<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1998
REGISTRATION NO. 1-14177
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
NEWCO/UWS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WISCONSIN 39-1931212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
401 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53203-2896
(414) 226-6900
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- -------------------------------------- --------------------------------------
<S> <C>
Common Stock, no par value New York Stock Exchange
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act: None
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<PAGE>
EXPLANATORY NOTE
This Form 10 Registration Statement has been prepared on a prospective basis
on the assumption that, among other things, the Distribution (as hereinafter
defined) and the related transactions contemplated to occur prior to or
contemporaneously with the Distribution will be consummated as contemplated by
the Information Statement which is a part of this Registration Statement. There
can be no assurance, however, that any or all of such transactions will occur or
will occur as so contemplated. Any significant modifications or variations in
the transactions contemplated will be reflected in an amendment or supplement to
this Registration Statement.
NEWCO/UWS, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED BY REFERENCE INTO FORM 10
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
Certain information required to be included herein is incorporated by
reference to specifically identified portions of the body of the Information
Statement filed herewith as Exhibit 99 (the "INFORMATION STATEMENT"). None of
the information contained in the Information Statement shall be incorporated by
reference herein or deemed to be part hereof unless such information is
specifically incorporated by reference.
ITEM 1. BUSINESS
The information required by this Item is contained in the body of the
Information Statement under the captions "Summary," "The Distribution," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business of Newco," and such information is
incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION
The information required by this Item is contained in the body of the
Information Statement under the captions "Summary Combined Financial Data for
Newco," "Pro Forma Combined Condensed Financial Information of Newco," "Selected
Combined Financial Information of Newco," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Newco/UWS, Inc. Index to
Combined Financial Statements" and the Combined Financial Statements appearing
on pages F-1 to F-20, and such information is incorporated herein by reference.
ITEM 3. PROPERTIES
The information required by this Item is contained in the body of the
Information Statement under the caption "Business of Newco--Properties," and
such information is incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in the body of the
Information Statement under the captions "Management of Newco" and "Security
Ownership of Certain Beneficial Owners and Management," and such information is
incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this Item is contained in the body of the
Information Statement under the caption "Management of Newco," and such
information is incorporated herein by reference.
1
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The information required by this Item is contained in the body of the
Information Statement under the captions "Management of Newco," "Executive
Compensation" and "Newco Benefit Plans Following the Distribution," and such
information is incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is contained in the body of the
Information Statement under the captions "Agreements Between AMSG and Newco,"
"Certain Relationships and Related Transactions" and in Note 6 of the Notes to
Combined Financial Statements, and such information is incorporated herein by
reference.
ITEM 8. LEGAL PROCEEDINGS
The information required by this Item is contained in the body of the
Information Statement under the caption "Business of Newco--Legal Proceedings,"
and such information is incorporated herein by reference.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The information required by this Item is contained in the body of the
Information Statement under the captions "Summary," "The Distribution," "Risk
Factors" and "Dividend Policy," and such information is incorporated herein by
reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On May 28, 1998, as part of its original incorporation, the Registrant
issued 100 shares of its Common Stock to UWS for $100 in a transaction exempt
from the registration requirements of the Securities Act of 1933, as amended, by
reason of the provisions of Section 4(2) thereof relating to sales by an issuer
not involving any public offering.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The information required by this Item is contained in the body of the
Information Statement under the caption "Description of Capital Stock of Newco,"
and such information is incorporated herein by reference. Reference also is made
to the Articles of Incorporation and By-Laws of Newco which are set forth as
Exhibits 3.1 and 3.2 hereto.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information required by this Item is contained in the body of the
Information Statement under the caption "Liability and Indemnification of
Directors and Officers of Newco," and such information is incorporated herein by
reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in the body of the
Information Statement under the captions "Summary Combined Financial Data for
Newco," "Pro Forma Combined Condensed Financial Information of Newco," "Selected
Combined Financial Information of Newco," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Newco/UWS, Inc. Index to
Combined Financial Statements" and the Combined Financial Statements appearing
on pages F-1 to F-20, and such information is incorporated herein by reference.
2
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ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) The information required by this Item is contained in "Newco/UWS, Inc.
Index to Combined Financial Statements" on page F-1 of the Information Statement
and the Combined Financial Statements appearing on pages F-1 to F-20, and such
information is incorporated herein by reference.
(b) Exhibits:
The following documents are filed as Exhibits hereto:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<C> <S>
2.1 Form of Distribution and Indemnity Agreement (as amended).(1)
3.1 Articles of Incorporation of Registrant.(2)
3.2 By-Laws of Registrant.(2)
4.1 Specimen Common Stock Certificate.(1)
4.2 Registrant's Dividend Reinvestment and Direct Stock Purchase Plan. (3)
10.1 Form of Employee Benefits Agreement (as amended).(1)
10.2 Form of Tax Allocation Agreement (as amended).(1)
10.3 Settlement Agreement by and between United Wisconsin Services, Inc. ("UWS"), on behalf of itself and on
behalf of Registrant, Wallace J. Hilliard and Ronald A. Weyers, dated April 1, 1998.(2)
10.4 Consolidated Federal Income Tax Allocation Agreement among Blue Cross & Blue Shield United of Wisconsin
("BCBSUW"), United Wisconsin Insurance Company ("UWIC"), UWS, United Wisconsin Proservices, Inc.
("UWPS"), Leasing Unlimited, Inc., United Wisconsin Life Insurance Company ("UWLIC"), Compcare Health
Services Insurance Corporation ("COMPCARE"), ProHealth, Inc. and Take Control, Inc., as amended by
Amendments dated August 6, 1993 and May 9, 1994, respectively.(2)
10.5 Comprehensive Tax Allocation Agreement dated July 1, 1994 among BCBSUW, UWS and various subsidiaries
thereof.(2)
10.6 Federal Income Tax Allocation Agreement among BCBSUW, UWS, UWIC, UWLIC, UWPS, Compcare, Take Control,
Inc., Meridian Resource Corporation ("MRC"), Valley Health Plan, Inc. ("VALLEY") and United Wisconsin
Capital Corporation ("UWCC") for the period commencing January 1, 1993, as amended.(2)
10.7 Consolidated Federal Income Tax Allocation Agreement among UWS, UWIC, Compcare, Meridian Managed Care,
Inc. ("MMC"), MRC, Valley, UWCC, Your Health Plan, Inc. ("YHP"), HMO of Wisconsin Insurance
Corporation ("HMOW"), HMO-W, Inc. and Hometown Insurance Services, Inc. ("HTWN") commencing October 1,
1994.(2)
10.8 Consolidated Federal Income Tax Allocation Agreement among UWS, UWIC, UWPS, Compcare, MMC, MRC, Valley,
UWCC, YHP, HMOW, HMO-W, Inc., HTWN, United Heartland, Inc. ("UHI") and Meridian Marketing Services,
Inc. ("MMS") commencing January 1, 1995.(2)
</TABLE>
3
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<C> <S>
10.9 Consolidated Federal Income Tax Allocation Agreement among UWS, UWIC, UWPS, Compcare, MMC, MRC, Valley,
AMS HMO Holdings, Inc. (f/k/a UWCC), Unity Health Plans Insurance Corporation ("UNITY") (f/k/a HMOW),
HMO-W, Inc., HTWN, UHI and MMS for the period commencing January 1, 1996, and American Medical
Security Holdings, Inc., American Medical Security, Inc., American Medical Insurance Company,
Continental Plan Services, Inc., Nurse Healthline, Inc., Accountable Health Plans, Inc., AMS Provider
Partnerships, Inc., Unity HMO of Illinois, Inc., American Medical Security Insurance Company of Ohio
and American Medical Security Insurance Company of Georgia for the period commencing December 3,
1996.(2)
10.10 Amended and Restated Joint Venture Agreement by and among BCBSUW, UWS (to be assigned to the
Registrant), Valley and Midelfort Clinic, Ltd., effective January 1, 1997.(2)
10.11 Intercompany Service Agreement between BCBSUW, UWS (to be assigned to the Registrant) and UWIC,
effective January 1, 1998.(1)
10.12 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant) and UWIC, effective
January 1, 1998.(1)
10.13 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant) and UHI, effective
January 1, 1998.(2)
10.14 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant) and MMC, effective
January 1, 1998.(2)
10.15 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant), MMC and Compcare on
behalf of its Pharmacy Services department, effective January 1, 1998.(2)
10.16 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant), MMC and Compcare on
behalf of its RxCel department, effective January 1, 1998.(2)
10.17 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant), MMC and Compcare,
effective January 1, 1998.(2)
10.18 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant) and MRC on behalf of
its Investigation and Recovery Services department, effective January 1, 1998.(2)
10.19 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant) and MRC on behalf of
its Consulting Services department, effective January 1, 1998.(2)
10.20 Intercompany Service Agreement among BCBSUW, UWS (to be assigned to the Registrant) and MRC on behalf of
its Audit Services department, effective January 1, 1998.(2)
10.21 Intercompany Service Agreement among BCBSUW, UWS (subsequently assigned to the Registrant) and UWPS,
effective January 1, 1998.(2)
10.22 Service Agreement between BCBSUW and Valley, effective January 1, 1993.(2)
10.23 Service Agreement between UWS (to be assigned to the Registrant) and Community Health Systems, LLC,
dated November 1, 1994.(2)
10.24 Form of Service Agreement between United Wisconsin Services, Inc. (f/k/a Newco/UWS, Inc.) and American
Medical Security Group, Inc. (f/k/a United Wisconsin Services, Inc.).(2)
10.25 Amended and Restated Joint Venture Agreement among BCBSUW, UWS (to be assigned to the Registrant),
University Health Care, Inc. ("UHC" ), U-Care HMO, Inc. ("U-CARE") and Health Professionals, Inc.
("HPI") dated October 31, 1994.(2)
</TABLE>
4
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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10.26 Agreement of Merger and Joint Venture by and among UWS (to be assigned to the Registrant), UWS
Acquisition Corporation, BCBSUW, HMO-W, Inc. and HMOW dated October 11, 1994.(1)
10.27 Service Agreement between UWS (to be assigned to the Registrant) and HPI dated November 1, 1994.(2)
10.28 License Agreement between UWS (to be assigned to the Registrant) and U-Care dated November 1, 1994.(2)
10.29 Joint Venture Agreement among UWS (to be assigned to the Registrant), BCBSUW, Compcare and Northwoods
Health Care, LLC dated July 1, 1996, as amended October 24, 1996.(2)
10.30 Information System Service Agreement among Blue Cross Blue Shield of South Carolina and Blue Cross &
Blue Shield United of Wisconsin dated August 23, 1996, as amended January 1, 1997.(2)
10.31 Form of Trademark Assignment Agreement by and among UWS, the Registrant and UWLIC.(2)
10.32 Registrant's Equity Incentive Plan.(1)
10.33 1998 Management Incentive Plan.(1)
10.34 Registrant's Deferred Compensation Plan for Directors.(1)
10.35 Registrant/BCBSUW 401(k) Plan.(1)
10.36 Registrant/BCBSUW Union Employees 401(k) Plan.(1)
10.37 Unity Health Plans Insurance Corp. 1998 Profit Sharing Plan.(1)
10.38 Registrant's and BCBSUW's 1998 Profit Sharing Plan.(1)
10.39 Registrant Voluntary Deferred Compensation Plan.(1)
10.40 Registrant Deferred Compensation Trust.(1)
10.41 Registrant/BCBSUW Hourly Pension Plan.(1)
10.42 Registrant/BCBSUW Salaried Pension Plan.(1)
10.43 Registrant/BCBSUW Supplemental Executive Retirement Plan.(1)
10.44 Registrant Stock Appreciation Rights Plan.(1)
10.45 Note and Pledge Agreement dated October 30, 1996, between BCBSUW and United Wisconsin Services, Inc.
(subsequently to be assumed by and assigned to the Registrant).(2)
11 Statement regarding computation of per share earnings. (See Note 2 of Notes to Combined Financial
Statements).(1)
21 Subsidiaries of the Registrant.(2)
27 Financial Data Schedule.(1)
99 Information Statement of the Registrant dated September 11, 1998, as amended. (1)
</TABLE>
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(1) Filed herewith.
(2) Previously filed.
(3) To be filed by amendment.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
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NEWCO/UWS, INC.
Date: August 13, 1998 By: /s/ THOMAS R. HEFTY
-----------------------------------------
Thomas R. Hefty, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
6
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
BETWEEN
UNITED WISCONSIN SERVICES, INC.
AND
NEWCO/UWS, INC.
DATED AS OF ____________, 1998.
<PAGE>
DISTRIBUTION AND INDEMNITY AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02 REFERENCES; INTERPRETATION. . . . . . . . . . . . . . . . . . . 5
ARTICLE II
TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . 6
Section 2.01 CONVEYANCE OF ASSETS; DISCHARGE OF LIABILITIES. . . . . . . . . 6
Section 2.02 NO REPRESENTATIONS OR WARRANTIES. . . . . . . . . . . . . . . . 6
Section 2.03 MUTUAL RELEASE. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.04 ANCILLARY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . 7
Section 2.05 RESIGNATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
THE DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.01 NEWCO INDEMNIFICATION OF THE UWS GROUP. . . . . . . . . . . . . 8
Section 4.02 UWS INDEMNIFICATION OF NEWCO GROUP. . . . . . . . . . . . . . . 8
Section 4.03 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. . . . . . . . . . . 8
Section 4.04 INSURANCE AND THIRD PARTY OBLIGATIONS . . . . . . . . . . . . . 9
ARTICLE V
INDEMNIFICATION PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.01 NOTICE AND PAYMENT OF NON-THIRD PARTY CLAIMS. . . . . . . . . . 9
Section 5.02 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. . . . . . . . . . . . 9
Section 5.03 OTHER ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI
INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.01 GENERAL LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . 12
Section 6.02 DIRECTORS' AND OFFICERS' INSURANCE. . . . . . . . . . . . . . . 13
Section 6.03 INSURED LITIGATION. . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII
ADDITIONAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.01 GUARANTEED NEWCO AND UWS LIABILITIES. . . . . . . . . . . . . . 13
Section 7.02 PRIVILEGED MATTERS. . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.03 LIMITATION ON SOLICITATION OF EMPLOYEES . . . . . . . . . . . . 16
Section 7.04 PRODUCTION OF WITNESSES . . . . . . . . . . . . . . . . . . . . 16
Section 7.05 RETENTION OF RECORDS. . . . . . . . . . . . . . . . . . . . . . 16
Section 7.06 ACCESS TO INFORMATION.. . . . . . . . . . . . . . . . . . . . . 17
Section 7.07 PROVISION OF CORPORATE RECORDS. . . . . . . . . . . . . . . . . 17
Section 7.08 LITIGATION COOPERATION. . . . . . . . . . . . . . . . . . . . . 17
Section 7.09 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII
ACCOUNTING MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.01 ALLOCATION OF PREPAID ITEMS AND RESERVES. . . . . . . . . . . . 18
Section 8.02 ACCOUNTING TREATMENT OF ASSETS TRANSFERRED AND
LIABILITIES ASSUMED . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.03 INTERCOMPANY ACCOUNTS . . . . . . . . . . . . . . . . . . . . . 18
Section 8.04 ALLOCATION OF DISTRIBUTION EXPENSES . . . . . . . . . . . . . . 18
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.01 INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.02 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.03 AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . . . . . 19
Section 9.04 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.05 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.06 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . 20
Section 9.07 THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . 20
Section 9.08 FURTHER ASSURANCES AND CONSENTS . . . . . . . . . . . . . . . . 20
Section 9.09 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.10 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.11 TITLES AND HEADINGS . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.12 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.13 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.14 DISPUTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SCHEDULE B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SCHEDULE C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SCHEDULE D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
<PAGE>
DRAFT 8/4/98
DISTRIBUTION AND INDEMNITY AGREEMENT
DISTRIBUTION AND INDEMNITY AGREEMENT ("Agreement"), dated as
of__________________, 1998 by and between UNITED WISCONSIN SERVICES, INC., a
Wisconsin corporation ("UWS"), and NEWCO/UWS, INC., a Wisconsin corporation
("Newco").
RECITALS
1. Newco is a wholly owned subsidiary of UWS formed for the purpose of
effecting the Distribution (as defined and described herein);
2. The UWS Board of Directors ("UWS Board") has determined that it is
in the best interests of UWS and its shareholders to transfer and assign to
Newco the Management Business (as defined herein) of UWS;
3. The UWS Board has further determined that it is in the best
interests of UWS and its shareholders to transfer and assign to Newco the
Newco Assets (as defined herein)
4. The UWS Board has further determined that it is in the best
interests of UWS and its shareholders to contribute working capital to Newco
and to assign to Newco the Newco Liabilities (as defined herein);
5. The UWS Board has further determined that it is in the best
interests of UWS and its shareholders to distribute Newco to the holders of
UWS Common Stock by distributing all outstanding shares of Newco Common Stock
at the rate of one share of Newco Common Stock for every one share of UWS
Common Stock outstanding as of the Record Date (as defined herein);
6. UWS has formed and incorporated Newco under the laws of the State
of Wisconsin. Newco has 50,000,000 authorized shares of Newco Common Stock
which are identical to UWS Common Stock, including with respect to voting
rights, dividend and liquidation preferences. Newco has 1,000,000 authorized
shares of Preferred Stock. UWS currently owns one share of Newco Common
Stock and is and shall remain the sole shareholder of Newco until the
Distribution.
7. UWS and Newco have determined that it is appropriate and desirable
to set forth the principal corporate transactions required to effect the
Distribution and to set forth other agreements that will govern certain other
matters following the Distribution;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, and the benefits to be derived
from the Distribution, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. Terms defined in the first paragraph of this
Agreement shall have the meanings assigned thereto. As used herein, the
following terms have the following meaning:
ACCRUED LIABILITIES: those liabilities set forth on the Final Balance
Sheet.
ACTION: any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any other tribunal.
ANCILLARY AGREEMENTS: all of the written agreements, instruments,
documents, certificates, understandings, assignments and other arrangements
entered into in connection with the transactions contemplated hereby,
including, without limitation, the Employee Benefits Agreement, the Service
Agreement, the Intellectual Property Agreement, and the Tax Allocation
Agreement.
ASSETS: all properties, rights, contracts, leases and claims, of every
kind and description, wherever located, whether tangible or intangible, and
whether real, personal or mixed.
BCBSUW NOTE: a $70 million principal amount note of UWS in favor of
Blue Cross Blue & Shield United of Wisconsin that matures on October 30,
1999, evidenced by a promissory note and pledge agreement, both dated October
30, 1996.
CASH AND INVESTMENTS: those assets as indicated and set forth on the
Final Balance Sheet.
CODE: The Internal Revenue Code of 1986, as amended.
DISPUTES: shall have the meaning ascribed thereto in Section 9.14.
DISTRIBUTION: the distribution to holders of UWS Common Stock of the
shares of Newco Common Stock owned by UWS on the Distribution Date.
DISTRIBUTION AGENT: Firstar Trust Company, in its capacity as agent for
UWS in connection with the Distribution.
DISTRIBUTION DATE: the date on which the Distribution shall be made as
determined by the UWS Board.
2
<PAGE>
EFFECTIVE TIME: _____ [a./p.]m. Milwaukee time on _____________, 1998.
[DATE THIS AGREEMENT SIGNED]
EMPLOYEE BENEFITS AGREEMENT: the Employee Benefits Agreement entered
into at or prior to the Effective Time between UWS and Newco, as amended from
time to time.
FINAL BALANCE SHEET: means a balance sheet as of the end of the month
occurring closest to the Distribution Date, which balance sheet shall be
prepared on a basis consistent with UWS's historical practices for the
preparation of unaudited monthly divisional balance sheets.
GROUP: the UWS Group or the Newco Group, as the context so requires.
GUARANTEED NEWCO LIABILITIES: the Newco Liabilities on which any member
of the UWS Group is an obligor by reason of any guarantee or contractual
commitment.
GUARANTEED UWS LIABILITIES: the UWS Liabilities on which any member of
the Newco Group is an obligor by reason of any guarantee or contractual
commitment.
INDEMNIFIABLE LOSS: any and all damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses) in connection with any and all
Actions or threatened Actions.
INDEMNIFIED PARTY: shall have the meaning ascribed thereto in Section
4.03(a).
INDEMNIFYING PARTY: shall have the meaning ascribed thereto in Section
4.03(a).
INTELLECTUAL PROPERTY AGREEMENT: the Intellectual Property Agreement
entered into at or prior to the Effective Time between UWS and Newco, as
amended from time to time.
SERVICE AGREEMENT: Agreement relating to the provision of interim
administrative services entered into at or prior to the Effective Time
between Newco and UWS, as amended from time to time.
LIABILITIES: any and all claims, debts, liabilities and obligations,
absolute or contingent, matured or not matured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, including all costs
and expenses relating thereto, and including, without limitation, those
debts, liabilities and obligations arising under this Agreement or any
Ancillary Agreement, any law, rule, regulation, action, order or consent
decree of any governmental entity or any award of any arbitrator of any kind,
and those arising under any contract, commitment or undertaking.
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MANAGED CARE COMPANIES: the following companies and their subsidiaries:
Compcare Health Services Insurance Corporation, a Wisconsin corporation;
Valley Health Plan, Inc., a Wisconsin corporation; HMO-W, Inc., a Wisconsin
corporation; Hometown Insurance Service, Inc., a Wisconsin corporation;
United Wisconsin Insurance Company, a Wisconsin corporation; United Heartland
Life Insurance Company, a Wisconsin corporation; Meridian Resource
Corporation, a Wisconsin corporation; Meridian Managed Care, Inc., a
Wisconsin corporation; Meridian Marketing Services, Inc., a Wisconsin
corporation; United Wisconsin Proservices, Inc., a Wisconsin corporation;
United Heartland, Inc., a Wisconsin corporation; CNR Health, Inc., a
Wisconsin corporation; Unity Health Plans Insurance Corporation, a Wisconsin
corporation and Heartland Dental Plan, Inc., a Wisconsin corporation.
NEWCO ARTICLES: the articles of incorporation of Newco in the form
filed with the Wisconsin Department of Financial Institutions.
NEWCO ASSETS: (a) the capital stock of the Managed Care Companies; (b)
all assets of UWS used in connection with the management and operational
services performed by UWS for the operations of the Managed Care Companies
including all trademarks and tradenames related solely to products sold by
the Managed Care Companies; and (c) cash and investments as set forth on the
Final Balance Sheet.
NEWCO BUSINESS: all businesses conducted by the Newco Group.
NEWCO BYLAWS: the bylaws of Newco as adopted by the Newco Board of
Directors on May 27, 1998.
NEWCO COMMON STOCK: the shares of common stock, no par value, of Newco.
NEWCO GROUP: Newco, any of its subsidiaries and any subsidiary or
division of any member of the UWS Group that is included in the operations of
the Newco Business and is included in the results of the Newco Business for
internal financial reporting purposes.
NEWCO INDEMNITEES: shall have the meaning ascribed thereto in Section
4.02.
NEWCO LIABILITIES: The Post Retirement Liability, the Accrued
Liabilities and the BCBSUW Note.
PERSON: any natural person, corporation, limited liability company,
business trust, joint venture, association, company, partnership or
government, or any agency or tribunal or political subdivision thereof.
POST RETIREMENT LIABILITY: unfunded employee post-retirement health
benefit liabilities as set forth on the Final Balance Sheet.
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PRIME RATE: the prime rate of interest as determined from time to time
by M&I Marshal & Ilsley Bank.
REINSURANCE AGREEMENT: the Reinsurance Agreement between Newco and UWS,
dated _______________, 1998.
SUBORDINATED NOTES: shall mean UWS's $45 million principal amount 7.75%
Subordinated Notes due 2000.
TAX: shall have the meaning given to such term in the Tax Allocation
Agreement.
TAX ALLOCATION AGREEMENT: the Tax Allocation Agreement entered into at
or before the Effective Time between UWS and Newco, as amended from time to
time.
THIRD-PARTY CLAIM: shall have the meaning ascribed thereto in Section
5.02(c).
TRANSITION INSURANCE PROGRAM: shall have the meaning ascribed thereto
in Section 6.01(a).
UWS BUSINESS: the business now or formerly conducted by UWS and its
present and former subsidiaries, joint ventures and partnerships, other than
the Newco Business.
UWS COMMON STOCK: the outstanding shares of common stock, no par value,
of UWS.
UWS GROUP: UWS and its subsidiaries, joint ventures and partnerships,
excluding any member of the Newco Group.
UWS INDEMNITEES: shall have the meaning ascribed thereto in Section
4.01.
UWS LIABILITIES: means (i) Liabilities of any member of the UWS Group
under this Agreement or any Ancillary Agreement, and (ii) Liabilities, other
than Newco Liabilities, incurred in connection with the operation of the UWS
Business, whether arising before, at or after the Effective Time.
Section 1.02 REFERENCES; INTERPRETATION. References to an "Exhibit" or
to a "Schedule" are, unless otherwise specified, to one of the Exhibits or
Schedules attached to this Agreement. References to a "Section" or to an
"Article" are, unless otherwise specified, to one of the Sections or Articles
of this Agreement.
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ARTICLE II
TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES
Section 2.01 CONVEYANCE OF ASSETS; DISCHARGE OF LIABILITIES. Except as
otherwise expressly provided herein or in any of the Ancillary Agreements:
(a) UWS hereby assigns and transfers to Newco and Newco hereby accepts
and acknowledges receipt of the Newco Assets.
(b) UWS hereby assigns and transfers to Newco and Newco hereby
acknowledges receipt of and assumes the Newco Liabilities.
(c) In exchange for the transfers listed above, Newco shall issue
concurrently with the execution of this Agreement ____________ shares of
Newco Common Stock to UWS so that UWS's total holdings of Newco Common Stock,
when combined with the 100 shares already owned, will equal the number of
shares of UWS Common Stock outstanding on the Record Date.
(d) Those employees of UWS or its subsidiaries (other than American
Medical Security Holdings, Inc. or its subsidiaries) shall become employees
of Newco and UWS shall have no further responsibility or liability with
respect to such employees from and after the date hereof, other than with
respect to the final settlement of obligations with respect to such employees
except as may be set forth in the Employee Benefits Agreement.
(e) If any Newco Asset may not be transferred by reason of the
requirement to obtain the consent of any third party and such consent has not
been obtained by the date hereof, then such Asset shall not be transferred
until such consent has been obtained, and UWS and Newco, as the case may be,
shall cause the owner of such Newco Asset to use all reasonable efforts to
provide to the appropriate member of the other Group all the rights and
benefits under such Asset and cause such owner to enforce such Asset for the
benefit of such member.
Section 2.02 NO REPRESENTATIONS OR WARRANTIES. Except as expressly set
forth in this Agreement or any Ancillary Agreement, instrument or document
contemplated by this Agreement or any Ancillary Agreement, neither any member
of the UWS Group nor any member of the Newco Group has made or shall be
deemed to have made any representation or warranty as to (i) the Assets,
business or Liabilities retained, transferred or assumed as contemplated
hereby or thereby, (ii) any consents or approvals required in connection with
the transfer or assumption by such party of any Asset or Liability
contemplated by this Agreement, (iii) the value or freedom from any lien,
claim, equity or other encumbrance of, or any other matter concerning, any
Assets of such party or (iv) the absence of any defenses or right of setoff
or freedom from counterclaim with respect to any claim or other Asset of such
party. EXCEPT AS MAY BE EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY
ANCILLARY AGREEMENT, ALL ASSETS WERE, OR ARE BEING, TRANSFERRED, OR ARE BEING
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RETAINED ON A "AS IS," "WHERE IS" BASIS WITHOUT REPRESENTATION OR WARRANTY OF
ANY KIND AND THE RESPECTIVE TRANSFEREES WILL BEAR THE ECONOMIC AND LEGAL
RISKS THAT ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE
TRANSFEREE A TITLE THAT IS FREE AND CLEAR OF ANY LIEN, CLAIM, EQUITY OR OTHER
ENCUMBRANCE.
Section 2.03 MUTUAL RELEASE. Effective as of the Distribution Date and
except as otherwise specifically set forth in this Agreement or any of the
Ancillary Agreements, UWS, on the one hand, and Newco, on the other hand, on
its own behalf and on behalf of each of its respective Subsidiaries, releases
and forever discharges the other and its Subsidiaries, and its and their
respective officers, directors, agents, Affiliates, record and beneficial
security holders (including, without limitation, trustees and beneficiaries
of trusts holding such securities), advisors and Representatives (in their
respective capacities as such) and their respective heirs, executors,
administrators, successors and assigns, of and from all debts, demands,
actions, causes of action, suits, accounts, covenants, contracts, agreements,
damages, claims and Liabilities whatsoever of every name and nature, both in
law and in equity, which the releasing party has or ever had, which arise out
of or relate to events, circumstances or actions taken by such other party,
occurring or failing to occur, or any conditions existing, on or prior to the
Distribution Date; provided, however, that the foregoing general release
shall not apply to (i) any Liabilities (including Liabilities with respect to
indemnification) assumed, transferred, assigned, allocated or arising under
this Agreement or any of the Ancillary Agreements and shall not affect any
party's right to enforce this Agreement or any Ancillary Agreement in
accordance with its terms or (ii) any Liability the release of which would
result in the release of any Person other than a Person released pursuant to
this Section 2.04.
Section 2.04 ANCILLARY AGREEMENTS. Concurrently with the execution of
this Agreement UWS and Newco shall execute and deliver:
(a) The Employee Benefits Agreement;
(b) The Tax Allocation Agreement;
(c) The Service Agreement;
(d) The Reinsurance Agreements;
(e) The Intellectual Property Agreement; and
(f) Such other agreements, leases, documents or instruments as the
parties may agree are necessary or desirable in order to achieve the purposes
hereof.
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Section 2.05 RESIGNATIONS. Concurrently with the execution of this
Agreement, Newco has delivered to UWS resignations of those persons
designated who will be employees of Newco from and after the Distribution
Date and who are officers or directors of UWS or any of its subsidiaries or
affiliates not constituting a member of the Newco Group.
ARTICLE III
THE DISTRIBUTION
Immediately following the Effective Date, UWS shall deliver to the
Distribution Agent a certificate or certificates representing all of the then
outstanding shares of Newco Common Stock held by UWS, endorsed by UWS in
blank, and shall irrevocably instruct the Distribution Agent to distribute to
each holder of record of UWS Common Stock on the Record Date one share of
Newco Common Stock for each share of UWS Common Stock so held either by
crediting the holder's brokerage account or by delivering a certificate or
certificates representing such shares. Newco agrees to provide all
certificates for shares of Newco Common Stock that the Distribution Agent
shall require in order to effect the Distribution.
ARTICLE IV
INDEMNIFICATION
Section 4.01 NEWCO INDEMNIFICATION OF THE UWS GROUP. On and after the
Distribution Date, Newco shall indemnify, defend and hold harmless each
member of the UWS Group, and each of their respective directors, officers,
employees and agents (the "UWS Indemnitees") from and against any and all
Indemnifiable Losses incurred or suffered by any of the UWS Indemnitees and
arising out of, or due to the failure of Newco or any member of the Newco
Group to pay, perform or otherwise discharge in due course any item set forth
on Schedule A.
Section 4.02 UWS INDEMNIFICATION OF NEWCO GROUP. On and after the
Distribution Date, if the Distribution occurs, on and after the Distribution
Date, UWS shall indemnify, defend and hold harmless each member of the Newco
Group and each of their respective directors, officers, employees and agents
(the "Newco Indemnitees") from and against any and all Indemnifiable Losses
incurred or suffered by any of the Newco Indemnitees and arising out of, or
due to the failure of UWS or any member of the UWS Group to pay, perform or
otherwise discharge in due course any item set forth on Schedule B.
Section 4.03 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. The amount
that any party (an "Indemnifying Party") is or may be required to pay to any
other party (an "Indemnified Party") pursuant to Section 4.01 or Section 4.02
shall be reduced (including, without limitation, retroactively) by any
Insurance Proceeds or other amounts actually recovered
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by or on behalf of such Indemnified Party, in reduction of the related Loss.
If an Indemnified Party shall have received the payment required by this
Agreement from an Indemnifying Party in respect of any Loss and the
Indemnified Party shall subsequently actually receive Insurance Proceeds or
other amounts in respect of such Loss, then such Indemnified Party shall pay
to such Indemnifying Party a sum equal to the amount of such Insurance
Proceeds or other amounts actually received (up to but not in excess of the
amount of any indemnity payment made hereunder).
Section 4.04 INSURANCE AND THIRD PARTY OBLIGATIONS. No insurer or any
other third party shall be, by virtue of the foregoing indemnification
provisions, (a) entitled to a benefit it would not be entitled to receive in
the absence of such provisions, (b) relieved of the responsibility to pay any
claims to which it is obligated, or (c) entitled to any subrogation rights
with respect to any obligation hereunder.
ARTICLE V
INDEMNIFICATION PROCEDURES
Section 5.01 NOTICE AND PAYMENT OF NON-THIRD PARTY CLAIMS. If the
Indemnified Party determines that it is or may be entitled to indemnification
by the Indemnifying Party pursuant to this Agreement (other than in
connection with any Action or claim subject to Section 5.02), the Indemnified
Party shall deliver to the Indemnifying Party a written notice specifying, to
the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. After the Indemnifying Party
shall have been notified of the amount for which the Indemnified Party seeks
indemnification, the Indemnifying Party shall, within 30 days after receipt
of such notice, pay the Indemnified Party such amount in cash or other
immediately available funds (or reach agreement with the Indemnified Party as
to a mutually agreeable alternative payment schedule) or send a written
notice to the Indemnified Party objecting to the claim for indemnification or
the amount thereof. If the Indemnifying Party does not give the Indemnified
Party written notice objecting to such claim and setting forth the grounds
therefor within the same 30 day period, the Indemnifying Party shall be
deemed to have acknowledged its liability for such claim and the Indemnified
Party may exercise any and all of its rights under applicable law to collect
such amount.
Section 5.02 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS.
(a) If the Indemnified Party shall receive notice or otherwise learn
of the assertion or probable assertion by a Person (including, without
limitation, any governmental entity) who is not a party to this Agreement or
to any of the Ancillary Agreements of any claim or of the commencement by any
such Person of any Action (a "Third-Party Claim") against or otherwise
involving the Indemnified Party with respect to which indemnification may be
sought pursuant to this Agreement or any Ancillary Agreement, such
Indemnified Party shall give such Indemnifying Party written notice thereof
promptly after becoming aware of such Third-Party
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Claim; PROVIDED that the failure of the Indemnified Party to give notice as
provided in this Section 5.02(a) shall not relieve the Indemnifying Party of
its obligations under this Article V, unless such Indemnifying Party is
prejudiced by such failure to give notice (except that the Indemnifying Party
shall not be liable for any expenses incurred during the period in which the
Indemnified Party failed to give such notice). Such notice shall describe
the Third-Party Claim in reasonable detail and, if reasonably ascertainable,
shall indicate the amount (estimated if necessary) of the Loss that has been
or may be sustained by such Indemnified Party. After such notice, the
Indemnified Party shall deliver to the Indemnifying Party, promptly after the
Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to the
Third Party Claim.
(b) Within 30 days after receipt of such notice, the Indemnifying Party
shall by giving written response thereof to the Indemnified Party, (a)
acknowledge, as between the parties hereto, liability for, and at its option
assumption of the defense of such Third Party Claim at its sole cost and
expense or (b) object to the claim of indemnification set forth in the notice
delivered by the Indemnified Party pursuant to the first sentence of Section
5.02(a) setting forth the grounds therefor; provided that if the Indemnifying
Party does not within the same 30 day period give the Indemnified Party
written notice acknowledging liability and electing to assume the defense or
objecting to such claim and setting forth the grounds therefor, the
Indemnifying Party shall be deemed to have acknowledged, as between the
parties hereto, its liability to the Indemnified Party for such Third Party
Claim.
(c) Any contest of a Third Party Claim as to which the Indemnifying
Party has elected to assume the defense shall be conducted by attorneys
employed by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party; provided that the Indemnified Party shall have the right
to participate in such proceedings and to be represented by attorneys of its
own choosing at the Indemnified Party's sole cost and expense. If the
Indemnifying Party assumes the defense of a Third Party Claim, the
Indemnifying Party may settle or compromise the claim without the prior
written consent of the Indemnified Party; provided that the Indemnifying
Party may not agree to any such settlement pursuant to which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld.
(d) If the Indemnifying Party does not assume the defense of a Third
Party Claim for which it has acknowledged liability for indemnification under
Article IV, the Indemnified Party may require the Indemnifying Party to
reimburse it on a current basis for its reasonable expenses of investigation,
reasonable attorney's fees and reasonable out-of-pocket expenses incurred in
defending against such Third Party Claim and the Indemnifying Party shall be
bound by the result obtained with respect thereto by the Indemnified Party;
provided that the Indemnifying Party shall not be liable for any settlement
effected without its consent, which consent shall not be unreasonably
withheld.
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(e) The Indemnifying Party shall pay to the Indemnified Party in cash
the amount for which the Indemnified Party is entitled to be indemnified (if
any) within 15 days after the final resolution of such Third Party Claim
(whether by the final nonappealable judgment of a court of competent
jurisdiction or otherwise), or, in the case of any Third Party Claim as to
which the Indemnifying Party has not acknowledged liability, within 15 days
after such Indemnifying Party's objection has been resolved by settlement,
compromise or the final nonappealable judgment of a court of competent
jurisdiction.
(f) If the Indemnifying Party chooses to defend or to seek to compromise
or settle any Third-Party Claim, the Indemnified Party shall make available
to such Indemnifying Party any personnel or any books, records or other
documents within its control or which it otherwise has the ability to make
available that are necessary or appropriate for such defense, settlement or
compromise, and shall otherwise cooperate in the defense, settlement or
compromise of such Third-Party Claims. The Indemnifying Party shall promptly
reimburse the Indemnified Party its reasonable out-of-pocket costs incurred
in providing assistance pursuant to the foregoing sentence and for the
Indemnified Party's reasonable personnel costs on any occasion on which
personnel of the Indemnified Party spend one full day or more in providing
such assistance.
(g) In the event of payment by the Indemnifying Party to the Indemnified
Party in connection with any Third-Party Claim, such Indemnifying Party shall
be subrogated to and shall stand in the place of such Indemnified Party as to
any events or circumstances in respect of which such Indemnified Party may
have any right or claim relating to such Third-Party Claim against any
claimant or plaintiff asserting such Third-Party Claim or against any other
person. Such Indemnified Party shall cooperate with such Indemnifying Party
in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
Section 5.03 OTHER ADJUSTMENTS.
(a) The amount of any Indemnifiable Loss shall be (x) increased to take
into account any net Tax cost actually incurred by the Indemnified Party arising
from any payments received from the Indemnifying Party (grossed up for such
increase) and (y) reduced to take account of any net Tax benefit actually
realized by the Indemnified Party arising from the incurrence or payment of any
such Indemnifiable Loss. In computing the amount of such Tax cost or Tax
benefit, the Indemnified Party shall be deemed to recognize all other items of
income, gain, loss, deduction or credit before recognizing any item arising from
the receipt of any payment with respect to an Indemnifiable Loss or the
incurrence or payment of any Indemnifiable Loss.
(b) If the amount of any Indemnifiable Loss shall, at any time subsequent
to the payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnified Party to the
Indemnifying Party, up to the aggregate amount of any payments received from
such Indemnifying Party pursuant to this Agreement in respect of such
Indemnifiable Loss.
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(c) If the amount of any Indemnifiable Loss shall, at any time
subsequent to the payment required by this Agreement, be reduced by recovery,
settlement or otherwise, the amount of such reduction that has been received
by the Indemnified Party, less any expenses incurred in connection therewith,
shall promptly be repaid by the Indemnified Party to the Indemnifying Party.
ARTICLE VI
INSURANCE
Section 6.01 GENERAL LIABILITY INSURANCE.
(a) UWS shall continue to maintain coverage for workers' compensation,
general liability, automobile liability, other liability, property and other
insurable business risks and exposures to Newco and the Newco Group in the
same manner and to the same extent as in effect on the date of this Agreement
(the "Transition Insurance Program") for incidents, acts, omissions or
occurrences occurring from the date such coverage first commenced until 12:00
midnight on the Distribution Date or such later date as may be agreed to by
UWS and Newco, and Newco and the Newco Group shall pay UWS the costs, fees
and expenses for such coverage in accordance with the past and current
practices established between UWS, Newco and the Newco Group. Such costs
include, but are not limited to, premiums, deductibles, retrospective rating
adjustments, assessments paid and audit adjustments completed.
(b) UWS shall cooperate and, if requested, shall assist Newco and the
Newco Group in obtaining their own separate insurance coverage for Newco and
the Newco Group, effective with respect to incidents, acts, omissions or
occurrences occurring from and after the Distribution Date. Following the
Distribution Date, each of the parties shall cooperate with and assist the
other party in the prevention of conflicts or gaps in insurance coverage
and/or collection of any insurance proceeds.
(c) UWS and Newco agree that Newco and the Newco Group shall have the
right to present claims directly to UWS's insurers under the Transition
Insurance Program for insured incidents, acts, omissions or occurrences
occurring from the date said coverage first commenced until the Distribution
Date.
(d) With respect to any insured losses or retrospective premium
adjustments relating to assets and/or operations of Newco and/or the Newco
Group prior to the Distribution Date: (i) UWS shall pay over to Newco within
60 days of receipt any insurance proceeds it receives on account of such
losses and any such retrospective premium reductions (all subject to support
documentation); and (ii) Newco and the Newco Group shall reimburse UWS within
60 days of UWS's request for all costs, expenses or payments (all subject to
support documentation) made by UWS after the Distribution Date to insurers or
incurred by UWS with respect to such Losses and any such retrospective
premium increases. The defense of and the responsibility for any
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litigation or claims pending at the Distribution Date, or commenced after the
Distribution Date (as respects losses which occurred prior to the
Distribution Date), relating to Newco or the Newco Group and covered by the
Transition Insurance Program shall continue to be managed by Newco and the
Newco Group. Newco shall advise UWS when there is a reasonable expectation
that any such litigation will exceed the policy limits of the current
Transition Insurance Program or result in a loss not covered by such program.
Section 6.02 DIRECTORS' AND OFFICERS' INSURANCE. UWS will maintain
directors' and officers' liability insurance coverage at least equal to the
amount of UWS's current directors' and officers' liability insurance coverage
for a period of five years from the Distribution Date with respect to the
directors and officers of UWS for acts as directors and officers of members
of the UWS Group during periods prior to the Distribution Date.
Section 6.03 INSURED LITIGATION. In recognition that premiums, premium
adjustments, retrospective rating adjustments,assessments and audit
adjustments have been paid or charged to Newco and the Newco Group prior to
the Distribution Date, and that similar such payments and charges will be
made by and to Newco and the Newco Group after the Distribution Date, UWS
agrees to cooperate with Newco and the Newco Group in insured litigation.
Furthermore, in insured litigation in which the reasonable expectation is
that Newco and/or Newco Group will be financially responsible for the entire
result in the litigation (a "Newco Responsibility Case"), Newco shall have
the right to participate and control at its cost the defense of such
litigation, to the extent that UWS would be able to do so. In such event,
UWS shall cooperate with Newco in all reasonable respects in the defense and
resolution of such Newco Responsibility Case.
ARTICLE VII
ADDITIONAL COVENANTS
Section 7.01 GUARANTEED NEWCO AND UWS LIABILITIES.
(a) Newco shall use all reasonable efforts (excluding payment of money)
to obtain as promptly as practicable after the Distribution Date the release
of UWS from its obligations with respect to Guaranteed Newco Liabilities. In
no event shall any member of the Newco Group extend the term of any
Guaranteed Newco Liabilities (such as by exercising an option to renew a
lease) or modify any such Guaranteed Newco Liability, in either instance in
any way that would increase the liability guaranteed thereunder unless the
guarantee of UWS is released as to any extended or modified liability
obligations under such Guaranteed Newco Liabilities or UWS otherwise consents
in writing.
(b) UWS shall use all reasonable efforts (excluding payment of money) to
obtain as promptly as practicable after the Distribution Date the release of
members of Newco Group from their respective obligations with respect to
Guaranteed UWS Liabilities. In no event shall any
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member of the UWS Group extend the term of any Guaranteed UWS Liabilities
(such as by exercising an option to renew a lease) or modify any such
Guaranteed UWS Liability, in either instance in any way that would increase
the liability guaranteed thereunder unless the guarantee of Newco is released
as to any extended or modified liability obligations under such Guaranteed
UWS Liabilities or Newco otherwise consents in writing.
(c) In the event that UWS is required to pay any Guaranteed Newco
Liabilities, without limiting any of UWS's rights and remedies against Newco
under this Agreement or otherwise, in order to secure Newco's indemnity
obligations to UWS hereunder in respect of such Guaranteed Newco Liabilities,
UWS shall be entitled to all the rights of the payee in any property of any
member of the Newco Group pledged as security for such Guaranteed Newco
Liabilities.
(d) In the event that Newco is required to pay any Guaranteed UWS
Liabilities, without limiting any of Newco's rights and remedies against UWS
under this Agreement or otherwise, in order to secure UWS's indemnity
obligations to Newco hereunder in respect of such Guaranteed UWS Liabilities,
Newco shall be entitled to all the rights of the payee in any property of any
member of the UWS Group pledged as security for such Guaranteed UWS
Liabilities.
Section 7.02 PRIVILEGED MATTERS. The parties hereto recognize that
legal and other professional services that have been and will be provided on
or prior to the Distribution Date have been and will be rendered for the
benefit of UWS and Newco and their subsidiaries, and that each of the
foregoing should be deemed to be the client for the purposes of asserting all
privileges which may be asserted under applicable law. To allocate the
interests of each party in the information as to which any party or any its
subsidiaries is entitled to assert a privilege, the parties agree as follows:
(a) UWS shall be entitled, in perpetuity, to control the assertion or
waiver of all privileges in connection with privileged information which
relates solely to UWS or any UWS Subsidiary or the business of UWS or any UWS
Subsidiary, whether or not the privileged information is in the possession of
or under the control of UWS or Newco or any of their subsidiaries. UWS shall
also be entitled, in perpetuity, to control the assertion or waiver of all
privileges in connection with privileged Information that relates solely to
the subject matter of any claims arising out of any item set forth on
Schedule C or any claims which may be asserted in the future in any lawsuits
or other proceedings (not involving Newco or any Newco Subsidiary) initiated
against or by UWS or any UWS Subsidiary, whether or not the privileged
Information is in the possession of or under the control of UWS or Newco or
any of their subsidiaries.
(b) Newco shall be entitled, in perpetuity, to control the assertion or
waiver of all privileges in connection with privileged Information which
relates solely to Newco or any Newco Subsidiary or the business of Newco or
any Newco Subsidiary, whether or not the privileged Information is in the
possession of or under the control of UWS or Newco or any of their
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subsidiaries. Newco shall also be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged
Information which relates solely to the subject matter of any claims arising
out of any item set forth in Schedule D or any claims which may be asserted
in the future in any lawsuits or other proceedings (not involving UWS or any
UWS Subsidiary) initiated against or by Newco or any Newco Subsidiary,
whether or not the privileged Information is in the possession of or under
the control of UWS or Newco or any of their subsidiaries.
(c) The parties hereto agree that they shall have a shared privilege,
with equal right to assert or waive, subject to the restrictions in this
Section 7.03(a) and (b); that no party shall have a shared privilege in
connection with privileged information that does not relate to such party,
any of its subsidiaries or their respective businesses. All privileges
relating to any claims, proceedings, litigation, disputes, or other matters
which involve UWS or any UWS Subsidiary and/or Newco or any Newco Subsidiary
in respect of which each party retains any responsibility or liability under
this Agreement, shall be subject to a shared privilege among them.
(d) No party hereto may waive any privilege which could be asserted
under any applicable law, and in which any other party hereto has a shared
privilege, without the consent of the other party, except to the extent
reasonably required in connection with any litigation as provided in
Subsection (e) below. Consent shall be in writing, or shall be deemed to be
granted unless written objection is made within 20 calendar days after
written notice from the party requesting such consent.
(e) In the event of any litigation or dispute between or among the
parties hereto, any party and a subsidiary of another party hereto, or a
subsidiary of one party hereto and a subsidiary of another party hereto,
either such party may waive a privilege in which the other party has a shared
privilege, without obtaining the consent of the other party; provided,
however, that such waiver of a shared privilege shall be effective only as to
the use of information with respect to the litigation or dispute between the
relevant parties and/or their subsidiaries, and, notwithstanding the
provisions of Wis. Stats. Section 905.03, shall not operate as a waiver of
the shared privilege with respect to third parties.
(f) If a dispute arises between or among the parties hereto or their
respective subsidiaries regarding whether a privilege should be waived to
protect or advance the interest of any party, each party agrees that it shall
negotiate in good faith, shall endeavor to minimize any prejudice to the
rights of the other parties, and shall not unreasonably withhold consent to
any request for waiver by another party. Each party hereto specifically
agrees that it will not withhold consent to waiver for any purpose except to
protect its own legitimate interests.
(g) Upon receipt by any party hereto or by any subsidiary thereof of any
subpoena, discovery or other request which arguably calls for the production
or disclosure of information subject to a shared privilege or as to which
another party has the sole right hereunder to assert a privilege, or if any
party obtains knowledge that any of its or any of its subsidiaries' current
or former directors, officers, agents or employees has received any subpoena,
discovery or other
15
<PAGE>
requests which arguably calls for the production or disclosure of such
privileged information, such party shall promptly notify the other party or
parties of the existence of the request and shall provide the other party or
parties a reasonable opportunity to review the information and to assert any
rights it or they may have under this Section 7.02 or otherwise to prevent
the production or disclosure of such privileged information.
