applicable year.
We have entered into employment agreements with Cary L. Cheldin, Lester A.
Aaron, and George C. Gilpatrick. These employment agreements provide for minimum
base compensation and minimum annual incentive bonus compensation. Erwin
Cheldin, our president and chief executive officer, is not covered by an
employment agreement.
Base Compensation
-----------------
When determining its recommendations to the Board of Directors as to base
compensation for the executive officers, the Compensation Committee takes into
account the executive officer's duties and responsibilities and the competitive
pay levels in the industry with its emphasis on the median of the survey data.
The Committee recommends to the Board of Directors adjustments to base
compensation when it determines that an executive officer's base compensation is
not competitive after taking into account his duties and responsibilities and
the Company contributions under the Profit Sharing Plan and Money Purchase Plan.
In 2006, taking into account these factors, the Compensation Committee
determined that Erwin Cheldin's base compensation was competitive and
recommended that his base compensation for 2006 not be increased. It also
recommended that Cary L. Cheldin, Lester A. Aaron, and George C. Gilpatrick each
receive an increase in 2006 base compensation of approximately 5% over the prior
year. The Board of Directors approved these recommendations.
Annual Incentive Bonus
----------------------
In determining its recommendations as to incentive bonuses for the executive
officers, the Compensation Committee first evaluates, and gives primary weight
to, the operational and financial performance of the executive management team
as a group. After the team results are evaluated, individual effectiveness in
contributing to the achievement of those results is considered. The financial
results, which are reviewed by the Compensation Committee, include the Company's
net income, revenues and expenses for the four fiscal quarters ending September
30. The Compensation Committee does not quantify any single element in its bonus
recommendations to the Board of Directors. The Compensation Committee aggregates
all elements reviewed and subjectively determines its recommendation based on
all information available.
The Compensation Committee in determining its recommendations as to bonuses to
be paid to the executive officers in December 2006 considered and evaluated our
operating results for the three years ended December 31, 2005, as well as the
improvements in results through the third quarter of 2006. Primarily due to the
improved results reported in 2005 and the nine months ended September 30, 2006,
the Compensation Committee recommended that a $30,000 bonus be paid to Erwin
Cheldin, the chief executive officer, for the year ended December 31, 2006. The
Compensation Committee also considered the contributions of Cary L. Cheldin,
executive vice president, to the improvement in operating results and the
minimum bonus provided under his employment agreement. Cary L. Cheldin also
serves as the president of Crusader Insurance Company, the Company's insurance
company subsidiary. Crusader Insurance Company accounted for approximately 89%
of the Company's 2006 consolidated net revenues and primarily accounted for the
Company's improved operating results. The Compensation Committee also considered
that no stock options were granted to him since a grant of incentive options
covering 25,000 shares were granted to him on June 24, 1994. Taking these
factors into consideration, the Committee recommended a bonus should be paid to
Cary L. Cheldin in the amount of $300,000 for the year ended December 31, 2006.
Considering the improved results and their performance and contributions, the
Committee also recommended that the bonuses to be paid to Messrs. Aaron and
Gilpatrick for the year ended December 31, 2006 be $114,000 and $81,500,
respectively.
Section 162(m) of the Internal Revenue Code
-------------------------------------------
Section 162(m) of the Internal Revenue Code, enacted as part of the Omnibus
Budget Reconciliation Act of 1993 (OBRA) limits to $1,000,000 the deductibility
for any year beginning after December 31, 1993, of compensation paid by a public
corporation to the chief executive officer and the next four most highly
compensated executive officers unless such compensation is performance based
within the meaning of Section 162(m) and the regulations thereunder. For the
year ended December 31, 2006, we do not contemplate that there will be
nondeductible compensation paid the executive officers of the Company as a
result of Section 162(m).
5
Summary of Executive Compensation
---------------------------------
Summary Compensation Table
--------------------------
The following table sets forth information for year ended December 31, 2006, as
to executive compensation paid to the chief executive officer and the other
executive officers of the Company.
