PROXY STATEMENT

_____________________________________

 

General Information

 

This Proxy Statement is furnished to you and other shareholders of AmTrust Financial Services, Inc. (“AmTrust Financial,” “Company,” “our,” “us,” or “we”) in connection with the solicitation of proxies by our Board of Directors (the “Board”) to be used at the 2008 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at the Millennium Hilton Hotel, 55 Church Street, New York, New York 10007, on May 23, 2008, at 10:00 a.m. (local time) and any adjournment or postponement thereof. All shareholders are entitled and encouraged to attend the Annual Meeting in person. This Proxy Statement together with the accompanying proxy card was first mailed to shareholders on or about April 21, 2008.

 

All Common Stock represented by properly executed proxies received pursuant to this solicitation will be voted in accordance with the shareholder’s directions specified on the proxy. If no directions have been specified by marking the appropriate squares on the accompanying proxy card, the shares will be voted “FOR” the slate of directors described herein, and “FOR” the ratification of BDO Seidman, LLP as our independent auditors. In connection with any other business that may properly come before the Annual Meeting, all properly executed proxies delivered pursuant to this solicitation and not revoked will be voted in the discretion of the Proxy Committee named in the proxy. A shareholder signing and returning the accompanying proxy has the power to revoke it at any time prior to its exercise by giving written notice of revocation to our Corporate Secretary, by submitting a proxy bearing a later date, or by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not constitute, in itself, revocation of a proxy.

 

All expenses in connection with this solicitation of proxies will be paid by us. Proxies will be solicited principally by mail, but directors, officers and certain other individuals authorized by us may personally solicit proxies. AmTrust Financial will reimburse custodians, nominees or other persons for their out-of-pocket expenses in sending proxy material to beneficial owners.

 

The Board has fixed the close of business on April 2, 2008, as the record date for determining the holders of Common Stock entitled to notice of and to vote at the Annual Meeting. Each such shareholder is entitled to one vote per share. As of the record date, there were 59,989,839 shares of Common Stock outstanding.

 

In voting by proxy with regard to the election of directors, shareholders may vote in favor of each nominee or withhold their votes as to each nominee. Should any nominee become unable to accept nomination or election, the Proxy Committee will vote for the election of such other person as a director as the present directors may recommend in the place of such nominee. The information set forth below regarding the nominees and the other directors continuing in office is based on information furnished by them. In voting by proxy with regard to the ratification of our independent auditors, shareholders may vote in favor of or against the proposal or may abstain from voting.

 

A majority of the outstanding Common Stock, represented in person or by proxy, constitutes a quorum for the transaction of business at the Annual Meeting. The seven candidates receiving the greatest number of votes will be elected as our directors. The affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of AmTrust Financial, represented in person or by proxy at the Annual Meeting, is necessary to ratify the selection of BDO Seidman, LLP as our independent auditor.

 

Shareholder abstentions and broker non-votes will be included in the number of shareholders present at the Annual Meeting for the purpose of determining the presence of a quorum. Brokers who do not receive shareholder instructions are entitled to vote on the election of directors and the ratification of our independent auditors. Broker non-votes and shareholder abstentions will have no effect on the outcome of the proposals.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

Director

Audit Committee

Compensation Committee

Executive Committee

Nominating and Corporate Governance Committee

Barry D. Zyskind

x *

Michael Karfunkel

x

x

x

George Karfunkel

x

Donald T. DeCarlo

x

x *

Abraham Gulkowitz

x **

Isaac M. Neuberger

x

x *

Jay J. Miller

x

x

——————

*

Chair

**	Audit Committee Financial Expert and Chair

 

Audit Committee

 

The Audit Committee oversees our auditing, accounting, financial reporting and internal control functions, appoints our independent public accounting firm and approves its services. One of its functions is to assure that the independent public accountants have the freedom, cooperation and opportunity necessary to accomplish their functions. The Audit Committee also assures that appropriate action is taken on the recommendations of the independent public accountants. Our Audit Committee Charter, which describes all of the Audit Committee’s responsibilities, is posted on our website and is available in print to any shareholder who requests a copy.