(h) The furnishing and delivery of information pursuant to this
Agreement is made in reliance on the agreement of the parties, as set forth
in Section 7.10, to maintain the confidentiality of confidential or
privileged Information and to assert and maintain all applicable privileges.
The access to Information being granted pursuant to Section 7.07 and the
agreement to provide witnesses pursuant to Section 7.05, shall not be deemed
a waiver of any privilege that has been or may be asserted under this
Agreement or otherwise.
Section 7.03 LIMITATION ON SOLICITATION OF EMPLOYEES.
(a) UWS agrees on behalf of itself, its subsidiaries and Affiliates
which it controls, without any separate bargained for consideration, but
rather as an integral part of the Distribution provided for in this
Agreement, that it shall not directly or indirectly, through a subsidiary or
otherwise, until one year after the Distribution Date, employ or attempt to
employ any Newco employee or induce or attempt to induce any Newco employee
to leave his or her employment.
(b) Newco agrees on behalf of itself, its subsidiaries and Affiliates
which it controls, without any separate bargained for consideration, but
rather as an integral part of the Distribution provided for in this
Agreement, that it shall not directly or indirectly, through a subsidiary or
otherwise, until one year after the Distribution Date, employ or attempt to
employ any employee of UWS or any UWS Subsidiary or induce or attempt to
induce any employee of UWS or any UWS Subsidiary to leave his or her
employment.
(c) The parties agree and acknowledge that the restrictions contained in
this Section 7.04 are reasonable in scope and duration and are necessary to
protect the other party hereto.
Section 7.04 PRODUCTION OF WITNESSES. After the Distribution Date, each
of UWS and Newco and its respective subsidiaries shall use reasonable efforts
to make available to the other party and its subsidiaries, upon written
request, its directors, officers, employees and agents as witnesses to the
extent that any such person may reasonably be required (giving consideration
to business demands of such Representatives) in connection with any legal,
administrative or other proceedings in which the requesting party may from
time to time be involved, without cost to the requesting party.
Section 7.05 RETENTION OF RECORDS. Except as otherwise required by law
or agreed to in writing, each party shall, and shall cause the members of its
Group to, retain all information relating to the other's business in
accordance with the past practice of such party. Notwithstanding the
foregoing, either party may destroy or otherwise dispose of any information
16
<PAGE>
at any time in accordance with the corporate record retention policy
maintained by such party with respect to its own records.
Section 7.06 ACCESS TO INFORMATION. From and after the Effective Time,
UWS and Newco shall each afford the other and its accountants, counsel and
other designated representatives reasonable access (including using
reasonable efforts to give access to persons or firms possessing information)
and duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information in its
possession relating to the business and affairs of the other or a member of
its Group (other than data and information subject to an attorney/client or
other privilege), insofar as such access is reasonably required by the other
including, without limitation, for audit, accounting and litigation purposes.
Section 7.07 PROVISION OF CORPORATE RECORDS. As soon as practicable
following the Effective Time, UWS and Newco shall each arrange for the
provision to the other of existing corporate documents (e.g. minute books,
stock registers, stock certificates, documents of title, contracts, etc.) in
its possession relating to the other or its business and affairs or to any
other entity that is part of such other's respective Group or to the business
and affairs of such other entity.
Section 7.08 LITIGATION COOPERATION. UWS and Newco shall each use
reasonable efforts to make available to the other, upon written request, its
officers, directors, employees and agents, and the officers, directors,
employees and agents of its subsidiaries, as witnesses to the extent that
such persons may reasonably be required in connection with any legal,
administrative or other proceedings arising out of the business of the other,
or of any entity that is part of the others' respective Group, prior to the
Effective Time in which the requesting party or one of its subsidiaries may
from time to time be involved.
Section 7.09 CONFIDENTIALITY. Each party shall, and shall cause each
member of its Group to, hold and cause its directors, officers, employees,
agents, consultants and advisors to hold, in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the
opinion of its counsel, by other requirements of law, all information
concerning the other party (except to the extent that such information can be
shown to have been (a) in the public domain through no fault of such
disclosing party or (b) later lawfully acquired after the Effective Time on a
non-confidential basis from other sources by the disclosing party), and
neither party shall release or disclose such information to any other person,
except its auditors, attorneys, financial advisors, bankers and other
consultants and advisors who shall be advised of the provisions of this
Section 7.10 and be bound by them. Each party shall be deemed to have
satisfied its obligation to hold confidential information concerning or
supplied by the other party if it exercises the same care as it takes to
preserve confidentiality for its own similar information.
17
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ARTICLE VIII
ACCOUNTING MATTERS
Section 8.01 ALLOCATION OF PREPAID ITEMS AND RESERVES. All prepaid
items and reserves that have been maintained by UWS on a consolidated basis
but that relate in part to assets or liabilities of the Newco Group shall be
allocated between UWS and Newco as determined by UWS and Newco.
Section 8.02 ACCOUNTING TREATMENT OF ASSETS TRANSFERRED AND LIABILITIES
ASSUMED. The transfer by UWS of the Newco Assets and the assumption by Newco
of the Newco Liabilities shall be treated as a capital contribution to Newco.
Section 8.03 INTERCOMPANY ACCOUNTS. On or before the Distribution
Date, UWS shall prepare and deliver to Newco a preliminary balance sheet
which shall set forth good faith estimates of all intercompany account
balances between members of the UWS Group and members of the Newco Group as
of the Effective Time. On the Distribution Date, all estimated account
balances set forth on the preliminary balance sheet shall be paid in full by
Newco to UWS or UWS to Newco, as the case may be. Within 30 business days
after the Distribution, Newco shall prepare and deliver to UWS the Final
Balance Sheet. Within ten business days after the delivery of the Final
Balance Sheet, UWS shall pay to Newco or Newco shall pay to UWS, as the case
may be, the difference between the estimated account balances set forth on
the preliminary balance sheet and the final account balances set forth on the
Final Balance Sheet.
Section 8.04 ALLOCATION OF DISTRIBUTION EXPENSES. All expenses
incurred in connection with the Distribution, when finally determined, shall
be the legal obligation of UWS. The parties desire, however, that the cash
outley for such expense be shared equally between Newco and UWS. UWS, both
before and after the Distribution, shall pay for all Distribution expenses,
but after all Distribution expenses have been paid, UWS shall pay to Newco,
or Newco shall pay to UWS, as the case may be, the difference between 50% of
all Distribution expenses and the Distribution expenses actually paid by such
party. For this purpose, Newco shall be deemed to have paid all Distribution
expenses paid by UWS prior to the Distribution, and UWS shall be deemed to
have paid only the Distribution expenses paid after the Distribution.
ARTICLE IX
MISCELLANEOUS
Section 9.01 INTEREST. Except as otherwise expressly provided in this
Agreement or an Ancillary Agreement, all payments by one party to the other
under this Agreement or any Ancillary Agreement shall be paid, by check or
wire transfer of immediately available funds to an account in the United
States designated by the recipient, within 30 days after receipt of an
invoice or other written request for payment setting forth the specific
amount due and a
18
<PAGE>
description of the basis therefor in reasonable detail. Any amount remaining
unpaid beyond its due date, including disputed amounts that are ultimately
determined to be payable, shall bear interest at a rate of simple interest
per annum equal to the Prime Rate plus 2%.
Section 9.02 NOTICES. All notices and communications under this
Agreement shall be deemed to have been given (a) when received, if such
notice or communication is delivered by facsimile, hand delivery or overnight
courier, and, (b) three (3) business days after mailing if such notice or
communication is sent by United States registered or certified mail, return
receipt requested, first class postage prepaid. All notices and
communications, to be effective, must be properly addressed to the party to
whom the same is directed at its address as follows:
If to UWS, to: American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, Wisconsin 54313
Attention: General Counsel
If to Newco, to: United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, Wisconsin 53203
Attention: General Counsel
Either party may, by written notice delivered to the other party in
accordance with this Section 9.02, change the address to which delivery of
any notice shall thereafter be made.
Section 9.03 AMENDMENT AND WAIVER. This Agreement may not be altered
or amended, nor may any rights hereunder be waived, except by an instrument
in writing executed by the party or parties to be charged with such amendment
or waiver. No waiver of any terms, provision or condition of or failure to
exercise or delay in exercising any rights or remedies under this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such term, provision, condition, right or
remedy or as a waiver of any other term, provision or condition of this
Agreement.
Section 9.04 ENTIRE AGREEMENT. This Agreement, together with the
Ancillary Agreements, constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof, superseding all
negotiations, prior discussions and prior agreements and understandings
relating to such subject matter. To the extent that the provisions of this
Agreement are inconsistent with the provisions of any Ancillary Agreement,
the provisions of such Ancillary Agreement shall prevail with respect to the
subject matter hereof.
Section 9.05 ASSIGNMENT. This Agreement shall be assignable in whole
in connection with a merger or consolidation or the sale of all or
substantially all the assets of a party hereto so long as the resulting,
surviving or transferee entity assumes all the obligations of the relevant
party hereto by operation of law or pursuant to an agreement in form and
substance reasonably satisfactory to the other party to this Agreement.
Otherwise this
19
<PAGE>
Agreement shall not be assignable, in whole or in part, directly or
indirectly, by any party hereto without the prior written consent of the
others and any attempt to assign any rights or obligations arising under this
Agreement without such consent shall be void.
Section 9.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
Section 9.07 THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement, express or implied, is intended to confer any benefits, rights or
remedies upon any person or entity other than members of the UWS Group and
the Newco Group and the UWS Indemnitees and Newco Indemnitees under Articles
IV and V hereof.
Section 9.08 FURTHER ASSURANCES AND CONSENTS. From time to time after
the Distribution Date, each party shall do, execute and deliver, or cause to
be done, executed and delivered, to another party hereto, or its successors
and assigns, all such further acts, deeds, assignments, powers of attorney
and other instruments of conveyance and transfer as such party may reasonably
request as may be necessary to consummate the Distribution and the
transactions contemplated hereby, including filings with, and obtaining the
approval of, any governmental body.
Section 9.09 SEVERABILITY. The provisions of this Agreement are
severable and should any provision hereof be void, voidable or unenforceable
under any applicable law, such provision shall not affect or invalidate any
other provision of this Agreement, which shall continue to govern the
relative rights and duties of the parties as though such void, voidable or
unenforceable provision were not a part hereof.
Section 9.10 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of Wisconsin, without
regard to the conflicts of law rules of such state.
Section 9.11 TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for the convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 9.12 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in
the sole discretion of the UWS Board without the approval of the Newco or UWS
shareholders.
Section 9.13 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original instrument, but
all of which together shall constitute but one and the same Agreement.
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<PAGE>
Section 9.14 DISPUTES.
(a) All disputes arising from or in connection with this Agreement,
whether based on contract, tort, statute or otherwise, including, but not
limited to, disputes in connection with claims by third parties
(collectively, "Disputes"), shall be resolved only in accordance with the
provisions of this Section 9.14; provided, however, that nothing contained
herein shall preclude either party from seeking or obtaining (i) injunctive
relief to prevent an actual or threatened breach of any of the provisions of
this Agreement, or (ii) equitable or other judicial relief to enforce the
provisions of this Section 9.14 hereof or to preserve the status quo pending
resolution of Disputes hereunder.
(b) Either party may give the other party written notice of any Dispute
not resolved in the normal course of business. Within ten days after
delivery of the notice of a Dispute, the receiving party shall submit to the
other a written response. The notice and the response shall include a
statement of such party's position and a summary of arguments supporting that
position and the name and title of the executive who will represent that
party and of any other person who will accompany such executive in resolving
the Dispute. Within 20 days after delivery of the first notice, the
executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, and shall
negotiate in good faith to attempt to resolve the Dispute. All reasonable
requests for information made by one party to the other will be honored.
(c) If the Dispute has not been resolved by negotiation within sixty
days of the first party's notice, the Dispute shall be submitted, upon
application of either party, for resolution by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules")
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
UNITED WISCONSIN SERVICES, INC.
By:_________________________________
NEWCO/UWS, INC.
By:_________________________________
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<PAGE>
SCHEDULE A
(Section 4.01)
1. Newco Liabilities.
2. Breach by Newco or its subsidiaries of the Distribution Agreement or any
Ancillary Agreement.
3. Operation of the business conducted by Newco and its subsidiaries or the
ownership of its assets, except as provided in the Distribution Agreement
or any Ancillary Agreement.
4. Failure of Newco to comply with applicable provisions of ERISA or the Code
with respect to Newco's employee benefit plans.
5. Violations of the Code or federal or state securities laws in connection
with the Distribution or with any filings made with governmental agencies,
to the extent such violations result from or are related to disclosure, or
failure to disclose, information to UWS's corporate staff by officers,
directors, employees, agents, consultants and representatives of Newco.
22
<PAGE>
SCHEDULE B
(Section 4.02)
1. UWS Liabilities.
2. Any breach by UWS or any of its subsidiaries of the Distribution Agreement
or any Ancillary Agreement.
3. The operation of the business conducted or to be conducted by UWS and its
subsidiaries or the ownership of its assets (other than businesses and
assets to be contributed to Newco) both prior to and following the
Effective Time, except as otherwise provided in the Distribution Agreement
or any Ancillary Agreements.
4. Failure by UWS to comply with provisions of ERISA or the Code with respect
to its employee benefit plans.
5. Violations of the Code or federal or state securities laws in connection
with the Distribution or with any filings made with governmental agencies
in connection with the operation of Newco's businesses prior to the
Effective Time, except to the extent that such violations result from or
are related to the disclosure or failure to disclose information to UWS's
corporate staff by officers, directors, employees, agents, consultants or
representatives of Newco.
23
<PAGE>
SCHEDULE C
(Section 7.02(a))
24
<PAGE>
SCHEDULE D
(Section 7.02(b))
25
<PAGE>
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE THIS CERTIFICATE IS
LAWS OF THE STATE OF TRANSFERABLE IN EITHER
WISCONSIN MILWAUKEE, WISCONSIN OR THE
CITY OF NEW YORK
NUMBER SEE REVERSE SIDE FOR CERTAIN SHARES
DEFINITIONS
CUSIP 913238 10 1
UNITED WISCONSIN SERVICES, INC.
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE (EXCEPT AS PROVIDED IN CHAPTER 180 OF THE
WISCONSIN STATUTES) SHARES OF THE COMMON STOCK, NO PAR VALUE PER SHARE, OF
UNITED WISCONSIN SERVICES, INC. TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY
THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF
THIS CERTIFICATE DULY ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED
HEREBY ARE ISSUED AND SHALL BE HELD SUBJECT TO THE LAWS OF THE STATE OF
WISCONSIN AND TO THE ARTICLES OF INCORPORATION AND BYLAWS OF THE CORPORATION AND
AMENDMENTS THEREOF. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE
TRANSFER AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE
SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED:
COUNTERSIGNED AND REGISTERED:
FIRSTAR TRUST COMPANY
(MILWAUKEE)
TRANSFER AGENT
AND REGISTRAR
BY
Vice President, AUTHORIZED SIGNATURE Chairman, President and
General Counsel and Chief Executive Officer
Secretary
<PAGE>
Set forth below is the designation of each class of shares of the
Corporation having preferences or special rights in the payment of dividends, in
voting, upon liquidation or otherwise.
PREFERRED STOCK: No par value per share
The Corporation's Board of Directors has the authority to fix such
preferences or special rights in their discretion.
The Corporation will furnish on request, in writing and without charge
to each shareholder who so requests, information as to the number of shares of
each class and series of capital stock of the Corporation authorized and
outstanding and a copy of the portions of its Restated Articles of Incorporation
containing the designations, preferences, limitations and relative rights of all
shares of each class and series thereof. Such request should be sent to the
Secretary of the Corporation at its home office, or to the Transfer Agent named
on the face of this certificate.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
-------------- --------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
------------------------------------
(State)
UNIF TRAN MIN ACT- Custodian
-------------- --------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
TRANSFER FORM
COMPLETE THIS FORM ONLY WHEN TRANSFERRING TO ANOTHER PERSON
For value received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
shares
- -------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
attorney
- -----------------------------------------------------------------------
to transfer the same on the books of the within named Corporation with full
power of substitution in the premises.
Dated
-----------------------
-----------------------------------
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
<PAGE>
Exhibit 10.1
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT (the "Agreement") is dated as of
September ___, 1998 by and between United Wisconsin Services, Inc.,
("UWS") a Wisconsin corporation, and Newco/UWS, Inc. ("Newco/UWS"), a Wisconsin
corporation, which is a newly created corporation.
WHEREAS, the Board of Directors of UWS has decided to transfer certain
business and subsidiaries to Newco/UWS, distribute all of the stock of Newco/UWS
to the shareholders of UWS in a transaction intended to qualify under Section
355 of the Code (the "Distribution") and change the name of UWS to American
Medical Security Group, Inc. ("AMSG");
WHEREAS, in connection with the Distribution, UWS, and Newco/UWS desire
to provide for the allocation of assets and liabilities and other matters
relating to employee benefit plans and compensation arrangements;
WHEREAS, in connection with the Distribution, all of the employees
currently employed by UWS will become employees of Newco/UWS and it is therefore
appropriate to transfer sponsorship of substantially all benefit plans sponsored
by UWS to Newco/UWS;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, UWS and Newco/UWS agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the term defined):
1. AMSG DIRECTOR: any director of AMSG immediately after the Effective Date.
2. AMSG EMPLOYEE: any individual who immediately after the Effective Date is an
employee of a member of the AMSG Group.
3. AMSG FORMER EMPLOYEE: any terminated employee of an employer in the AMSG
Group or any predecessor of such employer other than a Newco/UWS Former
Employee.
4. AMSG GROUP: AMSG and the Subsidiaries of AMSG after the Effective Date.
5. AMSG INDEMNITEE: each member of the AMSG Group and each of their respective
directors, officers, employees and agents (but only in their capacities as such)
and each of the heirs, executors, successors and assigns of any of the
foregoing.
<PAGE>
6. AMSG SUBSIDIARY: any subsidiary of AMSG after the Effective Date.
7. BCBSUW: Blue Cross & Blue Shield United of Wisconsin.
8. BENEFIT PLAN: any Plan, existing on or prior to the Effective Date which was
established by UWS or any member of the AMSG Group or the Newco/UWS Group, or
any predecessor or affiliate of any of the foregoing, to which UWS or any member
of the AMSG Group or the Newco/UWS Group contributes, has contributed, is
required to contribute or has been required to contribute, or under which any
employee, former employee, director or former director of any member of the AMSG
Group or the Newco/UWS Group or any predecessor or affiliate of the foregoing,
or any beneficiary thereof is covered, is eligible for coverage or has benefits
rights.
9. CODE: the Internal Revenue Code of 1986, as amended.
10. CURRENT PLAN YEAR: the plan year during which the Effective Date occurs.
11. DEFERRED COMPENSATION PLANS: the United Wisconsin Services, Inc. Voluntary
Deferred Compensation Plan, the UWSI Deferred Compensation Plan for Directors,
the Thomas R. Hefty Supplemental Compensation Agreement, the Samuel V. Miller
Employment and Noncompetition Agreement and any other deferred compensation
plans funded through the Deferred Compensation Trust.
12. DEFERRED COMPENSATION TRUST: the United Wisconsin Services, Inc. Deferred
Compensation Trust.
13. DISTRIBUTION DATE: the date on which the Distribution is made.
14. EFFECTIVE DATE: September _____, 1998.
15. ERISA: the Employee Retirement Income Security Act of 1974, as amended.
16. GROUP: the AMSG Group or the Newco/UWS Group.
17. LIABILITY: any debt, liability or obligation, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and whether or not the same would
properly be reflected on a balance sheet, and all costs and expenses related
thereto.
18. NEWCO/UWS COMMON STOCK: the common stock, no par value per share, of
Newco/UWS.
19. NEWCO/UWS DIRECTOR: any director of UWS prior to the Effective Date or of
Newco/UWS after the Effective Date.
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<PAGE>
20. NEWCO/UWS EMPLOYEE: any individual who immediately after the Effective Date
is an employee of Newco/UWS.
21. NEWCO/UWS FORMER EMPLOYEE: any former employee of UWS or any Newco/UWS
Subsidiary or any predecessor of the foregoing who was terminated on or prior to
the Effective Date.
22. NEWCO/UWS GROUP: Newco/UWS and the corporations which are Newco/UWS
Subsidiaries after the Effective Date.
23. NEWCO/UWS INDEMNITEE: Each member of the Newco/UWS Group and each of their
respective directors, officers, employees and agents (but only in their
capacities as such) and each of the heirs, executors, successors and assigns of
any of the foregoing.
24. NEWCO/UWS SUBSIDIARy: any Subsidiary of Newco/UWS after the Distribution.
25. OTHER BENEFIT PLAN: any Benefit Plan sponsored or maintained by UWS prior to
the Effective Date other than a Transferred Retirement Plan, a Welfare Plan, the
UWS Nonqualified Compensation Plans, the UWS SAR Plan, the UWS Stock Option
Plans, the Supplemental Retirement Plan and the Deferred Compensation Plan.
26. PERSON: an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization or a
government or any department or agency thereof.
27. PLAN: any bonus, incentive compensation, deferred compensation, pension,
profit sharing, retirement, stock option, stock purchase, stock ownership, stock
appreciation rights, phantom stock, leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health (including medical,
dental and vision care), accident, disability, severance pay, separation,
workers' compensation, travel, accident or other employee benefit plan,
practice, policy or arrangement of any kind (including, but not limited to, any
"employee benefit plan" (within the meaning of Section 3(3) of ERISA)).
28. SUBSIDIARY: a corporation more than 50% of the voting power of whose
outstanding voting securities are beneficially owned directly or indirectly by
another specified corporation.
29. SUPPLEMENTAL RETIREMENT PLAN: the UWSI/BCBSUW Supplemental Executive
Retirement Plan.
30. TRANSFERRED RETIREMENT PLANS: the UWSI/BCBSUW Salaried Pension Plan, the
UWSI/BCBSUW Hourly Pension Plan, the UWSI/BCBSUW 401(k) Plan and the UWSI/BCBSUW
Union Employees 401(k) Plan.
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<PAGE>
31. UWS COMMON STOCK: the Common Stock, no par value per share, of UWS.
32. UWS NONQUALIFIED COMPENSATION PLANS: the nonqualified profit sharing plan
and management incentive plan currently maintained by UWS for its employees.
33. UWS SAR PLAN: the United Wisconsin Services, Inc. 1992 Stock-Appreciation
Rights Plan.
34. UWS STOCK OPTION PLANS: the United Wisconsin Services, Inc. Equity Incentive
Plan and the 1995 Directors Stock Option Plan of United Wisconsin Services, Inc.
35. WELFARE PLAN: any Plan which provides medical, health, disability, accident,
life insurance, death, dental or other welfare benefits, including any
post-employment benefits or retiree medical, life insurance or other such
benefits.
SECTION 2. OFFERS OF EMPLOYMENT; ASSUMPTION OF EMPLOYMENT AND SEVERANCE
(a) On or prior to the Effective Date, Newco/UWS shall offer to employ
each employee employed by UWS immediately prior to the Effective Date. The
employees to be offered employment by Newco/UWS shall include all active and
inactive employees, including all employees laid-off, disabled or on leave of
absence, unless their employment with UWS has been terminated prior to the
Effective Date. Newco/UWS is not obligated to employ any such employees of UWS
who decline employment with Newco/UWS, and AMSG shall not be obligated to
continue the employment of such employees. The Distribution shall not affect the
employment of any employee of a UWS subsidiary or a Newco/UWS Subsidiary.
(b) Newco/UWS and UWS agree that with respect to individuals who, in
connection with the Distribution, cease to be employees of UWS and become
employees of Newco/UWS, such cessation shall not be deemed a severance of
employment from either Group for purposes of any agreement that provides for the
payment of severance, salary continuation or similar benefits or stock
repurchase rights in connection with the Distribution, if and to the extent
appropriate.
(c) Newco/UWS shall have no responsibility or Liability whatsoever with
respect to the April 7, 1998 Employment Agreement between Samuel V. Miller, UWS
and American Medical Security Holdings, Inc.
(d) Newco/UWS shall assume and be solely responsible for, and shall
indemnify AMSG against, all Liabilities and obligations whatsoever in connection
with claims made by or on behalf of Newco/UWS Employees or Newco/UWS Former
Employees relating to the
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termination or alleged termination of any such person's employment either
before, on or after the Effective Date.
(e) Newco/UWS shall assume and be solely responsible for any collective
bargaining agreements covering any Newco/UWS Employee and shall indemnify AMSG
against all Liabilities and obligations whatsoever in connection with such
collective bargaining agreements.
SECTION 3. GENERAL PRINCIPLES
Except as otherwise provided in this Employee Benefits Agreement, as of
the Effective Date:
(a) Newco/UWS will assume sponsorship of, and all liability under
(either singly or jointly with BCBSUW), all Benefit Plans and all other plans,
programs, policies and arrangements sponsored by UWS (or sponsored jointly by
UWS and BCBSUW) prior to the Effective Date (including all funding vehicles).
All UWS Subsidiaries will retain sponsorship of all Benefit Plans sponsored by
them prior to the Effective Date. All Newco/UWS Subsidiaries will retain
sponsorship of all Benefit Plans sponsored by them prior to the Effective Date.
(b) Newco/UWS will assume liability for employment-related claims
(including, but not limited to, harassment and discrimination) regardless of
when filed with respect to all Newco/UWS Employees, regardless of whether the
claimant was, prior to the Effective Date, a UWS employee.
(c) Except as otherwise provided herein, as of the Effective Date, all
benefit Liabilities relating to Newco/UWS Former Employees will be assumed by
Newco/UWS.
(d) Except as otherwise provided herein, the AMSG Group shall be solely
responsible for the payment of all Liabilities whatsoever arising with respect
to any AMSG Employee or AMSG Former Employee and attributable to any period on
and subsequent to the Effective Date and the Newco/UWS Group shall be solely
responsible for the payment of all Liabilities whatsoever arising with respect
to any Newco/UWS Employee or Newco/UWS Former Employee and attributable to any
period on and subsequent to the Effective Date.
(e) Unless otherwise provided herein, no provision of this Agreement
will be construed as requiring any member of the Newco/UWS Group or AMSG Group
to continue any plan, program, policy or arrangement for any period of time on
or after the Effective Date.
(f) Prior to the Effective Date, both UWS and Newco/UWS will amend its
respective plans, programs, policies and arrangements (whether newly
established, assumed or retained) to the extent necessary to reflect the
provisions of this Agreement. Prior to
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the Effective Date, UWS and Newco/UWS shall cooperate with each other and shall
take such actions as are necessary to effect Newco/UWS's assumption of the
Benefit Plans, including, but not limited to, actions necessary to assign to
Newco/UWS insurance contract service agreements and any other contracts relating
to such Benefit Plans.
SECTION 4. UWS NONQUALIFIED COMPENSATION PLANS
(a) Newco/UWS shall assume sponsorship of the UWS Nonqualified
Compensation Plans and shall be responsible for the payment of all Liabilities
under such plans and shall indemnify the AMSG Indemnitees in connection with
such Liabilities.
(b) Newco/UWS shall determine awards for Newco/UWS Employees (and
Newco/UWS Former Employees if applicable) under the UWS Nonqualified
Compensation Plans and shall make such payments to such Newco/UWS Employees (and
Newco Former Employees if applicable).
(c) For purposes of the UWS Nonqualified Compensation Plans,
individuals who, on the Effective Date, cease to be employees of UWS and become
Newco/UWS Employees shall not be deemed to have terminated employment under such
plans as a result of becoming Newco/UWS Employees.
SECTION 5. STOCK OPTIONS AND SARS
(a) AMSG shall take all action necessary to amend (if necessary), or
otherwise provide for adjustments of outstanding awards under the UWS Stock
Option Plans, so that each outstanding UWS option awarded to an AMSG
Employee, an AMSG Former Employee or an AMSG Director (but not including any
AMSG Director who also serves as a Newco/UWS Director) other than Samuel V.
Miller ("Miller"), Ronald A. Weyers ("Weyers") and Wallace J. Hilliard
("Hilliard"), will be adjusted effective as of the Effective Date by
multiplying the number of shares of UWS Common Stock subject to the option by
the AMSG Adjustment Factor and dividing the exercise price per share of the
option by the AMSG Adjustment Factor. For these purposes, the "AMSG
Adjustment Factor" is defined as the quotient obtained by dividing (x) the
closing market price of UWS Common Stock on the Distribution Date by (y) the
closing market price of AMSG Common Stock on the day immediately following
the Distribution Date. Each outstanding UWS option granted to a Newco/UWS
Employee, a Newco/UWS Former Employee, a BCBSUW employee or a Newco/UWS
Director other than Thomas R. Hefty ("Hefty"), Gail L. Hanson ("Hanson") and
C. Edward Mordy ("Mordy"), shall be assumed by Newco/UWS under newly
established Newco/UWS Stock Option Plans and converted into options to
purchase Newco/UWS Stock. Except as provided in this Section 5, the Newco/UWS
Stock Option Plans will be substantially similar to the UWS Stock Option
Plans and shall not provide any additional benefits. Outstanding UWS Options
awarded to Newco/UWS Employees, Newco/UWS Former Employees, BCBSUW employees
and Newco/UWS Directors shall be converted into Newco/UWS
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Options by multiplying the number of shares of UWS Stock subject to
the Option by the Newco/UWS Adjustment Factor and dividing the exercise price by
the Newco/UWS Adjustment Factor. For these purposes the "Newco/UWS Adjustment
Factor" is defined as the quotient obtained by dividing (x) the closing market
price of UWS Common Stock on the Distribution Date by (y) the closing market
price of Newco/UWS Common Stock on the day immediately following the
Distribution Date. Newco/UWS shall establish a new stock option plan covering
both officers and directors. All options issued with respect to Newco/UWS Common
Stock shall be issued pursuant to this plan.
(b) Effective as of the Effective Date, UWS shall take all action
necessary to amend (if necessary) or otherwise provide for adjustments of
outstanding awards under the UWS SAR Plan, so that each outstanding UWS SAR
awarded to an AMSG Employee, an AMSG Former Employee or an AMSG Director will be
adjusted by multiplying the number of shares of UWS Common Stock subject to the
SAR by the AMSG Adjustment Factor and dividing the grant price per share of the
option by the AMSG Adjustment Factor. Each outstanding UWS SAR granted to a
Newco/UWS Employee, a Newco/UWS Former Employee or a Newco/UWS Director shall be
assumed, effective as of the Effective Date, by Newco/UWS under a newly
established Newco/UWS SAR Plan and converted into SARS with respect to Newco/UWS
Common Stock. The Newco/UWS SAR Plan will be substantially similar to the UWS
SAR Plan and shall not provide any additional benefits. Outstanding UWS SARS
awarded to Newco/UWS Employees, Newco/UWS Former Employees and Newco/UWS
Directors shall be converted to Newco/UWS SARS by multiplying the number of SARS
by the Newco/UWS Adjustment Factor and dividing the grant price by the Newco/UWS
Adjustment Factor.
(c) (i) HILLIARD, WEYERS, HEFTY, MORDY & HANSON As of the
Distribution, Hilliard, Weyers, Hefty, Mordy & Hanson shall receive, for each
option each currently holds with respect to one share of UWS Common Stock, an
option with respect to one share of AMSG Common Stock and an option with
respect to one share of Newco/UWS Common Stock. The Options with respect to
AMSG Common Stock which are issued to Hefty, Mordy & Hanson shall continue to
be issued under the UWS Stock Option Plans. The Options with respect to AMSG
Common Stock which are issued to Hilliard and Weyers shall continue to be
issued by AMSG. The exercise price of each option received with respect to
each share of AMSG Common Stock shall be the exercise price of the option
prior to the Distribution divided by the AMSG Adjustment Factor. The Options
with respect to Newco/UWS Common Stock which are issued to Hefty, Mordy &
Hanson shall be issued under the newly established Newco/UWS Stock Option
Plans. The Options with respect to Newco/UWS Common Stock which are issued to
Hilliard and Weyers shall be issued by Newco/UWS. The exercise price of each
option received with respect to Newco/UWS Common Stock shall be the exercise
price of the Option prior to the Distribution divided by the Newco/UWS
Adjustment Factor. (ii) MILLER As of the Distribution, Miller shall receive,
for each option granted to him with respect to one share of UWS Common Stock
on December 6, 1995 an option with respect to one share of AMSG Common Stock
and an option with respect to one share of Newco/UWS Common Stock. The
Options with respect to AMSG Common Stock shall continue to be issued under
the UWS Stock Option Plans. The Options with respect to Newco/UWS Common
Stock shall be issued under the newly established Newco/UWS Stock Option
Plans. The exercise price of each option received with respect to each share
of AMSG Common Stock shall be the exercise price of the option prior to the
Distribution divided by the AMSG Adjustment Factor. The exercise price of
each option received with respect to Newco/UWS Common Stock shall be the
exercise price of the options
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prior to the Distribution divided by the Newco/UWS Adjustment Factor. All
other options Miller has received with respect to UWS Stock shall be adjusted
effective as of the Effective Date by multiplying the number of shares of UWS
Common Stock subject to the option by the AMSG Adjustment Factor and dividing
the exercise price by the AMSG Adjustment Factor. Such Options which are
issued pursuant to the UWS Stock Option Plans shall continue to be issued
pursuant to such plans and such Options which are not issued pursuant to the
UWS Stock Option Plans shall continue to be issued outside of the UWS Stock
Option Plans. (iii) The termination of employment provisions contained in the
UWS Stock Plans or the newly established Newco/UWS Stock Option Plans shall
be applied to any option received pursuant to this subsection which is not
granted by the individual's actual employer (or a member of such employer's
Group) based on the individual's termination of employment with his actual
employer.
(d) Newco/UWS shall indemnify the AMSG Indemnitees in connection with
any Liabilities assumed by Newco/UWS relating to the UWS Stock Option Plan and
the UWS SAR Plans.
SECTION 6. TRANSFERRED RETIREMENT PLANS
(a) Effective on the Effective Date, Newco/UWS shall assume sponsorship
(with BCBSUW) of the Transferred Retirement Plans and the related trusts. Each
Transferred Retirement Plan shall continue to provide benefits for all
individuals who, immediately prior to the Effective Date, were participants in
such Plan. To the extent the benefits were provided prior to the Effective Date,
Newco/UWS agrees that each such participant shall continue to be, to the extent
applicable, entitled, for all purposes under the Transferred Retirement Plans
(including, without limitation, eligibility, vesting and benefit accrual), to be
credited with the compensation and term of service credited to such participant
as of the Effective Date under the terms of the Transferred Retirement Plan as
if such service had been rendered to Newco/UWS and had originally been credited
to such participant under the Transferred Retirement Plan and shall have the
same accrued benefit under the Transferred Retirement Plan immediately following
the Effective Date as was accrued under the Transferred Retirement Plan as of
the Effective Date. AMSG shall, as soon as practicable after the Effective Date,
provide Newco/UWS with such additional information (in the possession of AMSG
and not already in the possession of Newco/UWS) as may be requested by Newco/UWS
and necessary in order for the Newco/UWS Group to assume and administer the
Transferred Retirement Plans. The UWSI/BCBSUW 401(k) Plan shall continue to
permit participants to invest in AMSG Common Stock, as an investment option,
through the 1999 Plan Year.
(b) From and after the Effective Date, the AMSG Group shall cease to
have any Liability whatsoever with respect to participants under the Transferred
Retirement Plans. The Newco/UWS Group shall assume or retain sole responsibility
for, and shall indemnify the AMSG Indemnitees with respect to, all Liabilities
under the Transferred Retirement Plans.
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SECTION 7. SUPPLEMENTAL RETIREMENT PLANS
Effective as of the Effective Date, Newco/UWS shall assume the
Supplemental Retirement Plan (with BCBSUW). Newco/UWS represents that each
participant for whom Newco/UWS has assumed liabilities will be credited with
the compensation and term of service credited to such participant as of the
Effective Date under the Supplemental Retirement Plan, as if such service had
been rendered to Newco/UWS. Newco/UWS will indemnify the AMSG Indemnities
from and against all Liabilities in connection with the Supplemental
Retirement Plan.
SECTION 8. DEFERRED COMPENSATION.
Effective as of the Effective Date, Newco/UWS shall create new deferred
compensation plans which shall assume all Liabilities with respect to the
Deferred Compensation Plans, except that all Liabilities relating to Samuel V.
Miller thereunder shall be retained by the existing Deferred Compensation Plans.
Newco/UWS's new deferred compensation plan shall assume liability for the Hefty
Supplemental Compensation Agreement and any other Deferred Compensation Plans
benefiting Newco/UWS Employees or Newco/UWS Directors. All of the assets in the
Deferred Compensation Trust other than the assets attributable to Samuel V.
Miller's deferred compensation shall be transferred to a new trust established
by Newco/UWS. Newco/UWS will indemnify the AMSG Indemnitees from and against all
Liabilities in connection with the Deferred Compensation Plans except for
Liabilities with respect to Samuel V. Miller. AMSG will indemnify the Newco/UWS
Indemnitees from and against all Liabilities with respect to Samuel V. Miller in
connection with the Deferred Compensation Plans.
SECTION 9. WELFARE PLANS
Effective on or prior to the Effective Date, Newco/UWS shall assume
sponsorship of and assume all Liabilities in connection with the Welfare Plans
maintained by UWS in which Newco/UWS Employees and Newco/UWS Former Employees
participate including, but not limited to, liability for claims which are
incurred but not reported as of the Effective Date. In connection with the
foregoing, UWS agrees to provide Newco/UWS with such information (in the
possession of UWS and not already in the possession of Newco/UWS) as may be
requested by Newco/UWS and necessary for the Newco/UWS Group to assume or
establish any such Welfare Plan. Effective as of the Effective Date, Newco/UWS
shall be responsible for and shall indemnify the AMSG Indemnitees from and
against all Liabilities arising under any Welfare Plan with respect to claims by
Newco/UWS Participants or Newco/UWS Former Employees for benefits incurred prior
to or after the Effective Date pursuant to the terms of the applicable Welfare
Plan.
SECTION 10. OTHER BENEFIT PLANS
Newco/UWS shall assume all Other Benefit Plans as of the Effective
Date. Newco/UWS shall assume and be solely responsible
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for the payment of all Liabilities with respect to any Newco/UWS Participant or
Newco/UWS Former Employee unpaid as of and through the Effective Date under any
Other Benefit Plan. Newco/UWS shall indemnify the AMSG Indemnitees in connection
with all Liabilities assumed by Newco/UWS relating to the Other Benefit Plans.
SECTION 11. TRANSFER OF RESERVES
To the extent that any Liability assumed by any member of the Newco/UWS
Group hereunder is secured by a reserve on the books of UWS, such reserve shall
be transferred to Newco/UWS as soon as practicable on or following the Effective
Date.
SECTION 12. COMPLETE AGREEMENT
This Agreement, together with the Distribution and Indemnity Agreement,
and the Exhibits hereto, shall constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter.
SECTION 13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Wisconsin (other than the laws regarding choice of laws
and conflicts of laws) as to all matters, including matters of validity,
construction, effect, performance and remedies.
SECTION 14. NOTICES
All notices, requests, claims, demands and other communications
hereunder (collectively, "Notices") shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telegram, telex, telecopy or other standard form of telecommunications,
or by registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to UWS:
310 AMS Blvd.
Green Bay, WI 54313
Attn: General Counsel
If to Newco/UWS:
401 W. Michigan Street
Milwaukee, WI 53203
Attn: General Counsel
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or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 15.
SECTION 15. AMENDMENT AND MODIFICATION
This Agreement may be amended, modified or supplemented only by a
written agreement signed by UWS and Newco/UWS.
SECTION 16. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
and obligations hereunder shall be assigned by any party hereto without the
prior written consent of each of the other parties (which consent shall not be
unreasonably withheld). This Agreement is solely for the benefit of the parties
hereto and their Subsidiaries and is not intended to confer upon any other
Persons any rights or remedies hereunder.
SECTION 17. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 18. INTERPRETATION
The Section headings contained in this Agreement are solely for the
purpose of reference, are not part of the agreement of the parties hereto and
shall not in any way affect the meaning or interpretation of this Agreement.
SECTION 19. TERMINATION
Notwithstanding any provision hereof, this Agreement may be terminated
at any time prior to the Effective Date. In the event of such termination, no
party hereto shall have any Liability to any Person by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
NEWCO/UWS, INC.
By:
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UNITED WISCONSIN SERVICES, INC.
By:
------------------------------
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EXHIBIT 10.2
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT ("Agreement") is entered into as of September
___, 1998, by and between United Wisconsin Services, Inc., a Wisconsin
corporation ("UWS") and Newco/UWS, Inc., a Wisconsin corporation ("Newco").
WHEREAS, UWS is the common parent of an "affiliated group," as that term is
defined in Section 1504 of the Code, which currently files consolidated federal
income tax returns; and
WHEREAS, Newco is a wholly-owned subsidiary of UWS that owns or will own
prior to the Distribution the Management Business and 100% of the stock of the
Managed Care Companies; and
WHEREAS, that certain Distribution and Indemnity Agreement, dated September
___, 1998, by and between UWS and Newco, and any exhibits thereto (the
"Distribution Agreement"), provides for the distribution to the holders of UWS
Common Stock all of the outstanding shares of the Newco Common Stock; and
WHEREAS, as a consequence of the Contribution and Distribution, the
Management Business will be owned by Newco and Newco and the Managed Care
Companies will no longer be subsidiaries of UWS and will no longer be members of
UWS's affiliated group; and
WHEREAS, pursuant to Treas. Reg. Section 1.1502-6, UWS and each subsidiary
which was a member of UWS's affiliated group during any part of a consolidated
return year is severally liable for the consolidated federal income tax
liability of that group for such year; and
WHEREAS, the UWS Group and the Newco Group desire to set forth their rights
and obligations with respect to Taxes due for periods both before and after the
Distribution and with respect to certain tax and other liabilities that may be
asserted in connection with the Distribution;
NOW THEREFORE, UWS, on behalf of itself and members of the UWS Group and
Newco, on behalf of itself and members of the Newco Group, in consideration of
the mutual covenants contained herein, agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
"Accrued Liabilities" means certain accrued expenses of UWS relating to the
Management Business (such as vacation pay, profit sharing, contributions and
management bonuses) totalling $___________ million).
"Actually Realized" means, for purposes of determining the timing of any
Taxes relating to any payment, transaction, occurrence or event, the time at
which the amount of Taxes payable by any person is increased above or reduced
below, as the case may be, the amount of Taxes that such person would be
required to pay but for the transaction, occurrence or event.
"Affiliated Group" means an affiliated group of corporations within the
meaning of Section 1504(a) (determined without regard to the exceptions
contained in Section 1504(b)) of the Code for the taxable period in question.
"AMSG Group" means the Affiliated Group of which American Medical Security
Group, Inc. (or any predecessor) ("AMSG") was the common parent for all periods
prior to the merger of AMSG into UWS on December 3, 1996.
"BCBSUW" means Blue Cross & Blue Shield United of Wisconsin, Inc.
"BCBSUW Group" means the Affiliated Group of corporations of which BCBSUW
was the common parent for all periods prior to July 1, 1994.
"BCBSUW Note" means the $70 million principal amount note of UWS in favor
of BCBSUW that matures on October 30, 1999, evidenced by a promissory note and
pledge agreement, both dated October 30, 1996.
"BCBSUW Stock Purchase" means the purchase by BCBSUW of Newco Common Stock
from Newco after the Distribution in an amount or amounts sufficient to increase
BCBSUW's ownership percentage of Newco Common Stock to 51%.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Consolidated Returns" means the consolidated United States federal income
tax returns of the affiliated group of which UWS is the common parent for
consolidated return years beginning before the Date of Distribution and any
consolidated, combined or similar state income tax returns of any members of the
UWS Group for taxable years beginning before the Date of Distribution
(including, in each case, any amendments thereto).
"Contribution" means the transfer by UWS to Newco of the Management
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Business, together with $21 million in working capital, the stock of the
Managed Care Companies, and the Managed Care Service Marks in exchange for
all of the issued and outstanding Newco Common Stock and assumption by Newco
of the Post-Retirement and Accrued Liabilities and the BCBSUW Loan.
"Date of Distribution" or "Distribution Date" means the date UWS ceases to
own 80% of the vote and value of the stock of Newco within the meaning of
Section 1504 of the Code.
"Distribution" means the distribution by UWS of all of the stock of Newco
to UWS's shareholders pursuant to the Distribution Agreement.
"Distribution Agreement" is defined in the recitals to this Agreement.
"Effective Time" means ____________________________.
"Expenses" means out-of-pocket expenses and shall not include any overhead
or indirect costs.
"Fifty Percent Acquisition" or "50% Acquisition" means an acquisition
described in Section 355(e)(2) of the Code.
"Final Determination" means the final resolution of liability for any Tax
for a taxable period (i) by IRS Form 870 or 870-AD (or any successor forms
thereto), on the date of acceptance by or on behalf of the IRS, or by a
comparable form under the laws of other jurisdictions, except that a Form 870 or
870-AD, successor form, or comparable form that reserves the right of the
taxpayer to file a claim for refund and/or the right of the Taxing Authority to
assert a further deficiency shall not constitute a Final Determination; (ii) by
a decision, judgment, decree, or other order by a court of competent
jurisdiction which has become final and unappealable; (iii) by a closing
agreement or offer in compromise under Section 7121 or 7122 of the Code or any
subsequently enacted corresponding provisions of the Code, or comparable
agreements under the laws of other jurisdictions; (iv) by an allowance of a
refund or credit in respect of an overpayment of Tax, but only after the
expiration of all periods during which such refund may be recovered (including
by way of offset) by the Tax imposing jurisdiction; or (v) by any other final
disposition by reason of the expiration of the applicable statute of
limitations.
"IRS" means the Internal Revenue Service.
"Letter Ruling" means the letter, dated June 19, 1998, which was issued by
the IRS in response to the Ruling Request.
"Managed Care Business" means the businesses conducted by the Managed
Care Companies; provided, however, that such business does not include any
operations relating to the Small Group Business.
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"Managed Care Companies" means Compcare Health Services Insurance
Corporation, a Wisconsin corporation (together with its wholly-owned subsidiary,
Heartland Dental Plan, Inc,. a Wisconsin corporation); Valley Health Plan, Inc.,
a Wisconsin corporation; HMO-W, Inc., a Wisconsin corporation (together with its
two wholly-owned subsidiaries, Hometown Insurance Service, Inc., a Wisconsin
corporation and Unity Health Plans Insurance Corporation, a Wisconsin
corporation); United Wisconsin Insurance Company, a Wisconsin corporation;
United Heartland Life Insurance Company, a Wisconsin corporation; Meridian
Resource Corporation, a Wisconsin corporation; Meridian Managed Care, Inc., a
Wisconsin corporation; Meridian Marketing Services, Inc., a Wisconsin
corporation; United Wisconsin Proservices, Inc., a Wisconsin corporation; United
Heartland, Inc., a Wisconsin corporation; and CNR Health, Inc., a Wisconsin
corporation.
"Managed Care Service Marks" means _________________.
"Management Business" means the management and operational services
performed by UWS for corporations (primarily wholly-owned subsidiaries), which
services include product development, actuarial, legal, marketing, finance,
accounting, tax, public relations, executive management, and human resources.
"Newco Group" means, with respect to any period prior to the Date of
Distribution, the Managed Care Companies, Newco and the Management Business;
with respect to any period on or after the Date of Distribution, the Affiliated
Group of which Newco or any successor of Newco is the common parent.
"Party" means either of the parties to this Agreement.
"Restructuring Taxes" means any Taxes incurred in connection with the
Contribution or Distribution, including, without limitation, any transfer Taxes
or any Tax imposed pursuant to or as a result of Section 311 of the Code. If
the Distribution otherwise qualifies under Section 355 of the Code and,
following the Distribution, a 50% Acquisition occurs, then any Taxes imposed as
a result thereof shall also constitute "Restructuring Taxes."
"Ruling Request" means the private letter ruling request submitted by UWS
to the IRS, dated February 18, 1998, together with all exhibits and documents
included therewith and all subsequent submissions to the IRS relating thereto.
"Small Group Business" means the insurance and other products produced and
administered by American Medical Security, Inc. and any predecessor thereto.
"Tainting Act" means any breach, caused by one or more members of the Newco
Group (or their less than wholly-owned subsidiaries), of the representations or
covenants contained in Sections 2.6(a) or 2.6(b).
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"Tax" or "Taxes" means all forms of taxation, whenever created or imposed,
and whether imposed by a nation, locality, municipality, government, state,
federation, or other body (a "Taxing Authority"), and without limiting the
generality of the foregoing shall include net income, alternative or add-on
minimum tax, gross income, sales, use, franchise, gross receipts, value added,
ad valorem, profits, license, payroll, withholding, social security,
unemployment insurance, employment, property, transfer, recording, excise,
severance, stamp, occupation, premium, windfall profit, custom duty, or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any related interest, penalties or other additions to tax, or
additional amounts imposed by any such Taxing Authority. For purposes of this
Agreement, Taxes are "attributable" to a member of the Newco Group or the UWS
Group if such Taxes are imposed as a result of, or in connection with, the
income, assets, employees, or business operations of such member; provided,
however, that (1) "Taxes" are "attributable to" the UWS Group (and not the Newco
Group or any member thereof) to the extent that such Taxes arise as a result, or
in connection with, the income, assets, employees or operations of the Small
Group Business conducted at any time by a member of the Newco Group, including
United Wisconsin Insurance Company ("UWIC"); and (ii) Taxes are "attributable
to" the Newco Group (and not the UWS Group) to the extent that such Taxes arise
as a result of, or in connection with, the income, assets or employees or
operations of United Wisconsin Life Insurance Company ("UWLIC") that are
unrelated to the Small Group Business. The fact that a member of the Newco
Group or the UWS Group prepared or filed a return with respect to any Taxes is
not relevant in determining whether such Taxes are "attributable" to such
member.
