Documents filed with the U.S. Securities and Exchange Commission give more information about the conflict between a New York life insurer and a major shareholder.
Herbert Kurz, an 89-year-old director of Presidential Life Corp., Nyack, N.Y, (Nasdaq:PLFE) has been trying to replace the company’s other directors.
The other directors have responded by saying they have stripped Kurz of the title of chairman and notified the New York State Insurance Department that a tax return filed by a foundation affiliated with Kurz, the Kurz Family Foundation Ltd., New City, N.Y., may have misused foundation funds.
The foundation is the beneficial owner of about 21% of Presidential Life’s outstanding common stock.
The foundation included the tax return in an application submitted to the New York insurance department in connection with foundation efforts to acquire a controlling interest in Presidential Life.
A committee made up of independent Presidential Life directors concludes in a report filed Dec. 8 with the SEC that Kurz and the foundation, through Kurz, likely engaged in improper self-dealing; made taxable expenditures; and used foundation assets “in a manner that is inconsistent with its charitable status” under Section 501(c)(3) of the Internal Revenue Code.
The committee concludes that Kurz probably used foundation money to make excessive payments to the foundation’s directors, most of whom are family members, and to pay for, among other things, personal medical expenses, including personal caretakers and individual doctors; other personal expenses, including meals, utilities bills and legal bills of counsel that is representing Kurz; tuition for at least one family member and for friends and children of friends; and questionable consulting fees to family members and friends.
The New York insurance department has issued a subpoena to the foundation with respect to certain expenditures made by the foundation, the committee says.
The committee says Presidential Life’s independent directors discovered that Kurz inappropriately had coverage under the company’s health care plan extended to his daughter, members of their extended family, a personal aide and his wife’s personal health care provider, though all were non-employees who were ineligible to participate.
The investigations into the foundation follow efforts undertaken by Kurz to have himself reinstated as Presidential Life’s chief executive officer; remove the current CEO, Donald Barns; and replace the current board with his own. In a consent statement dated Dec. 4 and filed with the SEC, Kurz says the changes are needed to realign Presidential Life with stockholder interests and restore the carrier to “the path of prosperity.”
The Presidential Life independent directors committee has countered with a letter to shareholders, dated Dec. 7 and filed with the SEC, stating that Kurz’s attempts to reinsert himself into the day-to-day business activities of the company, at the age of 89, are “impractical” and “not in the best interests” of the company. The committee says Kurz’ efforts are “a misguided response” to his personal unhappiness about no longer running the company he founded.
“We do not believe stockholders should humor Mr. Kurz, nor simply ignore the issue of his advanced age,” the independent directors committee says. “The Independent Committee believes that, due to his years, Mr. Kurz is no longer capable of the demands of full-time, hands-on management of a public company.”
The committee goes on to note that just 1% of S&P 500 companies have a CEO who is 70 or older, and that none has appointed a new CEO over the age of 70. Kurz will turn 90 in March of 2010.
The committee additionally asserts that Kurz never had a strategic plan during his tenure as company CEO and president, and that Kurz still has not proffered a plan detailing how he and his nominees would deliver “greater value” for stockholders than the company’s existing board and management team.
“Kurz’s nominees lack the specific qualifications in insurance operations necessary to achieve growth and deliver value,” the committee says. “They have been hand-picked to fulfill the only ‘plan’ that Mr. Kurz has put forward — to reinstate himself as CEO!”
The committee adds that, during his tenure as CEO, Kurz gave “scant attention” to implementing good corporate governance standards. Since relinquishing the CEO position in April 2008, the committee notes, Presidential Life’s board has made “significant” corporate governance improvements.
“The Independent Committee is concerned that Mr. Kurz’s return as the Company’s CEO and President would reverse the progress already made and jeopardize the financial strength rating of the Company,” the committee states. “Several ratings agencies — Moody’s, S&P and A.M. Best — all expressed concern regarding Mr. Kurz’s advanced age and the absence of a succession plan when previously assessing the Company’s financial strength. It is clear that Mr. Kurz’s age would be a significant disadvantage to the Company as we focus on our goal of raising A.M. Best’s rating to the ‘A’ category.”
Kurz says he intends to answer the charges in the course of the investigations. He declined to provide additional comments.