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The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, and currently consists of the following Independent Directors: Mr. Gulkowitz, who is also the Chairman of the Committee, Mr. DeCarlo and Mr. Neuberger. The Board has determined that each member of the Audit Committee meets the independence requirements contained in the NASDAQ listing standards and Rule 10A-3(b)(1) of the Exchange Act. In addition, the Board has determined that Mr. Gulkowitz qualifies as an “audit committee financial expert” within the meaning of Securities and Exchange Commission (“SEC”) regulations and applicable NASDAQ listing standards.

 

During 2007, the Audit Committee met six times on March 14, 2007, March 20, 2007, May 11, 2007, June 28, 2007, August 10, 2007 and November 7, 2007. The Report of the Audit Committee appears on page 20.

 

Executive Committee

 

The Executive Committee has responsibilities that include exercising the authority of the Board of Directors with respect to matters requiring action between meetings of the Board of Directors; and deciding issues from time to time delegated by the Board of Directors.

 

The members of our Executive Committee are Mr. Zyskind, who is also the chairman of the committee, George Karfunkel and Michael Karfunkel.

 

The Executive Committee met on a monthly basis in 2007.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee identifies and nominates members of the Board of Directors; develops and recommends to the Board of Directors a set of corporate governance principles applicable to us; and oversees the evaluation of the Board of Directors and management.

 

The members of our Nominating and Corporate Governance committee are Mr. Neuberger, who is also the chairman of the committee, Mr. Miller and Michael Karfunkel. The Nominating and Corporate Governance Committee does not have a charter.

 

In carrying out its function to nominate candidates for election to our Board, the Nominating and Corporate Governance Committee considers the mix of skills, experience, character, commitment, and diversity of background, all in the context of the requirements of our Board at that point in time. The Nominating and Corporate Governance Committee believes that each candidate should be an individual who has demonstrated integrity and ethics in such candidate’s personal and professional life, has an understanding of elements relevant to the success of a publicly-traded company and has established a record of professional accomplishment in such candidate’s chosen field. Each candidate should be prepared to participate fully in Board activities, including attendance at, and active participation in, meetings of the Board, and not have other personal or professional commitments that would, in the Nominating and Corporate Governance Committee’s judgment, interfere with or limit such candidate’s ability to do so. Each candidate should also be prepared to represent the best interests of all of our shareholders and not just one particular constituency. Additionally, in determining whether to recommend a director for re-election, the Nominating and Corporate Governance Committee also considers the director’s past attendance at Board and committee meetings and participation in and contributions to the activities of our Board.

 

The Nominating and Corporate Governance Committee considers recommendations for director candidates submitted by shareholders. A shareholder recommending an individual for consideration by the Committee must provide (i) evidence in accordance with the provisions of Regulation14a-8 under the Securities Exchange Act of 1934, as amended, of compliance with the shareholder eligibility requirements and (ii) all information regarding the candidate(s) and the security holder that would be required to be disclosed in a proxy statement filed with the SEC if the candidate(s) were nominated for election to the Board including, without limitation, name, age, address, principal occupation or employment, and stock ownership. Shareholders should send the required information to AmTrust Financial Services, Inc., c/o Corporate Secretary, 59 Maiden Lane, 6th Floor, New York, New York 10038.

 

In order for a recommendation to be considered by the Committee for the 2009 Annual Meeting of Shareholders, the Corporate Secretary must receive the recommendation no later than the close of business local time on January 1, 2009. Such recommendations must be sent via registered, certified or express mail (or other means that allows the shareholder to determine when the recommendation was received by us). The Corporate Secretary will send any shareholder recommendations to the Committee for consideration at a future Committee meeting. Individuals recommended by shareholders in accordance with these procedures will receive the same consideration as other individuals evaluated by the Committee.

 

The Nominating and Corporate Governance committee met one time in 2007 to nominate the incumbent directors for election to the Board of Directors at the 2007 annual meeting.

 

Compensation Committee

 

The Compensation Committee reviews and determines, together with the other directors if directed by the Board of Directors, the compensation of our executive officers and reviews and approves employment and severance agreements with our executive officers. The Compensation Committee also administers the grant of stock options and other awards under our 2005 Equity Incentive Plan and establishes and reviews policies relating to the compensation and benefits of our employees and consultants.