"Taxing Authority" means any governmental authority (domestic or foreign),
including, without limitation, any state, municipality, political subdivision or
governmental agency, responsible for the imposition of any Tax.
"Tax Benefit" means any Tax Item which decreases Taxes paid or payable.
"Tax Controversy" means any audit, examination, dispute, suit, action,
litigation or other judicial or administrative proceeding by or against the IRS
or any other Taxing Authority.
"Tax Item" means any item of income, gain, loss, deduction, credit,
recapture of credit or any other item, including, but not limited to, an
adjustment under Code Section 481 resulting from a change in accounting method,
which increases or decreases Taxes paid or payable.
"Tax Returns" means all reports, estimates, declarations of estimated tax,
information statements, returns or other documents required or permitted to be
filed with a Taxing Authority in connection with any Taxes, including but not
limited to requests for extensions of time, information statements and reports,
claims for refund, and amended returns.
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"UWS Group" means, for each taxable period, the Affiliated Group of which
UWS or any successor of UWS is the common parent, provided, however, the UWS
Group shall not include the Newco Group.
ARTICLE II
PRE-EFFECTIVE TIME, POST-EFFECTIVE TIME,
AND OTHER TAX LIABILITIES
2.1 UWS Group Payment Responsibilities.
(a) AMSG Group. UWS shall pay all Taxes of the AMSG Group. UWS
hereby assumes all such liability and shall indemnify and hold harmless Newco
and any member of the Newco Group from and against any and all Taxes
attributable to the AMSG Group.
(b) UWS Group -- Current and Prior Periods. Except as otherwise
provided in this Agreement, UWS shall pay, on a timely basis, all Taxes
attributable to the UWS Group that are imposed for the portion of the taxable
year 1998 that includes and precedes the Effective Time (the "1998 UWS Taxes")
and for all periods ending prior to the Effective Time. The parties acknowledge
that the income, losses, deductions, credits and other items of UWS and the
Subsidiaries may only be included in the 1998 Consolidated Return for the
portion of the taxable year of UWS that ends on the Distribution Date. In order
to determine the amount of liability reflected on the 1998 Consolidated Return
and the portion thereof allocated to each of the Subsidiaries, such
determination shall, to the extent permitted by the Code and the regulations
thereunder, be made by assuming that each corporation had a taxable year ending
at the close of business on the Distribution Date, i.e., by "closing the books"
of each corporation as of the Closing Date, except that exemptions, allowances
or deductions that are calculated on an annual basis, such as the deductions for
depreciation, cost recovery or amortization, shall be apportioned based on the
number of days in each of the two short periods. UWS hereby assumes all such
liability and shall indemnify and hold harmless Newco and any member of the
Newco Group from and against any share or amount of the 1998 UWS Taxes and all
Taxes attributable to the UWS Group that are imposed for periods ending on or
prior to the Effective Time.
(c) UWS Group -- Future Periods. Except as otherwise provided in
this Agreement, UWS shall pay, on a timely basis, all Taxes attributable to the
UWS Group that are imposed for any period beginning after the Effective Time
(and, to the extent not already included in this sentence, all Taxes
attributable to the UWS Group that are imposed for the portion of the taxable
year 1998 following the Effective Time), and shall indemnify and hold harmless
Newco and any member of the Newco Group from and against all such Taxes.
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2.2 Newco Group Payment Responsibilities.
(a) Current and Prior Periods. Except as otherwise provided in this
Agreement, Newco shall pay, on a timely basis, all Taxes attributable to the
Newco Group that are imposed for the portion of the taxable year 1998 that
includes and precedes the Effective Time (the "1998 Newco Taxes") and for all
periods ending on or prior to the Effective Time. Newco hereby assumes all such
liability and shall indemnify and hold harmless UWS and any member of the UWS
Group from and against any share or amount of the 1998 Newco Taxes and all Taxes
attributable to the Newco Group that are imposed for periods ending on or prior
to the Effective Time.
(b) Future Periods. Newco shall pay, on a timely basis, all Taxes
attributable to the Newco Group that are imposed for any period beginning on or
after the Effective Time (and, to the extent not already included in this
sentence, all Taxes attributable to the Newco Group that are imposed for the
portion of the taxable year 1998 following the Effective Time), and shall
indemnify and hold harmless UWS and any member of the UWS Group from and against
all such Taxes.
2.3 Restructuring Taxes.
(a) Generally. Except as otherwise provided in subsections (b), (c),
(d) or (e) hereof, UWS shall pay, and shall indemnify and hold harmless Newco
and any member of the Newco Group from and against, any and all Restructuring
Taxes.
(b) Payment/Indemnification for Tainting Acts. Anything in this
Article II to the contrary notwithstanding, Newco shall pay, and shall indemnify
and hold UWS harmless from and against, (i) any Restructuring Taxes, (ii) any
liability resulting from a decision that UWS is liable to UWS's or Newco's
shareholders because of a Final Determination that the Distribution is taxable
and related Expenses payable by UWS by reason of the receipt of a payment from
(or the payment by) Newco described in this subsection 2.3(b), but in any case
only to the extent such Restructuring Taxes or liability to shareholders is due
exclusively to a Tainting Act.
(c) Payment/Indemnification for Combined Breach. Anything in this
Article II to the contrary notwithstanding, in the event of a Final
Determination that Restructuring Taxes are due to a Taxing Authority and such
Restructuring Taxes are caused by both a Tainting Act, and a breach, caused
solely by any member of the UWS Group, of any written representation or
statement given in connection with the Ruling Request or a breach of any of the
representations or covenants contained in Sections 2.6(c) or 2.6(d) of this
Agreement, or, alternatively, such Restructuring Taxes are caused in part by one
or more members of the UWS Group and in part by one or more members of the Newco
Group (or their less than wholly-owned subsidiaries), then the liability of UWS
and Newco for any Restructuring Taxes arising from such
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Final Determination and any liability to shareholders arising from such Final
Determination shall be borne fifty percent (50%) by UWS and fifty percent
(50%) by Newco. Each Party, jointly and severally with its Affiliated Group,
agrees to pay and to indemnify and hold the other Party harmless from and
against the amount of Restructuring Taxes and liability to shareholders
allocated to such first Party under this subsection 2.3(c).
(d) Payment/Indemnification for 50% Acquisition. Anything in this
Article II to the contrary notwithstanding, (i) in the event of a Final
Determination that Restructuring Taxes are due to a Taxing Authority as a result
of a 50% Acquisition of UWS, UWS shall pay, and shall indemnify and hold
harmless Newco and any member of the Newco Group from any and all such
Restructuring Taxes; (ii) in the event of a Final Determination that
Restructuring Taxes are due to a Taxing Authority as a result of a 50%
Acquisition of Newco, Newco shall pay, and shall indemnify and hold harmless UWS
and any member of the UWS Group from any and all such Restructuring Taxes.
(e) Payment/Indemnification Absence of Any Breach. Anything in this
Article II to the contrary notwithstanding, in the event of a Final
Determination that Restructuring Taxes are due to a Taxing Authority and such
Restructuring Taxes are not caused by (i) a Tainting Act, (ii) a breach, caused
by any member of the UWS Group, of any representation given in connection with
the Ruling Request or a breach of any of the representations or covenants
contained in Sections 2.6(c) or 2.6(d) of this Agreement, or (iii) a combined
breach described in subsection 2.3(c), then the liability of UWS and Newco for
any Restructuring Taxes arising from such Final Determination and any liability
to shareholders arising from such Final Determination shall be borne fifty
percent (50%) by UWS and fifty percent (50%) by Newco. Each Party, jointly and
severally with its Affiliated Group, agrees to pay and hold the other Party
harmless from and against the amount of Restructuring Taxes and liability to
shareholders allocated to such first Party under this subsection 2.3(e).
2.4 Payment of 1998 Newco Estimated Tax Liabilities. Newco shall pay to
UWS an amount equal to the estimated aggregate amount of Taxes that are
attributable and would be owed by the Newco Group for taxable year 1998 where
such Taxes must be paid by UWS as part of a Consolidated Return (the "1998 Newco
Estimated Tax Liabilities"). Such estimated amount shall be computed in a
manner consistent with the intercompany allocation of consolidated federal and
state tax liabilities applied in prior periods.
2.5 Adjustment of 1998 Newco Estimated Tax Liabilities. Upon the filing
of the UWS Group's 1998 Consolidated Returns, the 1998 Newco Estimated Tax
Liabilities as of the Distribution Date shall be restated and adjusted based
upon information then available. An adjusting payment shall be made by UWS or
Newco as is required by any restatement or adjustment of the 1998 Newco
Estimated Tax Liabilities.
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2.6 Representations and Covenants.
(a) Newco Representations. Newco and each member of the Newco Group
represent that as of the date hereof, and covenants that on the Date of
Distribution, there is no plan or intention (1) to liquidate Newco or to merge
or consolidate Newco, or any member of the Newco Group conducting an active
trade or business relied upon in connection with the Contribution or the
Distribution, with any other person subsequent to the Distribution, (2) to sell,
refranchise or otherwise dispose of any asset, or terminate any business, of
Newco or any member of the Newco Group subsequent to the Distribution, in a
manner that would result in any increased Tax liability of the UWS Group or any
member thereof, (3) to take any action that is materially inconsistent with the
information and representations furnished to the IRS in connection with the
Ruling Request regardless of whether such information and representations were
included in the Letter Ruling, (4) to enter into any negotiations, agreements,
or arrangements with respect to transactions or events (including stock
issuances), pursuant to the exercise of options or otherwise, option grants, the
adoption of, or authorization of shares under, a stock option plan, capital
contributions, or acquisitions, but not including the Distribution) which, if
treated as consummated before the proposed distribution, would result in UWS not
having "control" of Newco within the meaning of Sections 355(a)(1)(A) and 368(c)
of the Code at the time of the Distribution, (5) to make any change in equity
structure that would result in UWS not having such "control" (except for the
Distribution), or (6) to repurchase stock of Newco in a manner contrary to the
requirements of Revenue Procedure 96-30 or in a manner contrary to the
representations made in connection with the Ruling Request. Newco, and each
member of the Newco Group represent that as of the date hereof, and covenants
that on the Distribution date, they are not aware of any plan or intention by
the current shareholders of UWS to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in, or securities of, UWS or Newco
subsequent to the Distribution)(in making this representation, the parties
hereto recognize that the shares of UWS are, and the shares of Newco will be,
listed on certain stock exchanges and regular public trading in such shares can
be expected).
(b) Newco Covenants. Newco covenants to UWS that, without the prior
written consent of UWS (1) during the three-period following the Date of
Distribution, Newco will not liquidate, merge of consolidate with any other
person, (2) during the three-year period following the Date of Distribution,
Newco will not sell, refranchise, exchange, distribute or otherwise dispose of
its assets or those of any member of the Newco, or close any of its business
units or those of any member of the Newco Group, in a manner that would result
in any increased Tax liability of the UWS Group or any member thereof,
(3) following the Distribution, Newco will not, for a minimum of three years,
discontinue the active conduct of the Management Business, (4) Newco will not,
nor will it permit any member of the Newco Group to, take any action materially
inconsistent with the information and representations furnished to the IRS in
connection with the Ruling Request, regardless of whether such information and
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representations were included in the Letter Ruling, (5) Newco will not
repurchase stock of Newco in a manner contrary to the requirements of Revenue
Procedure 96-30 or in a manner contrary to the representations made in
connection with the Ruling Request. In no event will Newco enter into any
transaction or make any change in equity structure (including stock issuances,
pursuant to the exercise of options or otherwise, option grants, the adoption
of, or authorization of shares under, a stock option plan, capital
contributions, or acquisitions, but not including the Distribution) during the
three year period following the Distribution which, if treated as consummated
before the Distribution, result in UWS not having "control" of Newco within the
meaning of Section 355(a)(1)(A) and 368(c) of the Code at the time of
Distribution. For purposes of the preceding sentence, any option authorized
under a stock option plan will be treated as having been granted.
(c) UWS Representations. UWS and each member of the UWS Group
represent that as of the date hereof, and covenants that on the Date of
Distribution, there is no plan or intention (1) to liquidate UWS or to merge or
consolidate UWS, or any member of the UWS Group conducting an active trade or
business relied upon in connection with the Restructuring or the Distribution,
with any other person subsequent to the Distribution, (2) to sell, refranchise
or otherwise dispose of any asset, or terminate any business, of UWS or any
member of the Newco Group subsequent to the Distribution, in a manner that would
result in any increased Tax liability of the Newco Group or any member thereof,
(3) to take any action materially inconsistent with the information and
representations furnished to the IRS in connection with the Ruling Request
regardless of whether such information and representations were included in the
Letter Ruling, (4) to enter into any negotiations, agreements, or arrangements
with respect to transactions or events (including stock issuances), pursuant to
the exercise of options or otherwise, option grants, the adoption of, or
authorization of shares under, a stock option plan, capital contributions, or
acquisitions, but not including the Distribution) which, if treated as
consummated before the proposed distribution, would result in UWS not having
"control" of Newco within the meaning of Sections 355(a)(1)(A) and 368(c) of the
Code at the time of the Distribution, (5) to make any change in equity structure
that would result in UWS not having such "control" (except for the
Distribution), or (6) to repurchase stock of UWS in a manner contrary to the
requirements of Revenue Procedure 96-30 or in a manner contrary to the
representations made in connection with the Ruling Request. UWS and the members
of the UWS Group also represents that as of the date hereof, and covenant that
on the Distribution Date, they are not aware of any plan or intention by the
current shareholders of UWS to sell, exchange, transfer by gift, or otherwise
dispose of any of their stock in, or securities of, UWS or Newco subsequent to
the Distribution (in making this latter representation, the parties hereto
recognize that the shares of UWS are, and the shares of Newco will be, listed on
certain stock exchanges and regular public trading in such shares can be
expected).
(d) UWS Covenants. UWS covenants to Newco that, without the prior
written consent of Newco (1) during the three period following the Distribution
Date,
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neither UWS, American Medical Security Holdings, Inc. nor UWLIC will
liquidate, merge of consolidate with any other person, (2) during the three-year
period following the Distribution Date UWS will not sell, refranchise, exchange,
distribute or otherwise dispose of its assets or those of any member of the UWS
Group, or close any of its business units or those of any member of the UWS
Group, in a manner that would result in any increased Tax liability of the Newco
Group or any member thereof, (3) following the Distribution, UWLIC will not, for
a minimum of three years, discontinue the active conduct of the historic
business conducted by UWLIC throughout the five year period prior to the
Distribution, (4) UWS will not, nor will it permit any member of the UWS Group
to, take any action materially inconsistent with the information and
representations furnished to the IRS in connection with the Ruling Request,
regardless of whether such information and representations were included in the
Letter Ruling issued by the IRS, (5) UWS will not repurchase the stock of UWS in
a manner contrary to the requirements of Revenue Procedure 96-30 or in a manner
contrary to the representations made in the Ruling Request; and (6) on or after
the Distribution Date UWS will not, nor will it permit any member of the UWS
Group to, make or change any accounting method, amend any Return or take any Tax
position on any Return, take any other action, omit to take any action or enter
into any transaction that results in any increased Tax liability of the Newco
Group or any member thereof in respect of any Pre-Distribution Period.
ARTICLE III
REFUNDS OF TAXES
Each Party shall be entitled to retain or be paid all refunds of Tax
received, whether in the form of payment, credit or otherwise, from any Taxing
Authority with respect to any Tax Returns filed or to be filed by such Party in
accordance with Article V of this Agreement, provided, however, Newco shall be
entitled to retain or be paid all such refunds with respect to any Taxes to the
extent such Taxes are attributable to property or operations of the Newco Group.
Notwithstanding anything contained in this Article III to the contrary, UWS
shall be entitled to be paid and to retain, and Newco shall not be entitled to
retain and shall be required to pay over to UWS, any refunds of Tax received to
the extent (i) UWS indemnified Newco for the Taxes attributable to such refunds,
or (ii) UWS paid to the Taxing Authority the Taxes attributable to such refunds
and UWS has not been indemnified by Newco.
ARTICLE IV
CARRYBACKS FROM SEPARATE RETURN YEARS
4.1 General. Anything herein to the contrary notwithstanding, the Newco
Group may elect to carry back to any taxable period beginning before the Date of
Distribution any tax attribute, including without limitation, any net operating
or other loss or credit, arising in any taxable period beginning after the Date
of Distribution
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which the Newco Group may properly elect to carry back for federal income tax
purposes or combined state tax purposes to a Consolidated Return. With
respect to any such carryback, UWS consents to the filing of such claims for
refund and other returns as may be required to claim the tax refunds
attributable to such carryback items and to pay promptly after receipt to
Newco the cash amount of any refunds of Taxes, including the cash amount of
any interest resulting from the utilization of such attributes, after taking
into consideration any resulting increase or decrease in the Tax liability of
any member of the UWS Group. To the extent authorized by law, UWS shall act
as collection agent for the Newco Group with respect to any such refund.
4.2 Subsequent Disallowance. In the event that any tax attribute for
which UWS has made a payment pursuant to Section 4.1 is subsequently reduced or
disallowed, Newco shall indemnify UWS and hold it harmless from any Tax
liability, including interest and penalties, incurred by reason of such
reduction or disallowance.
ARTICLE V
TAX RETURN PREPARATION
5.1 Consolidated Returns.
(a) Newco shall prepare and timely file all Consolidated Returns.
UWS shall have a reasonable period to review the 1997 and 1998 Consolidated
Returns. The Consolidated Returns shall be prepared and filed by Newco in
compliance with applicable tax laws and on a basis that is consistent with the
Letter Ruling and, subject to the foregoing, consistent with UWS's prior
Consolidated Returns. UWS hereby expressly appoints Newco as its agent for
these purposes and will take such steps requested by Newco (including executing
such Power of Attorney(s) that may be requested by Newco) in order for Newco to
perform its duties hereunder. UWS shall reimburse Newco for Newco's reasonable
expenses incurred in preparing such returns, to the extent that such preparation
relates to the operations and income of the Small Group Business.
(b) UWS shall be responsible for preparing all information relating
to the UWS Group necessary for Newco to prepare and file the Consolidated
Returns. Such information shall include the annual federal and state, if any,
tax work preparation package, necessary to enable Newco to prepare the
Consolidated Returns, completed and delivered to Newco on or before the same
deadline imposed upon other Newco business units. Such information shall be
used as the basis for Newco's preparation of the Consolidated Returns.
(c) UWS and the UWS Group shall agree to any election or consent
reasonably requested by Newco in connection with such Consolidated Returns and
further agree not to elect to be excluded from any such return.
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(d) UWS and the UWS Group agree to cooperate with Newco in the
preparation of any valuation studies or other reports which are appropriate or
necessary for the preparation of the Consolidated Returns.
5.2 Other Pre-Distribution Returns. All other Tax Returns of any member
of the UWS Group or the Newco Group for periods beginning before the
Distribution Date shall be filed by Newco, except that any such Tax Returns
pertaining exclusively to property or operations of the UWS Group shall be filed
by UWS. Notwithstanding anything contained in this Section 5.2, UWS shall
continue to file all Tax Returns of the members of the Newco Group for periods
beginning before the Distribution Date if the Tax Return for such period is
required to be filed on or prior to the Date of Distribution.
5.3 Post-Distribution Returns. All Tax Returns of any member of the Newco
Group for periods beginning on or after the Distribution Date shall be filed by
Newco, and all Tax Returns of any member of the UWS Group for periods beginning
on or after the Distribution Date shall be filed by UWS.
5.4 Cooperation; Exchange of Information. Each Party shall be responsible
for the timely submission to the other Party of information of which it has
knowledge regarding any Tax Item which may properly be included in any Tax
Return to be filed by the other Party, and shall provide any and all other
information and documentation (including, but not by way of limitation, working
papers and schedules) reasonably requested by the other Party for use in
connection with the preparation and filing of any Tax Returns.
ARTICLE VI
STOCK OPTIONS
6.1 Tax Deductions. Except as provided in Section 6.3 and 6.4, (i) the
UWS Group (and not the Newco Group) shall claim the post-Distribution Date Tax
deductions in respect to UWS Common Stock Options held by Tom Hefty, C. Edward
Mordy and Gail Hanson (for purposes of this Article VI the "Newco Employees")
(ii) the Newco Group (and not the UWS Group) shall claim the post-Distribution
Date Tax deductions in respect to Newco Common Stock Options held by Samuel V.
Miller, Wallace Hilliard and Ronald Weyers (for purposes of this Article VI, the
"UWS Employees").
6.2 Notices, Withholding, Reporting.
(a) UWS shall promptly notify Newco of any post-Distribution Date
event giving rise to income to any Newco Employees in connection with the UWS
Common Stock Options and, if required by law, UWS shall withhold applicable
Taxes and satisfy applicable Tax reporting obligations in connection therewith.
UWS shall within ten days of demand thereof reimburse Newco for all reasonable
out-of-pocket
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expenses incurred in connection with the UWS Common Stock Options, including
with respect to incremental Tax reporting obligations and incremental
employment Tax obligations; provided that Newco shall use reasonable efforts
to collect any such amounts required to be paid by the Newco Employees from
such Newco Employees.
(b) Newco shall promptly notify UWS of any post-Distribution Date
event giving rise to income to any UWS Employees in connection with the Newco
Common Stock Options and, if required by law, Newco shall withhold applicable
Taxes and satisfy applicable Tax reporting obligations in connection therewith.
Newco shall within ten days of demand thereof reimburse UWS for all reasonable
out-of-pocket expenses incurred in connection with the Newco Common Stock
Options, including with respect to incremental Tax reporting obligations and
incremental employment Tax obligations; provided that UWS shall use reasonable
efforts to collect any such amounts required to be paid by UWS Employees from
such UWS Employees.
6.3 Tax Audit Adjustments. Notwithstanding the provisions of Section 6.1,
in the event a Tax audit proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to subsection 6.4, that
(i) all or a portion of the Tax deductions in respect of UWS Common Stock
Options held by Newco Employees should have been claimed by the Newco Group,
Newco shall claim such deductions (by an amended Return or otherwise) and shall
pay to UWS the amount of any Tax refund or credit arising in respect of such Tax
deduction within ten days after such Tax refund or credit is Actually Realized
by the Newco Tax Group and/or (ii) all or a portion of the Tax deductions in
respect of Newco Common Stock Options held by UWS Employees should have been
claimed by the UWS Group, UWS shall claim such deductions (by an amended Return
or otherwise) and shall pay to Newco the amount of any Tax refund or credit
arising in respect of such Tax deduction within ten days after such Tax refund
or credit is Actually Realized by the UWS Group.
6.4 Change in Law. Notwithstanding the agreement with respect to
reporting of Tax items attributable to options set forth in subsection 6.1
above, neither the UWS Group nor the Newco Group shall have any obligation to
report any such Tax items as set forth in such Sections in the event that either
such Party determines, based on an opinion of tax counsel, which opinion shall
be satisfactory to the other party, that there is no substantial authority to
support reporting such Tax items on a return filed by such party as a result of
a change in or amendment to any law or regulation, or any change in the official
interpretation thereof, effective or occurring after the date of this Agreement,
and such Group provides prompt notice to the other Group of any such
determination.
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ARTICLE VII
TAX CONTROVERSIES AND RECORDS
7.1 Tax Controversies.
(a) Except as otherwise provided in this Article VII, UWS shall have
full responsibility in handling, settling or contesting any Tax Controversy
involving a Tax Return for which it has filing responsibility hereunder
(including any and all Returns of the AMSG Group) and, except as provided in
this subsection 7.1(a), Newco shall have full responsibility in handling,
settling or contesting any Tax Controversy involving a Tax Return for which it
has filing responsibility (including, for this purpose, any Tax Controversy
involving Restructuring Taxes), and any costs incurred in handling, settling or
contesting any Tax Controversy shall be borne in proportion to the Tax
originally proposed by the IRS or other Taxing Authority in a "30-day letter" or
similar document.
(b) The Party responsible for any Tax Controversy shall use all
reasonable efforts (taking into consideration all relevant facts and
circumstances known to the Party) to resist any deficiency assertions by any
Taxing Authority regardless of which Party is ultimately responsible for any
such Tax under this Agreement.
(c) Each Party shall give prompt notice to the other of any
communication with the IRS or other Taxing Authority which may affect any Tax
Item attributable to the other Party. Each Party shall give prompt notice to
the other of any communication with the IRS or other Taxing Authority which
relates to a Tax Controversy for which the other Party is responsible hereunder.
UWS shall notify Newco promptly of any communication with the IRS or other
Taxing Authority relating in whole or in part to (i) Restructuring Taxes for
which Newco could be liable pursuant to Section 2.3 hereof, or (ii) Taxes for
which Newco could be liable pursuant to Section 2.2 hereof (any proposed
adjustment described in subsection 7.1(c)(i) and (ii) referred to as a "Newco
Indemnity Issue"). Newco shall notify UWS promptly of any communication with
the IRS or other Taxing Authority relating in whole or in part to (iii) Taxes
described in subsection 2.1(c) hereof, (iv) any Restructuring Taxes (whether or
not it is alleged that a member of the UWS Group is at fault or is partially at
fault), or (v) any Taxes for which UWS could be liable pursuant to subsections
2.1(a) and 2.1(b) (each item described in subsection 7.1(c)(iii) through (v)
referred to as an "UWS Indemnity Issue").
(d) UWS shall have 30 days after receipt of such notice from Newco
within which to object to the proposed adjustment relating to a UWS Indemnity
Issue (that is not a Newco Issue). If UWS does not notify Newco within such 30
day period that it objects to the proposed adjustment, then Newco shall have
exclusive control over all stages of the Tax Controversy, including full
authority to determine whether and in what manner to contest or compromise the
issue, unless and until Newco so notifies UWS.
(e) If UWS notifies Newco that it objects to the proposed adjustment
relating to a UWS Indemnity Issue (that is not a Newco Issue), then Newco shall
not
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thereafter consent to the adjustment or compromise of such UWS Indemnity
Issue without the consent of UWS, but shall cooperate with UWS to resolve the
UWS Indemnity Issue on a basis acceptable to UWS. Prior to the issuance of a
notice of proposed adjustment or similar stage in the proceedings, however,
Newco shall be responsible for the conduct of the audit, including matters
pertaining to such UWS Indemnity Issue. Newco shall notify UWS in advance of
any conferences, meetings, and proceedings pertaining to the audit and, at
its own expense, UWS shall have the right to attend all such proceedings with
any Taxing Authority, the subject matter of which is or includes such UWS
Indemnity Issue.
(f) Upon the issuance of a notice of proposed adjustment or similar
stage in the proceedings, Newco shall assume the conduct of all further
proceedings, with counsel selected by it, at Newco's sole expense, insofar as
the proceedings relate to a Newco Indemnity Issue (that is not an UWS Issue),
and thereafter Newco and UWS shall jointly be responsible for the conduct of
proceedings to contest such Newco Indemnity Issue.
(g) In the event that Newco receives a notice of deficiency from the
IRS, or a similar notice from any other Taxing Authority, and such notice
relates exclusively to one or more UWS Indemnity Issues (none of which are Newco
Issues) and does not relate to a Newco Issue then:
(i) Upon receiving a written request from UWS, given no later
than a date reasonably necessary to permit preparation and timely
filing of a petition in the United States Tax Court for
redetermination of the deficiency, or a court of similar jurisdiction
with respect to Taxes imposed by any other Taxing Authority, Newco
shall timely file such petition (at UWS's sole expense); or
(ii) If (1) UWS does not request Newco to file a petition for
redetermination of the deficiency pursuant to subsection
7.1(g)(i)hereof, (2) UWS requests that Newco file a claim for refund,
and (3) UWS provides Newco with sufficient funds to pay the deficiency
relating to the UWS Indemnity Issue, then Newco (at UWS's sole
expense) shall file a claim for refund thereof and, if the claim is
denied, bring an action in a court of competent jurisdiction seeking
such refund.
(iii) In the event that a judgment of the United States Tax Court
or other court of competent jurisdiction results in an adverse
determination with respect to the UWS Indemnity Issue, then UWS shall
have the right to cause Newco to appeal from such adverse
determination at UWS's sole expense.
(iv) UWS and its representatives, at UWS's sole expense, shall be
entitled to participate in (1) all conferences, meetings, or
proceedings
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with any Taxing Authority, the subject matter of which is a UWS
Indemnity Issue (that is not a Newco Issue), and (2) all appearances
before any court, the subject matter of which is a UWS Indemnity Issue
(that is not a Newco Issue).
(h) The right to participate referred to in subsection 7.1(g)(iv)
hereof shall include the submission and content of documentation, memoranda of
fact and law and briefs, the conduct of oral arguments or presentations, the
selection of witnesses, and the negotiation of stipulations of fact with respect
to a UWS Indemnity Issue (that is not a Newco Issue).
(i) If the proposed adjustment relating to a UWS Indemnity Issue is
also a Newco Issue (or if the proposed adjustment relates solely to a Newco
Issue that is not a UWS Indemnity Issue), then Newco shall be fully responsible
for the conduct of the Tax Controversy, including matters pertaining to any UWS
Indemnity Issue, but Newco shall use reasonable efforts to involve UWS in the
conduct of the Tax Controversy insofar as it relates to any UWS Indemnity Issue.
Newco shall notify UWS in advance of any such proceedings and, at its own
expense, UWS shall attend all conferences, meetings, or proceedings with any
Taxing Authority, the subject matter of which is or includes any UWS Indemnity
Issue. UWS shall use all reasonable efforts to assist Newco in resisting any
deficiency assertions by any Taxing Authority relating to any such Newco
Indemnity Issue.
7.2 Cooperation. UWS and Newco agree to afford full cooperation to one
another and to their respective representatives, if any, in any Tax Controversy
involving:
(a) any Tax Return filed or required to be filed by or for any member
of the UWS Group or the Newco Group for any pre-Distribution period, or
(b) any item or issue affecting UWS or Newco's potential liability
hereunder. Such cooperation shall include, but not by way of limitation:
(i) preparing responses to information requests by any Taxing
Authority;
(ii) making available books, records and other documentation
(including, but not by way of limitation, working papers and
schedules) relevant to such proceeding, and systems support for
documentation furnished in electronic form;
(iii) making directors, officers or employees available to appear
in person for interview or for testimony;
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(iv) making employees available on a mutually convenient basis to
provide additional information and explanation of materials provided
hereunder;
(v) executing powers of attorney, tax information authorizations
and any other necessary or appropriate authorizations;
(vi) executing agreements with the Taxing Authority or other
documents reasonably necessary or appropriate for the settlement or
pursuit of the contest of such issue; and
(vii) doing whatever is reasonable in the circumstances to assist
the other Party in proving that an acquisition does not constitute a
50% Acquisition.
7.3 Record Retention. The Parties, on behalf of themselves and the members
of their respective Affiliated Groups, agree to retain all books, records,
returns, schedules, documents and all material papers or relevant items of
information for periods prior to the Date of Distribution for the later of (i)
seven (7) years; (ii) the full period of the applicable statute of limitations,
including any extensions thereof; or (iii) in the case of a Tax year which is
the subject of an audit, until a Final Determination of Tax with respect to such
year occurs. If, under legislation enacted after the date of this Agreement,
the statute of limitations with respect to a transaction does not begin to run
until the IRS or other Taxing Authority is notified of the transaction, then the
statute of limitations for purposes of subsection 7.3(ii) shall also not begin
to run until such notification is given.
ARTICLE VIII
PAYMENTS
8.1 Payments in General. Any amount required to be paid by one Party to
the other pursuant to this Agreement (other than the payments described in
Sections 2.4 and 2.5 and subsections 2.2(c) and 7.1(g)(ii)) shall be paid in
immediately available funds within thirty (30) days after written demand
therefor from the other Party given after a Final Determination of the amount
thereof.
8.2 Interest on Late Payments. Any amount payable under this Agreement by
one Party to another Party shall, if not paid within ten (10) business days
after the due date specified in this Agreement, bear interest from such due date
until the date paid at the applicable Federal short term rate as defined in
Section 6621 of the Code in effect on the due date.
8.3 Notice. UWS and Newco shall give each other prompt notice of any
payment that may be due under this Agreement.
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8.4 Tax Items. Except to the extent already provided for in this
Agreement, the amount of any indemnification payment required hereunder shall
take into account the Tax Benefit, if any, allowable to the indemnified Party
resulting from the event giving rise to such indemnification payment and
additional Taxes, if any, incurred by the indemnified Party resulting from such
indemnification and any additional indemnification payment required by this
section. The Parties will cooperate with each other to determine the amounts
described in this section. This Section 8.4 shall not apply to subsection
2.2(c).
ARTICLE IX
ADMINISTRATIVE PROVISIONS
9.1 Interest. Except as expressly provided herein, no obligation to pay
or right to collect interest or other amounts shall arise by virtue of this
Agreement.
9.2 Expenses. Each party to this Agreement hereby agrees to be
responsible for all of the Expenses which it may incur in carrying out its
duties hereunder.
ARTICLE X
DISPUTE RESOLUTION
Either Party may give the other written notice of any controversy or claim
between the Parties arising out of or relating to this Agreement, or the breach
hereof ("Claim") not resolved in the normal course of business. Within 10 days
after delivery of the notice of a Claim, the receiving Party shall submit to the
other a written response. The notice and response shall include a statement of
such Party's position and a summary of arguments supporting that position and
the name and title of the executive who will represent that Party and of any
other person who will accompany such executive in resolving the Claim. Within
twenty (20) days after delivery of the first notice, the executives of both
Parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, and shall negotiate in good faith to
attempt to resolve the Claim. All reasonable requests for information made by
one Party to the other will be honored.
Claims not resolved through negotiation between executives within sixty
(60) days after the delivery of the first notice described above shall be
submitted, upon application of either Party, for resolution by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"). Arbitration shall be by a single
arbitrator experienced in the matters that are at issue with respect to the
Claim, which arbitrator shall be selected by the Parties in accordance with the
Rules. The arbitration shall be conducted in Milwaukee, Wisconsin (or at any
other place agreed upon by the Parties and the arbitrator). The
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decision of the arbitrator shall be final and binding as to all matters at
issue with respect to the Claim; provided, however, if necessary such
decision may be enforced by either Party in any court of law having
jurisdiction over the Parties or the subject matter of the Claim. Unless the
arbitrator shall assess the costs and expenses of the arbitration proceeding
and of the Parties differently, each Party shall pay its costs and expenses
incurred in connection with the arbitration proceeding, and the costs and
expenses of the arbitrator shall be shared equally by the Parties.
All Claims shall be resolved only in accordance with the provisions of this
Article IX; provided, however, that nothing contained herein shall preclude
either Party from seeking or obtaining (i) injunctive relief to prevent an
actual or threatened breach of any of the provisions of this Agreement, or (ii)
equitable or other judicial relief to enforce the provisions of this Article IX
hereof or to preserve the status quo pending resolution of Claims hereunder.
ARTICLE XI
MISCELLANEOUS
11.1 Enforceability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions contained herein shall not in anyway
be affected or impaired thereby.
11.2 Modification of Agreement. No modification, amendment or waiver of
any provision of this Agreement shall be effective unless the same shall be in
writing, and signed by each of the Parties hereto, and then such modification,
amendment or waiver shall be effective only in the specific instance and for the
purpose for which given.
11.3 Successors and Assigns. Except to the extent provided by operation of
law or as provided herein, neither this Agreement nor any rights hereunder shall
be assignable or transferable by either Party hereto, without the prior written
consent of the other Party hereto. Each Party hereby guarantees the performance
of all actions, covenants, agreements and obligations provided under this
Agreement of each of its subsidiaries. Each Party shall, upon the written
request of the other Party, cause any of its subsidiaries to formally execute
this Agreement. This Agreement shall be binding upon, and shall inure to the
benefit of, the successors and assigns of each Party. If one or more persons
acquires all or substantially all of the assets of UWS or Newco, UWS and Newco
each agree that, as a condition to the closing of such acquisition, such person
or persons must agree to indemnify the nonacquired Party for any Restructuring
Taxes incurred by that Party as a result of such acquisition.
11.4 Term. This Agreement shall commence on the date of execution
indicated above and shall continue in effect until otherwise agreed to in
writing by the
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Parties or their successors and assigns.
11.5 Rights Confined to Parties. Nothing expressed or implied herein is
intended or shall be constructed to confer upon or to give to any person, firm
or corporation (other than the Parties hereto, members of their Affiliated
Groups, and their successors and assigns) any right, remedy or claim under or by
reason of this Agreement or of any term, covenant or condition hereof. All
terms, covenants, conditions, promises and agreements contained herein shall be
for the sole and exclusive benefit of the Parties hereto, the members of their
Affiliated Groups, and their successors and assigns.
11.6 Notices. All demands, notices and communications under this Agreement
shall be in writing and shall be deemed to have been duly given if personally
delivered or sent by certified or registered United States Mail, postage
prepaid, to:
(a) in the case of UWS:
General Counsel
American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, WI 54313
(b) in the case of Newco:
General Counsel
United Wisconsin Services, Inc.
401 W. Michigan Street
Milwaukee, WI 53203
11.7 Effect of Headings. The paragraph headings herein are for convenience
only and shall not affect the construction hereof.
11.8 Governing Law. The provisions of this Agreement, and all rights and
obligations of the Parties hereunder shall be governed by the laws of the State
of Wisconsin.
11.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall, when so executed, be considered an original
and all of which, taken together, shall be considered one document.
11.10 Prior Tax Sharing Agreements. This Agreement shall supersede any
and all tax sharing and indemnification (or similar) agreements between any of
the members of the UWS Group, on the one hand, and any of the members of the
Newco Group, on the other hand.
UNITED WISCONSIN SERVICES, INC.
By:__________________________
Title:____________________________
NEWCO/UWS, INC.
By:__________________________
Title:____________________________
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Exhibit 10.11
INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as of
this 1st day of January, 1998 ("Effective Date"), by and among Blue Cross & Blue
Shield United of Wisconsin, a service insurance corporation organized pursuant
to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin Services, Inc., an
insurance holding company organized pursuant to Ch. 180, Wisconsin Statutes
("UWS"), and United Wisconsin Insurance Company, a stock insurance corporation
organized pursuant to Ch. 611, Wisconsin Statutes ("UWIC").
RECITALS
WHEREAS, BCBSUW, UWS and UWIC are affiliated corporations, with UWIC
being a wholly owned subsidiary of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and UWS,
and this Agreement is intended to further specify the services, costs, and
allocation methods contemplated by that service agreement;
WHEREAS, BCBSUW and UWS provide to each other business resources and
services that are necessary for the continued operation of BCBSUW's and UWS's
business, and UWIC provides both BCBSUW and UWS with officer services;
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an officer leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to each other and the
compensation and cost allocations therefor; and (iii) the respective rights and
responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
I. LEASE OF OFFICERS
A. DEFINITION.
1. "Leased Officers" are those UWS employees that perform
services as officers of BCBSUW, those BCBSUW employees that perform services
<PAGE>
as officers of UWS, and those UWIC employees that perform services as officers
of BCBSUW and/or UWS. (Leased Officers may also be referred to herein as
"Officers").
B. LEASE OF OFFICERS.
1. OBLIGATION TO PROVIDE OFFICERS. BCBSUW and UWS shall
provide to each other, and UWIC shall provide to BCBSUW and/or UWS, to the
extent requested by BCBSUW and/or UWS and with the consent of the respective
company's Board of Directors (the "Board"), the entire requirement of Leased
Officers as shall be necessary or appropriate for the conduct of BCBSUW's and
UWS's business.
2. INDEPENDENT HIRING. Notwithstanding Section I.B.1, the
Boards shall have the right to obtain and hire directly any or all Officers from
any other sources and on any terms to perform such duties, on behalf of BCBSUW
or UWS, as the case may be, as the Boards may consider appropriate from time to
time. Should the Boards hire officers from other sources, it will not hire any
individual who was a BCBSUW, UWS, or UWIC employee leased under this Agreement
within three (3) months preceding such hiring, without the written consent of
the other party(ies) to this Agreement.
3. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources
Department ("Human Resources") shall be responsible for the implementation,
management, and operation of BCBSUW's, UWS's, and UWIC's leasing obligations
under this Agreement.
C. EMPLOYMENT RELATIONSHIPS. BCBSUW, UWS, and UWIC shall be, and
shall have all the privileges, rights, and responsibilities of, common law
employers of all BCBSUW, UWS, and UWIC employees, respectively, whether or not
the employee actually performs services for BCBSUW or UWS. Employment,
termination, and terms of employment of all Leased Officers shall be reserved to
the full Boards of Directors of the Leased Officer's common law employer
(BCBSUW, UWS or UWIC, as the case may be), provided, however, that while any
such individual is leased to perform services as an officer under this
Agreement, BCBSUW, UWS or UWIC, as the case may be, will be consulted prior to
all determinations regarding the employment, or terms thereof, of such
individuals; provided, however, that such input shall be of an advisory nature
and will not be binding on the common law employer of such individuals. Officers
leased to UWS shall remain employees of BCBSUW and UWIC, respectively, and
Officers leased to BCBSUW shall remain employees of UWS and UWIC, respectively,
and shall in no way be treated as or considered employees of the company to
which such Officer is leased.
II. SERVICES AND OTHER RESOURCES
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A. SERVICES AND RESOURCES PROVIDED BY BCBSUW TO UWS. BCBSUW shall
provide to UWS, to the extent requested by UWS and subject to Section V, the
following services and resources (together "BCBSUW Services"). BCBSUW shall
supply BCBSUW Services only if UWS has determined not to have its own employees
or third parties furnish the BCBSUW Services, subject to Section V.
1. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of UWS's operations.
2. BUILDING SERVICES. Building services, including, but not
limited to, repair and maintenance of any property and facilities made available
hereunder as shall be necessary to maintain such property and facilities in good
working order, and such other building services as may be necessary or
appropriate for the conduct of UWS's business.
3. OFFICE SERVICES. Such office services as shall be necessary
or appropriate for the conduct of UWS's business.
4. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, telecommunications, centralized mailing, technology support and
central data base maintenance, as shall be necessary or appropriate for the
conduct of UWS's business.
B. SERVICES AND RESOURCES PROVIDED BY UWS TO BCBSUW. UWS shall
provide to BCBSUW, to the extent requested by BCBSUW and subject to Section V,
the following services and resources (together "UWS Services"). UWS shall supply
UWS Services only if BCBSUS has determined not to have its own employees or
third parties furnish the UWS Services, subject to Section V.
1. CORPORATE SUPPORT SERVICES. Such corporate support
services, including, but not limited to, corporate compliance, legal, and
government relations, as shall be necessary or appropriate for the conduct of
BCBSUW's business.
2. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of BCBSUW's business.
3. MARKETING AND COMMUNICATIONS. Such corporate marketing and
communications services, including, but not limited to, public relations and
employee community events, as shall be necessary or appropriate for the conduct
of BCBSUW's business.
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4. HUMAN RESOURCES. Such human resource services, including,
but not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate for the conduct of BCBSUW's business.
5. FINANCIAL SERVICES. Such financial services, including, but
not limited to, tax, treasury, cash management, administration of financial
systems, corporate accounting, and strategic planning/consulting, as shall be
necessary or appropriate for the conduct of BCBSUW's business.
6. ACTUARIAL AND UNDERWRITING SERVICES. Such actuarial and
underwriting services as shall be necessary or appropriate for the conduct of
BCBSUW's business.
C. STAFFING. BCBSUW and UWS shall both maintain an adequate
source of qualified employees to ensure the acceptable performance of BCBSUW and
UWS Services.
III. COST ALLOCATION METHODS
A. LEASED OFFICERS.
1. ALLOCATION OF OFFICER COSTS. To the extent that Officers
are leased to BCBSUW or UWS, costs associated with the lease of such Officers
shall be indirectly charged to BCBSUW or UWS, as the case may be, as provided in
Section III.B.2.
B. BCBSUW AND UWS SERVICES. To the extent that BCBSUW Services
are rendered on behalf of or for the benefit of UWS, and to the extent that UWS
Services are rendered on behalf of or for the benefit of BCBSUW, costs therefor
shall be allocated to UWS and BCBSUW, respectively, as follows:
1. DIRECT CHARGES. Costs associated with those BCBSUW and UWS
Services identified on Schedule 1 shall be directly charged to UWS and BCBSUW,
respectively, on a monthly basis.
2. INDIRECT ALLOCATIONS. Cost allocations for (i) those BCBSUW
Services provided to UWS, as identified on Schedule 2 ("Schedule 2 Services"),
and (ii) those UWS Services provided to BCBSUW, as identified on Schedule 3
("Schedule 3 Services"), shall be determined annually for the next succeeding
Fiscal Year ("Fiscal Year" shall mean January 1 through December 31) on the
basis of utilization and cost studies performed by UWS. Through the use of
Indirect Allocation Methods, as described in Schedule 4 attached hereto,
utilization of the services identified on Schedules 2 and 3 shall be reduced to
an allocation percentage for each company in the BCBSUW/UWS Group
<PAGE>
("BCBSUW/UWS Group" includes BCBSUW, UWS and UWS subsidiaries). Each month (i)
all costs associated with the utilization of Schedule 2 Services shall be
multiplied by UWS's total allocation percentage to determine UWS's allocable
share of costs for Schedule 2 Services, and (ii) all costs associated with the
utilization of Schedule 3 Services shall be multiplied by BCBSUW's total
allocation percentage to determine BCBSUW's allocable share of costs for
Schedule 3 Services. For any specific Schedule 3 Service, BCBSUW's total
allocation percentage shall be determined by adding the applicable allocation
percentage from each of the service agreements included in Schedule 3.
Notwithstanding the preceding, (i) allocation percentages are subject to interim
Fiscal Year adjustments to allocate more accurately costs based on actual
utilization by each company in the BCBSUW/UWS Group, (ii) costs associated with
Schedule 2 Services performed directly for UWS shall be allocable to UWS only
and costs associated with Schedule 3 Services performed directly for BCBSUW
shall be allocable to BCBSUW only, and (iii) subject to approval by the Vice
President of Finance for the BCBSUW/UWS Group, the Indirect Allocation Method
used to allocate costs to UWS for specific Schedule 2 Services and to BCBSUW for
specific Schedule 3 Services shall be subject to agreement by the parties on an
annual basis.(1) Schedule 2, attached hereto, sets forth UWS's annual allocation
percentages for costs and expenses associated with Schedule 2 Services. Schedule
3, attached hereto, sets forth BCBSUW's annual allocation percentages for costs
and expenses associated with Schedule 3 Services. Schedule 2 and Schedule 3
shall be amended annually.
3. CHARGEBACKS. Costs associated with those BCBSUW and UWS
Services identified on Schedule 5 ("Chargeback Services") either shall be (i)
indirectly allocated to UWS or BCBSUW, as the case may be, as discussed in
Section III.B.2, if the cost is a general expense for providing the Chargeback
Service to all users; or (ii) directly charged to a UWS or BCBSUW cost center,
as the case may be, if the cost is an expense specific to a UWS or BCBSUW cost
center. Thus, costs associated with Chargeback Services shall be either directly
charged or indirectly allocated to UWS and BCBSUW on a monthly basis, depending
on the nature of the cost.
4. CHARGES AND ALLOCATIONS TO BCBSUW REGIONS. Direct charges
and indirect allocations to BCBSUW subsequently shall be charged/re-allocated to
the regional operations of BCBSUW ("Regions") as follows:
(a) Direct charges to BCBSUW, which are attributable
to a specific regional operation(s) of BCBSUW, shall be charged to the
Region(s).
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should
be considered: (i) compliance with FAS rules; (ii) other federal
government contracting implications; and (iii) feasibility.
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(b) Indirect cost allocations to BCBSUW for Schedule 3
Services shall be re-allocated to the Regions as follows:
(i) Regional Expenses: Regional expense allocations
shall be determined using only the BCBSUW (Total Less All Other LOB's) and the
FEP services agreements included in Schedule 3 (the "BCBSUW/FEP Service
Agreements"). Schedule 6, attached hereto, identifies certain cost centers from
the BCBSUW/FEP Service Agreements that shall be allocated to the Regions in the
manner specified in Schedule 6. The remainder of the BCBSUW indirect allocations
from the BCBSUW/FEP Service Agreements shall be re-allocated to the Regions pro
rata based on earned fees.
(ii) Unique Lines of Business ("LOB") Expenses: All
service agreements included in Schedule 3, other than the BCBSUW/FEP Service
Agreements, shall be referred to herein as "Unique LOB Service Agreements." The
BCBSUW indirect allocations from certain Unique LOB Service Agreements shall be
allocated to the Regions as provided in Schedule 7, attached hereto.
Notwithstanding Section III.B.4(b), the methodology used to allocate BCBSUW
indirect cost allocations to the Regions shall be subject to negotiation, on an
annual basis, by the Finance Manager of BCBSUW and the directors of the BCBSUW
Regions. Accordingly, Schedule 6 and 7 shall be amended, if necessary, on an
annual basis.
C. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that UWS
leases or utilizes the services of Officers from BCBSUW and/or UWIC, and to the
extent that UWS utilizes BCBSUW Services, BCBSUW and/or UWIC may charge UWS a
reasonable negotiated fee therefor, as set forth in Schedule 8. To the extent
that BCBSUW leases or utilizes the services of Officers from UWS and/or UWIC,
and to the extent that BCBSUW utilizes UWS Services, UWS and/or UWIC may charge
BCBSUW a reasonable negotiated fee therefor, as set forth in Schedule 9.
IV. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
A. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses
shall be allocated in a fair and reasonable manner. BCBSUW, UWS, and UWIC shall
maintain reasonable and appropriate operating procedures to allocate costs and
expenses so as to enable each party's independent certified public accounting
firm to audit such costs and the allocation thereof. At the end of each month,
BCBSUW, UWS, and UWIC shall provide or make available to each other appropriate
documentation respecting the costs and expenses that are allocated,
<PAGE>
either directly or indirectly, to each other for that month in sufficient detail
to permit the other party to identify the sources of such charges.
B. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month,
not later than the 30th day of the following month, (i) UWS shall promptly
reimburse BCBSUW and UWIC for all costs and expenses incurred by BCBSUW and UWIC
in furnishing or obtaining the Officers and BCBSUW Services provided for under
Sections I and II, which amount shall be based on the total of direct charges
and indirect allocations to UWS for the preceding month, and (ii) BCBSUW shall
promptly reimburse UWS and UWIC for all costs and expenses incurred by UWS and
UWIC in furnishing or obtaining the Officers and UWS Services provided for under
Sections I and II, which amount shall be based on the total of direct charges
and indirect allocations to BCBSUW for the preceding month. Notwithstanding the
preceding, the parties reserve the right to offset amounts due to each other
under this Agreement.
V. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
A. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, BCBSUW
and UWS shall be required to utilize BCBSUW and UWS Services budgeted to each
other for that Contract Year, unless otherwise negotiated by the parties.
("Contract Year" shall mean January 1 through December 31.) If, at any time
during the Contract Year, BCBSUW and/or UWS require services or other resources
in addition to those budgeted to each other, BCBSUW and/or UWS, as the case may
be, may obtain such services or resources from a source outside of the
BCBSUW/UWS Group only if such company's additional needs cannot be accommodated
by each other.
B. CONTRACT YEAR RENEWAL MODIFICATIONS. BCBSUW shall provide
UWS and/or UWIC and UWS shall provide BCBSUW and/or UWIC with at least three (3)
months' written notice prior to the next Contract Year (unless the parties
mutually agree upon a shorter period) of its intent to do any of the following:
1. Increase or decrease the number or utilization of Officers
or BCBSUW or UWS Services, as the case may be, with respect to the next Contract
Year;
2. Obtain services or other resources, which are available
from each other, from a party outside the BCBSUW/UWS Group with respect to the
next Contract Year.
C. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have
the right to provide BCBSUW and UWS Services to each other either directly or
indirectly, through any company in the BCBSUW/UWS Group.
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BCBSUW and UWS may provide services and other resources to each other indirectly
through purchase from or contract with a source outside the BCBSUW/UWS Group
("Outside Services") only with the other party's consent. Costs for Outside
Services shall be subject to a cost structure negotiated by the parties hereto.
VI. EXECUTION OF ANCILLARY AGREEMENTS
A. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the
event of the Change of Control (as hereinafter defined in this Section) of any
party hereto and while this Agreement remains in effect, BCBSUW, UWS, or UWIC
may, for the sole purpose of documenting in more detail the terms and respective
rights and obligations of the parties with respect to Officers and Services
provided hereunder, request that any of the following types of ancillary
agreements be executed by any parties hereto and effected thereby:
1. Officer Lease Agreement;
2. Office and Equipment Lease;
3. Management Information Systems Agreement;
4. Service Agreement(s); or
5. Any other Agreement deemed necessary or expedient by the
parties (together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections I through V of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
B. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests
the execution of an Ancillary Agreement ("Requesting Party"), the parties shall
have sixty 60 days (unless the parties hereto mutually agree to a different
period) to negotiate and execute the Ancillary Agreement, during which time the
parties hereto shall remain obligated to perform in accordance with the terms of
this Agreement. If after 60 days (unless a different period is mutually agreed
upon by the parties hereto) the requested Ancillary Agreement has not been
executed, the Requesting Party may terminate this Agreement in accordance with
Section VIII.B.2. The parties hereby agree that any negotiations subject to this
Section
<PAGE>
VI.B shall be performed in good faith and every reasonable effort shall be made
to effect the execution of a requested Ancillary Agreement.
VII. ADDITIONAL COVENANTS
A. AVAILABILITY OF RECORDS. BCBSUW, UWS, and UWIC shall make
available to each other, for inspection, examination and copying, all of its
books and records pertaining to the Officers and BCBSUW/UWS Services provided
under this Agreement each Contract Year:
1. At all reasonable times at the principal places of business
of BCBSUW, UWS, and UWIC, or at such other place as the parties hereto may
otherwise agree to and designate;
2. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
3. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
B. CONFIDENTIALITY.
1. The parties acknowledge and agree that they may deliver to
each other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing party,
the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
<PAGE>
2. Upon termination of this Agreement for any reason
whatsoever, each party shall promptly surrender and deliver to each other party
all records, materials, documents, data and any other Proprietary Information of
the other parties and shall not retain any description containing or pertaining
to any Proprietary Information of the other parties, unless otherwise consented
to in writing by a duly authorized officer of BCBSUW, UWS, or UWIC, as the case
may be.
C. COVENANT NOT TO COMPETE. BCBSUW and UWS agree not to directly
compete with the products or markets of each other during the term of this
Agreement. BCBSUW and UWS further agree that for a period of two (2) years
following the termination of this Agreement for any reason, the parties will not
directly compete with each other in any market in which the other operates or
does business at the termination of this Agreement.
D. COOPERATION. The parties hereto will fully cooperate with each
other and their respective counsel, if any, agents and accountants in connection
with any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this Agreement
the parties hereto shall, unless otherwise agreed, maintain the working
relationships of the parties on substantially the same terms as before the
execution of this Agreement. Notwithstanding the preceding, the parties do not
intend, nor should this Agreement be construed, to restrict any party's ability
to contract with any other person or entity to provide services similar to or
the same as those which are the subject of this Agreement.
VIII. TERM AND TERMINATION
A. TERM. This Agreement shall commence on the Effective Date and
shall automatically renew annually therefrom until such time as otherwise
terminated pursuant to Section VIII.A.
B. TERMINATION.
1. This Agreement may be terminated by any party at any time
by giving one (1) years advance written notice to the nonterminating parties of
its intention to terminate.
2. This Agreement may be terminated pursuant to Section VI.B
by the Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
3. This Agreement shall terminate immediately at the election
of and upon written notice from the non-defaulting party in the event of any of
the following:
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(a) A party hereto becomes incapable of fully performing
its duties and obligations according to the terms of this Agreement for the
following reason(s): insolvency, bankruptcy, or substantial cessation or
interruption of its business operations for any reason whatsoever;
(b) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting party may not exercise the
termination right under this section VIII.B.3.
4. LIABILITIES AFTER TERMINATION. The termination of this
Agreement shall not limit the obligation or liabilities of any party hereto
incurred but not discharged prior to termination.
IX. INDEMNIFICATION
A. INDEMNIFICATION BY BCBSUW.
1. Notwithstanding anything to the contrary in this Agreement,
neither UWIC, UWS, nor any UWS subsidiaries, nor any person who is or was, at
the time of any action or inaction affecting BCBSUW, a director, officer,
employee or agent of UWIC, UWS or any UWS subsidiary (collectively
"Indemnitees") shall be liable to BCBSUW for any action or inaction taken or
omitted to be taken by such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee
acted (or failed to act) in good faith and such action or inaction does not
constitute actual fraud, gross negligence or willful or wanton misconduct.
2. BCBSUW shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by such
Indemnitee a. in connection with any action, suit, arbitration or proceeding to
which such Indemnitee was or is a party or is threatened to be made a party by
reason of the Officers and/or UWS Services provided to BCBSUW hereunder;
PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in good faith
and such action or inaction does not constitute actual fraud, gross negligence
or willful or wanton misconduct, or b. by reason of, arising out of or resulting
from any breach or misrepresentation by BCBSUW under this Agreement.
B. INDEMNIFICATION BY UWS.
<PAGE>
1. Notwithstanding anything to the contrary in this Agreement,
neither UWIC, BCBSUW, nor any person who is or was, at the time of any action or
inaction affecting UWS, a director, officer, employee or agent of UWIC or BCBSUW
(collectively "Indemnitees") shall be liable to UWS or any UWS subsidiary for
any action or inaction taken or omitted to be taken by such Indemnitee;
PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in good faith
and such action or inaction does not constitute actual fraud, gross negligence
or willful or wanton misconduct.
2. UWS shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by such
Indemnitee a. in connection with any action, suit, arbitration or proceeding to
which such Indemnitee was or is a party or is threatened to be made a party by
reason of the Officers and/or BCBSUW Services provided to UWS hereunder;
PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in good faith
and such action or inaction does not constitute actual fraud, gross negligence
or willful or wanton misconduct, or b. by reason of, arising out of or resulting
from any breach or misrepresentation by UWS under this Agreement.
C. INDEMNIFICATION BY UWIC. UWIC hereby agrees to indemnify and
hold harmless BCBSUW and UWS, and their successors and assigns, from and against
any liability, damage, cost, expense, loss, claim or judgment (including,
without limitation, reasonable attorneys' fees and expenses) resulting to,
imposed upon or incurred by BCBSUW and/or UWS by reason of, arising out of, or
resulting from any breach or misrepresentation by UWIC under this Agreement.
X. MISCELLANEOUS
A. ASSIGNMENT. Neither this Agreement nor any rights or
obligations hereunder may be assigned or transferred by any of the parties
hereto without the prior written consent of the other parties. A Change of
Control shall be deemed an assignment requiring the consent of the other parties
hereto.
B. AMENDMENT. The parties recognize that it may be desirable to
alter the terms of this Agreement in the future to take into account such events
or conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
C. WAIVER; REMEDIES. No failure or delay of a party in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
<PAGE>
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section X.D of this Agreement.
D. RESOLUTION OF DISPUTES.
1. INFORMAL RESOLUTION.
(a) Coordinating Committee: Any conflicts or disputes
regarding occupancy, utilization or delivery of BCBSUW or UWS Services, or
scheduling, performance and utilization of Officers necessary for the conduct of
BCBSUW's or UWS's business shall be submitted to a coordinating committee for
resolution. The coordinating committee shall consist of three (3) persons, each
of whom shall 1. represent the respective interest of a party hereto, and 2. be
mutually agreed upon by the parties hereto. If the coordinating committee is
unable to unanimously resolve the dispute, then the parties hereto may resort to
the dispute resolution process provided for in Section X.D.2.
(b) Audit Committee: Any conflicts or disputes regarding
allocation methods, allocated costs, offsets, fees or any matter related thereto
shall be submitted to an audit committee for resolution. The audit committee
shall consist of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually agreed upon by the
parties hereto. If the audit committee is unable to unanimously resolve the
dispute, then the parties hereto may resort to the dispute resolution process
provided for in Section X.D.2.
2. FORMAL RESOLUTION.
(a) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this Agreement or any
Ancillary Agreement entered into pursuant hereto, and which otherwise has been
unresolved by a coordinating committee pursuant to Section X.D.1(a) or an audit
committee pursuant to Section X.D.1(b) shall be settled by arbitration. In order
to initiate an arbitration, BCBSUW, UWS, or UWIC (as the case may be) shall
deliver a written notice of demand for arbitration to the other affected
party(ies). Within thirty (30) days of the giving of such written notice, each
party involved shall appoint an individual as arbitrator (the "Party
Arbitrators"). Within thirty (30) days of their appointment, the Party
Arbitrators shall collectively select one (or two if necessary to constitute an
odd total number of arbitrators) additional arbitrator (together the "Panel
Arbitrators") and shall give the parties involved notice of such choice.
<PAGE>
(b) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel Arbitrators within
sixty (60) days of the selection of the Panel Arbitrators or within such longer
period as may be agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding on the parties
involved. Such decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
(c) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal, accounting, and
other professional fees and expenses, b. jointly share in the payment of the
fees and expenses of the other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other expenses jointly
incurred by the involved parties directly related to the arbitration proceeding.
(d) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
E. NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, or if mailed (by registered or certified
mail, postage prepaid, return receipt requested), or if transmitted by facsimile
or e-mail, as follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
<PAGE>
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
3. If to UWIC:
Mr. Mark Granoff
United Wisconsin Insurance Company
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number; (414) 226-6229
Any notice or other communication given as provided in this Section X.E, shall
be deemed given upon the first business day after actual delivery to the party
to whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation or e-mail return receipt). Any party from time to time
may change its address for purpose of notices to that party by giving a similar
notice specifying a new address.
F. RELATIONSHIP OF THE PARTIES. Negotiations relating to this
Agreement have occurred and shall continue to be carried out on an arm's length
basis. Further, the officers, services and other resources contemplated by this
Agreement shall be provided to BCBSUW and UWS on an independent contractor
basis. Nothing in this Agreement shall be construed to create an
employer-employee relationship between (i) Officers leased by BCBSUW hereunder
and UWS and/or UWIC, or (ii) Officers leased by UWS hereunder and BCBSUW and/or
UWIC.
G. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or
<PAGE>
may be in the future, any number of independent third party contracts between
various companies in the BCBSUW/UWS Group for various services and/or business
arrangements, and any such contracts, whether written or oral, shall survive the
execution of this Agreement and any renewal hereof.
H. HEADINGS. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement.
I. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the
benefit of the parties hereto and does not confer any right, benefit, or
privilege upon any person or entity not a party to this Agreement.
J. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin (without giving
effect to principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
K. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
L. COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
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Title:
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By:
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Title:
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UNITED WISCONSIN SERVICES, INC.
By:
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Title:
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UNITED WISCONSIN INSURANCE COMPANY
By:
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Title:
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<PAGE>
Exhibit 10.12
INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as of
this first day of January, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), and United Wisconsin Insurance Company, a stock
insurance corporation organized pursuant to Ch. 611, Wisconsin Statutes
("UWIC").
RECITALS
WHEREAS, BCBSUW, UWS and UWIC are affiliated corporations, with UWIC
being a wholly owned subsidiary of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, under the marketing name United Wisconsin Group ("UWG"), UWIC
performs the sales, underwriting, accounting, data processing, and other similar
functions for group disability, life, dental and vision products written by UWIC
and/or United Heartland Life Insurance Company ("UHLIC"), or written by United
Wisconsin Life Insurance Company ("UWLIC") and reinsured by UHLIC;
WHEREAS, under the marketing name UWG, UWIC also administers agent
licensing and commission payments, and provides accounting and information
processing services for various companies in the BCBSUW/UWS Group, all on an
independent third party contract basis (all services provided by UWIC under the
UWG name hereinafter shall be collectively referred to as "UWG business");
WHEREAS, UWIC has entered into independent third party contracts with
UWLIC and UHLIC to provide various services in connection with UHLIC's and
UWLIC's business and the cost and/or profit sharing associated therewith;
WHEREAS, UWIC also underwrites "Senior Health," an individual Medicare
product, and BCBSUW provides all of the marketing and administrative services in
connection with Senior Health business;
<PAGE>
WHEREAS, BCBSUW and UWS collectively provide other business resources
and services necessary for the continued operation of UWIC's UWG and Senior
Health business; and
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an officer leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to UWIC and the
compensation and cost allocations therefor; and (iii) the respective rights and
responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
I. LEASE OF OFFICERS
A. Definition.
1. "Leased Officers" are those BCBSUW and/or UWS employees that perform services
as officers of UWIC or of any other company in the BCBSUW/UWS Group for which
UWIC must provide officer services pursuant to a third party contract. (Leased
Officers may also be referred to herein as "Officers").
B. Lease of Officers.
1. Obligation to Provide Officers. BCBSUW and/or UWS shall provide to UWIC and
to any other company in the BCBSUW/UWS Group, to the extent requested by UWIC
and with the consent of the respective company's Board of Directors (the
"Board"), the entire requirement of Leased Officers as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business and such
other companies' UWG business.
2. Independent Hiring. Notwithstanding Section I.B.1, the Boards shall have the
right to obtain and hire directly any or all Officers from any other sources and
on any terms to perform such duties, on behalf of UWIC, as the Boards may
consider appropriate from time to time. Should the Boards hire officers from
other sources, it will not hire any individual who was a BCBSUW or UWS Employee
leased under this Agreement within three (3) months preceding such hiring,
without the written consent of BCBSUW and/or UWS.
3. Human Resources Department. UWS's Human Resources Department ("Human
Resources") shall be responsible for the implementation, management,
<PAGE>
and operation of BCBSUW's and UWS's leasing obligations under this Agreement.
C. Employment Relationships. Employment, termination, and terms of
employment of all Leased Officers shall be reserved to the full Boards of
Directors of BCBSUW and UWS, provided, however, that while any such individual
is leased to perform services as an officer under this Agreement, UWIC will be
consulted prior to all determinations regarding the employment, or terms
thereof, of such individuals; provided, however, that UWIC's input shall be of
an advisory nature and will not be binding on BCBSUW or UWS as the common law
employers of such individuals. BCBSUW and UWS shall be, and shall have all the
privileges, rights, and responsibilities of, common law employers of all BCBSUW
and UWS employees, respectively, whether or not the employee actually performs
services for BCBSUW, UWS or another company in the BCBSUW/UWS Group. Officers
leased pursuant to this Agreement shall remain employees of BCBSUW or UWS, and
shall in no way be treated as or considered employees of UWIC or any other
company in the BCBSUW/UWS Group for which UWIC is to supply officers or
employees.
II. SERVICES AND OTHER RESOURCES PROVIDED TO UWIC
A. Services and Resources Provided by BCBSUW. BCBSUW shall provide to
UWIC, to the extent requested by UWIC and subject to Section V, the following
services and resources (together "BCBSUW Services"). BCBSUW shall supply BCBSUW
Services only if UWIC has determined not to have its own employees or third
parties furnish the BCBSUW Services, subject to Section V.
1. Office Space and Facilities. Office space and facilities, including,
but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business.
2. Building Services. Building services, including, but not limited to,
repair and maintenance of any property and facilities made available hereunder
as shall be necessary to maintain such property and facilities in good working
order, and such other building services as may be necessary or appropriate for
the conduct of UWIC's UWG and/or Senior Health business.
3. Office Services. Such office services, including, but not limited
to, forms management, transportation, graphics, printing, and duplicating, as
shall be necessary or appropriate for the conduct of UWIC's UWG and/or Senior
Health business.
4. Central Systems. Such central systems, including, but not limited
to, management information systems, telecommunications, centralized mailing,
<PAGE>
technology support and central data base maintenance, as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business.
5. Administrative Services. Such administrative services, including,
but not limited to, administrative reporting, customer service and relations,
electronic enrollment, claims processing, and lobbyist activities, as shall be
necessary or appropriate for the conduct of UWIC's UWG and/or Senior Health
business.
6. Marketing, Sales and Conference Services. Such marketing, sales,
advertising, and conference support as shall be necessary or appropriate for the
conduct of UWIC's UWG and/or Senior Health business.
7. Company Car and Travel. Availability and maintenance of vehicles for
company related travel and such other travel related services as shall be
necessary or appropriate for the conduct of UWIC's UWG and/or Senior Health
business.
B. Services and Resources Provided by UWS. UWS shall provide to UWIC,
to the extent requested by UWIC and subject to Section V, the following services
and resources (together "UWS Services"). UWS shall supply UWS Services only if
UWIC has determined not to have its own employees or third parties furnish the
UWS Services, subject to Section V.
1. Corporate Support Services. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of UWIC's UWG
and/or Senior Health business.
2. Executive Services. Such executive services as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business.
3. Corporate Marketing and Communications. Such corporate marketing and
communications services, including, but not limited to, public relations and
employee community events, as shall be necessary or appropriate for the conduct
of UWIC's UWG and/or Senior Health business.
4. Human Resources. Such human resource services, including, but not
limited to, staffing, labor and employment relations, training and development,
and administration of payroll and employee benefits, as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business.
5. Financial Services. Such financial services, including, but not
limited to, cash management, tax, treasury, corporate accounting, and strategic
<PAGE>
planning/consulting, as shall be necessary or appropriate for the conduct of
UWIC's UWG and/or Senior Health business.
6. Actuarial and Underwriting. Such actuarial and underwriting services as shall
be necessary or appropriate for the conduct of UWIC's UWG and/or Senior Health
business.
7. Other Services. Such other services as shall be necessary or appropriate for
the conduct of UWIC's UWG and/or Senior Health business.
C. Staffing. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
III. COST ALLOCATION METHODS
A. Leased Officers.
1. Allocation of Officer Costs. To the extent that Officers are leased
to UWIC or any other company in the BCBSUW/UWS Group for which UWIC must provide
officer services, costs associated with the lease of such Officers shall be
indirectly charged to UWIC as provided in Section III.B.2.
B. BCBSUW and UWS Services. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of UWIC's UWG and/or Senior Health
business, costs therefor shall be allocated to UWIC as follows:
1. Direct Allocations. Costs associated with those BCBSUW/UWS Services
identified on Schedule 1 shall be directly charged to UWIC on a monthly basis.
2. Indirect Allocations. Cost allocations for those BCBSUW/UWS Services
identified on Schedule 2 ("Schedule 2 Services") shall be determined annually
for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1 through
December 31) on the basis of utilization and cost studies performed by UWS.
Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group. For any specific
Schedule 2 Service, UWIC's total allocation percentage shall be determined by
adding the applicable allocation percentage from each of the service agreements
included in Schedule 2. Each month all costs associated with the utilization of
Schedule 2 Services shall be multiplied by UWIC's total allocation percentage to
determine UWIC's allocable share of costs for Schedule 2 Services.
Notwithstanding the preceding, (i) allocation percentages are subject to interim
Fiscal Year adjustments to allocate more accurately costs based on actual
utilization
<PAGE>
by each company in the BCBSUW/UWS Group, (ii) costs associated with
Schedule 2 Services performed directly for UWIC shall be allocable to UWIC only,
and (iii) subject to approval by the Vice President of Finance for the
BCBSUW/UWS Group, the Indirect Allocation Method used to allocate costs for
specific Schedule 2 Services shall be subject to agreement by the parties on an
annual basis.1 Schedule 2, attached hereto, sets forth UWIC's annual allocation
percentage for costs and expenses associated with Schedule 2 Services rendered
on behalf of or for the benefit of UWIC's UWG and Senior Health business.
Schedule 2 shall be amended annually.
3. Chargebacks. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to UWIC as discussed in Section III.B.2, if the cost is a general
expense for providing the Chargeback Service to all users; or (ii) directly
charged to a UWIC cost center, if the cost is an expense specific to a UWIC cost
center. Thus, costs associated with Chargeback Services shall be either directly
charged or indirectly allocated to UWIC on a monthly basis, depending on the
nature of the cost.
C. Fees in Addition to Allocated Costs. To the extent that UWIC leases
or utilizes the services of Officers from BCBSUW and/or UWS, and to the extent
that UWIC utilizes BCBSUW/UWS Services, BCBSUW and/or UWS may charge UWIC a
reasonable negotiated fee therefor, as set forth in Schedule 5.
IV. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
A. Substantiation of Allocated Costs. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW and UWS shall maintain
reasonable and appropriate operating procedures to allocate costs and expenses
so as to enable UWIC's independent certified public accounting firm to audit
such costs and the allocation thereof. At the end of each month, BCBSUW and/or
UWS shall provide or make available to UWIC appropriate documentation respecting
the costs and expenses that are allocated, either directly or indirectly, to
UWIC for that month in sufficient detail to permit UWIC to identify the sources
of such charges.
B. Reimbursement for Allocated Costs. At the end of each month, not
later than the 30th day of the following month, UWIC shall promptly reimburse
BCBSUW and/or UWS for all costs and expenses incurred by
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
<PAGE>
BCBSUW and/or UWS in furnishing or obtaining the Officers and Services provided
for under Sections I and II, which amount shall be based on the total of direct
charges and indirect allocations to UWIC for the preceding month.
Notwithstanding the preceding, UWIC reserves the right to offset any amounts due
to BCBSUW and/or UWS under this Agreement against other obligations of BCBSUW
and/or UWS to UWIC.
V. MODIFICATIONS TO BCBSUW/UWS SERVICES
A. Mid-Contract Year Modifications. Each Contract Year, UWIC shall be
required to utilize BCBSUW/UWS Services budgeted to UWIC for that Contract Year,
unless otherwise negotiated by the parties. ("Contract Year" shall mean January
1 through December 31.) If, at any time during the Contract Year, UWIC requires
services or other resources in addition to those budgeted to UWIC by BCBSUW and
UWS, UWIC may obtain such services or resources from a source outside of the
BCBSUW/UWS Group only if UWIC's additional needs cannot be accommodated by
BCBSUW or UWS, or if otherwise agreed to by the parties.
B. Contract Year Renewal Modifications. UWIC shall provide BCBSUW
and/or UWS with at least three (3) months' written notice prior to the next
Contract Year (unless the parties mutually agree upon a shorter period) of its
intent to do any of the following:
1. Increase or decrease the number or utilization of Officers or
BCBSUW/UWS Services with respect to the next Contract Year;
2. Obtain officers, services or other resources, which are available
either from BCBSUW or UWS, from a party outside the BCBSUW/UWS Group with
respect to the next Contract Year.
C. Provision of Services by BCBSUW/UWS Group. BCBSUW and UWS have the
right to provide BCBSUW/UWS Services to UWIC either directly or indirectly,
through any company in the BCBSUW/UWS Group. BCBSUW and UWS may provide services
and other resources to UWIC indirectly through purchase from or contract with a
source outside the BCBSUW/UWS Group ("Outside Services") only with UWIC's
consent. Costs for Outside Services shall be subject to a cost structure
negotiated by the parties hereto.
VI. EXECUTION OF ANCILLARY AGREEMENTS
A. Right to Request Execution of Ancillary Agreements. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS or UWIC may, for
the sole purpose of documenting in more detail the terms
<PAGE>
and respective rights and obligations of the parties with respect to Officers
and Services provided hereunder, request that any of the following types of
ancillary agreements be executed by any parties hereto and effected thereby:
1. Officer Lease Agreement;
2. Office and Equipment Lease;
3. Management Information Systems Agreement;
4. Service Agreement(s); or
5. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections I through V of this Agreement. Executed Ancillary Agreements shall
be attached to this Agreement as amendments hereto. "Change of Control" for
purposes of this section shall mean an event whereby a person, group, or entity
that is not affiliated with the BCBSUW/UWS Group purchases all or substantially
all of the assets or acquires the ownership of 50% or more of the voting stock
of a party hereto.
B. Effect of a Request to Execute. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed upon
by the parties hereto) the requested Ancillary Agreement has not been executed,
the Requesting Party may terminate this Agreement in accordance with Section
VIII.B.2. The parties hereby agree that any negotiations subject to this Section
VI.B shall be performed in good faith and every reasonable effort shall be made
to effect the execution of a requested Ancillary Agreement.
VII. ADDITIONAL COVENANTS
A. Availability of Records. BCBSUW and UWS shall make available to UWIC, for
inspection, examination and copying, all of its books and records pertaining to
the Officers and BCBSUW/UWS Services provided to UWIC each Contract Year:
<PAGE>
1. At all reasonable times at the principal places of business
of BCBSUW and UWS, or at such other place as the parties hereto may otherwise
agree to and designate;
2. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
3. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
B. Confidentiality.
1. The parties acknowledge and agree that they may deliver to
each other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. Was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing party,
the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
2. Upon termination of this Agreement for any reason
whatsoever, each party shall promptly surrender and deliver to each other party
all records, materials, documents, data and any other Proprietary Information of
the other parties and shall not retain any description containing or pertaining
to any Proprietary Information of the other parties, unless otherwise consented
to in writing by a duly authorized officer of BCBSUW, UWS or UWIC as the case
may be.
C. Cooperation. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
<PAGE>
Agreement. In the conduct of their affairs and the performance of this Agreement
the parties hereto shall, unless otherwise agreed, maintain the working
relationships of the parties on substantially the same terms as before the
execution of this Agreement. Notwithstanding the preceding, the parties do not
intend, nor should this Agreement be construed, to restrict in any way UWIC's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
VIII. TERM AND TERMINATION
A. Term. This Agreement shall commence on the Effective Date and
shall automatically renew annually therefrom until such time as otherwise
terminated pursuant to Section VIII.B.
B. Termination.
1. This Agreement may be terminated by any party at any time
by giving one (1) years advance written notice to the nonterminating parties of
its intention to terminate.
2. This Agreement may be terminated pursuant to Section VI.B
by the Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
3. This Agreement shall terminate immediately at the election
of and upon written notice from the non-defaulting party in the event of any of
the following:
a. A party hereto becomes incapable of fully
performing its duties and obligations according to the terms of this Agreement
for the following reason(s): insolvency, bankruptcy, or substantial cessation or
interruption of its business operations for any reason whatsoever;
b. A party hereto commits fraud or gross negligence
in performing its obligations under this Agreement;
however, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this Section VIII.B.3.
4. Liabilities After Termination. The termination of this
Agreement shall not limit the obligation or liabilities of any party hereto
incurred but not discharged prior to termination.
<PAGE>
IX. INDEMNIFICATION
A. Indemnification by UWIC.
1. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
UWIC), nor any person who is or was, at the time of any action or inaction
affecting UWIC, a director, officer, employee or agent of BCBSUW, UWS or any
other company in the BCBSUW/UWS Group (other than UWIC) (collectively
"Indemnitees") shall be liable to UWIC for any action or inaction taken or
omitted to be taken by such Indemnitee; provided, however, that such Indemnitee
acted (or failed to act) in good faith and such action or inaction does not
constitute actual fraud, gross negligence or willful or wanton misconduct.
2. UWIC shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by such
Indemnitee a. in connection with any action, suit, arbitration or proceeding to
which such Indemnitee was or is a party or is threatened to be made a party by
reason of the Officers and BCBSUW/UWS Services provided to UWIC hereunder;
provided, however, that such Indemnitee acted (or failed to act) in good faith
and such action or inaction does not constitute actual fraud, gross negligence
or willful or wanton misconduct, or b. by reason of, arising out of or resulting
from any breach or misrepresentation by UWIC under this Agreement.
B. Indemnification by BCBSUW and UWS. BCBSUW and UWS, jointly and
severally, hereby agree to indemnify and hold harmless UWIC, and its successors
and assigns, from and against any liability, damage, cost, expense, loss, claim
or judgment (including, without limitation, reasonable attorneys' fees and
expenses) resulting to, imposed upon or incurred by UWIC by reason of, arising
out of or resulting from any breach or misrepresentation by BCBSUW or UWS under
this Agreement.
X. MISCELLANEOUS
A. Assignment. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
B. Amendment. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
<PAGE>
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
C. Waiver; Remedies. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section X.D of this Agreement.
D. Resolution of Disputes.
1. Informal Resolution.
a. Coordinating Committee: Any conflicts or disputes regarding
occupancy, utilization or delivery of BCBSUW/UWS Services, or scheduling,
performance and utilization of Officers necessary for the conduct of UWIC's UWG
and/or Senior Health business shall be submitted to a coordinating committee for
resolution. The coordinating committee shall consist of three (3) persons, each
of whom shall 1. represent the respective interest of a party hereto, and 2. be
mutually agreed upon by the parties hereto. If the coordinating committee is
unable to unanimously resolve the dispute, then the parties hereto may resort to
the dispute resolution process provided for in Section X.D.2.
b. Audit Committee: Any conflicts or disputes regarding
allocation methods, allocated costs, offsets, fees or any matter related thereto
shall be submitted to an audit committee for resolution. The audit committee
shall consist of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually agreed upon by the
parties hereto. If the audit committee is unable to unanimously resolve the
dispute, then the parties hereto may resort to the dispute resolution process
provided for in Section X.D.2.
2. Formal Resolution.
a. Any dispute, controversy or claim between or among the
parties hereto that arises out of or relates to this Agreement or any Ancillary
Agreement entered into pursuant hereto, and which otherwise has been unresolved
by a coordinating committee pursuant to Section X.D.1.a or an audit committee
pursuant to Section X.D.1.b shall be settled by arbitration. In order to
initiate an arbitration, BCBSUW, UWS or UWIC (as the case may be) shall deliver
a written notice of demand for arbitration to the other affected party(ies).
Within thirty (30) days of the giving of such written notice, each party
involved
<PAGE>
shall appoint an individual as arbitrator (the "Party Arbitrators"). Within
thirty (30) days of their appointment, the Party Arbitrators shall collectively
select one (or two if necessary to constitute an odd total number of
arbitrators) additional arbitrator (together the "Panel Arbitrators") and shall
give the parties involved notice of such choice.
b. The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel Arbitrators within
sixty (60) days of the selection of the Panel Arbitrators or within such longer
period as may be agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding on the parties
involved. Such decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
c. Each involved party shall a. pay the fees and expenses of
its own Party Arbitrator, and pay its own legal, accounting, and other
professional fees and expenses, b. jointly share in the payment of the fees and
expenses of the other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other expenses jointly
incurred by the involved parties directly related to the arbitration proceeding.
d. Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
E. Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail, as
follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
<PAGE>
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
3. If to UWIC:
Mr. Mark Granoff
United Wisconsin Insurance Company
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section X.E, shall
be deemed given upon the first business day after actual delivery to the party
to whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation or e-mail return receipt). Any party from time to time
may change its address for purpose of notices to that party by giving a similar
notice specifying a new address.
F. Relationship of the Parties. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the officers, services and other resources contemplated by this
Agreement shall be provided to UWIC on an independent contractor basis, and
nothing in this Agreement shall be construed to create an employer-employee
relationship between UWIC and Officers or any of the parties hereto.
G. Entire Agreement. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to
<PAGE>
prohibit proof of prior understandings and agreements between or among the
parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various
services and/or business arrangements, and any such contracts, whether
written or oral, shall survive the execution of this Agreement and any
renewal hereof.
H. Headings. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
I. No Third Party Beneficiaries. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
J. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
K. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
L. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
Blue Cross Blue Shield United of Wisconsin
By:
-----------------------------------
Title:
---------------------------------
<PAGE>
By:
-----------------------------------
Title:
---------------------------------
United Wisconsin Services, Inc.
By:
-----------------------------------
Title:
---------------------------------
United Wisconsin Insurance Company
By:
-----------------------------------
Title:
---------------------------------
<PAGE>
Exhibit 10.26
- --------------------------------------------------------------------------------
AGREEMENT OF MERGER AND JOINT VENTURE
BY AND AMONG
UNITED WISCONSIN SERVICES, INC.
UWS ACQUISITION CORPORATION
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
HMO-W, INCORPORATED
AND
HMO OF WISCONSIN INSURANCE CORPORATION
OCTOBER 11, 1994
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<PAGE>
AGREEMENT OF MERGER AND JOINT VENTURE
This AGREEMENT OF MERGER AND JOINT VENTURE (the "Agreement") is made
and entered into as of the [__] day of October, 1994, by and among Blue Cross &
Blue Shield United of Wisconsin, a service insurance corporation organized under
Chapter 613 of the Wisconsin Statutes ("Blue Cross"), United Wisconsin Services,
Inc., a corporation organized under Chapter 180 of the Wisconsin Statutes
("UWS"), UWS Acquisition Corporation, a corporation organized under Chapter 180
of the Wisconsin Statutes ("Subsidiary"), HMO-W, Incorporated, a corporation
organized under Chapter 180 of the Wisconsin Statutes (the "Holding Company"),
and HMO of Wisconsin Insurance Corporation, a health maintenance organization
insurer organized under Chapter 611 of the Wisconsin Statutes ("HMOW").
RECITALS
1. The respective Board of Directors of Subsidiary, Holding Company and
DWS, the Subsidiary's sole shareholder, have approved this Agreement and the
Plan of Merger attached hereto as Exhibit A (the "Plan") and deem it desirable
to merge Subsidiary into Holding Company as provided in this Agreement and the
Plan, whereby each holder of the issued and outstanding capital stock of Holding
Company at the Merger Effective Time will have the right to receive a cash
payment upon the terms and subject to the conditions set forth in this Agreement
and the Plan.
2. MOW desires to obtain the resources and insurance expertise
necessary to further its goals of delivering quality managed care programs with
particular focus on Wisconsin's rural population.
3. UWS and Blue Cross desire to establish a managed care operation
utilizing the relationships with rural providers and the strong HMO foundation
that HMOW has built in the region and therefore desires to enter into the
various transactions contemplated in this Agreement.
4. HMOW, UWS and Blue Cross wish to coordinate the design and marketing
of various managed care products, including, without limitation, one or more
Preferred Provider Organization, Point of Service and Health Maintenance
Organization products and programs.
5. HMOW, DWS and Blue Cross believe that the formation of a cooperative
arrangement to take the form of a joint venture (the "Joint Venture") upon the
terms and conditions set forth in this Agreement will assist them in achieving
the objectives contained in Recitals 2 through 4.
1.4. Consideration for the Merger; Conversion or Cancellation of Shares
in the Merger.
A. UWS agrees to provide the Merger Price in cash on behalf of
Subsidiary to be used as the Merger Consideration.
<PAGE>
B. Each share of Holding Company Common Stock (as defined in
Section 2.1.C of this Agreement) issued and outstanding immediately
prior to the Merger Effective Time (the "Shares") (other than Holding
Company Common Stock owned by UWS and other than the Dissenting Shares,
as defined in Section 1.6, below) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
and shall represent the right to receive cash in the amount equal to
the Merger Consideration as defined in Section 1.8 below.
C. All Shares to be converted into cash pursuant to this
Section 1.4 shall, by virtue of the Merger and without any action on
the part of the holders thereof, cease to be outstanding, be canceled
and cease to exist, and each holder of a certificate representing any
such Shares (each a "Certificate" and collectively, the "Certificates")
shall thereafter cease to have any rights with respect to such Shares,
except the right to receive for each of the Shares, in accordance with
Section 1.5, the Merger Consideration.
D. At the Merger Effective Time, each share of Subsidiary
capital stock then issued and outstanding shall be converted into one
share of the common stock of the Surviving Corporation.
1.5. Payment for Shares in the Merger.
A. UWS or such person as it shall select shall act as the
paying agent ("Paying Agent"). Within three (3) business days after the
Closing Date, the Paying Agent shall mail to each holder of record of a
Certificate or Certificates (i) a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and (ii) instructions for use in
effecting the surrender of the Certificates for payment therefor. Upon
surrender of Certificates to the Paying Agent, together with such
letter of transmittal duly executed and any other required documents,
the holder of such Certificates shall be entitled to receive from the
Paying Agent and the Paying Agent shall pay for each of the Shares
represented by such Certificates the Merger Consideration together with
any interest as provided in Section 1.8.C. Until so surrendered, such
Certificates shall represent solely the right to receive the Merger
Consideration with respect to each of the Shares represented thereby.
No interest shall be paid or accrue on the Merger Consideration payable
upon surrender of the Certificates other than as provided in Section
1.8.C. If any payment of the Merger Consideration is to be made to a
person other than the one in whose name the Certificate surrendered
-2-
<PAGE>
in exchange therefor is registered, it shall be a condition of such
payment that the Certificate so surrendered be properly endorsed and
otherwise in proper form for transfer and that the person requesting
such payment shall pay to the Paying Agent any applicable transfer or
other similar taxes, or shall establish to the satisfaction of the
Paying Agent that any such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither UWS nor any party hereto shall
be liable to a holder of Shares for any Merger Consideration delivered
to a public official pursuant to applicable escheat law. In the event
UWS selects a person to be the Paying Agent, UWS shall on or before the
Merger Effective Time deposit with such person on behalf of Subsidiary
a cash payment equal to the Merger Price or portion thereof determined
as provided in Section 1.8.C hereof. UWS shall pay all fees and
expenses of any such person it selects to be the Paying Agent.
B. Any portion of the Merger Price which remains unclaimed by
the former Shareholders of the Holding Company for six (6) months after
the Closing Date shall be retained by or returned to UWS and any former
Shareholders shall thereafter look only to UWS for payment of their
claim for the Merger Consideration for their Shares.
C. UWS shall be entitled to deduct and withhold from any
Merger Consideration payable pursuant hereto such amounts as UWS is
required to deduct and withhold with respect to the making of such
payment under the Internal Revenue Code or any provision of State,
local or foreign tax law. To the extent that amounts are withheld by
UWS, such withheld amounts shall be treated for purposes of this
Agreement as having been paid to the holder of the Shares in respect of
which such deduction and withholding was made by UWS.
1.6. Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of the Holding Company which immediately prior to the
Merger Effective Time are held by Shareholders who have properly exercised and
perfected appraisal rights-under Subchapter XIII of the WBCL (the "Dissenting
Shares") shall not be converted into the right to receive the Merger
Consideration as provided in Section 1.4 hereof, but the holder of Dissenting
Shares shall be entitled to receive such consideration as shall be determined
pursuant to Subchapter XIII of the WBCL; provided, however, that, if any such
holder shall have failed to perfect or shall withdraw or lose his or her right
to appraisal and payment under the WBCL, such holder's shares shall thereupon be
deemed to have been converted as of the Merger Effective Time into the right to
receive the Merger Consideration per share, without any interest thereon, as
provided in Section 1.4 and such shares J shall no longer be Dissenting Shares.
Holding Company agrees that prior to the Merger Effective Time it will not,
except with the prior written consent of UWS, voluntarily make any payment with
-3-
<PAGE>
respect to the exercise of any dissenter's rights.
1.7. Transfer of Shares After the Closing Date. No transfers of Shares
shall be made on the stock transfer books of the Holding Company after the close
of business on the day prior to the Closing Date.
1.8. Merger Consideration.
A. The term "Merger Consideration" means an amount of cash per
share equal to the Merger Price divided by the number of Shares.
B. The term "Merger Price" means one hundred percent (100%) of
the net worth ("Net Worth") of the Holding Company as of September 30, 1994, as
determined by the Holding Company's regular accountant, McGladrey & Pullen (the
"Accountant"). Net Worth shall be determined by applying the same accounting
principles applied in determining the Holding Company's 1993 Net Worth, except
as such accounting principles violate generally accepted accounting principles
("GAAP") and except that any goodwill asset shall be excluded from the
calculation. The Merger Price shall be paid to the Shareholders in cash as
provided herein.
C. If Holding Company's Net Worth as of September 30, 1994 has
not yet been determined by the Accountant by the Merger Effective Time, the
portion of the Merger Price to be paid at the Merger Effective Time shall be 90%
of the Net Worth of Holding Company using the unaudited June 30, 1994 financial
statement for the Holding Company. As soon as the Accountant has determined the
actual Net Worth of Holding Company as of September 30, 1994, but no later than
December 31, 1994, such actual Net Worth less the amount of the Merger Price
previously paid shall be paid or caused to be paid by DWS, together with
interest thereon at 5% per annum from the Merger Effective Time, within three
(3) business days after such determination to the persons entitled thereto.
1.9. Closing. The consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Quarles & Brady, One South Pinckney Street, Madison, Wisconsin, or at such
other place as may be mutually agreed upon by the parties. The Closing shall
occur at 10:00 a.m., Central Standard Time, on or before November 1, 1994
assuming that all of the conditions set forth in Articles 6 and 7 herein have
been fulfilled or waived in accordance with this Agreement. If said conditions
have not been fulfilled or waived on or before November 1, 1994 in accordance
with this Agreement, the Closing shall occur at such other time as may be agreed
upon by the parties hereto (the time and date of the Closing being referred to
herein as the "Closing Date")
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ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
2.1. The Holding Company and HMOW.
Except as may be disclosed in the Disclosure Schedule attached
as Exhibit B hereto (the "Disclosure Schedule"), the Holding Company and HMOW
hereby represents and warrants to UWS that:
A. Organization and Qualification. The Holding Company is a
corporation duly organized, validly existing and in current standing under the
laws of the State of Wisconsin. Each of HMOW and Hometown Insurance Services,
Inc. ("Hometown") (Holding Company, HMOW and Hometown is each individually
sometimes referred to herein as "HMOW Entity" and collectively as the "HMOW
Entities") are corporations duly organized and validly existing under the laws
of the State of Wisconsin (HMOW and Hometown hereinafter are sometimes
individually referred to as "Company Subsidiary" and collectively as "Company
Subsidiaries"). The HMOW Entities (a) are duly qualified as foreign corporations
under the laws of each jurisdiction where the failure to qualify would have a
Material Adverse Effect (as hereinafter defined) upon them; (b) have the
requisite corporate power and authority and the legal right to own, lease and
operate their properties, to lease the property they operate under lease and to
conduct their business as now conducted; (c) have all necessary licenses,
permits, consents or approvals (the "Company Approvals") from or by, and have
made all necessary filings with, and have given all necessary notices to, all
federal and state governmental authorities having jurisdiction over the HMOW
Entities (said filings and notices for all HMOW Entities collectively the
"Company Reports"), to the extent required for such ownership, operation and
conduct except where the failure to obtain such licenses, permits, consents or
approvals or to make such filings will not have a Material Adverse Effect upon
them; (d) are in compliance with their articles of incorporation and bylaws and
are not in default or in violation of any material agreement to which any HMOW
Entity is a party or by which it is bound except where the failure to comply
will not have a Material Adverse Effect upon the HMOW Entities taken as a whole;
and (e) are in compliance in all respects with all applicable provisions of
Laws, as hereinafter defined, applicable to them except where the failure to
comply will not have a Material Adverse Effect upon them. The Holding Company
owns beneficially and of record all of the outstanding shares of capital stock
of HMOW and 80% of the outstanding shares of capital stock of Hometown and owns
no interest in any other subsidiaries. Neither of the Company Subsidiaries owns
any interest in any subsidiary. No HMOW Entity has received any notice of
proceedings relating to the revocation 3 or modification of any Company
Approvals. The term "Material Adverse Effect" as used in this Agreement shall
mean any change or effect that is or is reasonably likely to be materially
adverse to a party's business, operations, properties (including intangible
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properties), condition (financial or otherwise), assets or liabilities
(including contingent liabilities); though said term shall not include any
change or effect to the parties resulting from changes in applicable laws or
from other changes in general economic conditions affecting the parties.
B. Authorization. The execution, delivery and performance of
this Agreement and all documents to be executed and delivered by the HMOW
Entities hereunder: (a) are within their respective corporate power; (b) have
been duly authorized by all necessary or proper corporate and other action,
including the consent of shareholders (subject to the requisite approval of the
transactions contemplated herein by the Holding Company!s shareholders which
approval shall be obtained prior to the Closing Date, as hereinafter defined),
members or boards of directors, where required; (c) are not in contravention of
any provision of their respective articles of incorporation or bylaws; (d) do
not violate any law, statute, ordinance, rule or regulation or any order or
decree of any court or governmental instrumentality (collectively the "Laws")
applicable to them; and (e) do not conflict with or result in the breach of, or
constitute a default under, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which any HMOW Entity is a party or by which it
or any of its property is bound, and the same do not require the consent or
approval of any governmental body, agency, authority or other entity other than
those that will have been obtained by the Closing Date (as hereinafter defined).
This Agreement has been duly executed and delivered by the Holding Company and
HMOW and constitutes the legal, valid and binding obligation of each,
enforceable against them in accordance with its terms except as such
enforceability may be limited by bankruptcy or similar laws affecting the
enforceability of creditor's rights generally and by general principles of
equity.
C. Capitalization. The authorized capital stock of the Holding
Company consists of 200,000 shares of common stock, $.01 par value, consisting
of 100,000 shares of a class designated "Class A" and 100,000 shares of a class
designated "Class B", which is further subdivided into 50,000 shares of a series
designated "Class B, Series 1" and 50,000 shares of a series designated "Class
B, Series 2" (collectively the Class A and Class B Common Stock, the "Holding
Company Common Stock"). As of the date of this Agreement, 11,576 shares of Class
A Common Stock, 2,014 shares of Class B, Series 1 Common Stock and 2,000 shares
of Class B, Series 2 Common Stock are issued and outstanding, all of which
shares are validly issued, fully paid and non-assessable (except as provided in
Section 180.0622(2)(b) of the WBCL) and not issued in violation of any
preemptive right of any Holding Company shareholder, and all of which have been
issued in compliance with applicable securities laws, and 10 shares of Holding
Company Common Stock are held in the treasury of the Holding Company. As of the
date of this Agreement; (i) there are no options, warrants or other rights,
agreements
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(including voting or shareholders' agreements), arrangements or commitments of
any character relating to the issued or unissued capital stock of any HMOW
Entity or obligating any HMOW Entity to issue or sell any shares of its
respective capital stock of, or other equity interests in, any HMOW Entity, and
(ii) there are no obligations, contingent or otherwise, of the Holding Company
or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares
of Holding Company Common Stock or the capital stock of any Company Subsidiary
or to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any Company Subsidiary or any other entity. The
authorized capital stock of Hometown consists of 2,800 shares of common stock,
no par value, of a class designated "Class I" (the "Hometown Common Stock"). The
authorized capital stock of HMOW consists of 100,000 shares of common stock,
$.01 par value, consisting of one class designated "Common Stock" (the "HMOW
Common Stock"). As of the date of this Agreement, 100,000 shares of HMOW Common
Stock and 2,000 shares of Hometown Common Stock (and no other securities of any
Company Subsidiary) are outstanding, all of which shares are validly issued,
fully paid and non-assessable (except as provided in Section 180.0622(2)(b) of
the WBCL) and not issued in violation of any preemptive right of any Company
Subsidiary shareholder, and all of which have been issued in compliance with
applicable securities laws, and the shares of HMOW Common Stock and Hometown
Common Stock owned by the Holding Company are held free and clear of all )
security interests, liens, claims, pledges, agreements, limitations of Holding
Company's voting rights, charges or other encumbrances of any nature whatsoever.
D. Financial Statements. Except as and to the extent set forth
on the balance sheet of the Holding Company, HMOW and Hometown as -of December
31, 1993, including all notes thereto, neither the Holding Company nor any
Company Subsidiary have any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet, or in the notes thereto, except for liabilities or
obligations incurred in the ordinary course of business since December 31, 1993
that would not, individually or in the aggregate, have a Material Adverse Effect
on the HMOW Entities taken as a whole.