All Other
Name and Principal Position Year Salary Bonus Compensation (1) Total
--------------------------- ---- ------ ----- ------------- -----
($) ($) ($) ($)
--- --- --- ---
Erwin Cheldin 2006 309,000 30,000 62,919 401,919
President, Chief Executive Officer
and Chairman of the Board
Cary L. Cheldin 2006 297,400 300,000 59,165 656,565
Executive Vice President
Lester A. Aaron
Treasurer and Chief Financial Officer 2006 204,820 114,000 53,798 372,618
George C. Gilpatrick
Vice President and Secretary 2006 188,500 81,500 52,776 322,776
(1) See All Other Compensation table below.
All Other Compensation
----------------------
The table below summarizes All Other Compensation paid or earned by the
executive officers of the Company.
Perquisites and Contributions
Other Personal to Retirement
Name Year Benefits (1) Plans (2) Total
---- ---- ------------ --------- -----
$ $ $
- - -
Erwin Cheldin 2006 18,919 44,000 62,919
Cary L. Cheldin 2006 15,165 44,000 59,165
Lester A. Aaron 2006 9,798 44,000 53,798
George C. Gilpatrick 2006 8,776 44,000 52,776
(1) Represents payments for health insurance of $15,165 and club dues of $3,754
for Erwin Cheldin. Represents payments for health insurance for Cary L.
Cheldin, Lester A. Aaron, and George C. Gilpatrick
(2) 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 2006, the amount contributed to each
executive officer's account under the Profit Sharing Plan and Money
Purchase Plan was $31,500 and $12,500 respectively. The Company's Profit
Sharing Plan and Money Purchase Plan both have a March 31 fiscal year end
(see "Retirement Plans").
Employment Agreements
----------------------
The Company has employment agreements with Cary L. Cheldin, Lester A. Aaron, and
George C. Gilpatrick.
Cary L. Cheldin. The Company entered into an employment agreement with Cary L.
Cheldin that became effective on May 15, 2006. The agreement has a term of five
years. This agreement is terminable by the Company or Mr. Cheldin at any time
upon written notice. Mr. Cheldin's agreement provides for, among other things:
o An annual base salary of no less than $297,400. The annual base salary is
subject to increase from time to time at the discretion of the Board of
Directors.
o An annual bonus provided that the Company's consolidated net income
(prior to deductions for income taxes and current bonuses paid to all
executive officers of Company, including Mr. Cheldin, but after deducting
discretionary bonuses paid to all employees) for the most recent four
fiscal quarters ending prior to such payment date is equal to or greater
than $4 million. The amount of the bonus is determined by the Board of
Directors, in its discretion, but it is not to be less than the amount of
the aggregate bonuses paid to the employee during the immediately preceding
calendar year, less any amounts paid as a discretionary bonus since the
immediately preceding January. The agreement does not prevent the Board of
Directors
6
from electing, in its discretion, to grant a discretionary bonus in the
event the net income goal of $4 million is not met.
o Mr. Cheldin is entitled to employment benefits, including holidays,
personal leave, sick leave, vacation, health insurance, disability
insurance, life insurance, and pension plans as provided by the Company's
policies in effect from time to time. The disability insurance is required
to be in an amount sufficient to provide compensation to Mr. Cheldin, if
disabled, equal to 70% of the compensation that Mr. Cheldin would be
entitled to under the agreement. Benefits cannot be reduced from those
provided to Mr. Cheldin as of May 15, 2006. If the agreement is terminated
by the Company for cause or by Mr. Cheldin for other than a breach by the
Company, payments of base salary, bonus, and benefits shall cease. Mr.
Cheldin is entitled only to payments of accrued but unpaid salary and
vacation for periods or partial periods that occurred prior to the date of
termination. Cause, as defined in the agreement, includes chronic alcohol
or drug addiction by Mr. Cheldin, fraud or unlawful appropriation of any
money or other assets or properties of the Company by Mr. Cheldin, a
material breach by Mr. Cheldin of the terms of his employment agreement
which is not cured within ten (10) days after the Company has given Mr.
Cheldin written notice describing such material breach, the conviction of
Mr. Cheldin of any felony involving moral turpitude or any other serious
crime involving moral turpitude, Mr. Cheldin's gross moral turpitude
relevant to his office or employment with the Company, and Mr. Cheldin's
willful engagement in misconduct which is demonstrably and materially
injurious to the Company.
o If the agreement is terminated by the Company without cause or by Mr.