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The members of the Compensation Committee are Mr. DeCarlo, who is also the chairman of the committee, Mr. Miller and Michael Karfunkel. Michael Karfunkel does not participate in any matters relating to Mr. Zyskind’s compensation. The Compensation Committee does not have a charter.

 

To date, the Compensation Committee has not retained a compensation consultant. The Compensation Committee’s sets compensation levels for our executive officers by reviewing the compensation levels of comparable executives at companies of similar size and development operating in our industry. Final compensation decisions are made by our Chief Executive Officer in consultation with the Compensation Committee and the Board of Directors, other than with respect to the Chief Executive Officer’s compensation, which has been determined by the Compensation Committee and the Board of Directors.

 

 

Compensation of Directors

 

We pay an annual retainer of $55,000 to each non-employee director of the Company other than George Karfunkel and Michael Karfunkel. In addition, each such director received a fee of $2,000 for each meeting of the Board of Directors attended in person and $1,000 for each meeting of the Board of Directors attended via teleconference. Each such non-employee director who chaired a committee also received an annual retainer of $5,000, as well as $1,000 for each meeting of such committee of the Board chaired. Each such non-employee director received a fee of $1,000 for each meeting of a committee of the Board of Directors attended. We also reimbursed our directors for reasonable expenses they incurred in attending Board of Directors or committee meetings.

 

In 2007, we also paid Mr. Miller an additional $73,000 in consideration of his serving a director on the boards of our subsidiaries and made a grant of options to purchase 100,000 shares of common stock. These options will fully vest in two years after the date of grant. Additionally, we paid Mr. DeCarlo an additional $33,750 in consideration of his serving as a director on the boards of certain of our subsidiaries.

 

Pursuant to our 2005 Equity Incentive Plan, in 2007 we made a grant of options to purchase 6,250 shares of our Common Stock, which will vest over a period of one year to each of our non-employee directors other than George Karfunkel and Michael Karfunkel. We intend to make additional annual grants of options to purchase 6,250 shares of our Common Stock to each of our non-employee directors other than George Karfunkel and Michael Karfunkel. Each such option will fully vest one year after the date of grant. Such options will have an exercise price equal to the fair market value as of the date of the grant, will expire ten years from the date of the grant and, unless otherwise provided, vest over four years, commencing one year after the date of grant. George Karfunkel and Michael Karfunkel will not receive any compensation for serving on our Board of Directors.

 

Name and Principal Position		Without Cause or For Good Reason			Death			Disability			Retirement			Cause
Barry D. Zyskind
Salary Continuation/Bonus		$	4,375,000	(1)	$	1,250,000	(3)	$	1,250,000	(4)
Benefits			33,560	(2)
Ronald Pipoly
Vesting of Stock Awards(5)						753,263			753,263
Max Caviet
Salary Continuation/Bonus			1,930,733	(6)					1,434,658	(6)	$	1,434,658	(7)
Benefits									35,860	(8)
Vesting of Stock Awards(5)						431,943			491,943
Michael J. Saxon
Salary Continuation						100,000	(9)		100,000	(9)
Vesting of Stock Awards(5)						753,263			753,263
Christopher Longo
Vesting of Stock Awards(5)						753,263			753,263

 

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(1)

This lump-sum benefit includes (i) Mr. Zyskind’s 2007 annual base salary provided through December 31, 2009, and (ii) the annual profit bonuses through December 31, 2009, equal to the greater of the average of the bonuses awarded to him during the three fiscal years preceding the fiscal year of termination or the bonus awarded to him for the fiscal year immediately preceding termination.

(2)

This includes the costs for providing Mr. Zyskind with (i) continued participation through December 31, 2009, in all employee benefit plans or programs in which he was participating on December 31, 2007 or, if such participation is prohibited, the after-tax economic equivalent of any such benefit which shall be determined by the lowest cost Mr. Zyskind would incur in obtaining such benefit individually, (ii) continued payment of 100% of the cost of health insurance through the Company’s group health plan for Mr. Zyskind, his spouse and dependent children through December 31, 2009, and (iii) other benefits in accordance with applicable plans and programs of the Company.