E. Absence of Certain Changes or Events. Since December 31,
1993 to the date of this Agreement, each HMOW Entity has conducted its business
only in the ordinary course and in a manner consistent with past practice and,
since December 31, 1993, there has not been: (i) any change in the financial
condition, results of operations or business of an HMOW Entity having a Material
Adverse Effect on the Holding Company or any Company Subsidiary, other than
changes which are reflected in the financial statements of the HMOW Entities,
(ii) any damage, destruction or loss (whether or not covered by insurance) with
respect to any assets of an HMOW Entity having a Material Adverse Effect on the
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HMOW Entities taken as a 3 whole, (iii) any change by an HMOW Entity in its
respective accounting methods, principles or practices, (iv) any revaluation by
an HMOW Entity of any of its material assets, (v) any declaration, setting aside
or payment of any dividends or distributions in respect of shares of Holding
Company Common Stock or the equity securities of any Company Subsidiary or any
redemption, purchase or other acquisition of any of securities of an HMOW
Entity, or (vi) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any other material or unscheduled
increase in compensation payable or to become payable to any officers or key
employees of an HMOW Entity.
F. Absence of Litigation. No HMOW Entity is a party to any
litigation or administrative proceeding, nor so far as is known by them is any
litigation or adverse administrative proceeding or hearing threatened against
any HMOW Entity which in either case relates to the execution, delivery or
performance of this Agreement.
G. Title to Property.
(1) Each of the HMOW Entities has good and defensible title to
all of its properties and assets, real and personal, tangible and
intangible free and clear of all mortgage liens, and free and clear of
all other liens, charges and encumbrances except liens for taxes not
yet due and payable, and such minor imperfections of title, if any, as
to not materially detract from the value of or interfere with the
present use of the property affected thereby or which, individually or
in the aggregate, would not have a Material Adverse Effect on the HMOW
Entities taken as a whole, and all leases pursuant to which any of the
HMOW Entities leases from others material amounts of real or personal
property are in good standing, valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any
existing material default or event of default by any HMOW Entity (or
event which with notice or lapse of time, or both, would constitute a
material default and in respect of which an HMOW Entity has not taken
adequate steps to prevent such a default from occurring). The
facilities and equipment of the HMOW Entities in regular use have been
reasonably maintained and are in good and serviceable condition,
reasonable wear and tear excepted.
(2) Each HMOW Entity possesses or has the right to
use any and all trade names, trademark registrations and common law
trademarks ("Intangible Assets") necessary to carry
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on its business as heretofore conducted. No claim or demands are
currently pending in any proceeding, or to the knowledge of each HMOW
Entity, threatened which challenge the rights of an HMOW Entity in
respect thereof. With the exception of the against Mercy Hospital for
an infringement on the state registered trademark of EMOW, and to the
knowledge of each HMOW Entity, none of such Intangible Assets infringes
on, or is being infringed by, other patents, trade names, trademarks or
copyrights, and none is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting its use. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein will give any licensor or licensee of
any Intangible Asset of the HMOW Entities any right to change the terms
or provisions of, or terminate or cancel, any license to which any of
the HMOW Entities is a party, wherein such change, termination, or
cancellation may have a Material Adverse Effect on the HMOW Entities
taken as a whole. None of the HMOW Entities has given, and none is
bound by, any written indemnification for trade name or trademark
infringement as to any property used by it. No HMOW Entity pays
royalties or fees for the use of trademarks or trade names.
H. Taxes. The HMOW Entities have timely filed all Tax Returns
(as defined below) required to be filed by the respective entity, and each of
the HMOW Entities has timely paid and discharged all Taxes (as defined below)
due in connection with the filing of such Tax Returns and has paid all other
Taxes as are due, and shall prepare and file all such Tax Returns required to be
filed after the date hereof and on or before the Closing Date. The liability for
Taxes set forth on each such Tax Return adequately reflects the Taxes required
to be reflected on such Tax Return. For purposes of this Agreement, "Tax" or
"Taxes" shall mean taxes, charges, fees, levies, and other governmental
assessments and impositions of any kind, payable to any federal, state, local or
foreign governmental entity or taxing authority or agency, including, without
limitation, (i) income, franchise, profits' gross receipts, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment, social security,
workers compensation, unemployment compensation, utility, severance, production,
excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes,
(ii) customs duties, imposts, charges, levies or other similar assessments of
any kind, and (iii) interest, penalties and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the Internal Revenue
Service (the "IRS") or any other governmental entity or taxing authority or
agency, domestic or foreign, including, without limitation, consolidated,
combined and unitary tax returns. Neither the IRS nor any other governmental
entity or taxing authority or agency is now asserting, either
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through audits, administrative proceedings, court proceedings or otherwise, or
threatening to assert against any HMOW Entity any deficiency or claim for
additional Taxes. No HMOW Entity has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. There are no tax liens on any assets of an HMOW Entity. No HMOW Entity
has received a ruling or entered into an agreement with the IRS or any other
governmental entity or taxing authority or agency that would have a Material
Adverse Effect on the HMOW Entities taken as a whole after the Closing Date. The
accruals and reserves for taxes reflected in the Holding Company and Company
Subsidiary balance sheet for the period ended December 31, 1993 are adequate to
cover all Taxes accruable through the date thereof.
I. Title to Common Stock. The Holding Company Common Stock,
the HMOW Common Stock and the Hometown Common Stock at Closing shall be free and
clear of all liens, pledges or encumbrances of any type or kind at the Closing
Date.
J. Labor Matters. Except as will not have a Material Adverse
Effect on the HMOW Entities taken as a whole: (i) the HMOW Entities are in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice, (ii) there is no unfair labor practice
complaint against an HMOW Entity pending before the National Labor Relations
Board, (iii) there is no labor strike, dispute, slowdown, representation
campaign or work stoppage actually pending or threatened against or affecting an
HMOW Entity, and (iv) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and no claim therefor has been
asserted against an HMOW Entity.
K. Full Disclosure. No statement contained in any document,
certificate, or other writing furnished or to be furnished by an HMOW Entity to
UWS pursuant to the provisions of this Agreement contains or shall contain any
untrue statement of a material fact or omits or shall omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
L. Proxy Statement. None of the information supplied by the
Holding Company in the proxy statement to be provided to the Holding Company
shareholders (the "Shareholders") in connection with the approval of the
transactions contemplated in this Agreement (or any amendment or supplement
thereto) will at the time of the mailing of the proxy statement and at the time
of the shareholders' meeting to which such proxy statement relates contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
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2.2. UWS and Subsidiary.
Except as may be disclosed in Exhibit B-1 hereto, UWS and Subsidiary
hereby represent and warrant to the Holding Company as follows:
A. Organization. Blue Cross, DWS and Subsidiary (the
"UWS Entities" ) are corporations duly organized and validly
existing under the laws of Wisconsin.
B. Authorization. The execution, delivery and performance of
this Agreement by each of the UWS Entities: (a) is within its corporate power;
(b) has been duly authorized by all necessary or proper corporate action,
including the consent of shareholders where required; (c) does not contravene
any provision of its certificate or articles of incorporation or bylaws; (d)
does not violate any law or regulation, or any order or decree of any court or
governmental instrumentality applicable to it; and (e) does not conflict with or
result in the breach of, or constitute a default under, any indenture, mortgage,
deed of trust, lease, agreement or other instrument to which it is a party or by
which it or any of its property is bound, and the same do not require the
consent or approval of any governmental body, agency, authority of other entity
other than those that have been obtained; except for such contravention,
violation or conflict which would not individually or in the aggregate have a
Material Adverse Effect on the UWS Entities taken as a whole. This Agreement has
been duly executed and delivered by each of the UWS Entities and constitutes the
legal, valid and binding obligation of each of the UWS Entities, enforceable
against it in accordance with its terms except as such enforceability may be
limited by bankruptcy or similar laws affecting the enforceability of creditors
rights generally.
C. U-Care Documents. UWS has delivered to HMOW a true and
correct copy of the letter of intent, dated August 24, 1994, among the UWS
Entities, UHC and U-Care (as hereafter defined) and any documents or agreements
related thereto (collectively, the "U-Care Letter of Intent"), which have not
been amended or modified and remain in full force and effect. The definitive
U-Care documents (as discussed in Section 4.2.C, below) will constitute true,
complete, and correct copies of such documents as of the date delivered to HMOW.
D Compliance; Permits. Each of the UWS Entities: (a) is duly
qualified as a foreign corporation under the 1aws of each jurisdiction where
failure to qualify would have a Material Adverse Effect upon it; (b) has the
requisite corporate power and authority and the legal right to own, pledge and
operate its properties, to lease the property it operates under lease and to
conduct its business as now conducted; (c) has all necessary licenses, permits,
consents or approvals from or by, and has made all necessary
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filings with, and has given all necessary notices to, all governmental
authorities having jurisdiction, to the extent required for such ownership,
operation and conduct, except where the failure to obtain such licenses,
permits, consents or approvals or to make such filings will not have a Material
Adverse Effect upon it; (d) is in compliance with its articles of incorporation
and bylaws and all material agreements to which it is a party or by which it is
bound except where the failure to comply will not have a Material Adverse Effect
upon it; and (e) is in compliance in all respects with all applicable provisions
of law except where the failure to comply will not have a Material Adverse
Effect upon it.
E. Absence of Litigation. None of the UWS Entities is a party
to any litigation or administrative proceeding, nor so far as is known by them
is any litigation or adverse administrative proceeding or hearing threatened
against any UWS Entity which in either case relates to the execution, delivery
or performance of this Agreement.
F. No Misstatements. To its knowledge, no information, exhibit
or report, whether written or oral, furnished by the UWS Entities to the HMOW
Entities in connection with the negotiation or execution of this Agreement
contained any misstatement of a material fact or omitted to state a material
fact necessary to make the statements contained therein not misleading as of the
date when made.
ARTICLE 3 - JOINT VENTURE
3.1. Joint Venture. Blue Cross, UWS and HMOW (the
"Participants") are entering into this agreement with one another in order to
produce, market and administer managed care products which utilize a provider
network. They will coordinate the design and marketing of various managed care
products, including, without limitation one or more Preferred Provider
Organization ("PPO"), Point of Service ("POS") and Health Maintenance
Organization ("HMO") products and programs, all of which may be fully insured or
self-funded. This Joint Venture shall become effective with the Closing
contemplated in Section 1.9. The Participants may, but do not intend to, create
hereby a separate entity to conduct the business of the Joint Venture. Rather,
the term "Joint Venture" as used in this Agreement refers to the cooperation and
coordination which the Participants intend will exist among them. The mechanism
for such cooperation and coordination shall be a Governing Board (described in
Section 3.6) which shall make decisions for the Joint Venture.
3.2. Agency Relationship. This Agreement shall not
create any agency relationship between the Participants other than
those specifically enumerated herein and in any related Joint
Venture documents. The relationships between the parties are that
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of independent contractors in a cooperative arrangement. It is not the intent of
the Participants to create, nor should this Agreement be construed to create, a
partnership under Chapter 178 of the Wisconsin Statutes or an employment
relationship between the Participants. This Agreement creates no fiduciary
relationship between the Participants.
3.3. U-Care Joint Venture. The UWS Entities are currently negotiating
with University Health Care, Inc. ("UHC") and U-Care HMO, Inc. ("U-Care") to
form a joint venture and for UWS to acquire one hundred percent (100~) of the
assets of U-Care (the "U-Care Joint Venture"). Should the U-Care Joint Venture
be completed, the parties agree that the business of the Joint Venture and the
business of the U-Care Joint Venture shall be merged.
3.4. Other Joint Ventures.
A. If the UWS Entities enter into a new joint venture (the
"Fox Valley Joint Venture") with another person covering the Wisconsin Counties
of Winnebago, Fond du Lac, Waushara and Green Lake (the "Fox Valley Area"), the
UWS Entities may, within their sole discretion and without approval by the
Governing Board, transfer HMO membership and provider relationships in the Fox
Valley Area to such new joint venture. In the event of any such transfer, the
Governing Board of the Joint Venture shall approve the amount of consideration
to be paid by UWS to LLC therefor pursuant to the Service Agreement, if any. The
amount of consideration, if any, to be paid by UWS shall be calculated to
reflect any adverse impact to LLC as to the amount of payment LLC is entitled to
receive under the Service Agreement. If the governing board of the Joint Venture
does not approve the amount of such consideration offered by UWS, then the
amount of consideration to be paid by UWS to LLC shall be arbitrated as provided
in Article 9 below.
B. Effective with the time the Fox Valley Joint Venture is
established, if any, the primary care physicians located in the Fox Valley Area
shall not be included in the calculation used to determine any Bonus Payment
under Sections 3.5.A(i) and (ii), nor shall the hospitals located in the Fox
Valley Area be used to determine compliance with Section 3.5.B.
3.5. HMOW Provider Agreements.
A. Medical Services. HMOW shall enter into a provider
agreement with the Community Physicians' Network, Inc. ("CPN") to serve as the
central provider of professional medical services within the network for the HMO
plan. The provider agreement shall have a term which shall not expire prior to
the date which is five (5) years from January 1, 1995 (the "Initial CPN Provider
Agreement.~). The Initial CPN Provider Agreement shall adopt the capitation
rates in effect with HMOW on the Closing Date (after
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eliminating the adjustment to said rates which reimbursed CPN for its purchase
in 1993 of Holding Company Class B Common Stock held by HMOW employees) and
provide for annual adjustments not to exceed the medical component of the
Consumer Price Index ("CPI"). The Initial CPN Provider Agreement may be
modified, at the Governing Board's discretion, with respect to the scope of
services that is covered by the capitation payment. Should such services be
excluded from CPN's capitation risk, the capitation rate shall be actuarially
adjusted to reflect the reduction in risk.
(i) UWS shall make a bonus payment (the "Bonus
Payment") of up to $1,500,000 to CPN if CPN obtains five (5) year
contracts with the current participating primary care physicians, at
the terms presently in effect, for providers located in the following
Wisconsin counties: Adams, Columbia, Crawford, Dane, Fond du Lac,
Grant, Green, Green Lake, Iowa, Juneau, Lafayette, Marquette, Monroe,
Richland, Sauk, Vernon, Waushara and Winnebago. The contracts must be
fully executed and presented at the offices of HNOW within 120 days
following the Closing Date. CPN may use any or all of this Bonus
Payment as incentive payments to the primary care physicians for
signing the contracts.
(ii) The Bonus Payment will be paid according to the
following schedule, which represents the percentage of the total number
of current participating primary care physicians in the geographic area
identified in (i) above who sign the five-year contracts:
<TABLE>
<S> <C>
60% of Current Participating
Primary Care Physicians $.50 million
65% $.75 million
70% $1.0 million
75% $1.25 million
80% or more $1.50 million
</TABLE>
No Bonus Payment will be made if fewer than sixty percent (60%) of the
current primary care physicians sign the contracts.
B. Hospital Services. HMOW shall obtain five (5) year
contracts with the hospitals that represent at least 90% of the inpatient and
institutional care provided to HMOW subscribers during benefit year 1993 in the
counties identified in 3.5.A(i) above. Though different reimbursement
methodologies may be allowed, the contracts must provide substantially similar
aggregate reimbursement levels as the existing contracts with annual adjustments
not to exceed the medical component of the CPI.
C. Discretionary Payments. UWS shall provide $500,000 for
distribution to CPN, at the discretion of the Governing Board, for the
development, enhancement and maintenance of independent
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physician practices.
3.6. Governance.
A. Governing Board. The Joint Venture shall be managed by a
governing board ("Governing Board") which shall also serve as the HMOW board of
directors. The Governing Board shall consist of the members appointed as
follows:
(a) In the event that UWS enters into the U-Care
Joint venture:
<TABLE>
<S> <C>
UWS four members
LLC (as hereinafter defined) four members
UHC three members
</TABLE>
(b) In the event that UWS does not enter into the
U-Care Joint Venture or the U-Care Joint Venture is terminated:
<TABLE>
<S> <C>
UWS four members
LLC four members
</TABLE>
B. The Governing Board shall meet at least once in each fiscal
quarter at the Joint Ventures' home office facility or such other place as the
Governing Board may from time to time agree. Any individual member of the
Governing Board shall have the power and authority, upon three days written
notice, to call a meeting of the Governing Board to discuss and administer the
business of the Joint Venture. Members of the Governing Board may participate in
meetings either telephonically or in person. The Joint Venture shall not pay
members of the Governing Board.
C. A chairman shall preside over each meeting of the Governing
Board. The chairman shall be a member of the Governing Board and the entities
entitled to appoint members shall each have the power to appoint the chairman
for a one (1) year term on a rotating basis.
D. In the event that UWS enters into the U-Care Joint Venture,
eight (8) members of the Governing Board shall constitute a quorum for the
transaction of business, subject to the voting requirements in Section 3.6.F
below. In the event that UWS does not enter into the U-Care Joint Venture, five
(5) members of the Governing Board shall constitute a quorum, subject to the
voting requirements in Section 3.6.F below.
E. Any action that the Governing Board could take at a meeting
may be taken instead by a written consent signed by all of the members of the
Governing Board.
F. Voting Requirement. The Governing Board may not take
any action without the approval of at least five of its
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members (or, if UWS enters into the U-Care Joint Venture, eight of its members),
which shall include at least one member elected by each entity appointing
members to the Governing Board. UWS agrees to cause the Bylaws of HMOW to
provide for the number of directors, appointment and election thereof, the
voting requirements and any other matters of governance set forth in this
Section 3 6.
G. Duties of the Governing Board.
(a) The Governing Board shall be responsible for the
general management of the Joint Venture. Notwithstanding the
foregoing, the Underwriters (as defined in Section 3.7.A)
shall have the sole authority, without the approval of the
Governing Board, to establish rates and arrange reinsurance
for the Joint Venture business.
(b) The Governing Board shall establish such books,
records and accounts for the Joint Venture as it deems
reasonably necessary and allow each of the parties, upon
request, to review such books, records and accounts. The
Governing Board shall maintain records of all of its meetings
and actions taken in a manner substantially similar to that
which a Board of Directors of a corporation organized under
Chapter 180 of the Wisconsin Statutes (the "Wisconsin Business
Corporation Law" or "WBCL") would maintain.
H. Committees. The Governing Board may establish such
committees with such authority to act on its behalf as it may deem necessary or
appropriate; provided, however, that any committee so created must contain at
least one member from each of the entities entitled to appoint members to the
Governing Board.
3.7. Operations.
A. Underwriting. Blue Cross shall be the underwriter for any
PPO plans offered by the Joint Venture and HMOW shall be the underwriter of the
HMO and HMO portion of the POS plans (the indemnity portion to be underwritten
by Blue Cross or an affiliate) offered by the Joint Venture (in such capacity,
Blue Cross, its affiliates, and HMOW shall be referred to as "Underwriters").
B. Benefit Administration. On self-funded programs, Blue Cross
shall administer benefits under the PPO plans and HMOW shall administer benefits
under the HMO and POS plans (in such capacity, Blue Cross and HMOW shall be
referred to as "Administrators").
C. Other Administrative Services. The Underwriters and
Administrators shall enter into an administrative services agreement with the
applicable UWS Entities as of the Closing Date
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(the "Administrative Services Agreement"). The UWS Entities will be compensated
for providing the administrative services on a cost basis such that all
administrative "profit" will remain with the product to be divided as
underwriting profit. All such Administrative Services Agreements shall be
subject to approval by the Governing Board of the Joint Venture. The
administrative services to be provided by the UWS Entities may include
accounting, actuarial, financial reporting, management information, legal, and
any other administrative services needed by the Underwriter or Administrator.
D. Medical Management and Review. Notwithstanding that the
center of operations for the Joint Venture will be in Sauk City, Wisconsin (see
Section 4.2.I, below), in the event that UWS enters into the U-Care Joint
Venture, medical management and review services which relate directly to U-Care
Joint Venture business with U-Care providers shall be located in Madison,
Wisconsin. Notwithstanding the provisions of Section 4.2.H, below, the Governing
Board may determine that additional services should be performed at a facility
other than the HMOW Sauk City facility.
E. Assumption Reinsurance Agreement. In the event that UWS
enters into the U-Care Joint Venture, U-Care's insurance business will be
transferred to HNOW, an indirect wholly owned subsidiary of UWS, by means of an
Assumption Reinsurance Agreement. Under the Assumption Reinsurance Agreement, to
be executed by HMOW and U-Care, U-Care will cede its insurance business to HMOW,
and HMOW will reinsure such business.
F. Establishment of LLC. Prior to the Closing Date, certain of
the Holding Company Shareholders shall establish a limited liability company
organized under Chapter 183 of the Wisconsin Statutes (the "LLC") which shall
appoint the Governing Board and HMOW Board members as provided in Section 3.6.A
during the term of this Agreement and which shall enter into a service agreement
with UWS substantially in the form attached hereto as Exhibit C (the "Service
Agreement"). No shareholder of the Holding Company who exercises dissenters'
rights in the Merger will be a member of the LLC.
ARTICLE 4 - COVENANTS
4.1. The HMOW Entities.
A. Due Diligence. During the period from the date hereof until
the Closing Date, the HMOW Entities shall give each of the UWS Entities, their
counsel, accountants and other representatives (including, without limitation,
representatives of UHC and U-Care) (a) access during normal business hours to
all of the properties, books, records, contracts and documents of the HMOW
Entities that relate to the HMOW Entities or the business of the
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HMOW Entities for the purpose of such inspection, investigation and testing as
the UWS Entities deem appropriate; and (b) subject to such restrictions as HMOW
may reasonably impose, access to employees, agents and representatives of the
HMOW Entities for the purposes of such meetings and communications that relate
to HMOW or the HMOW business as the UWS Entities may reasonably desire.
B. Conduct of Business Prior to the Mercer Effective
Time.
(1) Affirmative Covenants. Prior to the Merger Effective Time,
unless the prior written consent of UWS shall have been obtained and
except as otherwise contemplated herein, each of the HMOW Entities
shall: (a) operate its business only in the usual, regular and ordinary
course consistent with past practices; (b) use its reasonable best
efforts to preserve intact its business organization and assets,
maintain its rights and franchises, retain the services of its officers
and key employees and maintain its relationships with customers; (c)
maintain and keep its properties in as good repair and condition as at
present, ordinary wear and tear excepted; (d) keep in full force and
effect insurance and bonds comparable in amount and scope of coverage
to that now maintained by it; (e) perform in all material respects all
obligations required to be performed by it under all contracts, leases,
and documents relating to or affecting its assets, properties, and
business; (f) take all action prior to Closing that may be reasonably
necessary to obtain all requisite consents for the consummation of the
transactions contemplated hereby including, without limitation, all
requisite regulatory approvals; (g) on or before the 20th day prior to
the Closing Date, deliver to the UWS Entities all of the documents
requested in writing by UWS; and (h) comply with and perform in all
material respects all obligations and duties imposed upon it by all
applicable Laws.
(2) Negative Covenants. Except as specifically contemplated
by this Agreement, from the date of this Agreement until the Merger
Effective Time, no HMOW Entity shall, without the prior written consent
of UWS, do any of the following:
(a) (i) grant any general increase in compensation to
its employees, officers or directors, except in accordance
with past practice, or as required by Law, or increases which
are not material, (ii) effect any change in retirement
benefits to any class of employees or officers (unless any
such change shall be required by applicable Law) which would
increase its retirement benefit liabilities, (iii) adopt,
enter into, amend or modify any Employee Benefit Plan or make
any adjustments pursuant to any employee benefit plan, except
as required
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by Law, or (iv) enter into or amend any employment, severance
or similar agreements or arrangements with any directors,
officers or employees, other than pursuant to this Agreement;
(b) declare or pay any dividend on, or make any other
distribution in respect of, the outstanding shares of Holding
Company Common Stock, HMOW Common Stock or Hometown
Common Stock;
(c) (i) redeem, purchase or otherwise acquire any
shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital
stock, or any options, warrants, conversion or other rights to
acquire any shares of its capital stock or any such securities
or obligations, (ii) merge with or into any other corporation,
permit any other corporation to merge into it or consolidate
with any other corporation, or effect any reorganization or
recapitalization, (iii) purchase or otherwise acquire any
substantial portion of the assets, or more than 5% of any
class of stock, of any corporation, or other business, other
than in the ordinary course of business and consistent with
past practice, (iv) liquidate, sell, dispose of, or
encumber.any assets or acquire any assets, other than in the
ordinary course of its business and consistent with past
practice, or (v) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(d) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or
sale of, any shares of any class of capital stock of an HMOW
Entity (including shares held in treasury) or any rights,
warrants or-options to acquire, any such shares;
(e) propose or adopt any amendments to the Articles
of Incorporation or Bylaws of an HMOW Entity in any way
adverse to-UWS;
(f) purchase or offer to purchase any shares of
Holding Company Common Stock, HMOW Common Stock or Hometown
Common Stock, except that Holding Company may purchase the
issued and outstanding shares of Hometown Common Stock not
presently owned by Holding Company for a price not to exceed
the book value per share of the Hometown Common Stock on the
purchase date;
(g) change any of its methods of accounting in effect
at December 31, 1993, or change any of its methods
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of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal
income tax returns for the taxable years ending December 31,
1992 and December 31, 1993, except as may be required by law
or regulatory accounting standards;
(h) change any material policies concerning the
business or operations of the HMOW Entities, except as
required by Law;
(i) incur or assume any material obligation or
liability, including without limitation any obligation for
borrowed money whether or not evidenced by a note, bond,
debenture or similar instrument, or investment in an amount
greater than Seventy-Five Thousand Dollars ($75,000), make any
investment in assets in an amount greater than Seventy-Five
Thousand Dollars ($75,000), assume, guaranty, endorse or
otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other
person or entity or mortgage, license, pledge or grant a
security interest in any of its material assets or allow to be
created any material lien thereon, except for liabilities and
obligations incurred in the ordinary course of business,
consistent with past practices and in amounts not material to
the HMOW Entities taken as a whole and as may be required
under existing agreements to which the HMOW Entity is a party;
(j) enter into any agreement with respect to any
acquisition of a material amount of assets or securities or
any discharge, waiver, satisfaction, release or relinquishment
of any material contract rights, liens, encumbrances, debt or
claims-, not in the ordinary course of business and consistent
with past practices, settle any claim, action, suit,
litigation, proceeding, arbitration, investigation or
controversy of any kind, for any amount in excess of Five
Thousand Dollars ($5,000.00) or in any manner which would
restrict in.any material respect the operations or business of
the HMOW Entities, enter into any contract not terminable on
thirty (30) days written notice and without penalty of any
kind, or take any action or fail to take any action which
individually or in the aggregate can be expected to have a
Material Adverse Effect on the HMOW Entities taken as a whole;
and
(k) agree in writing or otherwise to do any of the
foregoing.
C. Closing Date. The HMOW Entities shall use all
reasonable efforts to cause a fulfillment by November 1, 1994, or
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an earlier date if possible, of all of the conditions to the parties'
obligations to consummate the transactions contemplated in this Agreement, on
terms and conditions reasonably acceptable to the UWS Entities.
4.2 UWS Entities.
A. Closing Date. Each of the UWS Entities shall use all
reasonable efforts to cause a fulfillment by November 1, 1994, or an earlier
date if possible, of all of the conditions to their obligations to consummate
the transactions contemplated in this Agreement, on terms and conditions
reasonably acceptable to the HMOW Entities.
B. Due Diligence of U-Care. The UWS Entities shall permit two
(2) representatives of the HMOW Entities to accompany the UWS Entities during
UWS's due diligence of U-Care. If the Holding Company Entities wish to send more
than two (2) representatives, they shall so notify the UWS Entities prior to the
applicable meeting and shall be entitled to send such additional representatives
unless the UWS Entities shall reasonably object. The UWS entities shall provide
to the HMOW Entities copies of all U-Care due diligence reports prepared by
third party consultants retained by the UWS Entities. The UWS Entities covenant
that no expense, loss or liability attributable to that approximate $4.4 million
in debt assumed and owed by U-Care to University of Wisconsin Hospitals and
Clinics referenced in Section 14.4 of the Joint Venture Agreement by and among
Blue Cross, UWS, UHC, U-Care and Health Professionals, Inc. will be taken into
account in computing the payments to LLC under the Service Agreement.
C. U-Care Documents. The UWS Entities shall deliver to HMOW as
soon as available, but in no event later than ten (10) days prior to the Closing
Date all definitive agreements entered into, or the latest draft of any such
agreements proposed to be entered into, by any UWS Entity in connection with the
U-Care Joint Venture, including, but not limited to, the Assumption Reinsurance
Agreement to be executed by HMOW and U-Care.
D. HMOW Employees. Employees providing services to HMOW at
closing shall remain employees of HMOW and no such employee shall be terminated
during the first twelve (12) months of the Joint Venture except for cause. UWS
agrees to continue each such employee's employment with HMOW at a salary
substantially similar to the salary the employee is receiving from HMOW on the
Closing Date and with substantially the same fringe benefits. It is agreed by
the parties that no exception on an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), may be
made for any employee that may cause a presently qualified plan to lose its
qualification under ERISA. UWS shall make a good faith effort to offer to an
employee for any fringe benefit the employee may lose as a result of the Joint
Venture.
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E. Lay-off or Termination of HMOW Employees. Individuals
employed by HMOW as of the Closing Date and who are laid off prior to a date
which is twelve (12) months from the Closing Date shall receive from UWS
severance pay in an amount equal to the wages and health insurance premium
contribution the employee would have been expected to receive during the balance
of said twelve (12) month period had the individual continued employment with
HMOW. Upon the request of UWS, the Governing Board may approve the payment of
severance pay in a lesser amount than provided herein. In the event that after
the Closing Date an individual employed by HMOW as of the Closing Date is
terminated for cause or terminated with the approval of the Governing Board
prior to a date which is twelve (12) months from the Closing Date, the Governing
Board may approve a lesser amount of severance pay than is otherwise
contemplated herein or no severance pay.
F. No Subsidiary Business. Subsidiary will not engage in
any business or enter into any transactions whatsoever except such as related
to the Merger and the Plan and the performance of its obligations hereunder.
G. HMOW President. UWS agrees to offer the President of
HMOW (Devon W. Barrix) a three (3) year employment contract with HMOW
consisting of a total compensation package (salary, profit sharing, incentive
programs and fringe benefits) with a value substantially similar to the total
compensation package he is receiving from HMOW on the Closing Date. The
specific terms of the total compensation package will be determined by the
parties prior to the Closing Date. If a question arises between the parties
regarding the interpretation or application of the total compensation
package, such questions shall be presented to the Governing Board for a final
decision.
H. Rural Hospital Representation on the Blue Cross Board of
Directors. Blue Cross agrees to appoint one rural hospital representative to
its Board of Directors.
I. HMOW Office Facility. The UWS Entities agree that Joint
Venture operations will be located in HMOW's office facility in Sauk City,
Wisconsin. UWS shall pay off the mortgage on the HMOW office building within
90 days of the Closing Date and will strive to utilize fully the capacity of
the building through growth of HMOW and acquisition of other insurance
business or transfer of existing Blue Cross or UWS operations to Sauk City.
4.3. Mutual Covenants.
A. Implementation Plan. Prior to Closing, the Participants
shall develop a marketing plan, budget and transition plan (which shall include
the U-Care business if the UWS Entities enter into the U-Care Joint Venture)
relating to the Joint Venture business that is mutually acceptable to the
parties (the
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"Implementation Plan").
B. Bylaws. Prior to Closing, the Participants shall
prepare mutually acceptable Bylaws for the Governing Board, which
the Governing Board shall adopt.
C. Information; Filings; Consents.
(a) Upon request by UWS, the Holding Company shall, and shall
cause each Company Subsidiary to, promptly furnish UWS with all
information concerning an HMOW Entity required for inclusion in any
application or statement made by UWS to any government agency or
authority in connection with the transactions contemplated by this
Agreement.
(b) Each of the parties hereto agrees to use its reasonable
best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable
under applicable Laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. In case at any time
after the Closing any further action is necessary or desirable to carry
out the purposes of this Agreement, each party to this Agreement shall
use all reasonable efforts to take such necessary action.
D. Notification of Certain Matters. The Holding Company shall
give prompt notice to UWS, and UWS shall give prompt notice to Holding Company
of (i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate, and (ii) any failure of
an HMOW Entity or UWS Entity, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however that the delivery of any notice pursuant to this
Section 4.3.D shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice. The parties hereto agree that,
should any party receive written communications from any regulatory agency
regarding the proposed transaction, the recipient shall send a copy of such
correspondence to the other parties within three (3) business days of receipt,
except as prohibited by any applicable Law.
E. Public Announcements. Except as may be required by
applicable securities laws or any listing agreement with any national securities
exchange, the UWS Entities and HMOW Entities will consult with and obtain the
approval of one another before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation and mutual approval. If UWS is
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required by applicable securities laws or any listing agreement with any
national securities exchange to disclose the existence of this Agreement or make
disclosures regarding the transactions contemplated herein, UWS shall provide
notice of said disclosure to the Holding Company prior to the issuance or
publication of such notice.
F. Employment of Officer. Following the Closing, Devon W.
Barrix shall continue in his position as President of HMOW, pursuant to the
terms of an employment and non-competition agreement substantially similar to
Exhibit D to this Agreement.
ARTICLE 5 - NON-COMPETITION
5.1. Noncompete with Joint Venture.
A. Unless otherwise agreed by the Governing Board pursuant to
Section 3.6, neither the HMOW Entities nor the UWS Entities shall during the
term of the Joint Venture, directly or indirectly offer or participate in the
offering, except through the Joint Venture, of any HMO, PPO, POS or other
managed care products, either insured or self-funded, which utilize a provider
network, which has a location in HMOW's current service area of the Wisconsin
counties listed in Section 3.5.A(i). Notwithstanding the foregoing, should UWS
or Blue Cross develop a new joint venture with another partner in the Fox Valley
Area, as described in Section 3.4, the Participants agree that the establishment
of such joint venture shall not violate this Section 5.1. The Participants
further agree that providers that have contracted with CPN or HMOW shall have a
right of first refusal regarding any new PPO relationship established within the
counties identified in Section 3.5.A(i)
B. The parties agree that if UWS should enter into the U-Care
Joint Venture, Dodge County will be added to the counties referenced in Section
3.5.A(i).
C. The parties acknowledge that Blue Cross has existing PPO
relationships, and it is agreed that these existing relationships do not violate
this Section 5.1, provided that Blue Cross delivers to the HMOW Entities a list
describing and identifying these relationships prior to the Closing Date.
5.2. Standstill.
A. Until November 1, 1994, or the actual Closing Date if
later, the HMOW Entities shall not discuss or negotiate with any third party or
entity to authorize (and shall use reasonable efforts to prohibit) any of its
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by the HMOW Entities or a Holding Company
Shareholder to
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take any such action) the possible acquisition of the assets or equity
securities of Holding Company or HMOW or the possible structuring of a
comparable joint venture or partnership involving the development and furnishing
of HMO, PPO, POS or other managed care products, either insured or self-funded,
which utilize a provider network and which has a location in any of the
Wisconsin counties specified in Section 3.5.A(i).
ARTICLE 6 -- CONDITIONS TO THE OBLIGATION OF
THE UWS ENTITIES TO CLOSE
The obligations of the UWS Entities to consummate the transactions
contemplated herein shall be subject to the satisfaction, on or prior to the
Closing Date, of all of the following conditions (any of which may be waived by
the UWS Entities):
6.1. Completion of Due Diligence. The UWS Entities shall have completed
to their satisfaction a thorough due diligence review of the financial
condition, legal matters and operational information and other matters
associated with the HMOW Entities and no material adverse change in the
operations or financial condition of the HMOW Entities between the date hereof
and the Closing shall have occurred.
6.2. Legal Opinion. The UWS Entities shall have been furnished with an
opinion of their own counsel regarding the tax, anti-trust and other
considerations as they may reasonably require, subject to whatever changes the
opinion giver may deem reasonably necessary to comply with the legal opinion
standards of such opinion giver; provided, however, that the opinion as changed
provides the same comfort to the recipient, in the reasonable opinion of the
recipient.
6.3. Regulatory Approvals and Third Party Consents.
A. This Agreement, and all aspects of the transactions
contemplated hereby, shall have received all appropriate and necessary
regulatory and third party approvals, waivers or consents, including without
limitation, the approvals of the State of Wisconsin Office of the Commissioner
of Insurance, Securities and Exchange Commission, and Department of Justice, and
all third party consents and approvals (collectively the "Approvals"), which
Approvals shall be in full force and effect;
B. any conditions and directions contained in the Approvals
shall have been fully complied with in all material respects; and
C. the Approvals shall not modify the terms and conditions
of this Agreement, and the transactions contemplated
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herein, in any material respect.
6.4. Representations and Warranties Accurate. The representations and
warranties of the Holding Company and HMOW contained in this Agreement shall be
true and accurate on and as of the Closing Date with the same force and effect
as if made on and as of the Closing Date, except for those representations and
warranties which address matters only as of a particular date (which shall
remain complete and correct as of such date).
6.5. Compliance. The HMOW Entities shall have performed and complied
with all of their respective obligations under this Agreement which are to be
performed or complied with by them prior to or on the Closing Date.
6.6. Government Order, Injunction. No court, domestic or foreign, shall
have entered and maintained in effect an injunction or other similar order
enjoining consummation of the transactions provided for herein, and no action or
proceeding shall have been instituted and remain pending before a court or other
governmental body by any governmental agency or public authority to restrain or
prohibit the transactions contemplated by this Agreement, nor shall any
governmental agency have notified any party to this Agreement that consummation
of the transactions contemplated hereby would constitute a violation of the laws
of the United States or the State of Wisconsin and that it intends to commence
proceedings to restrain the consummation of the transactions contemplated hereby
unless such agency shall have withdrawn such notice prior to the Closing.
6.7. Other Contingencies. The parties shall satisfy such other
contingencies as are set forth in this Agreement.
6.8. Delivery of Items at Closing. At the Closing, the HMOW
Entities shall have delivered to the UWS Entities:
A. A certificate, dated as of the Closing Date and reasonably
satisfactory in form and substance to the DWS Entities and their counsel, of an
executive officer of the Holding Company and HMOW, certifying that the
conditions in Sections 6.4 and 6.5 have been met.
B. The resolutions of the boards of directors and shareholders
of the Holding Company and HMOW, authorizing the transactions contemplated by
this Agreement, duly certified as of the Closing Date.
C. An executed original of the Assumption Reinsurance
Agreement referred to in Section 3.7.E.
D. Executed originals of the Administrative Services
Agreements referred to in Section 3.7.C.
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E. Executed originals of the provider agreements referred to
in Section 3.5.
6.9. Employment Agreement. Devon W. Barrix shall have entered into an
Employment and Non-competition Agreement substantially in the form attached
hereto as Exhibit D which agreements shall become effective immediately
following the Closing, and any employment agreement with Devon W. Barrix
existing as of the date of this Agreement to which an HMOW Entity is a party
shall have been terminated as of the Closing Date.
6.10. No Challenge. There shall not be pending any action, proceeding
or investigation before any court or administrative agency or by any government
agency or any other person: (i) challenging or seeking material damages in
connection with the Merger or Joint Venture, or (ii) seeking to restrain,
prohibit or limit the exercise of full rights of ownership or operation by UWS
of any portion of the business or assets of the Holding Company.
6.11. No Material Adverse Change. The business, properties and
operations of the HMOW Entities shall not have been materially adversely
affected in any way from the date of this Agreement to the Closing Date.
6.12. No Burdensome Condition. There shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger or Joint Venture, by any federal or state governmental
entity which, in connection with the grant of any regulatory approval, imposes
any condition or restriction upon the UWS Entities, including, without
limitation, any requirement to raise additional capital, which -would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger or Joint Venture.
6.13. Execution of Service Agreement. At the Closing Date, the LLC
shall execute and deliver to UWS the Service Agreement.
6.14. Dissenting Shares. Holders of Dissenting Shares shall hold no
more than 10% of the Shares.
ARTICLE 7 - CONDITIONS TO THE OBLIGATION OF
THE HMOW ENTITIES TO CLOSE
The obligations of the HNOW Entities to consummate the transactions
contemplated herein shall be subject to the satisfaction, on or prior to the
Closing Date, of all of the following conditions (any of which may be waived by
the HMOW Entities):
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7.1. Legal Opinion. The HMOW Entities shall have been furnished with an
opinion of their counsel regarding the tax, antitrust and other considerations
as they may reasonably require, subject to whatever changes the opinion giver
may deem reasonably necessary to comply with the legal opinion standards of such
opinion giver; provided, however, that the opinion as changed provides the same
comfort to the recipient, in the reasonable opinion of the recipient.
7.2. Completion of Due Diligence. The HMOW Entities shall have
completed to their satisfaction a thorough due diligence review of the financial
condition, legal matters and operational information and other matters
associated with the UWS Entities (including UHC and U-Care if the U-Care Joint
venture is established), and no material adverse change in the operations of any
UWS Entity (and UHC or U-Care if the U-Care Joint Venture is established)
between the date hereof and the Closing shall have occurred.
7.3. Regulatory Approvals and Third Party Consents.
A. This Agreement, and all aspects of the transactions
contemplated hereby, shall have received all Approvals, which Approvals shall be
in full force and effect;
B. any conditions and directions contained in the Approvals
shall have been fully complied with in all material respects; and
C. the Approvals shall not modify the terms and conditions of
this Agreement, and the transactions contemplated herein, in any material
respect.
7.4. Representations and Warranties Accurate. The representations and
warranties of UWS and Subsidiary contained herein shall be true and accurate on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, except for those representations and warranties which
address matters only as of a particular date (which shall remain complete and
correct as of such date).
7.5. Compliance. The UWS Entities shall have performed and complied
with in all material respects, all of their respective obligations under this
Agreement which are to be performed or complied with by them prior to or on the
Closing Date.
7.6. Government Order, Injunction. No court, domestic or foreign, shall
have entered and maintained in effect an injunction or other similar order
enjoining consummation of the transactions provided for herein, and no action or
proceeding shall have been instituted and remain pending before a court or other
governmental body by any governmental agency or public authority to restrain or
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prohibit the transactions contemplated by this Agreement, nor shall any
governmental agency have notified any party to this Agreement that consummation
of the transactions contemplated hereby would constitute a violation of the laws
of the United States or Wisconsin and that it intends to commence proceedings to
restrain the consummation of the transactions contemplated hereby unless such
agency shall have withdrawn such notice prior to the Closing.
7.7. U-Care Documents. If the UWS Entities shall have entered into
definitive agreements with respect to the U-Care Joint Venture, copies of all
such agreements, including without limitation all amendments thereto and all of
the definitive U-Care documents, shall have been furnished to the Holding
Company. Such agreements shall not contain any terms or conditions not otherwise
contained in the U-Care Letter of Intent that are adverse to the HMOW Entities
in any material respect.
7.8 Other Contingencies. The parties shall satisfy such other
contingencies as are set forth in this Agreement.
7.9. Delivery of Items at Closing. At the Closing, the UWS Entities
shall have delivered to the HMOW Entities:
A. A certificate, dated as of the Closing Date and reasonably
satisfactory in form and substance to the HMOW Entities and their counsel, of an
executive officer of UWS and Blue Cross that the conditions in Sections 7.4 and
7.5 have been met.
B. The resolution of the board of directors of Blue Cross, UWS
and Subsidiary authorizing the transactions contemplated by this Agreement, duly
certified as of the Closing Date by their respective Secretaries.
C. An executed original of the Assumption Reinsurance
Agreement referred to in Section 3.7.E.
D. Executed originals of the Administrative Services
Agreements referred to in Section 3.7.C.
7.10. Employment Agreement. Devon W. Barrix shall have entered into an
Employment and Non-competition Agreement substantially in the form attached
hereto as Exhibit D which agreement shall become effective immediately following
the Closing, and any employment agreement with Devon W. Barrix existing as of
the date of this Agreement to which an HMOW Entity is a party shall have been
terminated as of the Closing Date.
7.11. No Challenge. There shall not be pending any action, proceeding
or investigation before any court or administrative agency or by any government
agency or any other person: (i) challenging or seeking material damages in
connection with the Merger or Joint Venture, or (ii) seeking to restrain,
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prohibit or limit the exercise of full rights of ownership or operation by UWS
of any portion of the business or assets of the Holding Company.
7.12. No Material Adverse Change. The business, properties and
operations of the UWS Entities shall not have been materially adversely affected
in any way from the date of this Agreement to the Closing Date.
7.13. No Burdensome Condition. There shall not be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger or Joint Venture, by any federal or state governmental
entity which, in connection with the grant of any regulatory approval, imposes
any condition or restriction upon any of the HMOW Entities, including, without
limitation, any requirement to raise additional capital, which would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger or Joint venture.
7.14. Execution of Service Agreement. At the Closing Date, UWS
shall execute and deliver to LLC the Service Agreement.
ARTICLE 8 -- TERM AND TERMINATION
8.1. Term. The joint Venture shall have an initial term of ten (10)
years from October 1, 1994 (the "Effective Date"), unless terminated in
accordance with this Article. If the LLC does not exercise its option to acquire
the Holding Company set forth in the Service Agreement at either the fifth (5th)
or tenth (lOth) anniversary of the Closing Date, the Joint Venture shall
automatically renew for additional five (5) year terms until written notice of
termination is given at least 180 days prior to the end of the then current
term.
8.2. Termination of Agreement. This Agreement may be terminated as
follows:
A. The parties may terminate this Agreement prior to the
Closing by mutual agreement.
B. This Agreement may be terminated by any party hereto if
Closing does not occur by November 1, 1994 (or a later date if the parties
mutually agree) for a reason other than the failure of the terminating party, or
an affiliate thereof, to comply with its obligations under this Agreement;
C. This Agreement may be terminated by any party hereto if any
permanent injunction preventing the consummation of the transactions
contemplated hereby shall have become final and nonappealable.
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<PAGE>
8.3. Termination of Joint Venture.
A. The Joint Venture may be terminated at the end of the
initial ten (10) year term if written notice is given at least 180 days prior to
the end of said term.
B. The Joint Venture will automatically terminate if the LLC
exercises its right to acquire the Holding Company set forth in the Service
Agreement, unless the parties agree otherwise.
C. The Joint Venture may be terminated by UWS on the date
which is five (5) years from the Effective Date in the event that any one or
more of the following events exists on said date:
(i) There exists an Aggregate Joint Venture Net Loss as
hereinafter defined for the period October 1, 1994 through September
30, 1999 calculated and determined by the accounting firm selected by
the Governing Board.
(ii) UWS demonstrates to the Governing Board and the Governing
Board agrees that there is a reasonable likelihood that an Aggregate
Joint Venture Net Loss will likely be incurred for the period October
1, 1999 through September 30, 2004, calculated and determined as
provided in Sections 8.3.D.(i) or 8.3.D.(ii), whichever is applicable;
provided that in the event the Governing Board prohibits UWS from
exercising its termination rights hereunder, said decision shall be
subject to the provisions of Article 9 hereof.
(iii) HMOW fails to procure a provider agreement with CPN to
serve as the central provider of professional medical services within
the geographic area of the Joint Venture referred to in Section
3.5.A(i) for the period October 1, 1999 through September 30, 2004,
which agreement shall have such terms and conditions as are
satisfactory to the Governing Board.
(iv) UWS demonstrates to the Governing Board and the Governing
Board has determined that HMOW shall have failed to procure service
agreements with an adequate number of hospitals serving the geographic
area of the Joint Venture referred to in Section 3.5.A(i), which
agreements shall have terms and conditions as are satisfactory to the
Governing Board of the Joint Venture; provided that in the event the
Governing Board prohibits UWS from exercising its termination rights
hereunder, said decisions shall be subject to the provisions of Article
9 hereunder.
D. For purposes of Section 8.3.C(i) and 8.3.C(ii), the term
Aggregate Joint Venture Net Loss means for period(s) indicated therein an
aggregate net loss determined as follows:
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<PAGE>
(i) If the UWS Entities do not enter into the UCare Joint
Venture, the sum of:
(a) the aggregate income (loss) before
income taxes for the applicable period of all HMO and POS
plans offered by the Joint Venture determined in accordance
with generally accepted accounting principles ("GAAP"); plus
(b) the aggregate income (loss) before
income taxes for the applicable period of all insured PPO
plans offered by the Joint Venture, which shall mean for each
such plan (A) net earned premium, minus (B) the sum of
incurred claims and administrative expenses, plus (C) net
investment income earned.
(ii) If the UWS Entities enter into the U-Care Joint Venture,
the aggregate income (loss) before income taxes for the applicable
period(s) of all PPO (calculated as provided above), HMO and POS plans
offered by the Joint Venture, determined in accordance with GAAP.
(iii) For purposes of the foregoing calculations,
(A) the administrative expenses of each plan shall
not exceed the actual costs incurred by the Underwriter of
such plan;
(B) income does not include investment income
attributable to funds of UWS not withdrawn from the Joint
Venture;
(C) the amount of an aggregate loss for the
applicable period shall carry over and reduce income from the
plans offered by the Joint Venture in the successive
applicable period(s) to the extent of such loss:
(D) no expense, loss or liability attributable to
that approximate $4.4 million debt assumed and owed by U-Care
to University of Wisconsin Hospitals and Clinics referenced in
Section 14.4 of the Joint Venture Agreement by and among Blue
Cross, UWS, UHC, U-Care and Health Professions, Inc. ("U-Care
Joint Venture Agreement") shall be taken into account; and
(E) Income (loss) before income taxes shall be
computed without regard to: administrative service payments by
UWS affiliates to UWS pursuant to any administrative service
agreement between DWS and any of its affiliates in connection
with the payments to LLC contemplated herein; any payment to
LLC under the Service Agreement; and any payment to UHC
contemplated in the
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<PAGE>
U-Care Joint Venture Agreement other than pursuant to provider
agreements.
8.4. Effect of Termination Prior to Closing.
A. If this Agreement is terminated prior to the Closing and
the transactions contemplated hereby are not consummated as described above
caused otherwise than by breach of a party hereto, the parties hereto each shall
pay their own Expenses (as hereinafter defined) and this Agreement shall
immediately terminate and become null and void and of no further force and
effect, except as set forth in Section 10.6 hereof.