Cheldin on account of a breach of the agreement by the Company, Mr. Cheldin
is entitled to (a) immediate payment in full of his salary for the
remainder of the term of the agreement, without discount or mitigation, (b)
his bonus for the remainder of the term of the agreement (without giving
effect to the termination) and (c) his benefits for the remainder of the
term of the agreement (without giving effect to the termination).
o The Company has the option to terminate the agreement if Mr. Cheldin
becomes permanently disabled and is no longer able to perform the essential
functions of his position with reasonable accommodation, provided that the
Company has provided the required disability insurance benefit as part of
his benefits. The agreement terminates on the death of Mr. Cheldin which is
not considered a termination by the Company without cause.
The following table quantifies estimated payments and benefits described above
to which Mr. Cheldin would be entitled to under his employment agreement if his
employment had been terminated on December 31, 2006 by the Company without cause
or by Mr. Cheldin on account of a breach of the agreement by the Company.
Salary $1,325,908
Bonus 1,200,000
Benefits 92,667
Pension Plans 220,000
---------
Total $2,838,575
=========
Lester A. Aaron. The Company entered into an employment agreement with Lester A.
Aaron which became effective on May 15, 2006. The agreement has a term of three
years. This agreement is terminable by the Company or Mr. Aaron at any time upon
written notice. Mr. Aaron's agreement provides for, among other things:
o An annual base salary of no less than $199,500. The annual base salary is
subject to increase from time to time at the discretion of the Board of
Directors.
o An annual bonus provided that the Company's consolidated net income
(prior to deductions for income taxes and current bonuses paid to all
executive officers of Company, including Mr. Aaron, but after deducting
discretionary bonuses paid to all employees) for the most recent four
fiscal quarters ending prior to such payment date is equal to or greater
than $4 million. The amount of the bonus is determined by the Board of
Directors, in its discretion, but it is not to be less than the amount of
the aggregate bonuses paid to the employee during the immediately preceding
calendar year, less any amounts paid as a discretionary bonus since the
immediately preceding January. The agreement does not prevent the Board of
Directors from electing, in its discretion, to grant a discretionary bonus
in the event the net income goal of $4 million is not met.
o Mr. Aaron is entitled to employment benefits, including holidays,
personal leave, sick leave, vacation, health insurance, disability
insurance, life insurance, and pension plans as provided by the Company's
policies in effect from time to time. The disability insurance is required
to be in an amount sufficient to provide compensation to Mr. Aaron, if
disabled, equal to 70% of the compensation that Mr. Aaron would be entitled
to under the agreement. Benefits cannot be reduced from those provided to
Mr. Aaron as of May 15, 2006. If the agreement is terminated by the Company
for cause or by Mr. Aaron for other than a breach by the Company, payments
of base salary, bonus, and benefits shall cease. Mr. Aaron is entitled
7
only to payments of accrued but unpaid salary and vacation for periods or
partial periods that occurred prior to the date of termination. Cause, as
defined in the agreement, includes chronic alcohol or drug addiction by Mr.
Aaron, fraud or unlawful appropriation of any money or other assets or
properties of the Company by Mr. Aaron, a material breach by Mr. Aaron of
the terms of his employment agreement which is not cured within ten (10)
days after the Company has given Mr. Aaron written notice describing such
material breach, the conviction of Mr. Aaron of any felony involving moral
turpitude or any other serious crime involving moral turpitude, Mr. Aaron's
gross moral turpitude relevant to his office or employment with the
Company, and Mr. Aaron's willful engagement in misconduct which is
demonstrably and materially injurious to the Company.
o If the agreement is terminated by the Company without cause or by Mr.
Aaron on account of a breach of the agreement by the Company, Mr. Aaron is
entitled to (a) immediate payment in full of his salary for the remainder
of the term of the agreement, without discount or mitigation, (b) his bonus
for the remainder of the term of the agreement (without giving effect to
the termination) and (c) his benefits for the remainder of the term of the
agreement (without giving effect to the termination).
o The Company has the option to terminate the agreement if Mr. Aaron
becomes permanently disabled and is no longer able to perform the essential
functions of his position with reasonable accommodation, provided that the
Company has provided the required disability insurance benefit as part of
his benefits. The agreement terminates on the death of Mr. Aaron which is
not considered a termination by the Company without cause.