(3)	This amount reflects Mr. Zyskind’s 2007 annual base salary provided through December 31, 2009.

 

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(4)	This amount reflects Mr. Zyskind’s 2007 annual base salary provided through December 31, 2009 (which will be reduced by any long-term disability insurance benefit provided by the Company).

(5)	This amount includes the full vesting of unvested stock options in accordance with the named executive officers’ Stock Option Award Agreements under the 2005 Equity Incentive Plan.

(6)

This amount includes (i) Mr. Caviet’s salary through December 31, 2007, and (ii) Mr. Caviet’s profit bonus, for a period of five years, on all special risk and extended warranty business written by the Company and its affiliates through December 31, 2007 under the direct or indirect supervision of Mr. Caviet, assuming that such business does not terminate earlier. Mr. Caviet is entitled to this amount if the Company elects to non-renew or terminate Mr. Caviet’s employment for any reason other than gross misconduct. For the definition of gross misconduct, see the summary of Mr. Caviet’s employment agreement in “Discussion of Summary Compensation and Grant of Plan Based Awards Tables.” Mr. Caviet’s employment agreement does not provide him with the opportunity to terminate employment with good reason.

(7)

This amount includes Mr. Caviet’s profit bonus, for a period of five years, on all special risk and extended warranty business written by the Company and its affiliates through December 31, 2007 under the direct or indirect supervision of Mr. Caviet, assuming that such business does not terminate earlier.

(8)	This amount reflects the cost of providing Mr. Caviet with permanent health insurance in accordance with his employment agreement.

(9)	This amount reflects Mr. Saxon’s 2007 annual base salary pro-rated for three months.

 

COMPENSATION COMMITTEE REPORT

 

AmTrust Financial Services, Inc.’s Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by item 402(b) of Regulation S-K with management and, based on such review and discussion, has recommended to the Board that the following Compensation Discussion and Analysis be included in the Proxy Statement and, as incorporated by reference, in our Annual Report on Form 10-K.

 

Donald T. DeCarlo (Chairman)

Michael Karfunkel

Jay J. Miller

April 1, 2008

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This compensation discussion and analysis explains the material elements of the compensation awarded to, earned by, or paid to each of our named executive officers during the last completed fiscal year.

 

Overview

 

The objectives of our executive compensation policy have been to retain the executives who have been integral to our growth, to attract other talented and dedicated executives and to motivate each of our executives to increase our overall profitability. To achieve these goals, we have strived to offer each executive an overall compensation package, which is simple, but competitive and a meaningful portion of which is tied to the achievement of specific objectives.

 

Our overall strategy is to compensate our named executive officers with a mix of cash compensation, in the form of base salary and bonus, and equity compensation, in the form of stock options.

 

To date, we have not retained a compensation consultant. Our policy for setting compensation levels has focused on compensating our named executive officers at levels competitive for executives at companies of similar size and development operating in the industry. Compensation decisions have been made by our Chief Executive Officer in consultation with the Compensation Committee and the Board of Directors, other than with respect to the Chief Executive Officer’s compensation, which has been determined by the Compensation Committee and the Board of Directors. In addition to frequent discussions between the Chief Executive Officer and the Board of Directors, we also gather market compensation data through negotiations related to newly hired executives. We believe that the compensation levels for our named executive officers are competitive. We expect that as we continue to progress our compensation policies will evolve to reflect our achievements and to remain competitive.

 

Executive Compensation

 

Our executive compensation policy includes the following elements:

 

Base Salary. The base salaries we provide to our named executive officers are designed to provide an annual salary at a level consistent with individual experience, skill and contribution to our business. When setting base salary, we take into account the compensation paid to similarly situated executives employed at our competitors and cost of living considerations. The salaries of the named executive officers are reviewed on an annual basis.

 

Bonus. We believe that bonuses should be dependent on and tied to the Company’s performance, and should only be paid in the event of superior performance. Our bonus policy is designed to reward each named executive officer for his contributions to our profitability for the fiscal year. Except for Mr. Pipoly, the employment agreements for our named executive officers specify the annual bonus targets for each executive. In March 2008, the Compensation Committee proposed the bonus payments for our named executive officers for the 2007 fiscal year and such recommendations were adopted by the Board of Directors.