B. If this Agreement is terminated prior to the Closing and
such termination shall have been caused by breach of this Agreement by any party
hereto, then, in addition to other remedies at law or equity for breach of this
Agreement, the party so found to have breached this Agreement shall indemnify
the other parties for their respective Expenses.
C. "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including without limitation, all fees and
expenses of counsel, accountants, experts and consultants to the party and its
affiliates) incurred by a party or on its behalf in connection with or related
to the authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters related to the
closing of the transactions contemplated hereby.
8.5. Effect of Termination of Joint Venture. The termination of the
Joint Venture shall have no effect on the provider agreements entered into by
the parties, which shall continue until their scheduled termination date. The
reimbursement arrangement contained in the provider agreements then in effect
shall continue following termination of the Joint Venture.
ARTICLE 9 - ARBITRATION
9.1 Negotiation. In the event of any dispute between the UWS Entities
on the one hand and the HMOW Entities on the other hand arising out of or
relating to the formation, interpretation, performance or breach of this
Agreement, the UWS Entities and the HMOW Entities shall use their best efforts
to resolve such dispute. If they are unable to do so, such dispute shall be
submitted to the Governing Board for resolution. The Governing Board shall have
the authority to consult legal, financial or other advisors for the purpose of
resolving such dispute, and the fees and expenses of any such advisors shall be
shared equally by the UWS Entities on the one hand and the HMOW Entities on the
other hand. If the Governing Board is unable to resolve such dispute by the vote
required by Article 3 within 30 days, such dispute may be submitted to
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<PAGE>
arbitration in accordance with Section 9.2.
9.2 Arbitration.
A. Each side shall appoint an individual as arbitrator and the
two so appointed shall then appoint a third arbitrator. If either side refuses
or neglects to appoint an arbitrator within thirty (30) days of receipt of a
written notice of demand for arbitration, the other side may appoint the second
arbitrator. If the two arbitrators do not agree on a third arbitrator within
thirty (30) days of their appointment, each of the arbitrators shall nominate
three individuals. Each arbitrator shall then decline two of the nominations
presented by the other arbitrator. The third arbitrator shall then be chosen
from the remaining two nominations by drawing lots. The arbitrators shall be
active or former officers of insurance or reinsurance companies, managed care
organizations, or Lloyd's of London Underwriters; the arbitrators shall not have
a personal or financial interest in the result of the arbitration.
B. The arbitration hearings shall be held in Madison,
Wisconsin, or such other place as may be mutually agreed. Each side shall submit
its case to the arbitrators within thirty (30) days of the selection of the
third arbitrator or within such longer period as may be agreed by the
arbitrators. The arbitrators shall not be obliged to follow judicial formalities
or the rules of evidence except to the extent required by governing law, that
is, the state law of the situs of the arbitration as herein agreed; they shall
make their decisions according to the practice of the reinsurance business. The
decision rendered by a majority of the arbitrators shall be final and binding on
both sides. Such decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute which either side may have against
the other. Judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
C. Each side shall pay (i) the fees and expenses of its own
arbitrator, (ii) one-half of the fees and expenses of the third arbitrator and
(iii) one-half of the other expenses that the parties jointly incur directly
related to the arbitration proceeding. Other than as set forth above, each party
shall bear its own costs in connection with any such arbitration including,
without limitation, (i) all legal, accounting, and other professional fees and
expenses and (ii) all other costs and expenses each party incurs to prepare for
such arbitration.
D. Except as provided above, arbitration shall be based,
insofar as applicable, upon the Commercial Arbitration Rules of the American
Arbitration Association.
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<PAGE>
ARTICLE 10 - GENERAL PROVISIONS
10.1. Survival of Representations. Warranties and Agreements. The
representations and warranties of the Holding Company and HMOW set forth in
Section 2.1 and of UWS and Subsidiary set forth in Section 2.2 hereof shall not
survive the Merger Effective Time.
10.2. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement. It is intended that this Agreement benefit the LLC.
10.3. Expenses. Except as provided in Section 8.4 above, all Expenses
incurred by the parties hereto shall be borne solely and entirely by the party
which has incurred the same.
10.4. Amendments. This Agreement may be amended only by the consent of
the parties expressed in a written addendum; and such addendum, when executed by
all parties, shall be deemed to be an integral part of this Agreement and
binding on the parties.
10.5. Successors and Assigns. This Agreement shall inure to the benefit
of and bind each of the parties and their successors and assigns. Neither this
Agreement nor any right hereunder nor any part hereof may be assigned by any
party without the prior written consent of the other parties and all necessary
regulatory authorities.
10.6. Confidential Information. The parties acknowledge that all
information of a given party which has or will come into the possession of
another party in connection with this Agreement is non-public, confidential or
proprietary in nature. Each party agrees to hold such information in strictest
confidence, not to make use thereof other than for the performance of this
Agreement, and not to release or disclose it to any third party other than for
the performance of this Agreement or as required by law. In the event that any
party (the "Disclosing Party") is requested pursuant to, or required by,
applicable law or regulation or by legal process to disclose any such
information of another party, the Disclosing Party shall provide such other
party with prompt notice of such request to enable such other party to seek an
appropriate protective order. The Disclosing Party shall cooperate with such
other party in connection with such matter.
10.7. Interpretation. This Agreement shall be interpreted to preserve
the purposes of the Joint Venture and to maintain its integrity. It is the
intent of the parties that minor, technical and immaterial violations of this
Agreement and related documents and minor inconsistencies and ambiguities should
be resolved in
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<PAGE>
favor of continuation of the Joint Venture.
10.8. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) applicable to a contract executed and to be
performed in such state.
10.9. Entire Agreement. This Agreement, and the documents contemplated
herein, supersede all prior discussions and agreements between, and contain the
sole and entire agreement between, the parties with respect to the subject
matter hereof.
10.10. Headings. The headings used in this Agreement have been inserted
for convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement. Unless the context of this Agreement otherwise
requires, (a) words of any gender will be deemed to include each other gender,
(b) words using the singular or plural number will also include the plural or
singular number, respectively, (c) the terms hereof, herein, hereby, and
derivative or similar words will refer to this entire Agreement, and (d) the
conjunction "or" will denote any one or more, or any combination or all, of the
specified items or matters involved in the respective list.
10.11. Waiver. At any time prior to the Closing Date, any party hereto
may: (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby. In the event of an inaccuracy or misrepresentation in any of the
representations or warranties, the HMOW Entities or UWS Entities may elect to
close the transaction contemplated hereby and seek reimbursement from the
breaching party with respect to any expenses associated with the resolution of
such inaccuracy or misrepresentation. The failure of any party at any time to
enforce any provision of this Agreement shall not be construed as a waiver of
that provision and shall not affect the right of any party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
10.12. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party will not be materially and adversely affected
thereby, (a) such provision will be fully severable, (b) this Agreement will be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof, (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be
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<PAGE>
affected by the illegal, invalid, or unenforceable provision or by its severance
herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision,
there will be added automatically as a part of this Agreement, a legal, valid,
and enforceable provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible.
10.13. Notices. Any notice or communication given pursuant to this
Agreement must be in writing and will be deemed to have been duly given if
mailed (by registered or certified mail, postage prepaid, return receipt
requested), or if transmitted by facsimile, or if delivered by courier, as
follows:
To Blue Cross
Blue Cross & Blue Shield United of Wisconsin
401 West Michigan Street
Milwaukee, Wisconsin 53203
Facsimile: 1-414-226-6229
Attention: Michael Bernstein
To UWS
United Wisconsin Services, Inc.
401 west Michigan Street
Milwaukee, Wisconsin 53203
Facsimile: 1-414-226-6229
Attention: Michael Bernstein
To HMOW or Holding Company
HMO-W, Incorporated
840 Carolina Street
Sauk City, Wisconsin 53583
Facsimile: 1-608-643-2564
Attention: Devon W. Barrix
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this paragraph will, whether sent by mail,
facsimile, or courier, be deemed given upon the first business day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a representative
of such party or by the facsimile confirmation). Any party from time to time may
change its address for the purpose of notices to that party by giving a similar
notice specifying a new address, but no such notice will be demand to have been
given until it is actually received by the party sought to be charged with the
contents thereof.
10.14. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be
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<PAGE>
deemed an original, but all of which will constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the date
first set forth above.
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
By:
-------------------------------
Title:
----------------------------
UNITED WISCONSIN SERVICES, INC.
By:
-------------------------------
Title:
----------------------------
UWS ACQUISITION CORPORATION
By:
-------------------------------
Title:
----------------------------
HMO-W, INCORPORATED
By:
-------------------------------
Title:
----------------------------
HMO OF WISCONSIN INSURANCE CORPORATION
By:
-------------------------------
Title:
----------------------------
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<PAGE>
FIRST AMENDMENT
TO
AGREEMENT OF MERGER AND JOINT VENTURE DATED OCTOBER 11, 1994
BY AND AMONG
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN,
UNITED WISCONSIN SERVICES, INC.,
UWS ACQUISITION CORPORATION,
HMO-W, INCORPORATED
AND
HMO OF WISCONSIN INSURANCE CORPORATION
This First Amendment to the Agreement of Merger and Joint
Venture is dated as of October 31, 1994 (the "Amendment") and is by and among
Blue Cross & Blue Shield United of Wisconsin, a Wisconsin insurance corporation
("Blue Cross"), United Wisconsin Services, Inc., a Wisconsin business
corporation ("UWS"), UWS Acquisition Corporation, a Wisconsin business
corporation, HMO-W, Incorporated, a Wisconsin business corporation ("Holding
Company") and HMO of Wisconsin Insurance Corporation, a Wisconsin health
maintenance organization organized under Chapter 611 of the Wisconsin Statutes
("HMOW"). All capitalized terms used herein and not otherwise defined have the
same meaning as in the Agreement of Merger and Joint Venture dated as of October
11, 1994 by and among the Parties hereto.
W I T N E S S E T H:
WHEREAS, the Parties executed an Agreement of Merger and Joint Venture
dated October 11, 1994 (the "Agreement") in connection with the acquisition by
UWS of the capital stock of HMO-W, Incorporated and a Joint Venture involving
certain of the Parties thereto; and
WHEREAS, the Parties now desire to amend the Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth below
and in the Agreement, the parties hereto do agree as follows:
1. The following sentence shall be added at the end of Section
1.8.C:
"Said interest shall accrue only until such date as the
Accountant has determined the actual Net Worth of the Holding
Company as of September 30, 1994."
2. Section 8.1 of the Agreement shall be amended by deleting the period at
the end of the paragraph and thereafter inserting the following:
"; provided, that if any party to the Amended and
Restated Joint Venture Agreement (the "U-Care Joint
Venture Agreement") by and between Blue Cross, UWS, U- Care,
UHC, Health Professionals, Inc. ("HPI") and certain affiliated
entities (collectively, the "University Affiliated Entities")
has given written notice of termination of said U-Care Joint
Venture Agreement, then the parties hereto must give written
notice of termination no later than five (5) months prior to
the end of the then current term."
<PAGE>
3. Section 8.3.D(iii)(B) of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(B) income does not include investment income
attributable to funds of UWS not withdrawn from the Joint
Venture or attributable to additional capital contributions
from UWS or one its affiliates to HMOW;"
4. The reference to "October 1, 1999" in Section 8.3.C(iii) of the
Agreement shall be deleted and replaced by "January 1, 2000" and the
reference to "September 30, 2004" in said paragraph shall be deleted
and replaced by "December 31, 2004".
5. Section 8.3.D(iii)(D) of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(D) no expense, loss or liability attributable to
that approximate $4.4 million debt assumed and owed by U- Care
to University of Wisconsin Hospitals and Clinics referenced in
Section 13.4 of the U-Care Joint Venture Agreement shall be
taken into account; and"
6. Section 8.3.D(iii)(E) of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(E) Income (loss) before income taxes shall be
computed without regard to: (A) administrative service
payments by UWS affiliates to UWS pursuant to any
administrative service agreement between UWS and its
affiliates in connection with the payments to (1) LLC under
the Service Agreement, (2) U-Care or any successor thereto
under a License Agreement, dated as of November 1, 1994,
between UWS and U-Care (the "License Agreement"), or (3) HPI
under a service agreement, dated as of November 1, 1994,
between UWS and HPI, (B) any payment to HPI under that service
agreement with UWS, (C) any payment to LLC under the Service
Agreement, or (D) any payment to U-Care or any successor
thereto under the License Agreement."
7. As relevant, conforming amendments to the Service Agreement by and
between UWS and Community Health Systems, L.L.C. shall be made which
are consistent with the terms of the amendments contained herein.
This Amendment may be executed in two or more counterparts each of
which shall be an original, but all of which together shall constitute one and
the same document.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
BLUE CROSS & BLUE SHIELD UNITED OF
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<PAGE>
WISCONSIN
By:
-------------------------------
Title:
----------------------------
UNITED WISCONSIN SERVICES, INC.
By:
-------------------------------
Title:
----------------------------
UWS ACQUISITION CORPORATION
By:
-------------------------------
Title:
----------------------------
HMO-W, INCORPORATED
By:
-------------------------------
Title:
----------------------------
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<PAGE>
Exhibit 10.32
EQUITY
INCENTIVE PLAN
UNITED WISCONSIN SERVICES, INC.
July 1, 1998
<PAGE>
United Wisconsin Services, Inc.
Equity Incentive Plan
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
- ------- -------- ----
<S> <C> <C> <C>
1 ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Duration of the Plan 2
2 DEFINITIONS
3 ADMINISTRATION
3.1 The Committee 10
3.2 Authority of the Committee 10
3.3 Decisions Binding 11
4 SHARES SUBJECT TO THE PLAN
4.1 Number of Shares 11
4.2 Lapsed Awards 12
4.3 Adjustments in Authorized Shares 12
5 ELIGIBILITY AND PARTICIPATION
5.1 Eligibility 13
5.2 Actual Participation 13
6 STOCK OPTIONS
6.1 Grant of Options 13
6.2 Option Award Agreement 16
6.3 Option Price 16
6.4 Duration of Options 17
6.5 Exercise of Options 17
6.6 Payment 17
6.7 Restrictions on Share Transferability 18
6.8 Termination of Employment Due to Death,
Disability or Retirement 18
6.9 Termination of Employment for
Other Reasons 20
6.10 Transferability of Options 21
7 STOCK APPRECIATION RIGHTS
7.1 Grant of SARs 22
7.2 Exercise of Tandem SARs 22
7.3 Exercise of Affiliated SARs 23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
7.4 Exercise of Freestanding SARs 23
7.5 SAR Agreement 23
7.6 Term of SARs 23
7.7 Payment of SAR Amount 23
7.8 Rule 16b-3 Requirements 24
7.9 Termination of Employment Due to Death
Disability, or Retirement 24
7.10 Termination of Employment for
Other Reasons 26
7.11 Nontransferability of SARs 26
8 RESTRICTED STOCK
8.1 Grant of Restricted Stock 26
8.2 Restricted Stock Agreement 27
8.3 Transferability 27
8.4 Other Restrictions 27
8.5 Certificate Legend 27
8.6 Removal of Restrictions 28
8.7 Voting Rights 28
8.8 Dividends and Other Distributions 28
8.9 Termination of Employment Due to Death,
Disability, or Retirement 29
8.10 Termination of Employment for
Other Reasons 29
9 PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 Grant of Performance Units/Shares 30
9.2 Value of Performance Units/Shares 30
9.3 Earning of Performance Units/Shares 30
9.4 Form and Timing of Payment of Performance
Units/Shares 30
9.5 Termination of Employment Due to
Death, Disability, Retirement, or
Involuntary Termination (without
Cause) 31
9.6 Termination of Employment for
Other Reasons 31
9.7 Nontransferability 32
10 BENEFICIARY DESIGNATION
11 DEFERRALS
12 RIGHTS OF EMPLOYEES
12.1 Employment 33
12.2 Participation 33
13 CHANGE IN CONTROL
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
14 AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, and
Termination 34
14.2 Awards Previously Granted 34
15 WITHHOLDING
15.1 Tax Withholding 34
15.2 Share Withholding 35
16 INDEMNIFICATION
17 SUCCESSORS
18 LEGAL CONSTRUCTION
18.1 Gender and Number 37
18.2 Severability 37
18.3 Requirements of Law 37
18.4 Securities Law Compliance 38
18.5 Governing Law 38
</TABLE>
iii
<PAGE>
UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan. United Wisconsin Services, Inc. (until
the Effective Date known as Newco/UWS, Inc.), a Wisconsin corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "United Wisconsin Services, Inc. Equity
Incentive Plan" (hereinafter referred to as the "Plan"), as set forth in this
document. The Plan permits the grant of Nonqualified Stock Options, Incentive
Stock Options, SARs, Restricted Stock, Performance Units, and Performance
Shares.
This Plan is being created in connection with the distribution (the
"Distribution"), by the corporation formerly known as United Wisconsin Services,
Inc. of all of the shares in the Company in connection with the spin-off of the
managed care and specialty products business to the Company and the assumption
by the Company of the United Wisconsin Services, Inc. name. In connection with
the Distribution, options ("Substituted Options") will be issued under this Plan
in substitution for options issued under the equity incentive plan of the
corporation formerly known as United Wisconsin Services, Inc. (the "Prior
Plan").
Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of a majority of Shares of the Company, the
Plan shall become effective as of the Distribution Date (the "Effective Date"),
and shall remain in effect as provided in Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
success, and enhance the value, of the Company by linking the personal interests
of Participants to those of Company shareholders, and by providing Participants
with an incentive for outstanding performance.
<PAGE>
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants upon
whose judgment, interest, and special effort the successful conduct of its
operation is dependent.
1.3 Duration of the Plan. Subject to approval by the Board of Directors
of the Company and ratification by the shareholders of the Company, the Plan
shall commence on the Effective Date, as described in Section 1.1 herein, and
shall remain in effect, subject to the right of the Board of Directors to
terminate the Plan at any time pursuant to Article 14 herein, until all Shares
subject to it shall have been purchased or acquired according to the Plan's
provisions. However, in no event may an Award be granted under the Plan more
than ten years after the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
(a) "Affiliate" - A company closely related to UWSI such as Blue
Cross & Blue Shield United of Wisconsin, or such other company
as the Board may designate. For purposes of options received
in connection with the Distribution, American Medical Security
Group, Inc. (and its subsidiaries) will be considered
Affiliates.
(b) "Affiliated SAR" means a SAR that is granted in connection
with a related Option, and which will be deemed to
automatically be exercised simultaneous with the exercise of
the related Option.
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(c) "Award" means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock
Options, SARs, Restricted Stock, Performance Units, or
Performance Shares.
(d) "Award Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants under
this Plan.
(e) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
(f) "Board" or "Board of Directors" means the Board of Directors
of the Company.
(g) "Cause" means: (i) willful and gross misconduct on the part of
a Participant that is materially and demonstrably detrimental
to the Company; or (ii) the commission by a Participant of one
or more acts which constitute an indictable crime under United
States Federal, state, or local law. "Cause" under either (i)
or (ii) shall be determined in good faith by the Committee.
(h) "Change in Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(i) Any Person (other than those Persons in control of the
Company as of the Effective Date, or other than a
trustee or other fiduciary holding securities under an
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employee benefit plan of the Company, or a
corporation owned directly or indirectly by the
stockholders of the Company in substantially the
same proportions as their ownership of stock of the
Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company
representing twenty-five percent (25%) or more of
the combined voting power of the Company's then
outstanding securities; or
(ii) During any period of two (2) consecutive years (not
including any period prior to the Effective Date),
individuals who at the beginning of such period
constitute the Board (and any new Director, whose
election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the
Directors then still in office who either were
Directors at the beginning of the period or whose
election or nomination for election was so
approved), cease for any reason to constitute a
majority thereof; or
(iii) The stockholders of the Company approve: (A) a plan
of complete liquidation of the Company; or (B) an
agreement for the sale or disposition of all or
substantially all the Company's assets; or (C) a
merger, consolidation, or reorganization of the
Company with or involving any other corporation,
other than a merger, consolidation, or
reorganization that would result in the voting
securities of the
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Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity), at least fifty
percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving
entity) outstanding immediately after such merger,
consolidation, or reorganization.
However, in no event shall a "Change in Control" be
deemed to have occurred, with respect to a
Participant, if the Participant is part of a
purchasing group which consummates the
Change-in-Control transaction. A Participant shall
be deemed "part of a purchasing group" for purposes
of the preceding sentence if the Participant is an
equity participant in the purchasing company or
group (except for: (i) passive ownership of less
than three percent (3%) of the stock of the
purchasing company; or (ii) ownership of equity
participation in the purchasing company or group
which is otherwise not significant, as determined
prior to the Change in Control by a majority of the
nonemployee continuing Directors).
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(j) "Committee" means the Management Review Committee, as
specified in Article 3, appointed by the Board
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to administer the Plan with respect to grants of Awards.
(k) "Company" means United Wisconsin Services, Inc., a Wisconsin
corporation, (until the Effective Date known as Newco/UWS,
Inc.) or any successor thereto as provided in Article 17
herein.
(l) "Director" means any individual who is a Non-Employee member
of the Board of Directors of the Company.
(m) "Directors Plan" means the 1995 Directors Stock Option Plan of
United Wisconsin Services, Inc.
(n) "Disability" means a permanent and total disability, within
the meaning of Code Section 22(e)(3), as determined by the
Committee in good faith, upon receipt of sufficient competent
medical advice from one or more individuals, selected by the
Committee, who are qualified to give professional medical
advice.
(o) "Distribution Date" means the date the stock of the Company is
distributed by the corporation formerly known as United
Wisconsin Services, Inc.
(p) "Employee" means any full-time employee of the Company or of
the Company's Subsidiaries or Affiliates. Directors who are
not otherwise employed by the Company shall not be considered
Employees under this Plan.
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(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor Act thereto.
(r) "Fair Market Value" means the closing price for Shares on the
relevant date, or (if there were no sales on such date) the
average of closing prices on the nearest day before and the
nearest day after the relevant date, on a stock exchange or
over the counter, as determined by the Committee.
(s) "Freestanding SAR" means a SAR that is granted independently
of any Options.
(t) "Incentive Stock Option" or "ISO" means an option to purchase
Shares, granted under Article 6 herein, which is designated as
an Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.
(u) "Insider" shall mean a Participant who is, on the relevant
date, an officer, Director or 10% shareholder of the Company,
subject to Section 16 of the Exchange Act.
(v) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6 herein, which is not
intended to be an Incentive Stock Option.
(w) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
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(x) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(y) "Participant" means an Employee or a Director who has
outstanding an Award granted under the Plan.
(z) "Performance Unit" means an Award granted to an Employee, as
described in Article 9 herein.
(aa) "Performance Share" means an Award granted to an Employee, as
described in Article 9 herein.
(bb) "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is limited in some way
(based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by
the Committee, at its discretion), and the Shares are subject
to a substantial risk of forfeiture, as provided in Article 8
herein.
(cc) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d).
(dd) "Restricted Stock" means an Award granted to a Participant
pursuant to Article 8 herein.
(ee) "Retirement" shall have the meaning ascribed to it in the
tax-qualified defined benefit retirement plan of the Company.
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(ff) "Shares" means the shares of common stock of the Company.
(gg) "Subsidiary" means any corporation in which the Company owns
directly, or indirectly through subsidiaries, at least fifty
percent (50%) of the total combined voting power of all
classes of stock, or any other entity (including, but not
limited to, partnerships and joint ventures) in which the
Company owns at least fifty percent (50%) of the combined
equity thereof.
(hh) "Substituted Option" means an option issued under this Plan in
substitution for options issued under another stock option
plan, including but not limited to options issued pursuant to
the Prior Plan and the Directors Plan.
(ii) "Stock Appreciation Right" or "SAR" means an Award, granted
alone or in connection with a related Option, designated as a
SAR, pursuant to the terms of Article 7 herein.
(jj) "Tandem SAR" means a SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture
of the right to purchase a Share under the related Option (and
when a Share is purchased under the Option, a SAR shall
similarly be cancelled).
(kk) "Window Period" means the period beginning on the third
business day following the date of public release of the
Company's quarterly sales and earnings information, and ending
on the thirtieth day following such date.
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ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Management
Review Committee of the Board, or by any other Committee appointed by the Board
consisting of not less than two (2) Directors who are not Employees. The members
of the Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors.
All members of the Committee shall be Non-Employee Directors.
"Non-Employee Directors," as defined in rule 16b-3 promulgated by the Securities
and Exchange Commission ("SEC") under the Exchange Act, means a director who (i)
is not currently an officer or otherwise employed by the Company or any
affiliate (ii) does not receive compensation for consulting service or in any
other capacity from the Company in excess of $60,000 in any one year, (iii) does
not possess an interest in and is not engaged in business relationships required
to be reported under Items 404(a) or 404(b) of Regulation S-K promulgated under
the Exchange Act and (iv) is an Outside Director as defined in Treas.
Reg. 1.162-27.
3.2 Authority of the Committee. The Committee shall have full power
except as limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions herein, to determine the size and types
of Awards with respect to Employees; to determine the terms and conditions of
such Employee Awards in a manner consistent with the Plan; to construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
to establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 14 herein) to amend
the terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other
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determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authority as
identified hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its stockholders, Employees, Directors,
Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan may not
exceed 4,500,000. These 4,500,000 Shares may be either authorized but unissued
or reacquired Shares.
The following rules will apply for purposes of the determination of the
number of Shares available for grant under the Plan:
(a) While an Award is outstanding, it shall be counted against the
authorized pool of Shares, regardless of its vested status.
(b) The grant of an Option or Restricted Stock shall reduce the
Shares available for grant under the Plan by the number of
Shares subject to such Award.
(c) The grant of a Tandem SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the
related Option (i.e., there
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is no double counting of Options and their related Tandem
SARs).
(d) The grant of an Affiliated SAR shall reduce the number of
Shares available for grant by the number of Shares subject to
the SAR, in addition to the number of Shares subject to the
related Option.
(e) The grant of a Freestanding SAR shall reduce the number of
Shares available for grant by the number of Freestanding SARs
granted.
(f) The Committee shall in each case determine the appropriate
number of Shares to deduct from the authorized pool in
connection with the grant of Performance Units and/or
Performance Shares.
(g) To the extent that an Award is settled in cash rather than in
Shares, the authorized Share pool shall be credited with the
appropriate number of Shares represented by the cash
settlement of the Award, as determined at the sole discretion
of the Committee (subject to the limitation set forth in
Section 4.2 herein).
4.2 Lapsed Awards. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available for the grant of an
Award under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization,
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separation, liquidation, stock dividend, split-up, Share combination, or other
change in the corporate structure of the Company affecting the Shares, such
adjustment shall be made in the number and class of Shares which may be
delivered under the Plan, and in the number and class of and/or price of Shares
subject to outstanding Options, SARs, and Restricted Stock granted under the
Plan, as may be determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of rights; and provided
that the number of Shares subject to any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Persons eligible to participate in this Plan include
all Employees and Directors.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award. Directors shall receive Options as provided in Section 6.1.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
options may be granted to Employees at any time and from time to time as shall
be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each Employee
except that no Employee may receive options (other than Substituted Options)
with respect to more than 250,000 Shares in any year. The Committee may grant
ISOs, NQSOs, or a combination thereof to Employees. Directors may receive only
NQSOs. Substituted Options may be issued under the Plan. The number of
Substituted Options
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shall be the number of options immediately before the substitution, adjusted to
prevent dilution or enlargement of the Participant's rights. The grant date of
such substituted options shall be the grant date under the plan through which
the options were originally granted. Substituted Options shall be issued to
Directors and Employees who participated in the Prior Plan and in the Directors
Plan in accordance with the terms of the Employee Benefits Agreement executed in
connection with the Distribution, and such substituted Options shall be subject
to the same grant date, exercise price (as adjusted pursuant to Section 6.3),
vesting and exercise period such Options were subject to under the Prior Plan
and the Directors Plan.
To the extent Shares are available for grant under the Plan,
each Director who is first elected as a Director subsequent to the Effective
Date (a "Subsequent Director") shall be granted, as of the date on which such
Subsequent Director is qualified and first begins to serve as a Director, an
Option to purchase 6,000 shares, subject to adjustment pursuant to Section 4.3
or to purchase such lesser number of Shares as remain available for grant under
the Plan. In the event that the number of Shares available for grant under the
Plan is insufficient to make all grants hereby specified on the relevant date,
then all Directors who are entitled to a grant on such date shall share ratably
in the number of Shares then available for grant under the Plan. The Option
Price of such Option shall equal the Fair Market Value of a Share on the date
the grant of this Option is effective.
If sufficient Shares are not available under the Plan to
fulfill the grant of Options to any Subsequent Director first elected after the
Effective Date, and thereafter additional Shares become available, such
Subsequent Director receiving an Option for fewer than 6,000 Shares shall then
receive an Option to purchase an amount of Shares, determined by dividing the
number of Shares available pro-rata among each Subsequent
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Director receiving an Option for fewer than 6,000 Shares, then available under
the Plan, not to exceed 6,000 Shares, subject to adjustment as to any one
Subsequent Director. The date of grant shall be the date such additional Shares
become available. The Option Price of an Option shall equal the Fair Market
Value of a Share on the date the Option is granted.
If a Subsequent Director receives an Option to purchase fewer
than 6,000 Shares, subject to adjustment pursuant to Section 4.3 hereof, and
additional Shares subsequently become available under the Plan, an Option to
purchase such Shares shall first be allocated as of the date of availability to
any Subsequent Director who has not previously been granted an Option. Such
Options shall be granted to purchase a number of Shares no greater than the
number of Shares covered by Options granted to other Subsequent Directors first
elected subsequent to the Effective Date, but who have received Options to
purchase fewer than 6,000 Shares (subject to adjustment pursuant to Section
4.3). Thereafter, Options for any remaining Shares shall be granted pro-rata
among all Subsequent Directors granted Options to purchase fewer than 6,000
Shares. No Director first elected after the Effective Date shall receive an
Option to purchase more than 6,000 Shares (subject to adjustment under Section
4.3).
The Option Price of the Shares purchasable under each Option granted to
a Director shall be equal to one hundred percent (100%) of the Fair Market Value
per Share on the date of grant of such Option.
Subject to acceleration as provided below, Options granted to Directors
shall vest annually at the rate of thirty-three and one third percent (33-1/3%)
of the aggregate number of Shares granted annually beginning on the first
anniversary of the date of grant and on each subsequent anniversary of the date
of grant
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thereafter. If a Director's tenure ends during the applicable three-year period
due to Death, Disability or Retirement or following a Change in Control,
however, such Director's Options shall become immediately exercisable as to one
hundred percent (100%) of the Shares covered thereby as of the Director's last
day of service as a Director with the Company to the extent such Option may be
exercised pursuant to Section 6.5 of this Plan. Retirement with respect to a
Director shall mean the date of the Company's annual shareholders' meeting at
which he or she would otherwise, but for said retirement, be a nominee for
election to the Board, or the date on which the Director attains seventy (70)
years of age.
Once any portion of an Option issued to a Director becomes exercisable,
it shall remain exercisable for the shortest period of (1) twelve years from the
date of grant; or (2) two (2) years following the date on which the Director
ceases to serve in such capacity for any reason other than removal for Cause. If
a Director is removed for Cause, all outstanding Options held by the Director
shall immediately be forfeited to the Company and no additional exercise period
shall be allowed, regardless of the vested status of the Options.
6.2 Option Award Agreement. Each Option grant shall be evidenced by
an Option Award Agreement that shall specify the Option Price, the duration
of the Option, the number of Shares to which the Option pertains, and such
other provisions as the Committee shall determine. The Option Award Agreement
also shall specify whether the Option is intended to be an ISO within the
meaning of Section 422 of the Code, or a NQSO whose grant is intended not to
fall under the Code provisions of Section 422.
6.3 Option Price. The Option Price for each grant of an option to
an Employee shall be determined by the Committee; provided that the Option
Price shall not be less than one hundred
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percent (100%) of the Fair Market Value of a Share on the date the Option is
granted. The Option Price for a Substituted Option shall be the Option Price
immediately before the substitution, adjusted to prevent dilution or enlargement
of the Participant's rights.
6.4 Duration of Options. Each Option granted shall expire at such time
as the Committee shall determine at the time of grant; provided, however, that
no ISO shall be exercisable later than the tenth (10th) anniversary date of its
grant, and no NQSO shall be exercisable later than the twelfth (12th)
anniversary date of its grant. Substituted Options shall expire on the earlier
of the date provided in this Section 6.4 or the date such options would have
expired under the plan and agreement pursuant to which they were originally
granted.
6.5 Exercise of Options. Options granted to Employees under the Plan
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each grant or for each Employee. However, in no event may any
Option granted under this Plan to an Employee or Director become exercisable
prior to six (6) months following the date of its grant.
6.6 Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Secretary of the Company, setting forth the number of
Shares with respect to which the Option is to be exercised, accompanied by full
payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to
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the total Option Price (provided that the Shares which are tendered must have
been held by the Participant for at least six (6) months prior to their tender
to satisfy the Option Price), or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.7 Restrictions on Share Transferability. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
under the Plan, as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities laws, under the requirements of
any Stock exchange or market upon which such Shares are then listed and/or
traded, and under any Blue Sky or state securities laws applicable to such
Shares.
6.8 Termination of Employment Due to Death, Disability or Retirement.
(a) Termination by Death. In the event the employment of an
Employee is terminated by reason of death, all outstanding
Options granted to that Employee shall immediately vest one
hundred percent (100%), and shall remain exercisable at any
time prior to their expiration date, or for one (1) year after
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the date of death, whichever period is shorter, by such person
or persons as shall have been named as the Employee's
beneficiary, or by such persons that have acquired the
Employee's rights under the Option by will or by the laws of
descent and distribution.
(b) Termination by Disability. In the event the employment of an
Employee is terminated by reason of Disability, all
outstanding Options granted to that Employee shall immediately
vest one hundred percent (100%) as of the date the Committee
determines the definition of Disability to have been
satisfied, and shall remain exercisable at any time prior to
their expiration date, or for one (1) year after the date that
the Committee determines the definition of Disability to have
been satisfied, whichever period is shorter.
(c) Termination by Retirement. In the event the employment of an
Employee is terminated by reason of Retirement, the Committee
shall retain discretion over the treatment of Options.
(d) Employment Termination Followed by Death. In the event that an
Employee's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such termination the Employee dies, then
the remaining exercise period under outstanding Options shall
equal the longer of: (i) one (1) year following death; or (ii)
the remaining portion of the exercise period which was
triggered by the employment termination. Such Options shall be
exercisable by such person or persons who shall
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have been named as the Employee's beneficiary, or by such
persons who have acquired the Employee's rights under the
Option by will or by the laws of descent and distribution.
(e) Exercise Limitations on ISOs. In the case of ISOs, the tax
treatment prescribed under Section 422 of the Internal Revenue
Code of 1986, as amended, may not be available if the Options
are not exercised within the Section 422 prescribed time
periods after each of the various types of employment
termination.
6.9 Termination of Employment for Other Reasons. If the employment of
an Employee shall terminate for any reason other than the reasons set forth in
Section 6.8 (and other than for Cause), all Options held by the Employee which
are not vested as of the effective date of employment termination immediately
shall be forfeited to the Company (and shall once again become available for
grant under the Plan). However, the Committee, in its sole discretion, shall
have the right to immediately vest all or any portion of such Options, subject
to such terms as the Committee, in its sole discretion, deems appropriate.
Options which are vested as of the effective date of employment
termination may be exercised by the Employee within the period beginning on the
effective date of employment termination, and ending six (6) months after such
date or on such later date as is approved by the Committee.
If the employment of an Employee shall be terminated by the Company for
Cause, all outstanding Options held by the Participant immediately shall be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the Options.
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For Employees employed by Affiliates, termination shall mean
termination of such Employee's employment with the Affiliate.
6.10 Transferability of Options. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all ISOs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
NQSOs granted hereunder may be exercised only during a Participant's
lifetime by the Participant, the Participant's guardian or legal representative
or by a permissible transferee. NQSOs shall be transferable by Participants
pursuant to the laws of descent and distribution upon a Participant's death, and
during a Participant's lifetime, NQSOs shall be transferable by Participants to
members of their immediate family, trusts for the benefit of members of their
immediate family, and charitable institutions ("permissible transferees") to the
extent permitted under Section 16 of the Exchange Act and subject to federal and
state securities laws. The term "immediate family" shall mean any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, sister-in-law, or
brother-in-law and shall include adoptive relationships.
NQSOs also shall be transferable by Participants other than to
permissible transferees with the prior approval of the Committee which shall
have the authority to approve such transfers of NQSOs on a case-by-case basis in
its sole discretion.
The Committee shall have the authority to establish rules and
regulations specifically governing the transfer of NQSOs granted under this Plan
as it deems necessary and advisable.
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ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. Subject to the terms and conditions of the Plan,
an SAR may be granted to an Employee at any time and from time to time as
shall be determined by the Committee. The Committee may grant Affiliated
SARs, Freestanding SARs, Tandem SARs, or any combination of these forms of
SAR.
The Committee shall have complete discretion in determining the number
of SARs granted to each Employee (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs. However, the grant price of a Freestanding SAR shall be
at least equal to one hundred percent (100%) of the Fair Market Value of a Share
on the date of grant of the SAR. The grant price of Tandem or Affiliated SARs
shall equal the Option Price of the related Option. In no event shall any SAR
granted hereunder become exercisable within the first six (6) months of its
grant.
7.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when
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the Fair Market Value of the Shares subject to the ISO exceeds the Option Price
of the ISO.
7.3 Exercise of Affiliated SARs. Affiliated SARs shall be deemed to be
exercised upon the exercise of the related Options. The deemed exercise of
Affiliated SARs shall not necessitate a reduction in the number of related
Options.
7.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.
7.5 SAR Agreement. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.6 Term of SARs. The term of a SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed twelve (12) years.
7.7 Payment of SAR Amount. Upon exercise of a SAR, an Employee shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
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<PAGE>
At the discretion of the Committee, the payment upon SAR exercise may
be in cash, in Shares of equivalent value, or in some combination thereof.
7.8 Rule 16b-3 Requirements. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on exercise of a SAR (including,
without limitation, the right of the Committee to limit the time of exercise to
specified periods) as may be required to satisfy the requirements of Section 16
(or any successor rule) of the Exchange Act.
For example, if the Participant is an Insider, the ability of the
Participant to exercise SARs for cash will be limited to Window Periods.
However, if the Committee determines that the Participant is not an Insider, or
if the securities laws change to permit greater freedom of exercise of SARs,
then the Committee may permit exercise at any point in time, to the extent the
SARs are otherwise exercisable under the Plan.
7.9 Termination of Employment Due to Death, Disability, or
Retirement.
(a) Termination by Death. In the event the employment of an
Employee is terminated by reason of death, all outstanding
SARs granted to that Employee shall immediately vest one
hundred percent (100%), and shall remain exercisable at any
time prior to their expiration date, or for one (1) year after
the date of death, whichever period is shorter, by such person
or persons as shall have been named as the Employee's
beneficiary, or by such persons that have acquired the
Employee's rights under the SAR by will or by the laws of
descent and distribution.
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<PAGE>
(b) Termination by Disability. In the event the employment of a
Participant is terminated by reason of Disability, all
outstanding SARs granted to that Employee shall immediately
vest one hundred percent (100%) as of the date the Committee
determines the definition of Disability to have been
satisfied, and shall remain exercisable at any time prior to
their expiration date, or for one (1) year after the date that
the Committee determines the definition of Disability to have
been satisfied, whichever period is shorter.
(c) Termination by Retirement. In the event the employment of an
Employee is terminated by reason of Retirement, the Committee
shall retain discretion over the treatment of SARs.
(d) Employment Termination Followed by Death. In the event that an
Employee's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such termination the Employee dies, then
the remaining exercise period under outstanding SARs shall
equal the longer of: (i) one (1) year following death; or (ii)
the remaining portion of the exercise period which was
triggered by the employment termination. Such SARs shall be
exercisable by such person or persons who shall have been
named as the Employee's beneficiary, or by such persons who
have acquired the Employee's rights under the SAR by will or
by the laws of descent and distribution.
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<PAGE>
7.10 Termination of Employment for Other Reasons. If the employment of
an Employee shall terminate for any reason other than the reasons set forth in
Section 7.9 (and other than for Cause), all SARs held by the Employee which are
not vested as of the effective date of employment termination immediately shall
be forfeited to the Company (and shall once again become available for grant
under the Plan). However, the Committee, in its sole discretion, shall have the
right to immediately vest all or any portion of such SARs, subject to such terms
as the Committee, in its sole discretion, deems appropriate.
SARs which are vested as of the effective date of employment
termination may be exercised by the Employee within the period beginning on the
effective date of employment termination, and ending six (6) months after such
date or on such later date as is approved by the Committee.
If the employment of an Employee shall be terminated by the Company for
Cause, all outstanding SARs held by the Employee immediately shall be forfeited
to the Company and no additional exercise period shall be allowed, regardless of
the vested status of the SARs.
7.11 Nontransferability of SARs. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all SARs
granted to an Employee under the Plan shall be exercisable during his or her
lifetime only by such Employee.
ARTICLE 8. RESTRICTED STOCK
8.1 Grant of Restricted Stock. Subject to the terms and provisions
of the Plan, the Committee, at any time and from time
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<PAGE>
to time, may grant Shares of Restricted Stock to eligible Employees in such
amounts as the Committee shall determine.
8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or Periods, the number of Restricted Stock Shares granted, and such
other provisions as the Committee shall determine.
8.3 Transferability. Except as provided in this Article 8, the Shares
of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the applicable
Period of Restriction established by the Committee and specified in the
Restricted Stock Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Agreement. However, in no event may any Restricted Stock
granted under the Plan become vested in an Employee prior to six (6) months
following the date of its grant. All rights with respect to the Restricted Stock
granted to an Employee under the Plan shall be available during his or her
lifetime only to such Participant.
8.4 Other Restrictions. The Committee shall impose such other
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, restrictions based upon the
achievement of specific performance goals (Company-wide, divisional, and/or
individual), and/or restrictions under applicable Federal or state securities
laws; and may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions.
8.5 Certificate Legend. In addition to any legends placed on
certificates pursuant to Section 8.4 herein, each certificate
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<PAGE>
representing Shares of Restricted Stock granted pursuant to the Plan shall bear
the following legend:
"The sale or other transfer of the Shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the United
Wisconsin Services, Inc. Equity Incentive Plan, and in a Restricted
Stock Agreement. A copy of the Plan and such Restricted Stock Agreement
may be obtained from the Secretary of United Wisconsin Services, Inc."
8.6 Removal of Restrictions. Except as otherwise provided in this
Article 8, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the Employee after the
last day of the Period of Restriction. Once the Shares are released from the
restrictions, the Employee shall be entitled to have the legend required by
Section 8.5 removed from his or her Share certificate.
8.7 Voting Rights. During the Period of Restriction, Employees holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.8 Dividends and Other Distributions. During the Period of
Restriction, Employees holding Shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those Shares while they are so held. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
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<PAGE>
In the event that any dividend constitutes a "derivative security" or
an "equity security" pursuant to Rule 16(a) under the Exchange Act, such
dividend shall be subject to a vesting period equal to the longer of: (i) the
remaining vesting period of the Shares of Restricted Stock with respect to which
the dividend is paid; or (ii) six months. The Committee shall establish
procedures for the application of this provision.
8.9 Termination of Employment Due to Death, Disability, or Retirement.
In the event the employment of an Employee is terminated by reason of death or
Disability, all outstanding Shares of Restricted Stock shall immediately vest
one hundred percent (100%) as of the date of employment termination (in the case
of Disability, the date employment terminates shall be deemed to be the date
that the Committee determines the definition of Disability to have been
satisfied). The Committee retains discretion over the treatment of Restricted
Stock upon Retirement. In the event of full vesting, the holder of the
certificates of Restricted Stock shall be entitled to have any
nontransferability legends required under Sections 8.4 and 8.5 of this Plan
removed from the Share certificates.
8.10 Termination of Employment for Other Reasons. If the employment of
an Employee shall terminate for any reason other than those specifically set
forth in Section 8.9 herein, all Shares of Restricted Stock held by the Employee
which are not vested as of the effective date of employment termination
immediately shall be forfeited and returned to the Company (and, subject to
Section 4.2 herein, shall once again become available for grant under the Plan).
With the exception of a termination of employment for Cause, the
Committee, in its sole discretion, shall have the right to provide for lapsing
of the restrictions on Restricted Stock
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<PAGE>
following employment termination, upon such terms and provisions
as it deems proper.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 Grant of Performance Units/Shares. Subject to the terms of the
Plan, Performance Units and Performance Shares may be granted to eligible
Employees at any time and from time to time, as shall be determined by the
Committee. The Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to each Employee.
9.2 Value of Performance Units/Shares. Each Performance Unit shall have
an initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Units/Shares that will be paid out to the
Employee. The time period during which the performance goals must be met shall
be called a "Performance Period." Performance Periods shall, in all cases,
exceed six (6) months in length.
9.3 Earning of Performance Units/Shares. After the applicable
Performance Period has ended, the holder of Performance Units/Shares shall be
entitled to receive payout on the number of Performance Units/Shares earned by
the Employee over the Performance Period, to be determined as a function of the
extent to which the corresponding performance goals have been achieved.
9.4 Form and Timing of Payment of Performance Units/ Shares.
Payment of earned Performance Units/Shares shall be made
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<PAGE>
in a single lump sum, within forty-five (45) calendar days following the close
of the applicable Performance Period. The Committee, in its sole discretion, may
pay earned Performance Units/Shares in the form of cash or in Shares (or in a
combination thereof), which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares at the close of the applicable
Performance Period.
Prior to the beginning of each Performance Period, Participants may
elect to defer the receipt of Performance Unit/Share payout upon such terms as
the Committee deems appropriate.
9.5 Termination of Employment Due to Death, Disability, Retirement, or
Involuntary Termination (without Cause). In the event the employment of an
Employee is terminated by reason of death or Disability or involuntary
termination without Cause during a Performance Period, the Employee shall
receive a prorated payout of the Performance Units/Shares. The Committee retains
discretion over the treatment of Performance Units/Shares upon Retirement. Any
prorated payout shall be determined by the Committee, in its sole discretion,
and shall be based upon the length of time that the Employee held the
Performance Units/Shares during the Performance Period, and shall further be
adjusted based on the achievement of the preestablished performance goals.
Timing of payment of earned Performance Units/Shares shall be
determined by the Committee at its sole discretion.
9.6 Termination of Employment for Other Reasons. In the event that an
Employee's employment terminates for any reason other than those reasons set
forth in Section 9.5 herein, all Performance Units/Shares shall be forfeited by
the Employee to
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<PAGE>
the Company, and shall once again be available for grant under
the Plan.
9.7 Nontransferability. Performance Units/Shares may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, an Employee's
rights under the Plan shall be exercisable during the Employee's lifetime only
by the Employee or the Employee's legal representative.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when any necessary spousal
consent is obtained and filed by the Participant in writing with the Secretary
of the Company during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise of an Option or SAR, the lapse
or waiver of restrictions with respect to Restricted Stock, or the satisfaction
of any requirements or goals with respect to Performance Units/Shares. If any
such deferral election is required or
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<PAGE>
permitted, the Committee shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Employee's employment at any
time, nor confer upon any Employee any right to continue in the employ of the
Company.
For purposes of the Plan, transfer of employment of a Participant
between the Company and any one of its Subsidiaries (or between Subsidiaries) or
Blue Cross & Blue Shield United of Wisconsin shall not be deemed a termination
of employment.
12.2 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless otherwise
specifically prohibited by the terms of Section 18 herein:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable;
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse, and within ten (10) business days after
the occurrence of a Change in Control, the stock certificates
representing Shares of Restricted Stock, without any
restrictions or legend thereon, shall be delivered to the
applicable Participants;
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<PAGE>
(c) The target value attainable under all Performance Units and
Performance Shares shall be deemed to have been fully earned
for the entire Performance Period as of the effective date of
the Change in Control, and shall be paid out in cash to
Participants within thirty (30) days following the effective
date of the Change in Control; provided, however, that there
shall not be an accelerated payout with respect to Performance
Units or Performance Shares which were granted less than six
(6) months prior to the effective date of the Change in
Control;
(d) Subject to Article 14 herein, the Committee shall have the
authority to make any modifications to the Awards as
determined by the Committee to be appropriate before the
effective date of the Change in Control.
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, and Termination. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend, or
modify the Plan.
14.2 Awards Previously Granted. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
ARTICLE 15. WITHHOLDING
15.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal,
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<PAGE>
state, and local taxes (including the Participant's FICA obligation) required by
law to be withheld with respect to any taxable event arising or as a result of
this Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event hereunder, Participants may elect, subject to
the approval of the Committee, to satisfy the withholding requirement, in whole
or in part, by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total tax
which could be imposed on the transaction. All elections shall be irrevocable,
made in writing, signed by the Participant, and elections by Insiders shall
additionally comply with the applicable requirement set forth in (a) or (b) of
this Section 15.2.
(a) Awards Having Exercise Timing Within Insiders' Discretion. The
Insider must either:
(i) Deliver written notice of the stock withholding
election to the Committee at least six (6) months
prior to the date specified by the Insider on which
the exercise of the Award is to occur; or
(ii) Make the stock withholding election in connection
with an exercise of an Award which occurs during a
Window Period.