The following table quantifies estimated payments and benefits described above
to which Mr. Aaron would be entitled to under his employment agreement if his
employment had been terminated on December 31, 2006 by the Company without cause
or by Mr. Aaron on account of a breach of the agreement by the Company.
Salary $490,438
Bonus 228,000
Benefits 37,483
Pension Plans 132,000
-------
Total $887,921
=======
George C. Gilpatrick. The Company entered into an employment agreement with
George C. Gilpatrick which became effective on May 15, 2006. The agreement has a
term of five years. This agreement is terminable by the Company or Mr.
Gilpatrick at any time upon written notice. Mr. Gilpatrick's agreement provides
for, among other things:
o An annual base salary of no less than $188,500. The annual base salary is
subject to increase from time to time at the discretion of the Board of
Directors.
o An annual bonus provided that the Company's consolidated net income
(prior to deductions for income taxes and current bonuses paid to all
executive officers of Company, including Mr. Gilpatrick, but after
deducting discretionary bonuses paid to all employees) for the most recent
four fiscal quarters ending prior to such payment date is equal to or
greater than $4 million. The amount of the bonus is determined by the Board
of Directors, in its discretion, but it is not to be less than the amount
of the aggregate bonuses paid to the employee during the immediately
preceding calendar year, less any amounts paid as a discretionary bonus
since the immediately preceding January. The agreement does not prevent the
Board of Directors from electing, in its discretion, to grant a
discretionary bonus in the event the net income goal of $4 million is not
met.
o Mr. Gilpatrick is entitled to employment benefits, including holidays,
personal leave, sick leave, vacation, health insurance, disability
insurance, life insurance, and pension plans as provided by the Company's
policies in effect from time to time. The disability insurance is required
to be in an amount sufficient to provide compensation to Mr. Gilpatrick, if
disabled, equal to 70% of the compensation that Mr. Gilpatrick would be
entitled to under the agreement. Benefits cannot be reduced from those
provided to Mr. Gilpatrick as of May 15, 2006. If the agreement is
terminated by the Company for cause or by Mr. Gilpatrick for other than a
breach by the Company, payments of base salary, bonus, and benefits shall
cease. Mr. Gilpatrick is entitled only to payments of accrued but unpaid
salary and vacation for periods or partial periods that occurred prior to
the date of termination. Cause, as defined in the agreement, includes
chronic alcohol or drug addiction by Mr. Gilpatrick, fraud or unlawful
appropriation of any money or other assets or properties of the Company by
Mr. Gilpatrick, a material breach by Mr. Gilpatrick of the terms of his
employment agreement which is not cured within ten (10) days after the
Company has given Mr. Gilpatrick written notice describing such material
breach, the conviction of Mr. Gilpatrick of any felony involving moral
turpitude or any other serious crime involving moral turpitude, Mr.
Gilpatrick's gross moral
8
turpitude relevant to his office or employment with the Company, and Mr.
Gilpatrick's willful engagement in misconduct which is demonstrably and
materially injurious to the Company.
o If the agreement is terminated by the Company without cause or by Mr.
Gilpatrick on account of a breach of the agreement by the Company, Mr.
Gilpatrick is entitled to (a) immediate payment in full of his salary for
the remainder of the term of the agreement, without discount or mitigation,
(b) his bonus for the remainder of the term of the agreement (without
giving effect to the termination) and (c) his benefits for the remainder of
the term of the agreement (without giving effect to the termination).
o The Company has the option to terminate the agreement if Mr. Gilpatrick
becomes permanently disabled and is no longer able to perform the essential
functions of his position with reasonable accommodation, provided that the
Company has provided the required disability insurance benefit as part of
his benefits. The agreement terminates on the death of Mr. Gilpatrick which
is not considered a termination by the Company without cause.
The following table quantifies estimated payments and benefits described above
to which Mr. Gilpatrick would be entitled to under his employment agreement if
his employment had been terminated on December 31, 2006 by the Company without
cause or by Mr. Gilpatrick on account of a breach of the agreement by the
Company.
Salary $463,396
Bonus 163,000
Benefits 34,971
Pension Plans 132,000
-------
Total $793,367
=======
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, 2006.
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, 2006, and no options or stock
appreciation rights were held by any executive officer at December 31, 2006.
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.
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
9
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.
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, 2006.