 

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Restricted Stock. The Board of Directors has made, and may in the future elect to make, grants of restricted stock to our named executive officers. Under the 2005 Equity Incentive Plan, unless otherwise determined by the Board of Directors and provided in the award agreement, 25% of the restricted stock vests on the first anniversary of the grant date, with 6.25% of the restricted stock vesting each quarter thereafter and based upon continued employment.

 

Retirement Plan. We do not provide a qualified or non-qualified pension plan for our named executive officers. All of our employees, however, participate in a defined contribution plan under Section 401(k) of the Internal Revenue Code. The plan allows eligible employees to defer up to 75% of their compensation to the plan on a pre-tax basis, subject to the applicable dollar limit set by the Internal Revenue Service. We make a Company contribution of up to 50% of an employee’s contribution to the plan, up to 6% of eligible compensation. We may also make discretionary profit sharing contributions to the Plan. No profit sharing contributions were made in 2007.

 

Change of Control and Severance Arrangements. The employment agreements for each of our named executive officers do not contain change of control provisions, nor do we maintain change of control agreements with any of our named executive officers. Mr. Zyskind’s and Mr. Caviet’s employment agreements, which are as discussed in more detail below, provide certain severance benefits should they be terminated without cause and, with respect to Mr. Zyskind, should he terminate his employment agreement for good reason. Mr. Caviet’s severance benefits are tied to non-solicitation provisions. We do not provide any other severance benefits.

 

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Perquisites and Other Benefits. As a general matter, we limit the use of perquisites in compensating our senior management. We do, however, cover the full cost of health insurance premiums for Mr. Zyskind and Mr. Caviet and their families and provide Mr. Zyskind with an individual permanent life insurance policy. We also make the lease payments on an automobile leased by Mr. Zyskind and reimburse Mr. Caviet for the lease payments that he makes on an automobile. The amount of Mr. Zyskind’s and Mr. Caviet’s health and automobile benefits are shown below in the “Summary Compensation Table for Fiscal Year 2007.”

 

We also maintain a number of health and welfare programs to provide life, health and disability benefits to our employees. Other than with respect to the benefits we provide to Mr. Zyskind discussed above, our named executive officers in the U.S. participate in these plans on the same terms as other U.S. employees. In addition to the benefits discussed above, Mr. Caviet participates in the employee benefits offered for employees of our U.K. affiliates.

 

Other Compensation. The employment agreements entered into with our named executive officers will remain in their current form until such time as the Board of Directors determines, in its discretion, that revisions are appropriate. In addition, we intend to continue to maintain our current benefits and perquisites for our named executive officers; however, the Board of Directors, in its discretion, may modify, amend or add to a named executive officer’s executive benefits or perquisites if it deems it advisable.

 

Tax Deductibility of Executive Compensation

 

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Other than as stated below, no director, executive officer or security holder who is known to us to own of record or beneficially more than five percent of our common securities, or any member of the immediate family of such director, executive officer or security holder, had or will have a direct or indirect material interest in a transaction or series of transactions in which we are, or one of our subsidiaries is, a party and the amount involved exceeds $120,000. We have adopted a policy that requires that all related party transactions be approved by our Audit Committee.

 

Leap Tide Transactions

 

AmTrust Capital Management, Inc. (“ACM”), our wholly owned subsidiary, currently manages approximately $69 million dollars of our assets. These assets are held in a Bermuda managed account.

 

ACM also serves as the Investment Manager of Leap Tide Partners, L.P., a domestic partnership, and Leap Tide Offshore, Ltd., a Cayman exempted company, both of which were formed for the purpose of providing qualified third-party investors the opportunity to invest funds in a vehicle managed by ACM (the “Hedge Funds”). As of December 31, 2007, approximately $27 million dollars have been invested in the Hedge Funds. Approximately 88% of these funds were contributed by Michael Karfunkel, George Karfunkel and Barry D. Zyskind. Our Audit Committee has reviewed the Leap Tide transactions and determined that they were entered into at arms’ length and did not violate our Code of Business Conduct and Ethics.