(b) Awards Having a Fixed Exercise/Payout Schedule Which is
Outside Insiders' Control. The Insider must either:
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<PAGE>
(i) Deliver written notice of the stock withholding
election to the Committee at least six (6) months
prior to the date on which the taxable event (e.g.,
exercise or payout) relating to the Award is
scheduled to occur; or
(ii) Make the stock withholding election during a Window
Period which occurs prior to the scheduled taxable
event relating to the Award (for this purpose, an
election may be made prior to such a Window Period,
provided that it becomes effective during a Window
Period occurring prior to the applicable taxable
event).
ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against him
or her, provided he or she shall give the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's
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<PAGE>
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
ARTICLE 17. SUCCESSORS
All obligations,of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
18.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
18.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant
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<PAGE>
to the Plan to any Insider may not be sold or transferred for at least six (6)
months after the date of grant of such Award. The terms "equity security" and
"derivative security" shall have the meanings ascribed to them in the
then-current Rule 16(a) under the Exchange Act.
18.4 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
18.5 Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Wisconsin.
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<PAGE>
Exhibit 10.33
UNITED WISCONSIN SERVICES, INC.
AND
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
1998
MANAGEMENT INCENTIVE PLAN
<PAGE>
1998 MANAGEMENT INCENTIVE PLAN
PARTICIPANT:______________________ PAYOUT RANGE:____________of Base
Earnings as defined in 1998 UWSI/
BCBSUW Profit Sharing Plan.
_____% for satisfactory performance
_____% for targeted performance
_____% for outstanding performance
OBJECTIVES
1. To heighten participant awareness of financial results and to motivate
employees to strive for financial success.
2. To motivate participants to provide excellent service to our customers and
to maximize customer satisfaction results.
3. To motivate key management personnel to stretch performance to meet the
documented personal objectives which are of most importance in the
attainment of business unit/regional area and corporate goals and
objectives.
4. To maintain a competitive compensation package for highly motivated key
management employees and to increase the leverage of performance-based
compensation.
ELIGIBILITY
Employees are eligible to participate in the Management Incentive Plan (the
"Plan") based on the number of Hay evaluation points attributed to the position
they hold at the beginning of the Plan Year. In order to be a participant in the
1998 Plan, the following requirements must be met:
1. The employee must be actively at work on or before the first work day of
the Plan Year, January 2, 1998.
2. The employee must have completed one full year of service on the last day
of the Plan Year, December 31, 1998.
1
<PAGE>
3. The employee must be continuously employed by the Corporation through the
date of payment (anticipated to be in March l999). For purposes of this
eligibility requirement, employment by one or more of the following
employers shall constitute employment by the Corporation: Blue Cross & Blue
Shield United of Wisconsin ("BCBSUW"), excluding those employees of BCBSUW
in the Government Programs Division who work on the Medicaid subcontract;
United Wisconsin Services, Inc.; Compcare Health Services Insurance
Corporation; United Heartland, Inc.; United Wisconsin Insurance Company;
United Wisconsin Life Insurance Company; Meridian Managed Care, Inc.;
Meridian Marketing Services, Inc.; Meridian Resource Corporation; Hometown
Insurance Services, Inc.; Valley Health Plan; and United Wisconsin
Proservices, Inc.
COMPONENTS OF THE PROGRAM
The Plan has 2 components:
1. Business Unit/Regional Area Objective - 33 1/3%
2. Individual and/or Local Area Performance Objectives - 66 2/3%
BUSINESS UNIT/REGIONAL AREA OBJECTIVE - 33 1/3%
This Component of the Management Incentive Plan is based on the Business
Unit/Regional Area Financial Results ("Local Component") of the 1998 UWS/BCBSUW
Profit Sharing Plan. One-third of a participant's payout from the Management
Incentive Plan will be determined by his or her payout from the Local Component
of the Profit Sharing Plan according to the following schedule:
Participant's Payout From
Local Component of 1998 Level of Management
Profit Sharing Plan Incentive Plan Payout
------------------------------- ------------------------
Less than 2.7% of Base Earnings No Payout
2.7% of Base Earnings "Satisfactory Performance" Level
5.0% of Base Earnings "Targeted Performance" Level
7.0% of Base Earnings "Outstanding Performance" Level
Prorated payouts will be made for performance between the stated percentages of
payouts from the Local Component of the Profit Sharing Plan.
INDIVIDUAL AND/OR LOCAL AREA PERFORMANCE OBJECTIVES - 66 2/3%
This component of the Plan is a mix of Individual and/or Local Area objectives
based on the participant's Local Area as well as on the participant's functional
responsibilities. The mix may be any combination of Individual and/or Local Area
objectives which together total 66 2/3%. Individual performance objectives shall
be specific and quantifiable and should be set in such a manner as to stretch
the participant's performance. Local Area objectives may include such things as
Local Area expense ratio targets.
2
<PAGE>
Individual and/or Local Area Performance Objectives are to be determined and
listed beginning on Page 3 of this document.
PAYMENT OF AWARDS
Management Incentive Plan payments will be made to eligible participants only in
years in which an award is made under the Company's Profit Sharing Plan.
Notwithstanding the previous sentence, the Management Review Committees of the
Boards of Directors of United Wisconsin Services, Inc. and Blue Cross & Blue
Shield United of Wisconsin (collectively the "Committee") reserve the right to
selectively award bonuses for outstanding performance.
Management Incentive Plan payments will be awarded in cash on or before April 1,
1999.
Participants who otherwise meet eligibility requirements for the Plan Year but
who die, become disabled, or retire before the end of the Plan Year, will be
eligible for a pro-rata bonus based on the participant's achievement of his or
her goals prior to the termination of employment and on months of completed
service during the Plan Year. Participants who otherwise meet eligibility
requirements for the Plan Year but who die, become disabled, or retire before
the payment date but after completing the full Plan Year of service, will be
eligible for a bonus based on the participant's achievement of his or her goals.
In the case of death, payment will be made to the participant's estate.
Employees who otherwise terminate employment with the Corporation prior to the
payment date will not be eligible for the bonus payment.
PLAN ADMINISTRATION
The Committee maintains overall responsibility for the Management Incentive Plan
and is given complete discretion to administer the Plan and to interpret and/or
modify all terms and conditions of the Plan.
The Committee, at its discretion, reserves the right to amend, suspend, or
terminate the Management Incentive Plan, provided that no such amendment,
suspension, or termination shall reduce or impair the value of any awards after
such awards are made by the Committee.
INDIVIDUAL AND/OR LOCAL AREA PERFORMANCE OBJECTIVES
OBJECTIVE #1 WEIGHT _________%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
3
<PAGE>
OBJECTIVE #2 WEIGHT _________%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OBJECTIVE #3 WEIGHT _________%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OBJECTIVE #4 WEIGHT _________%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OBJECTIVE #5 WEIGHT _________%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OBJECTIVE #6 WEIGHT _________%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL WEIGHT 66 2/3 %
Employee Signature:______________________ Date: _______________
Supervisor Signature:____________________ Date: _______________
4
<PAGE>
Exhibit 10.34
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
<PAGE>
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
<TABLE>
<CAPTION>
Section Page
- ------- ----
Article I. Purpose, Definitions and Construction
-------------------------------------------------
<S> <C> <C>
1.1 Purpose 1
1.2 Definitions 2
(a) Administration Committee 2
(b) Administrative Delegate 2
(c) Adoption Agreement 2
(d) Beneficiary 2
(e) Company 3
(f) Deferral Account 3
(g) Deferral Contributions 3
(h) Deferral Form 3
(i) Disability 3
(j) Distribution Date 4
(k) Effective Date 4
(l) Insolvency 4
(m) Participant 4
(n) Plan 4
(o) Plan Year 4
(p) Trust 4
(q) Trust Agreement 5
(r) Trustee 5
1.3 Gender and Number 5
1.4 Headings 5
1.5 Plan Provisions Controlling 5
1.6 Severability 5
1.7 Applicable Law 6
</TABLE>
(i)
<PAGE>
<TABLE>
Article II. Deferral Elections, Contributions and Accounting Procedures
-----------------------------------------------------------------------
<S> <C> <C>
2.1 Availability of Deferral Election 6
2.2 Maintenance of Separate Deferral Accounts 6
2.3 Treatment of Amounts Deferred 6
2.4 Irrevocability and Nonassignability of Deferrals 7
2.5 Accounting Procedure 7
2.6 Assumption of Prior Plan Liabilities 8
Article III. Deferred Compensation Payments
3.1 Eligibility for Deferred Compensation 8
(a) Retirement or Termination 8
(b) Disability 8
(c) Death 8
3.2 Amount and Method of Payment of Deferred Compensation 9
Article IV. Trust Fund
4.1 Establishment of Trust 11
Article V. Administration
5.1 Committee to Administer Plan 12
5.2 Claims Procedure 12
Article VI. Miscellaneous
6.1 Employment Rights 13
6.2 Absence of Liability 13
6.3 Amendment and Termination 13
6.4 Company Not an Advisor 14
</TABLE>
(ii)
<PAGE>
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
Article I. Purpose, Definitions and Construction
Section 1.1 Purpose - United Wisconsin Services, Inc., formerly
Newco/UWS, Inc. (the "Company"), acting for itself and on behalf of its
subsidiaries, hereby adopts this Deferred Compensation Plan for Directors (the
"Plan") and separate Trust to permit members of the Board of Directors of the
Company (the "Board") who are not employees of the Company or any of its
subsidiaries ("Directors") to defer a portion of the compensation payable to
Directors for services as a Director, including the retainer, meeting fees, and
other fees payable in connection with his Board and committee responsibilities
("Fees") and to have such deferred Fees held in the separate Trust.
The Plan is being created in connection with the distribution by the
corporation formerly known as United Wisconsin Services, Inc. (currently
American Medical Security Group, Inc.), of shares in the Company in connection
with the spin-off of the managed care and specialty products business to the
Company and the assumption by the Company of the United Wisconsin Services, Inc.
name. The Company is assuming certain of the Adoption Agreements, Deferral Forms
and Beneficiary Designation Forms in effect on the Distribution Date. Further,
the Company is assuming certain obligations of the corporation formerly known as
United Wisconsin Services, Inc. (currently American Medical Security Group,
Inc.) under the United Wisconsin Services, Inc. Deferred Compensation Plan for
1
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Directors dated December 1, 1995 (the "Prior Plan").
It is intended that the Plan and the Trust shall constitute, and shall
be construed and administered as, an unfunded plan of deferred compensation
within the meaning of the Employee Retirement Income Security Act of 1974 as
amended ("ERISA") and the Internal Revenue Code of 1986, as amended (the
"Code"). The Plan and Trust are not intended to be qualified under Section
401(a) of the Code.
Section 1.2 Definitions - For purposes of this Plan, the following
words and phrases shall have the meanings set forth below unless a different
meaning is plainly required by the context.
(a) Administration Committee - means the Company's Employee
Benefits Committee -- herein called the "Committee". Each member of the
Committee shall serve without remuneration, but shall be reimbursed for expenses
incurred in the performance of his duties.
(b) Administrative Delegate - means one or more persons or
institutions to whom the Administrative Committee has delegated certain
administrative functions pursuant to a written agreement.
(c) Adoption Agreement (or Agreement) - means the separate
Adoption Agreement between a Participant and the Company, which forms a part of
the Plan, under which the Company has agreed to allow the Participant to
participate in the Plan and under which the Participant has agreed to his
participation in the Plan on the terms set forth herein.
(d) Beneficiary - means the person or persons designated by a
Participant
2
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in his most recent Beneficiary Designation Form to receive payments under the
Plan in the event of the Participant's death; provided that if the Participant
has failed to designate a Beneficiary, or if all designated Beneficiaries
predecease the Participant, any remaining distribution due under the Plan shall
be payable to the Participant's surviving spouse or, if none, to his surviving
issue per stirpes or, if none, then to his estate.
(e) Company - means United Wisconsin Services, Inc., a
Wisconsin corporation until the Effective Date formerly known as Newco/UWS,
Inc., a Wisconsin corporation, acting for itself and on behalf of its
subsidiaries, and any successor thereto which assumes the rights and obligations
of the Company under the Plan and Trust Agreement.
(f) Deferral Account - means the account maintained for a
Participant to record the total of his deferred compensation under the Plan and
any adjustments relating thereto.
(g) Deferral Contributions - means contributions to the Trust
which are made by the Company pursuant to this Plan and the then current
Deferral Form.
(h) Deferral Form - means a Participant's then current
Deferral Election Form, if any, to be executed by the Participant prior to the
deferral of any Fees specifying the percentage or dollar amount of Fees to be
deferred during the upcoming Plan Year. The Deferral Form shall remain in effect
until revoked or amended to reduce the percentage or dollar amount of the
deferral for amounts not yet earned.
(i) Disability - means such total and permanent physical or
mental disability as, in the Committee's sole and absolute discretion, would
prevent the Participant
3
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from engaging in substantially gainful service as a member of the Board.
(j) Distribution Date - means the date on which the
distribution, by the corporation formerly known as United Wisconsin Services,
Inc., of shares in the Company occurs in connection with the spin-off of the
managed care and specialty products business to the Company and the assumption
by the Company of the United Wisconsin Services, Inc. name.
(k) Effective Date - means the Distribution Date.
(l) Insolvency - means (i) the Company is unable to pay its
debts as they become due, or (ii) the Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code, or (iii) the Company is
determined to be insolvent by the Wisconsin Commissioner of Insurance.
(m) Participant - means a person who is one of the Directors
who, by having executed an Adoption Agreement with the Company, is participating
in the Plan. Such person shall cease to be a Participant after his membership on
the Board terminates, or the balance in his Deferral Account is reduced to zero
($0), whichever is later.
(n) Plan - means the United Wisconsin Services, Inc. Deferred
Compensation Plan for Directors as set forth herein.
(o) Plan Year - means the twelve (12) month period adopted
under this Plan for reporting purposes, which is the period commencing on
January 1 and ending on December 31.
(p) Trust - means the United Wisconsin Services, Inc.
Voluntary Deferred Compensation Trust and the entire Trust estate as it may,
from time to time, be constituted,
4
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including but not limited to Deferral Contributions, investments, income from
any and all investments and any and all other assets, property or money received
by or held by the Trustee for the uses and purposes of the Trust.
(q) Trust Agreement - means the separate agreement between the
Company and the Trustee under which the Trust is established and maintained.
(r) Trustee - means the individual or individuals or entity or
entities appointed by the Committee to administer the Trust; provided that an
individual who is a Participant or the Chief Executive Officer of the Company
may not be a Trustee.
Section 1.3 Gender and Number - Except when otherwise indicated by the
context, any masculine terminology used herein shall also include the feminine
and the definition of any term herein in the singular shall also include the
plural.
Section 1.4 Headings - The headings of the various Articles, Sections
and Subsections are inserted for convenience of reference and are not to be
regarded as part of this Plan or as indicating or controlling the meaning or
construction of any provision.
Section 1.5 Plan Provisions Controlling - In the event the terms or
provisions of the Trust Agreement or of any summary or description of the Plan
or of any other instrument, agreement, or document are in any construction
interpreted as being in conflict with the provisions of the Plan as herein set
forth, the provisions of the Plan shall be controlling.
Section 1.6 Severability - In the event any provision of the Plan shall
be held illegal or invalid for any reason, this illegality or invalidity shall
not affect the remaining provisions of the Plan, and such remaining provisions
shall be fully severable and the Plan shall, to the extent practicable, be
construed and enforced as if the illegal or invalid provision had
5
<PAGE>
never been inserted therein.
Section 1.7 Applicable Law - Subject to the intent that the Plan and
Trust be unfunded and non-qualified as provided in Section 1.1, the provisions
of the Plan shall be construed in accordance with the laws of the State of
Wisconsin, except to the extent, if any, preempted by federal law.
Article II. Deferral Elections, Contributions and Accounting Procedures
Section 2.1 Availability of Deferral Election - The Company shall make
available to Directors a Deferral Form which may be used by the Participant to
designate for deferral a portion of the Fees he anticipates receiving from the
Company. All amounts elected to be deferred by a Participant shall be subject to
the terms and conditions of this Plan. No requested deferral shall be effective
for any period of time unless the appropriate Deferral Form is completed and
filed with the Committee prior to the payment of any Fees for which the deferral
is elected.
Section 2.2 Maintenance of Separate Deferral Accounts - If not done by
the Company, the Trustee shall create and maintain adequate records to disclose
the interest in the Trust of all Participants. Such records shall be in the form
of separate, individual Deferral Accounts, and credits and charges shall be made
thereto in the manner described in this Plan. The maintenance of individual
Deferral Accounts for Participants is only for accounting purposes and a
segregation of the assets of the Trust Fund to each account shall not be
required. Distribution made from an account shall be charged to that account as
of the date paid.
Section 2.3 Treatment of Amounts Deferred - Upon execution and filing
by the Participant of an effective Deferral Form, the Company shall make a
Deferral Contribution
6
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to such Participant's Deferral Account to be deposited in the Trust no later
than thirty (30) days after the date on which the Participant would have
otherwise been entitled to receive the amount to be contributed by the Company
except for the Participant's election pursuant to this Plan and the Deferral
Form.
Section 2.4 Irrevocability and Nonassignability of Deferrals - All
amounts credited to a Participant's Deferral Account shall be treated as having
been irrevocably deferred and no payment based on such amounts may be received
except in accordance with the eligibility requirements, terms and conditions of
this Plan. Neither the Participant nor any Beneficiary shall have any right or
ability to alienate, sell, transfer, assign, pledge, encumber or submit to
garnishment, execution or levy, either voluntarily or involuntarily, any amount
due or expected to become due under this Plan. Amounts due under this Plan shall
be paid, transferred, delivered or otherwise conveyed only to the Participant or
his Beneficiary, subject to the limitations of Section 4.1.
Notwithstanding the foregoing, a Deferral Form election may be
cancelled, or amended not more than once annually to reduce the percentage or
dollar amount of the deferral for amounts not yet earned, provided that once the
Deferral Form election is cancelled no further amounts may be deferred under
this Plan for such year.
Section 2.5 Accounting Procedure - Subject to the provisions hereof
relative to separate accounts, the respective Deferral Accounts of Participants
shall be adjusted as soon as is practicable after, but as of, the close of each
quarter of a Plan Year (and as of any other date if the Committee determines it
advisable for any reason) to reflect the deferrals to, distributions and
withdrawals from, and net income or loss of the Trust for the period then
completed as deemed reasonable by the Trustee, subject to the approval of
7
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the Committee.
In the administration of the accounts of Participants and the
allocation of Trust income or loss, appropriate adjustment shall be made in the
case of any Participant whose account, or any portion thereof, is invested in
investments held for his separate benefit.
Section 2.6 Assumption of Prior Plan Liabilities - The Company assumes,
as of the Distribution Date, the liability to pay deferred compensation to all
Prior Plan participants. The Deferral Account balance of each such Prior Plan
participant under this Plan as of the Distribution Date shall be equal to the
balance in his Deferral Account under the Prior Plan immediately prior to the
Distribution Date.
Article III. Deferred Compensation Payments
Section 3.1 Eligibility for Deferred Compensation - Subject to any
limiting conditions set forth in this Plan, the Participant, or in the event of
Participant's death his Beneficiary, will become eligible for receipt of
deferred compensation under this Plan as follows:
(a) Retirement or Termination - Upon retirement or other
termination of service as a Director with the Company, the Participant shall
become eligible for deferred compensation payments under this Plan.
(b) Disability - Upon cessation of active service as a
Director with the Company as a result of Disability, Participant shall become
eligible for deferred compensation payments under this Plan.
(c) Death - In the event of Participant's death prior to the
Participant's receipt of deferred compensation payments under the Plan reducing
Participant's Deferral Account balance to zero ($0), the Participant's
Beneficiary shall be eligible for deferred
8
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compensation payments under the Plan.
Section 3.2 Amount and Method of Payment of Deferred Compensation - The
total deferred compensation to be paid to a Participant shall be distributed to
the Participant and, upon the Participant's death, to his Beneficiary, in one of
the following modes of distribution selected by the Participant: (i) lump sum
payment; or (ii) in annual installments over 10 years beginning in the year
following the year in which the Director terminates his relationship with the
Company, or reaches age 65, whichever comes first. When a Director is to receive
the balance of his Deferral Account in annual installments, each such annual
installment shall be a fraction of the balance in such Deferral Account on the
date such annual installment is to be paid, the numerator of which is one and
the denominator of which is the total number of installments then remaining to
be paid.
Each Participant shall notify the Company in writing of the mode of
distribution he has selected prior to the commencement of deferrals under the
Plan; provided, however, that if a Participant fails to notify the Company of a
mode of distribution before the deadline prescribed by this section, he shall be
deemed to have selected the installment mode of distribution described in (ii)
above. Once the mode of distribution is determined, it shall remain in force
until the Participant's account balance is reduced to zero, except that if the
Participant has an unforeseeable emergency, as hereunder defined, or if the
Participant has died and his Beneficiary has an unforeseeable emergency, the
Committee may direct that any or all of the remaining account balance be
distributed at any time as the Committee may deem advisable and proper, but only
to the extent reasonably needed to satisfy the emergency need. "Unforeseeable
emergency" means a severe financial
9
<PAGE>
hardship resulting from a sudden and unexpected illness or accident to the
Participant, the Beneficiary or a dependent (as defined in Section 152(a) of the
Code), loss of the Participant's or Beneficiary's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant or the Beneficiary.
If a lump sum mode of distribution is used, the total deferred
compensation to be paid to a Participant or Beneficiary shall be an amount equal
to the Participant's Deferral Account balance as of the close of the Plan Year
which coincides with or follows his retirement, termination, disability or
death. A lump sum payment of deferred compensation under this Plan shall be made
within sixty (60) days following the close of the Plan Year during which the
Participant retired, died, terminated or became disabled, or, if later, within a
reasonable time after the Participant's interest is determined pursuant to the
preceding sentence.
If an installment mode of distribution is used, the first installment
payment of deferred compensation under the Plan shall be made within sixty (60)
days following the close of the Plan Year during which the Participant retired,
died, terminated or became disabled, and each annual installment payable
thereafter shall be distributed within sixty (60) days after the close of
subsequent Plan Years. The installment amount to be distributed within sixty
(60) days after the close of any Plan Year shall equal the balance of the
Participant's Deferral Account determined at the beginning of such Plan Year,
divided by the number of years remaining in the payment period over which
payment of benefits is being made.
10
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Article IV. Trust Fund
Section 4.1 Establishment of Trust - All Deferral Contributions under
this Plan shall be paid to the Trustee and deposited in the Trust Fund, and
shall be subject to the provisions of the Trust Agreement. Participants and
Beneficiaries have only an unsecured interest in the Trust assets in the event
of the Company's Insolvency (as defined in Section 1.2). The Company makes only
an unsecured promise to pay any deferred amounts plus income thereon in the
event of the Company's Insolvency. Subject to the foregoing limitations, all
assets of the Trust Fund, including investment income, shall be retained for the
exclusive benefit of Participants and Beneficiaries (but the Company's general
creditors shall have access to Trust assets in the event of the Company's
Insolvency and shall be used to pay benefits to such persons and to pay
administrative expenses and taxes of the Trust Fund as provided in Section 8 of
the Trust Agreement to the extent not paid by the Company and shall not revert
to or accrue to the benefit of the Company, except to the extent that
contributions made by the Company by a mistake of fact shall revert and be paid
back to the Company provided the Company has made a timely demand therefor).
The Trustee shall be required to hold the Trust assets and income for
the benefit of the Company's general creditors in the event of the Company's
Insolvency and in such case no Participant or Beneficiary shall have a preferred
claim on the Trust assets. The Committee and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the Company's
Insolvency within three (3) days of such event. When so informed, the Trustee
shall suspend payments to all Participants and Beneficiaries, and shall hold
Trust assets for the benefit of the Company's general
11
<PAGE>
creditors. In the case of the Trustee's actual knowledge of the Company's
Insolvency, the Trustee will deliver Trust assets to satisfy claims of the
Company's general creditors as directed by a court of competent jurisdiction.
Article V. Administration
Section 5.1 Committee to Administer Plan - The Committee, except as
otherwise provided in the Plan, shall administer the Plan. The Committee shall
also have the authority and discretion to engage an Administrative Delegate who
shall perform, without discretionary authority or control, day-to-day
administrative functions within the framework of policies, interpretations,
rules, practices, and procedures made by the Committee. Any action made or taken
by the Administrative Delegate may be appealed by an affected Participant to the
Committee in accordance with the claims review procedures provided in Section
5.2. Any decisions which call for interpretations of Plan provisions not
previously made by the Committee shall be made only by the Committee.
The Committee shall have the authority to direct the Trustee to invest
all or a portion of the Trust Fund through any common or collective trust fund
or pooled investment fund, including collective investment funds maintained by
Marshall & Ilsley Trust Company or its successor, for the collective investment
of funds held by it in a fiduciary capacity.
Section 5.2 Claims Procedure - The Committee shall consider all claims
by the Participant or any Beneficiary for payments under this Plan and shall
promptly notify the claimant of its action on any such claim. In the event of
any question regarding handling of the claim, the Committee shall meet with the
claimant at the Company's offices to discuss such question and to attempt to
resolve any areas of possible disagreement. If the
12
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claimant's concerns remain unresolved after such meeting with the Committee, the
claimant may request the Company's Board of Directors to review the matter in
dispute.
Article VI. Miscellaneous
Section 6.1 Employment Rights - Any payment under this Plan shall be
independent of, and in addition to, payments made under any other agreement or
under any qualified retirement plan which may be in force between the Company
and any Participant or Beneficiary, or any other compensation payable to
Participant or his Beneficiary by the Company. Neither this Plan nor any
Deferral Form executed in connection herewith shall be construed as (i)
constituting or creating a contract of employment, (ii) restricting either the
Company's right to discharge Participant with or without cause or Participant's
right to terminate his membership on the Board, or (iii) creating any guarantee
or representation as to the amount of compensation to be paid to Participant by
the Company during any period of service as a Director.
Section 6.2 Absence of Liability - Any and all liability created to
administer this Plan and the Trust or to provide any Participant or Beneficiary
with benefits under this Plan shall be exclusively and solely that of the
Company. No member of the Committee, officer, director or employee, past,
present or future, of the Company shall have any liability to any Participant or
Beneficiary, or to any other person or entity, to provide or pay such benefits,
such liability hereby being expressly and unconditionally denied.
Section 6.3 Amendment and Termination - This Plan may be altered,
amended, or revoked by the Company, provided that no such action shall be taken
that is not allowed by Section 12 of the Trust Agreement, and provided further
that if any amendment to the
13
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Plan or the adoption of the Plan by the Participant would constitute a
subsequent Participant deferral election that would cause a Participant or
Beneficiary to be in constructive receipt of past deferred amounts, then such
amendment or adoption will only be applicable with respect to future deferrals.
No amendment to, or termination of, the Plan shall reduce a Participant's
Deferral Account balance. Notwithstanding the foregoing, the Company may
unilaterally amend the Plan to provide that no future deferrals may be made by
Participants and to conform the Plan to ERISA and Code requirements with respect
to unfunded plans of deferred compensation.
The Plan may not be amended or terminated during the period immediately
preceding the Company's Insolvency if the intended result would be to accelerate
the payment of benefits to Participants or Beneficiaries so that the Trust
assets would be unavailable to the Company's general creditors.
Section 6.4 Company Not An Advisor - The Company offers this Plan to
Participants without assuming any responsibility or liability as an advisor or
consultant relative to tax or other aspects of this Plan and the Trust or the
payment of benefits hereunder.
14
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Exhibit 10.35
UWSI/BCBSUW 401(k) PLAN
(As Amended and Restated Effective January 1, 1997)
<PAGE>
UWSI/BCBSUW 401(k) PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 - INTRODUCTION........................................................ 1
1.1 IDENTITY OF THE PLAN: EFFECTIVE DATE.......................... 1
1.2 ADMINISTRATION................................................ 1
1.3 PURPOSE OF THE PLAN........................................... 1
1.4 QUALIFIED PLAN INTENDED....................................... 1
SECTION 2 - DEFINITIONS......................................................... 2
2.1 ACCOUNT: ACCOUNTS............................................. 2
2.2 ADMINISTRATIVE COMMITTEE: COMMITTEE........................... 2
2.3 ADMINISTRATIVE DELEGATE....................................... 2
2.4 ANNUAL ADDITION............................................... 2
2.5 AUTHORIZED LEAVE OF ABSENCE................................... 3
2.6 BENEFICIARY................................................... 3
2.7 BREAK IN SERVICE; ONE YEAR BREAK IN SERVICE................... 3
2.8 CODE OR INTERNAL REVENUE CODE................................. 3
2.9 COMPANY....................................................... 4
2.10 COMPENSATION.................................................. 4
2.11 COMPENSATION REDUCTION ACCOUNT................................ 4
2.12 COMPENSATION REDUCTION AGREEMENT.............................. 4
2.13 COMPENSATION REDUCTION CONTRIBUTIONS ......................... 4
2.14 DEFERRED RETIREMENT DATE...................................... 5
2.15 EFFECTIVE DATE................................................ 5
2.16 EMPLOYEE...................................................... 5
2.17 EMPLOYEE CONTRIBUTION ACCOUNT................................. 5
2.18 EMPLOYER...................................................... 5
2.19 EMPLOYER MATCHING CONTRIBUTION ACCOUNT........................ 6
2.20 EMPLOYER MATCHING CONTRIBUTIONS............................... 6
2.21 EMPLOYMENT COMMENCEMENT DATE.................................. 6
2.22 ERISA......................................................... 6
2.23 FORFEITURE: FORFEITURE ACCOUNT................................ 6
2.24 HIGHLY COMPENSATED EMPLOYEE................................... 7
2.25 HOUR OF SERVICE............................................... 7
2.26 INVESTMENT ADVISER............................................ 8
2.27 LIMITATION YEAR............................................... 8
2.28 NON-HIGHLY COMPENSATED EMPLOYEE............................... 8
2.29 NORMAL RETIREMENT AGE......................................... 8
2.30 NORMAL RETIREMENT DATE........................................ 8
2.31 PARTICIPANT................................................... 9
</TABLE>
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<TABLE>
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2.32 PERMANENT DISABILITY OR PERMANENTLY DISABLED.................. 9
2.33 PLAN.......................................................... 9
2.34 PLAN ADMINISTRATOR............................................ 9
2.35 PLAN YEAR..................................................... 9
2.36 RE-EMPLOYMENT COMMENCEMENT DATE............................... 9
2.37 RETIREMENT: RETIRED........................................... 9
2.38 SERVICE: YEAR OF SERVICE...................................... 9
2.39 SEVERANCE FROM SERVICE DATE................................... 10
2.40 SPECIAL BENEFIT SCHEDULE...................................... 10
2.41 TRUST......................................................... 11
2.42 TRUST AGREEMENT............................................... 11
2.43 TRUST FUND.................................................... 11
2.44 TRUSTEES...................................................... 11
2.45 VALUATION DATE................................................ 11
2.46 CONSTRUCTION.................................................. 11
SECTION 3 - ELIGIBILITY AND PARTICIPATION....................................... 13
3.1 ELIGIBLE EMPLOYEES............................................ 13
3.2 PARTICIPATION................................................. 13
3.3 PARTICIPATION FOLLOWING A BREAK IN SERVICE.................... 13
3.4 EVIDENCE OF PARTICIPATION..................................... 13
3.5 DURATION OF PARTICIPATION..................................... 14
3.6 RIGHTS UPON TRANSFER.......................................... 14
SECTION 4 - CONTRIBUTIONS....................................................... 15
4.1 NO CONTRIBUTIONS BY PARTICIPANTS.............................. 15
4.2 COMPENSATION REDUCTION CONTRIBUTIONS.......................... 15
4.3 PERMITTED RANGE OF COMPENSATION REDUCTION
CONTRIBUTIONS................................................. 15
4.4 EMPLOYER MATCHING CONTRIBUTIONS............................... 17
4.5 ORDER OF APPLICATION OF LIMITATIONS OF SECTIONS 4.3 -
4.4........................................................... 19
4.6 RIGHT TO SUSPEND. CHANGE, OR DISCONTINUE
COMPENSATION REDUCTION CONTRIBUTIONS.......................... 19
4.7 ROLLOVER CONTRIBUTIONS........................................ 19
4.8 GENERAL LIMITATION ON ANNUAL ADDITIONS........................ 20
4.9 SPECIAL LIMITATION ON ANNUAL ADDITIONS........................ 20
4.10 DISPOSITION OF EXCESS ANNUAL ADDITIONS........................ 21
SECTION 5 - ACCOUNTING.......................................................... 22
5.1 INDIVIDUAL ACCOUNTS OF PARTICIPANTS........................... 22
5.2 CREDITING OF EMPLOYER CONTRIBUTIONS AND
FORFEITURES................................................... 22
5.3 DEBITING OF DISTRIBUTIONS..................................... 22
5.4 SEPARATE INVESTMENT FUNDS..................................... 22
</TABLE>
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<TABLE>
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5.5 VALUATION OF ACCOUNTS......................................... 23
5.6 RETURN OF EMPLOYER CONTRIBUTIONS.............................. 24
SECTION 6 - DISTRIBUTIONS....................................................... 25
6.1 DISTRIBUTIONS UPON RETIREMENT, DEATH OR DISABILITY............ 25
6.2 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT.................. 25
6.3 FORFEITURES................................................... 26
6.4 METHOD OF DISTRIBUTION........................................ 26
6.5 RESPONSIBILITIES AND DUTIES RELATIVE TO CURRENT
RECORDS....................................................... 27
6.6 MANNER OF DISPOSING UNCLAIMED DISTRIBUTABLE
INTEREST...................................................... 27
6.7 TIME OF DISTRIBUTIONS......................................... 27
6.8 WITHDRAWALS FROM INDIVIDUAL ACCOUNTS.......................... 30
6.9 DISTRIBUTIONS TO ALTERNATE PAYEES............................. 31
6.10 ELIGIBLE ROLLOVER DISTRIBUTIONS............................... 31
SECTION 7 - BENEFICIARIES....................................................... 32
7.1 DESIGNATION OF BENEFICIARY OR BENEFICIARIES................... 32
7.2 MISSING BENEFICIARY(IES); RIGHT OF EMPLOYER TO MAKE
A PRESUMPTION OF DEATH........................................ 33
SECTION 8 - LOANS TO PARTICIPANTS............................................... 34
8.1 PARTICIPANT LOANS............................................. 34
SECTION 9 - ADMINISTRATION...................................................... 36
9.1 PLAN ADMINISTRATOR............................................ 36
9.2 THE ADMINISTRATIVE COMMITTEE.................................. 36
9.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE....................... 36
9.4 EXPENSES OF ADMINISTRATION.................................... 36
9.5 ACTS OF THE COMMITTEE......................................... 37
9.6 INTERPRETATIONS............................................... 37
9.7 LIABILITY OF THE COMMITTEE.................................... 37
9.8 APPLICABLE LAW................................................ 38
9.9 PLAN FIDUCIARIES: ALLOCATION OF RESPONSIBILITIES
AMONG THEM.................................................... 38
9.10 RELIANCE ON CO-FIDUCIARIES.................................... 38
9.11 FIDUCIARY DUTIES.............................................. 39
9.12 PROHIBITED TRANSACTIONS TO BE AVOIDED......................... 39
9.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR................. 39
9.14 DATA SUPPLIED BY EMPLOYER..................................... 39
9.15 PARTIAL EXCULPATION........................................... 40
SECTION 10 - PROVISIONS RELATING TO PARTICIPANTS................................ 41
</TABLE>
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<TABLE>
<S> <C>
10.1 INFORMATION REQUIRED OF PARTICIPANTS.......................... 41
10.2 CLAIMS PROCEDURE.............................................. 41
10.3 RIGHTS IN TRUST FUND.......................................... 42
10.4 BENEFITS NOT ASSIGNABLE....................................... 42
10.5 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN................. 42
10.6 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC
RELATIONS ORDER............................................... 43
SECTION 11 - MERGER OR CONSOLIDATION OF PLAN; TERMINATION;
AMENDMENT.............................................................. 44
11.1 MERGER, TRANSFER OR CONSOLIDATION OF PLAN WITH
OTHER PLANS................................................... 44
11.2 FUTURE OF THE PLAN; AMENDMENT................................. 44
11.3 TERMINATION OF THE PLAN....................................... 45
SECTION 12 - TOP HEAVY PLAN PROVISIONS.......................................... 47
12.1 TOP HEAVY PLAN DEFINITIONS.................................... 47
12.2 MINIMUM CONTRIBUTION REQUIREMENT.............................. 49
12.3 ADJUSTMENT TO OVERALL CODE SECTION 415 LIMITATIONS............ 49
SCHEDULE A - PARTICIPATING EMPLOYERS............................................ 51
SCHEDULE B - EXCLUDED EMPLOYEE GROUPS........................................... 52
SPECIAL BENEFIT SCHEDULE NO. 1.................................................. 53
SPECIAL BENEFIT SCHEDULE NO. 2.................................................. 56
SPECIAL BENEFIT SCHEDULE NO. 3.................................................. 57
SPECIAL BENEFIT SCHEDULE NO. 4.................................................. 61
</TABLE>
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SECTION 1 - INTRODUCTION
1.1 IDENTITY OF THE PLAN: EFFECTIVE DATE
The UWSI/BCBSUW 401(k) Plan is hereby amended and restated. The Plan
and Trust are intended to meet the requirements of Section 401(a) and 501(a) of
the Internal Revenue Code of 1986. The amended provisions of this Plan shall
apply only to an Employee who terminates employment on or after the effective
date of the amended provision. Unless otherwise stated, the amended provisions
of the Plan are effective January 1, 1997, except that the amendments relating
to daily recordkeeping, including, but not limited to, Sections 2.45, 4.2, 4.6,
and Section 5, shall be effective July 1, 1996.
1.2 ADMINISTRATION
The "Plan Administrator," within the meaning of ERISA, is the Company.
The Plan Administrator shall have duties and responsibilities under the Plan as
described in Section 9.
All books and records of the Plan are maintained on a Plan Year basis.
1.3 PURPOSE OF THE PLAN
The Plan, as herein amended and restated, is established and maintained
for the purpose of enabling Employees of the Employer to have a portion of their
compensation contributed on a tax-deferred basis to the Plan.
1.4 QUALIFIED PLAN INTENDED
The Employer intends that the Plan, as amended, restated and
redesignated effective January 1, 1997 (unless otherwise stated), and as the
same may from time to time be amended, shall constitute a qualified plan under
the provisions of the Internal Revenue Code of 1986, and shall be in full
compliance with the provisions of the Employee Retirement Income Security Act of
1974, as amended. The Employer intends to continue the Plan in effect
indefinitely, subject always, however, to the rights reserved by the Employer to
amend and terminate the Plan as herein set forth. Notwithstanding any provision
in this Plan to the contrary, contributions, benefits and service credit with
respect to qualified military service will be provided in accordance with
Section 414(u)(4) of the Code.
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SECTION 2 - DEFINITIONS
The following terms, when used herein and initially capitalized, shall
have the following meanings for all purposes of the Plan.
2.1 ACCOUNT: ACCOUNTS
"Account" (or Accounts) means the individual Account(s) maintained for
a Participant (as described in Section 5) to record his share of the
contributions made by the Employer and adjustments relating thereto, whether it
be the Participant's Compensation Reduction Account or Employer Matching
Contribution Account, Rollover Account, Transfer Account or his Employee
Contribution Account containing voluntary contributions made by Participants to
the Plan prior to January 1, 1985.
2.2 ADMINISTRATIVE COMMITTEE: COMMITTEE
"Administrative Committee" and "Committee" mean the Committee as
described in Section 9.
2.3 ADMINISTRATIVE DELEGATE
"Administrative Delegate" means one or more persons or institutions to
whom the Administrative Committee has delegated certain administrative functions
pursuant to a written agreement.
2.4 ANNUAL ADDITION
"Annual Addition", when used with reference to a Participant for any
Plan Year, means, for this Plan and any other profit-sharing or defined
contribution plan maintained by the Employer and qualified under Section 401(a)
of the Code, the sum of:
(A) Employer contributions, including any contributions to the
Participant's Compensation Reduction Account,
(B) Forfeitures, if any, and
(C) Voluntary non-deductible Employee contributions, if any.
For Plan Years beginning prior to January 1, 1987, voluntary
non-deductible contributions were considered Annual Additions to the extent they
exceeded the lesser of 6% of the Participant's Compensation or one-half of the
Participant's voluntary non-deductible contributions.
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2.5 AUTHORIZED LEAVE OF ABSENCE
"Authorized Leave of Absence" means any absence authorized by the
Employer for temporary disability or for other good cause provided that all
persons under similar circumstances must be treated alike in the granting of
such Authorized Leaves of Absence and provided further that the Participant
returns within the period of authorized absence.
An absence due to service in the Armed Forces of the United States
shall be considered an Authorized Leave of Absence provided that the absence is
caused by war or other emergency, or provided that the Employee is required to
serve under the laws of conscription in time of peace, and further provided that
the Employee returns to employment with the Employer within the period provided
by law.
2.6 BENEFICIARY
"Beneficiary" means the person or persons entitled to receive benefits
under this Plan by reason of death of a Participant, as more definitively
described in Section 7.
2.7 BREAK IN SERVICE; ONE YEAR BREAK IN SERVICE
"Break in Service", or a "One Year Break in Service", with respect to
an Employee means a period of one or more Plan Years during which a Participant
renders 500 or less Hours of Service during each such Plan Year.
In order to prevent a One Year Break in Service from occurring for
participation and vesting purposes, an Employee or Participant who is absent
from work due to a maternity/paternity leave of absence will be treated as
having completed the number of hours that normally would have been credited but
for the absence. Such Employee or Participant will be credited with no more than
501 Hours of Service in either the Plan Year in which the maternity/paternity
leave begins (if the crediting is necessary to prevent a Break in Service in
that Plan Year), or in the following year. For purposes of this paragraph, an
Employee or Participant will be deemed to be on a maternity/paternity leave of
absence if such person is absent from work due to: (a) the pregnancy of the
Employee or the Participant, (b) the birth of a child of the Employee or the
Participant, (c) the placement of a child with the Employee or the Participant
in connection with the adoption of a child, or (d) the Employee's or the
Participant's caring for such child for a period beginning immediately following
such birth or placement.
2.8 CODE OR INTERNAL REVENUE CODE
"Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
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2.9 COMPANY
"Company" means United Wisconsin Services, Inc. and Blue Cross & Blue
Shield United of Wisconsin.
2.10 COMPENSATION
"Compensation" means, with reference to a Participant for any Plan
Year, a Participant's base pay for Service rendered to the Employer, sales and
persistency bonuses and any amount (I) deferred to this Plan or any other 401(k)
plan pursuant to a salary reduction agreement or (ii) contributed to a cafeteria
plan qualified under Section 125 of the Code; provided, however, that for Plan
Years beginning on or after January 1, 1994, Compensation shall not exceed
$150,000 (or such other amount as may be determined by the Secretary of Treasury
in accordance with Section 401(a)(17) of the Internal Revenue Service to reflect
increases in the cost-of-living); provided, further that for Plan Years
beginning on or after January 1, 1997, the rules of Code Section 414(q)(6)
(relating to aggregation of family members) shall not apply with respect to the
foregoing limitation. Compensation does not include overtime pay, profit sharing
and other bonuses and commissions earned by the Participant, and any amount
received by the Participant as severance pay.
2.11 COMPENSATION REDUCTION ACCOUNT
"Compensation Reduction Account" means the separate Account of a
Participant consisting of the value attributable to contributions, if any, made
under the Plan by the Employer at any time pursuant to a Compensation Reduction
Agreement signed by the Participant, increased by net gains and decreased by net
losses and distributions therefrom, all in accordance with the provisions of the
Plan.
2.12 COMPENSATION REDUCTION AGREEMENT
"Compensation Reduction Agreement" means the agreement between a
Participant and the Employer whereby the Participant elects to defer a portion
of his Compensation and the Employer agrees to contribute such amount to such
Participant's Compensation Reduction Account on behalf of the Participant in a
manner intended to satisfy the requirements of Section 401(k) of the Code.
2.13 COMPENSATION REDUCTION CONTRIBUTIONS
"Compensation Reduction Contributions" means the pre-tax contributions
made at the Participant's election pursuant to Section 4.2.
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2.14 DEFERRED RETIREMENT DATE
"Deferred Retirement Date" means the date on which a Participant
actually retires subsequent to the attainment of his Normal Retirement Date.
2.15 EFFECTIVE DATE
"Effective Date" means January 1, 1997.
2.16 EMPLOYEE
"Employee" means any person who is actively employed as a salaried or
hourly employee by an Employer which participates in this Plan (as set forth in
Schedule A to this Plan), and who (I) is not included in a unit of employees
covered by a collective bargaining agreement under which retirement benefits are
the subject of good faith bargaining, (ii) is not in a group of employees
specifically excluded from participating in the Plan (as set forth on Schedule B
to this Plan), and (iii) is receiving remuneration for personal services
rendered to such Employers (or would be receiving such remuneration except for
an authorized leave of absence). The term "Employee" shall not include a "Leased
Employee" as defined in Section 414(n) of the Code, except to the extent
required by law. Notwithstanding anything in this Plan to the contrary, persons
who are classified by an Employer as independent contractors shall not be
considered Employees eligible to participate in the Plan.
2.17 EMPLOYEE CONTRIBUTION ACCOUNT
"Employee Contribution Account" means the separate Account maintained
to hold voluntary contributions made by a Participant to the Plan prior to
January 1, 1985, increased by net gains and decreased by net losses and
distributions therefrom, all in accordance with the provisions of the Plan.
2.18 EMPLOYER
"Employer" means any Employers which are participating in this Plan as
set forth on Schedule A to this Plan.
For purposes of calculating the maximum benefit payable under Sections
4.8, 4.9, and 4.10, determining when a Break in Service or a One-Year Break in
Service has occurred under Section 2.7, determining Years of Service under
Section 2.38, determining a Participant's rights upon an employment transfer
under Section 3.6, and determining whether an Employee has completed the
eligibility service requirement under Section 3.2, the term "Employer" shall, to
the extent required by applicable law, include:
(1) any corporation other than the Company or an Employer, i.e., either
a subsidiary corporation of an affiliated or associated corporation of the
Company or an
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Employer, which together with the Company or an Employer is a member of a
"controlled group" of corporations (as defined in Code Section 414(b));
(2) any organization which together with the Company or an Employer is
under "common control" (as defined in Code Section 414(c));
(3) any organization which together with the Company or an Employer is
an "affiliated service group" (as defined in Code Section 414(m)); or
(4) any other entity required to be aggregated with the Company or an
Employer pursuant to regulations under Code Section 414(o).
Notwithstanding the foregoing, the term Employer may, in the discretion
of the Committee, be defined to include an entity described in paragraphs (1)
through (4) above for any purpose under the Plan.
2.19 EMPLOYER MATCHING CONTRIBUTION ACCOUNT
"Employer Matching Contribution Account" means the separate Account of
a Participant consisting of Employer matching contributions allocated thereto,
increased by net gains and decreased by net losses and distributions therefrom,
all in accordance with the provisions of the Plan.
2.20 EMPLOYER MATCHING CONTRIBUTIONS
"Employer Matching Contributions" means the Employer Contributions made
pursuant to Section 4.4 based on the Compensation Reduction Contributions made
by a Participant.
2.21 EMPLOYMENT COMMENCEMENT DATE
"Employment Commencement Date" means the date on which an Employee
first performs an Hour of Service for the Employer.
2.22 ERISA
"ERISA" means the Employee Retirement Income Security Act of 1974, as
from time to time amended.
2.23 FORFEITURE: FORFEITURE ACCOUNT
"Forfeiture" or "Forfeiture Account" means that portion of a
Participant's Employer Matching Contribution Account to which he is not entitled
upon a distribution under the Plan, as more fully described in Section 6.3.
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2.24 HIGHLY COMPENSATED EMPLOYEE
A "Highly Compensated Employee" is, for Plan Years beginning on or
after January 1, 1997, any Employee who, during the current year or the
preceding year
(I) was a 5% owner (as defined in Code Section 416(I)); or
(ii) received Compensation from the Employer in excess of $80,000 (as
adjusted for cost-of-living by the Secretary of Treasury). Family members (i.e.,
Employee's spouse, lineal ascendants or descendants, and the spouse of such
lineal ascendants or descendants) of a Highly Compensated Employee shall be
treated as separate Employees.
2.25 HOUR OF SERVICE
"Hour of Service" shall mean:
(A) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours shall be credited to
the Employee for the computation period in which the duties are performed; and
(B) Each hour for which an Employee is paid, or entitled to payment by
the Employer on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to
vacation, personal day, holiday, illness, incapacity (including disability),
lay-off, jury duty, military duty or leave of absence. Hours under this
paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of
the Department of Labor Regulations which are incorporated herein by this
reference; and
(C) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same Hours of
Service shall not be credited both under paragraphs (A) or (B), as the case may
be, and under this paragraph (C). These hours shall be credited to the Employee
for the computation period or periods to which the award or agreement pertains
rather than the computation period in which the award, agreement or payment is
made.
(D) Each hour for which the Employee is unpaid on account of a period
of time during which no duties are performed due to illness, incapacity
(including disability), layoff, military duty or leave of absence. Hours under
this paragraph shall be calculated and credited pursuant to Section 2530.200b-2
of the Department of Labor Regulations which are incorporated herein by this
reference.
(E) Notwithstanding the above, an Hour of Service shall not include an
Hour of Service on account of a period in which the Employee does not perform
any duties, if payment by the Employer on behalf of the Employee is pursuant to
a plan or program maintained solely for the purpose of complying with applicable
workers' compensation,
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unemployment compensation or disability insurance laws, or for any payment which
is made pursuant to a long-term disability program.
(F) For Hours of Service credited under either paragraphs (B) or (D),
no more than 501 Hours of Service shall be so credited to an Employee on account
of any single continuous period during which the Employee performs no duties
(whether or not such period occurs in a single computation period). In addition,
the same Hours of Service shall not be credited under both paragraphs (B) and
(D).