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected
Plan Category warrants, and rights warrents and rights in column (a))
------------- -------------------- ------------------- --------------
(a) (b) (c)
Equity compensation plans approved
by security holders:
1999 Omnibus Stock Plan 172,250 $6.407 225,500
Equity compensation plans not approved
by security holders: 0 0 0
------- ----- -------
Total 172,250 $6.407 225,500
======= ====== =======
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
10
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 to 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, 2006, Cary Cheldin was the Executive Vice
President of the Company and Mr. Aaron was Treasurer and Chief Financial Officer
of the Company.
Compensation Committee Report
-----------------------------
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis including in the Proxy Statement with management. Based
on such review and discussions, the Compensation committee recommended to the
Board of Directors that the Compensation Discussion and Analysis be included in
the Company's Proxy Statement for the 2007 Annual Meeting of Shareholders
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 Item
407(d)1-3 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 U.S. generally accepted accounting
principles (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 auditing or accounting 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."
The Audit Committee has reviewed and discussed the audited financial statements
of the Company for the fiscal year ended December 31, 2006, with the Company's
management.
11
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, 2006.
Members of the Audit Committee:
/s/ David L. Lewis
/s/ Warren D. Orloff
/s/ Donald B. Urfrig
RELATED PARTY 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, 2012. Erwin Cheldin, the Company's president, chairman and principal
stockholder, is the owner of the building. The Company signed an extension to
the lease with 4% increase in rent effective April 1, 2007. The lease provides
for an annual gross rent of $1,025,952 through March 31, 2007, and $1,066,990
from April 1, 2007 through March 31, 2012. In addition, the lease extension
provides for two five year options with a rent increase of 5% for each option
period. The Company believes that at the inception of the lease agreement and at
each subsequent extension, the terms of the lease were at least as favorable to
the Company as could have been obtained from non-affiliated third parties. The
Company utilizes for its own operations approximately 100% of the space it
leases.
RELATED PARTY TRANSACTION APPROVAL POLICY
-----------------------------------------
The Board of Directors recognizes that related party transactions can present
conflicts of interest and questions as to whether the transactions are in the
best interest of the Company. Accordingly, the Board has adopted a policy for
the review, approval and ratification of such transactions by the Audit
Committee. Under this policy, a transaction shall be consummated or continued if
the Audit Committee approves or ratifies the transaction in accordance with the
guidelines and determines that the transaction is on terms comparable to those
that could be obtained in arm's length dealings with an unrelated third party or
the transaction involves compensation approved by the Compensation Committee.
For purposes of this policy, a "related party transaction" is a transaction,
arrangement or relationship, or any series of similar transactions, arrangements
or relationships, that is reportable under the Securities and Exchange
Commission's rules regarding related party transactions.
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, 2006, 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 it to continue as the Company's auditors and to audit the
books and other records of the Company for the year ending December 31, 2007. 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, 2006, 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,
2006, were approximately $225,000. The aggregate fees billed by KPMG LLP for
professional services rendered for the audit
12
of the Company's financial statements for the fiscal year ended December 31,
2005, 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, 2005,
were approximately $213,400.
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, 2006 and 2005, exclusive of the of the fees disclosed under the section
audit fees above were $16,500 and $14,500, respectively. Audit related services
in both years included fees for the audit of the Company's Profit Sharing Plan.
Tax Fees
--------
The aggregate fees billed for tax compliance, consulting, and planning services
rendered by KPMG LLP were $0 for the year ended December 31, 2006, and $800 for
the year ended December 31, 2005.
All Other Fees
--------------
The Company was billed $5,328 by KPMG LLP for services related to compliance and
planning during the year ended December 31, 2006. There were no additional fees
billed by KPMG LLP during the year ended December 2005.
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 2008 Annual Meeting are advised that their proposals must be
received by the Company no later than December 21, 2007, 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 2008 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 6, 2008.
ANNUAL REPORT TO SHAREHOLDERS
-----------------------------
The Company's 2006 Annual Report on Form 10-K includes financial statements for
the year ended December 31, 2006, the year ended December 31, 2005, and the year
ended December 31, 2004, 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 20, 2007
13
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.
A-1
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.
A-2
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 24, 2007, 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:_________________________________________, 2007
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(Signature)
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(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.