 

Corporate Office Lease Agreement

 

In June 2002, we entered into a lease for approximately 9,000 square feet of office space at 59 Maiden Lane in downtown Manhattan from 59 Maiden Lane Associates, LLC, an entity which is wholly owned by Michael Karfunkel and George Karfunkel. We paid annual rent of approximately $348,000 for this space in fiscal 2007. At the time we entered into the lease we were privately held and did not have an Audit Committee. Effective January 1, 2008, we entered into an amended lease whereby we increased our leased space to 14,807 square feet and extended the lease through December 31, 2017; the annual rent increased to $621,894 for the period from January 1, 2008 to December 31, 2012, and then $666,315 for the period from January 1, 2013, to December 31, 2017. The Audit Committee reviewed and approved this most recent extension of the lease.

 

Barry Karfunkel Employment Relationship

 

In 2007, Barry Karfunkel, an analyst with ACM earned $250,000 in salary and received $25,000 for relocation costs. Barry Karfunkel is the son of Michael Karfunkel and the brother-in-law of Barry D. Zyskind. Our Audit Committee has reviewed Barry Karfunkel’s employment relationship and has determined that it is an arms’ length relationship and that it does not violate our Code of Business Conduct and Ethics.

 

Maiden Agreements

 

During the third quarter of 2007, AmTrust and Maiden Holdings, Inc. (“Maiden”) entered into a master agreement, as amended, by which our Bermuda affiliate, AmTrust International Insurance, Ltd. (“AII”) and Maiden entered into a quota share reinsurance agreement (the “Reinsurance Agreement”) by which (a) AII retrocedes to Maiden an amount equal to 40% of the premium written by AmTrust’s U.S., Irish and U.K. insurance companies (the “AmTrust Ceding Insurers”), net of the cost of unaffiliated inuring reinsurance (and in the case of AmTrust’s U.K. insurance subsidiary, IGI Insurance Company Limited (“IGI”), net of commissions) and 40% of losses and (b) AII transferred to Maiden 40% of the AmTrust Ceding Insurer’s unearned premium reserves, effective as of July 1, 2007, with respect to current lines of business, excluding risks for which the AmTrust Ceding Insurers’ net retention exceeds $5 million (“Covered Business”). We also have agreed to cause AII, subject to regulatory requirements, to reinsure any insurance company which writes Covered Business in which we acquire a majority interest to the extent required to enable AII to cede to Maiden 40% of the premiums and losses related to such Covered Business. The Agreement further provides that the AII receives a ceding commission of 31% of ceded written premiums. The Reinsurance Agreement has an initial term of three years and will automatically renew for successive three year terms thereafter, unless either AII or Maiden notifies the other of its election not to renew not less than nine months prior to the end of any such three year term. In addition, either party is entitled to terminate on thirty days notice or less upon the occurrence of certain early termination events, which include a default in payment, insolvency, change in control of AII or Maiden, run-off, or a reduction of 50% or more of the shareholders’ equity of Maiden or the combined shareholders’ equity of AII and the AmTrust Ceding Insurers. We recorded approximately $59 million of ceding commission during 2007 as a result of this transaction.

 

Maiden is a Bermuda insurance holding company formed by Michael Karfunkel, George Karfunkel and Barry Zyskind. Messrs. Karfunkel and Mr. Zyskind contributed $50 million to Maiden and have an 18.6% ownership interest in Maiden, assuming the full exercise of all common stock purchase warrants.

 

Principal Shareholders Consolidation

AmTrust Financial Group, Inc. (“AFG”) was the principal shareholder of the Company, owning approximately 24,089,286 shares of common stock of the Company (the “Common Stock”). Messrs. Michael Karfunkel, George Karfunkel and Barry Zyskind directly or indirectly held approximately 37.5%, 37.5% and 25.0%, respectively, of AFG. To simplify the stock ownership of AmTrust, two mergers were consummated, in 2007, whereby AFG and G/MK Acquisition Corp. were merged with and into a wholly owned subsidiary of AmTrust. AFG and G/MK Acquisition Corp. were primarily shell holding companies with no other assets, except for common stock. As a result, we issued and delivered 24,088,000 shares of Common Stock in exchange for 24,089,286 shares of Common Stock held by AFG, which shares were then issued in proportion to their respective AFG holdings: Michael Karfunkel received 9,033,000 shares, George Karfunkel received 9,033,000 shares, Barry Zyskind received 6,022,000, and the remaining 1,286 shares were returned to the treasury of the Company. The mergers had no impact on our financial position, results of operations or cash flows for the year ended 2007.

 

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REPORT OF OUR AUDIT COMMITTEE

 

The Audit Committee’s role includes the oversight of our financial, accounting and reporting processes; our system of internal accounting and financial controls; and our compliance with related legal and regulatory requirements. The Audit Committee oversees the appointment, engagement, termination and oversight of our independent auditors, including conducting a review of their independence; reviewing and approving the planned scope of our annual audit; overseeing our independent auditors’ audit work; reviewing and pre-approving any audit and non-audit services that may be performed by our independent auditors; reviewing with management and our independent auditors the adequacy of our internal financial and disclosure controls; reviewing our critical accounting policies and the application of accounting principles; and monitoring the rotation of partners of our independent auditors on our audit engagement team as required by law. The Audit Committee establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee’s role also includes meeting to review our annual audited financial statements and quarterly financial statements with management and our independent auditors.

 

Each member of the Audit Committee meets the independence criteria prescribed by applicable law and the rules of the SEC and NASDAQ for audit committee membership and is an “independent director” within the meaning of applicable NASDAQ listing standards. Each Audit Committee member meets the NASDAQ’s financial literacy requirements, and the Board has further determined that Mr. Gulkowitz is an “Audit Committee financial expert,” as defined in 401(h) of Regulation S-K promulgated by the SEC and also meets the NASDAQ’s professional experience requirements. The Audit Committee acts pursuant to a written charter, which complies with the applicable provisions of the Sarbanes-Oxley Act of 2002 and related rules of the SEC and NASDAQ, which can be found on our website at www.amtrustgroup.com.

 

We have reviewed and discussed the audited financial statements with management and with our independent auditors. We met with our independent auditors, with and without management present, to discuss results of their examinations, their evaluation of our internal controls, and the overall quality of our financial reporting.

 

We have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees. In addition, we received the written disclosures from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees and discussed with the independent auditors their independence, including a review of both audit and non-audit fees.

 

Based upon the review and discussions described in the preceding paragraph, we recommended to our Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC.

 

The Audit Committee

 

Abraham Gulkowitz (Chairman)

Donald T. DeCarlo

Isaac M. Neuberger

 

April 1, 2008

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PROPOSAL 2:

RATIFICATION OF INDEPENDENT AUDITORS

 

The Audit Committee has appointed the firm of BDO Seidman, LLP, independent accountants, to be our independent auditors for the fiscal year ending December 31, 2008. Although not required by our bylaws or otherwise, the Board believes it is appropriate to seek shareholder ratification of this appointment. If ratification is not obtained, the Audit Committee intends to continue the employment of BDO Seidman, LLP at least through the end of the fiscal year ending December 31, 2008, but will consider shareholder input for future appointments.

 

A representative of BDO Seidman, LLP will be present at the Annual Meeting and will have the opportunity to make a statement if he or she desires to do so and to respond to appropriate questions from shareholders.

 

Before making its recommendation to the Board for appointment of BDO Seidman, LLP, the Audit Committee carefully considered that firm’s qualifications as independent auditors for us, which included a review of BDO Seidman, LLP’s performance last year, as well as its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee expressed satisfaction with BDO Seidman, LLP in these respects.

 

Audit and Non-Audit Fees

 

 

BDO Seidman, LLP		2007			2006
Audit Fees(1)		$	1,665,000		$	1,033,000
Audit-Related Fees(2)			—			—
Tax Fees(3)			—			—
All Other Fees(4)			—			4,400
Total		$	1,665,000		$	1,037,400

 

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(1)

Audit fees relate to professional services rendered for: (i) the audit of our annual financial statements and the review of our quarterly financial statements on Form 10-Q for the fiscal years ended December 31, 2006 and 2007, (ii) the audit of the Company’s internal control over financial reporting and (iii) services performed in connection with filings of registration statements and securities offerings.

(2)	Audit-related fees relate to services rendered to us primarily related to benefit plan audits.

(3)	Tax fees relate to services rendered to us for tax compliance, tax planning and advice.

(4)	Other services performed include certain advisory services in connection with accounting research and do not include any fees for financial information systems design and implementation.

 

Pre-Approval Policies and Procedures of the Audit Committee

 

Pursuant to its charter, the Audit Committee pre-approves all audit and permitted non-audit services, including engagement fees and terms thereof, to be performed for us by the independent auditors, subject to the exceptions for certain non-audit services approved by the Audit Committee prior to the completion of the audit in accordance with Section 10A of the Securities Exchange Act of 1934, as amended. The Audit Committee must also pre-approve all internal control-related services to be provided by the independent auditors. The Audit Committee will generally pre-approve a list of specific services and categories of services, including audit, audit-related and other services, for the upcoming or current fiscal year, subject to a specified cost level. Any material service not included in the approved list of services must be separately pre-approved by the Audit Committee. In addition, all audit and permissible non-audit services in excess of the pre-approved cost level, whether or not such services are included on the pre-approved list of services, must be separately pre-approved by the Audit Committee.

 

The Audit Committee may form and delegate to a subcommittee consisting of one or more members (provided that such person(s) are Independent Directors) its authority to grant pre-approvals of audit, permitted non-audit services and internal control-related services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF BDO SEIDMAN, LLP AS OUR AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2008.

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Shareholders’ Proposals for the 2009 Annual Meeting

 

 

Annual Report and Financial Statements

 

A copy of our Annual Report, which incorporates our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, including audited financial statements set forth therein, is being sent to all our shareholders with this Notice of Annual Meeting of Shareholders and Proxy Statement on or about April 21, 2008.

 

Other Business

 

The Board does not intend to present, and has no knowledge that others will present, any other business at the Annual Meeting. However, if any other matters are properly brought before the Annual Meeting, it is intended that the holders of proxies will vote thereon in their discretion.

 

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PROXY

 

AMTRUST FINANCIAL SERVICES, INC.

 

Annual Meeting of Shareholders to be held May 23, 2008

 

This proxy is solicited on behalf of the Board of Directors

 

The undersigned hereby appoints Stephen Ungar and Barry D. Zyskind as proxies of the undersigned, with full power of substitution, to vote all of the shares of Common Stock of AmTrust Financial Services, Inc. (the “Company”) that the undersigned may be entitled to vote at the Annual Meeting of Shareholders of the Company to be held at the Millennium Hilton Hotel, 55 Church Street, New York, 10007, on May 23, 2008 at 10 a.m., and at any adjournment, postponement or continuation thereof, as set forth on the reverse side of this proxy card.

 

You are encouraged to specify your choices by marking the appropriate boxes. SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations.

 

(Continued and to be signed on the reverse side)

 

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ANNUAL MEETING OF SHAREHOLDERS OF

AMTRUST FINANCIAL SERVICES, INC.

 

May 23, 2008

 

Please date, sign and mail your proxy card in the envelope provided as soon as possible.

 

 

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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NOMINEES LISTED FOR DIRECTORS AND

“FOR” THE FOLLOWING PROPOSAL.

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE

OR BLACK INK AS SHOWN HERE x

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FOR

AGAINST

ABSTAIN

1.

Election of Directors:

NOMINEES:

2.

Ratification of the appointment of BDO Seidman, LLP as Independent Auditor for the year ended December 31, 2008.

¨

¨

¨

¨

FOR ALL NOMINEES

¡ Barry D. Zyskind ¡ Michael Karfunkel ¡ George Karfunkel ¡ Donald T. DeCarlo ¡ Abraham Gulkowitz ¡ Isaac Neuberger ¡ Jay J. Miller

¨

WITHHOLD AUTHORITY FOR ALL NOMINEES

¨

FOR ALL EXCEPT (See instructions below)

In their discretion, the proxies are authorized to vote upon such other business as may properly come before the annual meeting and any adjournment, postponement or continuation thereof.

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:

l

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.

¨

 

 

Signature of Shareholder:		Date:		Signature of Shareholder:		Date:

 

Note:

Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

 

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