(G) Hours of Service for Employees under paragraphs (A), (B) and (C)
shall be determined by crediting each Employee with 45 Hours of Service for each
week in which the Employee would have been credited with at least 1 Hour of
Service under paragraphs (A), (B) and (C). However, for classes of Employees
paid on an hourly basis and for Employees for whom records of hours are
maintained, Hours of Service under paragraphs (A), (B) and (C) shall be
determined on the basis of hours for which Compensation is paid or due.
2.26 INVESTMENT ADVISER
"Investment Adviser" means a person or organization who is acting as
such with respect to the Trust Fund, in accordance with the terms of the Trust
Agreement. An Investment Adviser (other than a bank or insurance company) must
be registered as an Investment Adviser under the Investment Advisers Act of 1940
and must have acknowledged in writing that he is a Fiduciary with respect to the
Plan and the Trust.
2.27 LIMITATION YEAR
"Limitation Year" (as defined in Section 2.01 of Revenue Ruling 75-48)
means for purposes of the limitations on contributions as imposed by Section 415
of the Code, the Plan Year.
2.28 NON-HIGHLY COMPENSATED EMPLOYEE
A "Non-Highly Compensated Employee" shall mean any Employee who is not
a Highly Compensated Employee as defined in Section 2.24.
2.29 NORMAL RETIREMENT AGE
"Normal Retirement Age" means the date on which a Participant attains
age sixty-five (65).
2.30 NORMAL RETIREMENT DATE
"Normal Retirement Date" means the first day of the month coincident
with or next following the date as of which a Participant shall have attained
his Normal Retirement Age.
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2.31 PARTICIPANT
"Participant" means an Employee of the Employer who meets the
requirements of Section 3 for eligibility and participation in the Plan,
including a former active Participant who is entitled to benefits hereunder.
2.32 PERMANENT DISABILITY OR PERMANENTLY DISABLED
"Permanent Disability" or "Permanently Disabled," when used with
reference to a Participant, means his physical or mental condition which
persists for at least six continuous months and is such that, in the opinion of
the Employer, he is no longer capable of discharging the responsibilities of his
job assignment with the Employer or the duties of such other position or job
which it makes available to him and for which such Employee is qualified by
reason of his training, education or experience.
2.33 PLAN
"Plan" means the UWSI/BCBSUW 401(k) Plan, as amended from time to time.
2.34 PLAN ADMINISTRATOR
The "Plan Administrator" is the Company. With respect to the Plan, the
Plan Administrator shall have the duties and responsibilities described in
Section 9 hereof.
2.35 PLAN YEAR
"Plan Year" means the annual accounting period designated as such for
purposes of the Plan by the Plan Administrator. The Plan Year commences on
January 1 and terminates on the next following December 31.
2.36 RE-EMPLOYMENT COMMENCEMENT DATE
"Re-employment Commencement Date" means the date on which an Employee
or a Participant first performs an Hour of Service for the Employer, following
his Severance from Service Date.
2.37 RETIREMENT: RETIRED
"Retirement" or "Retired" means the termination of a Participant's
employment with the Employer, for any reason other than death, on account of his
Permanent Disability or on or after his Normal Retirement Date.
2.38 SERVICE: YEAR OF SERVICE
"Service" and "Year of Service", for purposes of determining vesting
credit, mean:
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(A) an Employee shall receive credit for one Year of Service for each
full Plan Year of employment,
(B) for the Plan Year in which the Employee is initially employed or
for the Plan Year in which the Employee terminates employment, an Employee shall
receive credit for one Year of Service for the partial Plan Year if the Employee
completes 1,000 or more Hours of Service.
As of each June 30, all employees hired prior to the preceding January
1 shall be credited with 1,000 Hours of Service for vesting purposes. Employees
who terminate prior to June 30 and who actually work 1,000 Hours of Service will
receive credit for a full year of vesting service.
Periods of temporary illness, temporary layoff and Authorized Leaves of
Absences shall not be deemed as breaking employment and shall be counted as
Years of Service. A Participant shall not receive more than one Year of Service
credit for any Plan Year irrespective of the number of Employers a Participant
is employed by during such Plan Year.
Notwithstanding the foregoing, if a Participant who is vested in a
portion or all of his Employer Matching Contribution Account incurs a Break in
Service (and subsequently is rehired), any Years of Service attributable to his
prior period of employment shall be reinstated as of his Re-employment
Commencement Date, provided he completes a Year of Service following his
Re-employment Commencement Date.
If a Participant who is not vested in his Employer Matching
Contribution Account incurs a Break in Service (and subsequently is rehired),
any Years of Service attributable to his prior period of employment shall be
restored as of his Re-employment Commencement Date only if the number of
consecutive One Year Breaks in Service is less than five (5) and the Participant
completes a Year of Service following his Re-employment Commencement Date.
2.39 SEVERANCE FROM SERVICE DATE
"Severance from Service Date" means the date on which a Participant
resigns, retires, is discharged or dies. The Severance from Service Date is
significant in determining continuity of employment in the determination of a
Break in Service and in the determination of a Participant's vested interest in
his Employer Matching Contribution Account.
2.40 SPECIAL BENEFIT SCHEDULE
"Special Benefit Schedule" means a set of supplementary Plan provisions
adopted by the Administrative Committee setting forth any special Plan
provisions in effect for a specific Employer or group of Employees covered by
the Plan. If any provisions contained
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in a Special Benefit Schedule conflict with the remaining provisions of the
Plan, the Special Benefit Schedule shall govern. The existence of Special
Benefit Schedules shall not be construed as the creation of different plans for
purposes of the Code or ERISA.
2.41 TRUST
"Trust" means, effective July 1, 1996, the UWSI/BCBSUW Defined
Contribution Plans Master Trust maintained in accordance with the terms of the
Trust Agreement as from time to time amended, which constitutes part of this
Plan.
2.42 TRUST AGREEMENT
"Trust Agreement" means that certain Trust Agreement made effective as
of July 1, 1996 by and between United Wisconsin Services, Inc., Blue Cross &
Blue Shield United of Wisconsin and American Express Trust Company under which
the Employer is settlor and America Express Trust Company is the Trustee, and
any successor to such Trust Agreement.
2.43 TRUST FUND
"Trust Fund" means, at time of reference, the assets of the Trust. The
term "Trust Fund" shall also mean, at time of reference, the assets or funds
held under a custodial account pursuant to an agreement between United Wisconsin
Services, Inc., Blue Cross & Blue Shield United of Wisconsin and an authorized
custodian.
2.44 TRUSTEES
"Trustees" means the fiduciaries designated as such in the Trust
Agreement, including all "Successor Trustees" at any time acting thereunder. If
the Plan's assets are held in a custodial account pursuant to a custodial
agreement, the term "Trustees" will be deemed to include any custodian named in
such agreement.
2.45 VALUATION DATE
"Valuation Date" means any day that the New York Stock Exchange is open
for business or any other date mutually agreed to by the Administrative
Committee and the Trustee.
2.46 CONSTRUCTION
Within this Plan document, as the same may be amended from time to
time, the masculine pronoun shall be deemed to include the feminine and the
neuter, and the single shall be deemed to include the plural whenever the
context requires. The words
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"terminate," "terminated," "termination of employment," "retire," "retired," or
"retirement" shall be interpreted to mean the termination of employment or
retirement of the Participant from employment with all Employers and
nonparticipating Employers.
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SECTION 3 - ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBLE EMPLOYEES
The Plan is applicable only to Employees of an Employer. Accordingly,
only eligible Employees who become Participants under the Plan shall have
benefits accrued hereunder.
3.2 PARTICIPATION
(A) Any Employee who was a Participant pursuant to the terms of the
Plan in effect on December 31, 1996 and who is actively employed by the Employer
on January 1, 1997 shall continue as a Participant in the Plan on January 1,
1997.
(B) With respect to any Employee who has not satisfied the
participation requirements under (A) on or after January 1, 1997, each such
Employee shall become a Participant in the Plan on the January 1, April 1, July
1, or October 1 coincident with or next following his completion of twelve (12)
consecutive months of service in which he completes 1,000 Hours of Service. In
the event an Employee fails to complete 1,000 Hours of Service during his
initial twelve (12) month period of employment, he shall become a Participant on
the January 1 next following his completion of 1,000 Hours of Service during the
Plan Year which contains the first anniversary (or succeeding anniversaries) of
his Employment Commencement Date (or Re-employment Commencement Date).
3.3 PARTICIPATION FOLLOWING A BREAK IN SERVICE
Any Participant who incurs a Break in Service (due to termination of
employment or otherwise) on and after the Effective Date (or any Participant who
had terminated his employment and subsequently returned to active employment
before incurring a Break in Service) shall be subject to the following rules for
determining his participation in the Plan:
(A) If the Participant is rehired before he has a Break in Service, he
shall again participate in the Plan as of his Re-employment Commencement Date.
(B) If a Participant incurs a Break in Service and following that Break
in Service again completes a twelve (12) consecutive month period of employment
during which he works 1,000 Hours of Service, he shall again be eligible to
participate in the Plan on the date set forth in Section 3.2 as if he were a new
employee as of his Re-employment Commencement Date.
3.4 EVIDENCE OF PARTICIPATION
Upon completion of the requisite service requirements, the otherwise
eligible Employee shall become a Participant. The Plan Administrator shall
notify the Employee
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that he is eligible to be a Participant in the Plan, and the effective date
thereof. The Plan Administrator shall also furnish the Participant with the
forms and materials necessary in order for the Participant to elect to have
contributions made to his Compensation Reduction Account and to designate a
Beneficiary (or Beneficiaries) to whom distribution of his values in the Plan
should be made in the event of his death prior to the full receipt of his
interest in the Trust.
3.5 DURATION OF PARTICIPATION
An Employee who becomes a Participant shall continue to be a
Participant until he terminates employment. If a Participant has a One Year
Break in Service before he is entitled to receive (then or thereafter) a benefit
hereunder, he thereupon shall cease to be a Participant, and shall so remain
unless he again becomes a Participant as specified in Section 3.3.
3.6 RIGHTS UPON TRANSFER
(A) Transfers to Non-Covered Job Classification: If a Participant is
transferred to a job classification with the Employer whereby he is no longer
eligible to be covered under the Plan (as set forth in Section 3.1), such
Participant shall cease active participation in the Plan and, except to the
extent provided in Section 5.2, no further contributions will be made on his
behalf under this Plan from and after the effective date of the transfer. As
soon as administratively feasible after the date a Participant transfers to a
new job classification, the balance of such Participant's Accounts will be
transferred to a qualified plan maintained by the Employer for employees in the
non-covered job classification. Such Participant shall continue to vest in the
transferred Accounts balance at least as rapidly as such Participant vested
under this Plan.
(B) Transfers to Covered Job Classification: If an Employee is
transferred to a job classification whereby he is eligible to be covered under
the Plan (as set forth in Section 3.1), such Employee shall become a Participant
as of the later of his date of transfer or the date he satisfies the
requirements of Section 3.2. Such transferred Employee shall be credited with
Service for vesting purposes for any employment with the Employer before the
date of transfer, and shall continue to vest in any transferred account balance
at least as rapidly as such Employee vested under such other plan.
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SECTION 4 - CONTRIBUTIONS
4.1 NO CONTRIBUTIONS BY PARTICIPANTS
Voluntary after-tax contributions under the Plan shall not be required
or permitted of any Participant on or after January 1, 1985. However, an
Employee Contribution Account shall be maintained for Participants who made
voluntary after-tax contributions to the Plan prior to January 1, 1985.
4.2 COMPENSATION REDUCTION CONTRIBUTIONS
A Participant shall be eligible to have contributions made to his
Compensation Reduction Account as of the date on which he becomes a Participant
under Section 3.2. In order to have the Employer make a Compensation Reduction
Contribution on his behalf, a Participant must elect to make such contributions
by payroll deduction, or otherwise, to his Compensation Reduction Account.
Contributions to a Participant's Compensation Reduction Account shall at all
times be nonforfeitable and 100% vested.
Each eligible Participant may elect to have the Employer contribute
between 2% and 16% of his Compensation to his Compensation Reduction Account.
However, in the event the Administrative Committee determines that the Actual
Deferral Percentage Tests in Section 4.3(C) will not be passed, the percentage
of Compensation elected by a Highly Compensated Employee to be contributed to
his Compensation Reduction Account may be reduced to a level necessary to pass
the Actual Deferral Percentage Tests. No Participant shall be permitted to
contribute during any calendar year more than $7,000 (as adjusted for
cost-of-living in accordance with Code section 402(g)(5)) to his Compensation
Reduction Account.
These Compensation Reduction Contribution provisions shall not be
amended more than once every six months, other than to comport with changes in
the Code, ERISA, or the rules thereunder.
4.3 PERMITTED RANGE OF COMPENSATION REDUCTION CONTRIBUTIONS
The permitted range of Compensation Reduction Contributions with
respect to any year shall be determined on the basis of a Participant's total
Compensation (as defined in Section 2.10) for services rendered to the Employer
during the Plan Year. The Employer shall divide its respective Participants into
two groups -- Highly Compensated Employees and Non-Highly Compensated Employees,
respectively, as discussed herein following:
(A) Highly Compensated Employees: Subject to Section 4.2, each
Participant who is a Highly Compensated Employee (as defined in Section 2.24)
may have the Employer make Compensation Reduction Account contributions on his
behalf under the Plan based on his projected annual earnings from the Employer;
provided, however, that the average Actual Deferral Percentage (as defined in
subsection (C)) for Participants who are Highly
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Compensated Employees, when compared to the average Actual Deferral Percentage
for all Participants who are Non-Highly Compensated Employees must meet either
of the two tests set forth in subsection (C) below.
(B) Non-Highly Compensated Employees: Subject to Section 4.2, each
Participant who is a "Non-Highly Compensated Employee" (as defined in Section
2.28), may have the Employer make Compensation Reduction Account contributions
on his behalf under the Plan based on his projected annual earnings from the
Employer.
(C) Actual Deferral Percentage Tests: Effective for Plan Years
beginning on or after January 1, 1987:
(1) The average Actual Deferral Percentage for all
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the average Actual Deferral Percentage for
Participants who are Non-Highly Compensated Employees for the Plan Year
multiplied by 1.25, or
(2) The average Actual Deferral Percentage for Participants
who are Highly Compensated Employees for the Plan Year shall not exceed
the average Actual Deferral Percentage for Participants who are
Non-Highly Compensated Employees for the Plan Year multiplied by two
(2), provided that the average Actual Deferral Percentage for
Participants who are Highly Compensated Employees does not exceed the
average Actual Deferral Percentage for Participants who are Non-Highly
Compensated Employees by more than two (2) percentage points (or such
lesser amount as the Secretary of Treasury may prescribe).
(3) For purposes of Paragraphs (1) and (2) above, the term
Actual Deferral Percentage means, with regard to Participants who, for
any Plan Year, are either considered to be Highly Compensated Employees
or Non-Highly Compensated Employees the ratio (calculated separately
for each Participant in such group) of the amount of Compensation
Reduction Account contributions actually paid to the Trust on behalf of
each Participant for such Plan Year to the Participant's W-2 earnings
(plus any deferrals made pursuant to Code Sections 125 and 401(k)) for
such Plan Year.
(D) Excess Compensation Reduction Contributions: If neither of the
requirements of subsection (C) is satisfied, then the Compensation Reduction
Contributions with respect to Highly Compensated Employees shall be reduced to
the extent necessary to meet the requirements of subsection (C)(1) or (C)(2),
whichever is met first. The contributions of Highly Compensated Employees
representing the highest total dollar amounts contributed shall be first reduced
in order to achieve the requirements of subsection (C)(1) or (C)(2). If
Compensation Reduction Contributions with respect to a Highly Compensated
Employee are reduced, the Excess Compensation Reduction Contributions shall be
distributed, subject to the following:
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(1) For purposes of this subsection, Excess Compensation
Reduction Contributions shall mean the amount by which Compensation
Reduction Contributions for Highly Compensated Employees have been
reduced under this subsection.
(2) Excess Compensation Reduction Contributions (adjusted for
income or losses allocable thereto as specified in paragraph (3), if
any) shall be distributed to Participants on whose behalf such excess
contributions were made for the Plan Year no later than the last day of
the following Plan Year. Furthermore, the Employer shall attempt to
distribute such amount by the fifteenth day of the third month
following the Plan Year for which the Excess Compensation Reduction
Contributions were made to avoid the imposition of an excise tax under
Code Section 4979.
(3) Income or losses allocable to Excess Compensation
Reduction Contributions shall be determined using the following
methods:
(a) Income or losses allocable to Excess Compensation
Reduction Contributions for the Plan Year shall be determined
by multiplying the amount of income or loss for the Plan Year
which is allocable to Compensation Reduction Contributions by
a fraction. The numerator of the fraction is the Participant's
Excess Compensation Reduction Contributions for the Plan Year.
The denominator of the fraction is the total balance in the
Participant's Accounts attributable to Compensation Reduction
Contributions on the last day of the Plan Year, reduced by any
income (and increased by any losses) allocable to such total
amount for the Plan Year.
(b) Income or losses allocable to Excess Compensation
Reduction Contributions for the Plan Year following the Plan
Year for which the excess was contributed shall be equal to
10% of the amount of income determined above, multiplied by
the number of calendar months that have elapsed in such
subsequent Plan Year prior to the distribution. In determining
the number of calendar months which have elapsed, any
distribution made on or before the fifteenth day of any month
shall be treated as having been made on the last day of the
preceding month, and any distribution made after the fifteenth
day of any month shall be treated as having been made on the
first day of the next month.
4.4 EMPLOYER MATCHING CONTRIBUTIONS
(A) Amount of Employer Matching Contributions: The Employer shall make
a matching contribution to the Trust which, when combined with amounts in
suspense accounts under Section 6.2 and Forfeitures under Section 6.3
attributable to matching contributions, shall equal a specified percentage of
each Participant's Compensation that is deferred pursuant to a Compensation
Reduction Agreement. The amount of the
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<PAGE>
matching contribution shall be equal to 50% of the amount of Compensation
Reduction Contributions made on behalf of a Participant by the Employer for the
Plan Year; provided that Compensation Reduction Contributions in excess of 5% of
Compensation shall not be considered for purposes of determining the amount of
the matching contribution.
(B) Nondiscrimination Tests: Notwithstanding the foregoing, effective
for Plan Years beginning on and after January 1, 1987, the average Contribution
Percentage for all Participants who are Highly Compensated Employees, when
compared to the average Compensation Percentage for all Participants who are
Non-Highly Compensated Employees must meet either of the following two tests:
(1) The average Contribution Percentage for Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
average Contribution Percentage for Participants who are Non-Highly
Compensated Employees for the Plan Year multiplied by 1.25, or
(2) The average Contribution Percentage for Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
average Contribution Percentage for Participants who are Non-Highly
Compensated Employees for the Plan Year multiplied by two (2), provided
that the average Contribution Percentage for Participants who are
Highly Compensated Employees does not exceed the average Contribution
Percentage of Participants who are Non-Highly Compensated Employees by
more than two (2) percentage points (or such lesser amount, as the
Secretary of Treasury shall prescribe).
For purposes of the preceding two tests, the term "Contribution
Percentage" shall mean the ratio (expressed as a percentage) of the sum of all
Employer Matching Contributions under the Plan on behalf of a Participant for
the Plan Year, to such Participant's W-2 earnings, adjusted for Compensation
Reduction Contributions, for the Plan Year.
(C) Excess Employer Matching Contributions: If neither of the
requirements of subsection (B) is satisfied, then the Employer Matching
Contributions with respect to Highly Compensated Employees shall be reduced to
the extent necessary to meet the requirements of paragraph (B)(1) or (B)(2),
whichever is met first. The contributions to the accounts of Highly Compensated
Employees representing the highest total dollar amounts contributed will be
first reduced in order to achieve the requirements of paragraph (B)(1) or
(B)(2). The adjustments shall be made by distributing the Participant's Employer
Matching Contributions (adjusted for income or losses attributable to such
contributions) as provided in this subsection.
(1) For purposes of this subsection, "Excess Employer Matching
Contributions" shall mean the amount by which Employer Matching
Contributions must be reduced under the first paragraph of this
subsection.
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(2) Excess Employer Matching Contributions (adjusted for
income or losses allocable thereto) shall be forfeited (if otherwise
forfeitable under the provisions of Section 6.2 if the Participant were
to terminate employment) on the last day of the Plan Year for which the
contributions were made, and shall be used, along with all other
Forfeitures arising in that Plan Year, to reduce Employer Matching
Contributions in accordance with Section 6.3. Excess Employer Matching
Contributions which are nonforfeitable (adjusted for income or losses
allocable thereto) shall be distributed to Participants on whose behalf
such excess contributions were made for the Plan Year no later than the
last day of the following Plan Year. Furthermore, the Employer shall
attempt to distribute such amount by the fifteenth day of the third
month following the Plan Year for which the Excess Employer Matching
Contributions were made to avoid the imposition on the Employer of an
excise tax under Code Section 4979.
(3) Income or losses allocable to Excess Employer Matching
Contributions shall be determined in the same manner specified for
Excess Compensation Reduction Contributions under Section 4.3(D)(3).
4.5 ORDER OF APPLICATION OF LIMITATIONS OF SECTIONS 4.3 - 4.4
Any reductions required in Participant contributions or Employer
Matching Contributions because of the multiple use of the limits in Section
4.3(C)(2) and 4.4(B)(2) shall be governed by Code section 401(m)(6).
4.6 RIGHT TO SUSPEND. CHANGE, OR DISCONTINUE COMPENSATION
REDUCTION CONTRIBUTIONS
A Participant may elect, before the payroll period in which the
election is to become effective, to increase or decrease the rate of the
contribution to his Compensation Reduction Account; such newly changed rate
shall be effective until changed by the Participant. A Participant may also
elect to have the Employer suspend making contributions to his Compensation
Reduction Account under the Plan altogether. Such changes shall be made by
telephonic or other electronic means and shall be effected as soon as
administratively feasible.
4.7 ROLLOVER CONTRIBUTIONS
Each Participant, and each other Employee who is not a Participant, may
apply in writing to the Employer (on the form provided for that purpose) to make
a Rollover Contribution to the Plan. The Employer will approve any such requests
which comply with the applicable requirements of the Code. Upon approval by the
Employer, the Rollover Contribution shall be deposited to the Trust Fund and
credited to such Participant's Rollover Account.
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4.8 GENERAL LIMITATION ON ANNUAL ADDITIONS
In no event shall the total Annual Addition for any Participant for any
Plan Year exceed the lesser of:
(A) $30,000 (or such other amount as adjusted for the
cost-of-living in accordance with Section 415(d) of the Code), or
(B) Twenty-five percent (25%) of such Participant's total
Compensation which is included in gross income for the Plan Year, plus on and
after January 1, 1998, any amounts contributed by the Employer pursuant to a
salary reduction agreement and which is not included in the Participant's gross
income under Code Sections 125 or 402(a)(8).
4.9 SPECIAL LIMITATION ON ANNUAL ADDITIONS
Prior to January 1, 2000 if the Participant is, or was, covered under
a defined benefit plan and a defined contribution plan maintained by the
Employer, the sum of the Participant's defined benefit plan fraction and defined
contribution plan fraction may not exceed 1.0 in any Plan Year.
The defined benefit plan fraction is a fraction, the numerator of which
is the sum of the Participant's projected annual benefits under all defined
benefit plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of (I) 1.25 times the dollar limitation of
Section 415(b)(1)(A) of the Code in effect for the Plan Year, or (ii) 1.4 times
the Participant's average Compensation for the three consecutive years that
produces the highest average.
The defined contribution plan fraction is a fraction, the numerator of
which is the sum of the Annual Additions to the Participant's Accounts under all
defined contribution plans maintained by the Employer (whether or not
terminated) for the current and all prior Plan Years, and the denominator of
which is the sum of the lesser of the following amounts determined for such Plan
Year and for each prior Year of Service with the Employer: (I) 1.25 times the
dollar limitation in effect under Section 415 (c)(1)(A) of the Code for each
such Plan Year (as modified by Code Section 416(h) to the extent applicable if
the Plan is Top Heavy), or (ii) 1.4 times the amount which may be taken into
account under Section 415 (c)(1)(B) of the Code.
Projected annual benefit means the annual benefit to which the
Participant would be entitled under the terms of the Plan, if the Participant
continued employment until his Normal Retirement Age (or current age, if later)
and the Participant's Compensation for the Plan Year and all other relevant
factors used to determine such benefit remained constant until Normal Retirement
Age (or current age, if later).
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4.10 DISPOSITION OF EXCESS ANNUAL ADDITIONS
If the total Annual Additions for any Participant for any Plan Year
would otherwise exceed the maximum Annual Addition permitted under Sections 4.8
and 4.9, the excess amount will be disposed of as follows:
(A) First, by returning to such Participant, to the extent necessary,
any Compensation Reduction Contributions made on his behalf, with investment
gains attributable to such Compensation Reduction Contributions, to the extent
provided by current law and regulations;
(B) Second, any Excess Employer Matching Contributions are to be used
to (I) reduce Employer Matching Contributions for other eligible Participants
and (ii) if needed, restore previously forfeited Employer Matching
Contributions.
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SECTION 5 - ACCOUNTING
5.1 INDIVIDUAL ACCOUNTS OF PARTICIPANTS
The Employer shall establish and maintain for each Participant two (2)
separate Accounts, to be called, respectively, the Compensation Reduction
Account and the Employer Matching Contribution Account; each such Account shall
be credited or debited to the extent required by this Section 5. In addition,
where applicable, the Employer shall establish and maintain a Rollover Account,
as may be required under Section 4.7, an Employee Contribution Account (if
applicable) in accordance with Section 4.1, and an Employee Transfer Account to
reflect amounts transferred to this plan from another qualified plan for which a
Special Benefit Schedule is created. The Employer shall maintain adequate
records to reflect the interest of each Participant or Beneficiary in the Trust,
and shall disclose such information at least once annually. All entries to such
individual accounts shall be conclusive and binding upon all parties, except
that both arithmetical errors and errors resulting from mistakes in procedure
may be corrected by the Employer at any time.
5.2 CREDITING OF EMPLOYER CONTRIBUTIONS AND FORFEITURES
(A) Matching Contributions: Employer Matching Contributions shall be
credited each payroll period to each Participant equal to 50% of a percentage
not in excess of 5% of the Participant's Compensation that is deferred pursuant
to a Compensation Reduction Agreement during such payroll period.
(B) Compensation Reduction Contributions: The Employer shall allocate
any Compensation Reduction Contribution to the Compensation Reduction Account of
any Participant who had a Compensation Reduction Contribution made on his behalf
on the date such funds are deposited in the Trust Fund.
(C) Forfeitures: Forfeitures (as described in Section 6.3) shall be
used as soon as feasible to reduce subsequent Employer Matching Contributions.
5.3 DEBITING OF DISTRIBUTIONS
The amounts, if any, distributed or paid to or on behalf of a
Participant hereunder at any time shall, concurrent with such payment, be
debited against his Accounts, as applicable.
5.4 SEPARATE INVESTMENT FUNDS
(A) Administrator May Establish Separate Funds: The Plan Administrator
may direct the Trustee to invest in one or more separate investment funds,
having different specific investment objectives as the Plan Administrator shall
from time to time determine. The Plan Administrator shall determine and may from
time to time redetermine the number of
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<PAGE>
investment funds and the specific objectives of said funds and the investments
or kinds of investment which shall be authorized therefor. From time to time the
Plan Administrator may add or delete funds without amending the Plan.
Participants will be informed as to the various investment options available.
Employer Matching Contributions shall be invested in a United Wisconsin
Services, Inc. ("UWS") stock fund or as otherwise directed by the Company in its
discretion.
(B) Participant Direction Permitted: Each Participant has the right to
instruct the Plan Administrator to direct the Trustee to invest his Accounts in
one or more separate investment funds as established above. Notwithstanding the
foregoing or anything in this Plan to the contrary, no Participant subject to
the insider trading restrictions of Section 16 of the Securities Exchange Act of
1934 may direct the Trustee to increase or decrease the amount of his account
which is invested in the UWS stock fund if, during the preceding six (6) month
period, he has directed a change in the opposite direction.
(C) Administrator to Establish Rules: The Plan Administrator may at any
time make such uniform and nondiscriminatory rules as it determines are
necessary regarding the administration of this directed investment option. The
Plan Administrator shall develop and maintain rules governing the rights of
Participants to change their investment directions and the frequency with which
such changes can be made.
(D) Investment Advisers: The Plan Administrator may, from time to time,
retain the services of one or more persons or firms designated as Investment
Advisers for the management of (including the power to acquire and dispose of)
all or any part of the Trust, provided that each of such persons or firms (a) is
registered as an investment advisor under the Investment Advisers Act of 1940,
(b) is a bank (as defined in that Act), or an insurance company qualified to
perform manage, acquire, or dispose of trust assets under the laws of more than
one State of the United States. Each such Investment Adviser shall acknowledge
in writing that it is a fiduciary with respect to the assets of the Trust under
its authority and management.
The Plan Administrator has the authority to direct the Trustee to
invest all or a portion of the Trust Fund through any common or collective trust
fund or pooled investment fund, including collective investment funds maintained
by the Trustee or its successor, for the collective investment of funds held by
it in a fiduciary capacity.
5.5 VALUATION OF ACCOUNTS
As of each Valuation Date, all assets of the Trust Fund shall be
valued, net gains or losses shall be allocated, and additions to and withdrawals
from Account balances shall be processed in the following manner:
(A) The fair market value of securities and/or the other assets
comprising each investment fund designated by the Committee for direction of
investment by the participants of this Plan shall be computed. Each Account
balance shall be adjusted each
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<PAGE>
Valuation Date by applying the closing market price of the investment fund on
the current Valuation Date to the share/unit balance of the investment fund as
of the close of business on the current Valuation Date.
(B) Any requests for additions or withdrawals made to or from a
specific designated investment fund by any Participant, including allocations of
contributions and forfeitures shall then be accounted for. In completing the
valuation procedure described above, such adjustments in the amounts credited to
such accounts shall be made on the Valuation Date to which the investment
activity relates. Contributions received by the Trustee pursuant to this Plan
shall not be taken into account until the Valuation Date coinciding with or next
following the date such contribution was both actually paid to the Trustee and
allocated among the accounts of Participants.
(C) Notwithstanding paragraphs A and B above, in the event a pooled
investment fund has created a designated fund for Participant investment
election in this Plan, valuation of the pooled investment fund and allocation of
earnings of the pooled investment fund shall be governed by the administrative
services agreement of such pooled investment fund. The provisions of any such
administrative services agreement shall be deemed a part of this Plan.
(D) It is intended that this Section operate to distribute among each
Account in the Trust Fund all income of the Trust Fund and changes in the value
of the assets of the Trust Fund.
5.6 RETURN OF EMPLOYER CONTRIBUTIONS
If an amount is contributed by the Employer due to a mistake of fact,
the Employer shall be entitled to recover such amount within one (1) year of the
date such contribution is made. If an amount is contributed by the Employer
which is disallowed as a deduction under Code Section 404, the Employer shall be
entitled to recover such amount within one (1) year of the date such deduction
is disallowed. Trust income attributable to the amount to be recovered shall not
be paid to the Employer, but Trust loss attributable thereto shall reduce such
amount.
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SECTION 6 - DISTRIBUTIONS
6.1 DISTRIBUTIONS UPON RETIREMENT, DEATH OR DISABILITY
If a Participant's Severance from Service Date occurs because of the
Participant's retirement, death or Permanent Disability, such Participant (or
his Beneficiary) shall be entitled to receive a distribution of 100% of his
Employer Matching Contribution Account, Compensation Reduction Account, Employee
Contribution Account (if any) and Rollover Account as soon as feasible following
his Severance from Service Date, provided such Participant complies with such
administrative procedures for distribution as are authorized by the
Administrative Committee. The balance of a Participant's Accounts upon
distribution shall be based on the value of such Accounts as of the Valuation
Date on which the administrative procedures authorized by the Committee for
distribution are completed.
6.2 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT
If a Participant's Severance from Service Date occurs because of the
Participant's resignation or dismissal, such Participant shall be entitled to
receive a distribution of 100% of the balance of his Compensation Reduction
Account, Employee Contribution Account (if any) and Rollover Account (if any),
plus the vested percentage of his Employer Matching Contribution Account and
Transfer Account (if any) as soon as feasible following his Severance from
Service Date, provided such Participant complies with such administrative
procedures for distribution as are authorized by the Administrative Committee.
The balance of a Participant's Accounts upon distribution shall be based on the
value of such Accounts as of the Valuation Date on which the administrative
procedures authorized by the Committee for distribution are completed. The
vested percentage of his Employer Matching Contribution Account shall be
determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Completed
at Severance from Service Date Nonforfeitable Percentage
------------------------------ -------------------------
<S> <C>
Less than 1 Year 0%
1 but Less than 2 Years 20%
2 but Less than 3 Years 40%
3 but Less than 4 Years 60%
4 but Less than 5 Years 80%
5 Years or More 100%
</TABLE>
Notwithstanding the above schedule, a Participant will be 100% vested in his
Employer Matching Contribution Account upon the attainment of his Normal
Retirement Age.
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<PAGE>
6.3 FORFEITURES
That portion of the Employer Matching Contribution Account to which the
Participant is not entitled at his Severance from Service Date shall be credited
to his Forfeiture Account, established and maintained by the Employer in the
terminated Participant's name.
If the Participant does not return to employment as of the last day of
the calendar quarter in which his Severance from Service Date occurs, then the
credit balance to such Forfeiture Account shall, subject to the provisions of
Section 6.2 hereof, be a Forfeiture and shall, together with all other
applicable Forfeitures occurring during the same calendar quarter, be used to
reduce Employer matching contributions for the calendar quarter in which the
Forfeiture occurs, or in any subsequent calendar quarter.
If the Participant returns to the employment of the Employer prior to
incurring five (5) consecutive One Year Breaks in Service, any Forfeitures of
such Participant's Employer Matching Contribution Account which have been
previously forfeited shall be restored to the Participant's Employer Matching
Contribution Account effective as of the date the Participant repays the entire
amount of the distribution he received from his Employer Matching Contribution
Account under Section 6.2 upon his previous termination of employment. Such
repayment shall be made within the five (5) year period following the date of
the distribution and shall constitute the beginning balance in his new Employer
Matching Contribution Account.
If the Participant returns to employment with the Employer before the
end of the calendar quarter in which his Severance from Service Date occurs,
then the credit balance to such Forfeiture Account shall be transferred back to
his reconstituted Employer Matching Contribution Account.
6.4 METHOD OF DISTRIBUTION
(A) If a Participant is entitled to receive a distribution upon his
retirement, Permanent Disability or termination of employment, such distribution
shall be paid under one of the following forms:
(a) Lump sum distribution, or
(b) Equal installments to be paid over a period not exceeding
the lesser of fifteen (15) years or the life expectancy of the
Participant, or the joint life expectancy of the Participant and his
designated Beneficiary.
(c) Equal installments for a period not exceeding the life
expectancy of the Participant or the joint life expectancy of the
Participant and his designated Beneficiary.
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<PAGE>
(B) If a Participant dies prior to receiving the balance in his
Accounts, and he is not married at the time of death, the remaining balance in
his Accounts will be distributed in a lump sum to his designated beneficiary. If
a Participant is married at the time of his death, his remaining balance in his
Accounts shall be paid to his surviving spouse, unless the spouse consents in
writing in accordance with Section 7.1 to the designation of another
Beneficiary.
6.5 RESPONSIBILITIES AND DUTIES RELATIVE TO CURRENT RECORDS
Each Participant, and each Beneficiary of a deceased Participant shall
file with the Employer from time to time, in writing, his post office address
and each change of post office address. Any communication, statement or notice
addressed to such person at his last post office address filed with the
Employer, or if no such address was filed, then at his last post office address
as otherwise shown in the Employer's records, if any, shall be binding on such
person for all purposes of the Plan, and neither the Employer nor the Trustee
shall be obliged to search for or ascertain the whereabouts or identity of any
Participant or Beneficiary.
6.6 MANNER OF DISPOSING UNCLAIMED DISTRIBUTABLE INTEREST
If all or any part of the interest of any Participant or Beneficiary
becomes distributable hereunder and the Plan Administrator, after a reasonable
search, cannot locate the Participant or his Beneficiary, if such Beneficiary is
entitled to payment, the vested Account balance shall be forfeited and
reallocated in accordance with Section 6.3 as of the day the Participant
incurred a Break in Service, or such later date as the Plan Administrator may
decide. If the Participant or his Beneficiary subsequently presents a valid
claim for benefits to the Plan Administrator, the Plan Administrator shall cause
the vested Account balance, equal to the amount which was forfeited under this
Section, to be restored.
6.7 TIME OF DISTRIBUTIONS
Notwithstanding any provision of the Plan to the contrary, the
following provisions of this Section shall be applicable with respect to the
payments of benefits to any Participant or Beneficiary:
(A) Distribution Prior to Participant's Death: Unless a Participant
elects otherwise, in no event shall payments commence later than 60 days
following the end of the Plan Year in which (I) the Participant reaches age 65,
(ii) the Participant terminates employment, or (iii) the Participant attains the
tenth (10th) anniversary of the date on which he commenced participation in the
Plan, whichever is later. In the case of a Participant who terminates employment
due to resignation or dismissal, the Participant may request payment of his
benefit at an earlier date. Notwithstanding the above, the entire vested balance
of a Participant's Accounts must not be distributed later than the date set
forth in paragraph (1) or paragraph (2) below, namely:
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<PAGE>
(1) Distribution in a Single Sum: Distribution of a
Participant's Accounts in a single sum must be effected no later than
April 1 of the calendar year immediately following the later of: the
calendar year in which the Participant attains age 70-1/2 or the
calendar year in which the Participant retires from active service with
the Employer. Notwithstanding the preceding sentence, any Participant
who attains age 70-1/2 and was a 5% owner at any time during the Plan
Year ending with or within the calendar year in which such Participant
attained age 70-1/2 or any subsequent Plan Year must receive a
distribution of his Accounts no later than April 1 of the calendar year
following the calendar year in which the Participant attains age 70-1/2
.
(2) Distribution by Periodic Payments:
(a) If distribution is by periodic payments (by which
term, for purposes of this Section, is meant distribution in
any form other than a single sum, as described in paragraph
(1) above) then, distribution of the Participant's vested
Accounts under the Plan must commence not later than April 1
of the calendar year immediately following the later of: the
calendar year in which the Participant attains age 70-1/2 or
the calendar year in which the Participant retires from active
service with the Employer, and must be spread over a period
not greater than any of the following, namely: (I) the
remaining lifetime of the Participant; or (ii) the remaining
lifetime of the Participant and a designated Beneficiary or
contingent annuitant; or (iii) a period not extending beyond
the life expectancy of the Participant, as determined by such
life expectancy tables under Regulations to Section 72 of the
Code; or (iv) a period not extending beyond the life
expectancy of the Participant and a designated Beneficiary or
contingent annuitant, as determined by such life expectancy
tables, as aforesaid.
(b) If distribution shall be in accordance with clause
(iii) of the immediately preceding sentence of this paragraph
(2), then, in accordance with applicable governmental
regulations, the remaining life expectancy of the Participant
-- and, if applicable, his spousal Beneficiary -- may be
redetermined each year, and the amount of periodic payments so
distributed may be annually adjusted accordingly.
(c) Notwithstanding the preceding, any Participant who
attains age 70-1/2 and was a 5% owner at any time during the
Plan Year ending with or within the calendar year in which
such Participant attained age 70-1/2, or any subsequent Plan
Year, must begin to receive a distribution of his Accounts no
later than April 1 of the calendar year following the calendar
year in which the Participant attains age 70-1/2 .
(d) Any Participant who is not a 5% owner, and attained
age 70-1/2 prior to January 1, 1997, and who was required (or
would have been
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<PAGE>
required) to commence distributions under the rules in effect
prior to January 1, 1997, may make an election (at such times
and in such form as may be prescribed by the Plan
Administrator) to suspend such distributions until the date of
the Participant's actual retirement.
(B) Distributions After Participant's Death: In the event of the
Participant's death, his entire or remaining interest under the Plan must be
distributed in accordance with either paragraph (1) or paragraph (2) below,
namely:
(1) Death after Commencement of Benefits: If the Participant
shall die after commencement of his benefit payments under the Plan,
the remaining values must be distributed at least as rapidly as under
the method of distribution selected under paragraph (2) of subsection
(A) above in this Section.
(2) Death Prior to Commencement of Benefits: If a Participant
shall die after retirement under the Plan but prior to the commencement
of benefit payments on that account hereunder, then, in such event, the
entire interest of the Participant must be distributed within the
5-year period measured from the date of the Participant's death;
provided, however, that such "5 Year Rule" shall not be applicable in
the instances described in subparagraph (a) or subparagraph (b), below:
(a) The "5 Year Rule" described above shall not apply
if the following three conditions are met at the date of death
of the Participant, namely: (I) if any portion of the
Participant's interest under the Plan is payable to, or for
the benefit of, a designated Beneficiary; and (ii) the portion
of the Participant's interest to which the Beneficiary is
entitled will be distributed over the remaining lifetime of
the Beneficiary (or over a period not extending beyond the
remaining life expectancy of such Beneficiary); and (iii) the
distributions commence no later than one year after the date
of the Participant's death (or such later date which the
Secretary of the U.S. Treasury Department may, under pertinent
regulations, prescribe);
(b) The "5 Year Rule" described above shall not apply
if the following two conditions are met at the date of death
of the Participant, namely: (I) the portion of the
Participant's interest to which the surviving spouse is
entitled will be distributed over the remaining lifetime of
the surviving spouse (or over a period not extending beyond
the life expectancy of the surviving spouse); and (ii) the
distributions commence no later than the date as of which the
Participant would have attained age 70-1/2. If the surviving
spouse dies before the distributions to such spouse begin,
then the provisions of this paragraph (2) will apply as if the
spouse was the Participant.
(C) Distributions to Minor Children: For purposes of subsections (A)
and (B), any amount paid to a child under the age of majority shall be treated
as if it had been paid to
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the surviving spouse if the amount becomes payable to the surviving spouse when
the child reaches the age of majority.
(D) Incidental Death Benefits: Notwithstanding the foregoing
subsections, all distributions shall be made in accordance with the incidental
death benefit requirements of Code Section 401(a)(9)(G) and the regulations
thereunder.
6.8 WITHDRAWALS FROM INDIVIDUAL ACCOUNTS
(A) A Participant may not withdraw any of the values in his Employer
Contribution Matching Account.
(B) A Participant may make a partial or total withdrawal from his
Employee Contribution Account at any time while remaining in the Service of the
Employer. Upon demonstrating a financial hardship, a Participant may withdraw
any contributions (but not earnings) that have been credited to his Compensation
Reduction Account subject to the following provisions. Effective for withdrawals
made on and after January 1, 1989, a withdrawal shall be considered to have been
made on account of a financial hardship if such withdrawal is (I) made on
account of an immediate and heavy financial need of the Participant and (ii) is
necessary to satisfy such financial need. The determination of the existence of
an immediate and heavy financial need and of the amount necessary to meet the
need (including amounts necessary to pay any federal, state, or local income
taxes or penalties reasonably anticipated to result from the withdrawal) shall
be made in a nondiscriminatory manner and after appropriate documentation is
submitted and only after the approval of the Committee.
(1) A withdrawal will be deemed to be made on account of an
immediate and heavy financial need of the Participant as defined by the
IRS regulations and which currently include:
(a) Medical expenses described in Code section 213(d)
which are incurred by the Participant, the Participant's
spouse, or any dependents of the Participant (as defined in
Code Section 152); or necessary for these persons to obtain
medical care as described in Code Section 213(d);
(b) Purchase (excluding mortgage payments) of a
principal residence for the Participant;
(c) Payment of tuition and related educational
expenses for the next twelve (12) months of post-secondary
education for the Participant, his or her spouse, children or
dependents as defined in Code Section 152; or
(d) The need to prevent the eviction of the
Participant from his principal residence or foreclosure on the
mortgage of the Participant's principal residence.
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(2) A withdrawal will be deemed necessary to satisfy an
immediate and heavy financial need of a Participant if the Employee
represents that the need cannot be relieved:
(a) Through reimbursement or compensation by
insurance or otherwise;
(b) By liquidation of the Participant's assets to the
extent that such liquidation would not cause an immediate and
heavy financial need;
(c) By cessation of Compensation Reduction
Contributions under the Plan; or
(d) By other distributions or loans from this Plan or
any other plan or by borrowing from commercial sources on
reasonable terms.
6.9 DISTRIBUTIONS TO ALTERNATE PAYEES
Notwithstanding the above, in the event any portion of a Participant's
Account becomes payable to an Alternate Payee because of a qualified domestic
relations order, such Alternate Payee may apply for and receive an immediate
distribution of the entire amount he is entitled to under the Plan as set forth
in Section 6.7.
6.10 ELIGIBLE ROLLOVER DISTRIBUTIONS
(A) Direct Rollover. In the case of a distribution after December 31,
1992 that would be an eligible rollover distribution within the meaning of Code
Section 402 if made to the Participant or Beneficiary (distributee), the
distributee may elect, to the extent required by law and regulation and in the
manner prescribed by the Committee, to have such distribution paid directly to
an eligible retirement plan (as defined in Code Section 401(a)(31)). The amount
of such direct rollover shall be limited to the amount of the eligible rollover
distribution which would otherwise be includible in the distributee's gross
income in the absence of a direct transfer and without regard to the rollover
rules of Code Sections 402 and 403.
(B) Withholding. In the case of an eligible rollover distribution which
is not directly transferred to an eligible retirement plan pursuant to
Subsection (A) above, the Plan shall reduce the amount of the distribution (or
otherwise withhold) by the amount of the tax required to be withheld by law and
regulations.
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SECTION 7 - BENEFICIARIES
7.1 DESIGNATION OF BENEFICIARY OR BENEFICIARIES
Any Participant may, by instrument in writing, executed and delivered
to the Employer during his lifetime, designate a Beneficiary or Beneficiaries to
whom distribution of his interest in the Trust shall be made in the event of his
death prior to the receipt of his entire interest in the Trust, and he may
designate the proportions of his Accounts to be distributed to each such
designated Beneficiary if there be more than one. Any such designation may be
revoked or changed by the Participant or former Participant at any time, and
from time to time, by similar instruments in writing delivered as aforesaid.
Notwithstanding the preceding, in the event that a married Participant
desires to have his interest distributed to a Beneficiary other than his spouse,
his spouse must first consent in writing to this distribution and to the
specific Beneficiary. The spouse's consent must be witnessed by a Plan
representative or Notary Public and must acknowledge that the spouse is aware of
the effect of such consent.
The spousal consent specified herein shall not be required, however, if
(I) the Participant establishes, to the satisfaction of the Plan representative,
that such consent may not be obtained because there is no spouse, or the spouse
cannot be located, or (ii) such consent may, under U.S. Treasury Department
Regulations, be waived. Moreover, such spousal consent shall in no event be
transferable (i.e., it is applicable only to the spouse so consenting, and not
to any subsequent spouse of the Participant).
The spousal consent required for Beneficiary designations must be made
during the period beginning with the first day of the Plan Year in which the
Participant attains age 35 and ending on the date of the Participant's death;
provided, however, to the extent permitted under applicable regulations, the
spouse may validly consent to a Beneficiary designation prior to the first day
of the Plan Year in which the Participant attains age 35.
If there is no designated Beneficiary living upon the death of a
Participant or former Participant or if all such designated Beneficiaries die
prior to the full distribution of his interest, the then legal representative of
the last surviving of the Participant and the designated Beneficiaries, or if
the Employer fails to receive notice of the appointment of any such legal
representative within one year after such death, the heirs at law of such
survivor (in the proportions in which they would inherit his intestate personal
property) shall be the Beneficiary to whom the then remaining balance of such
interest shall be distributed.
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7.2 MISSING BENEFICIARY(IES); RIGHT OF EMPLOYER TO MAKE A
PRESUMPTION OF DEATH
If the Employer, after reasonable inquiry, is unable within one year to
determine whether or not a designated Beneficiary did in fact survive the event
that entitled him to receive distribution of any sum hereunder, it shall be
conclusively presumed that such Beneficiary did in fact die prior to such event.
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SECTION 8 - LOANS TO PARTICIPANTS
8.1 PARTICIPANT LOANS
(a) Administration - Loans shall be made available in writing or by any
other means authorized by the Committee. Any Participant who is a "party in
interest" to the Plan, as that term is defined in Section 3(14) of ERISA
(hereinafter collectively referred to as "Eligible Borrowers"), may apply for a
loan from the Plan (hereinafter referred to as a Participant Loans). Eligible
Borrowers requesting a Participant Loan from the Plan may obtain and complete a
loan application. An Eligible Borrower may have only two loans outstanding from
this Plan at any one time and no loan shall be made in an amount less than
$1,000. Loans shall be made as soon as feasible following the request of the
Eligible Borrower. The approval or disapproval of any loan application filed
pursuant to this Section will be based on the requirements of ERISA, the Code,
the Plan and nondiscriminatory rules and procedures established by the
Committee.
(b) Limitations - The total amount of Participant Loans from the Plan
outstanding to any Eligible Borrower, when combined with all loans from all
Plans maintained by the Company and any Employer, shall not exceed the lesser
of: (I) $50,000 (reduced by principal repayments made during the previous year
on any Participant Loans from the Plan); or (ii) 1/2 of the Eligible Borrower's
vested, nonforfeitable interest in his Accounts under the Plan.
(c) Treated as Investment - All Participant Loans granted to an
Eligible Borrower under this Section will be considered investments of the
Accounts of such Eligible Borrower and the principal and interest payments made
by him will be credited to his Accounts. For purposes of determining the extent
to which the Eligible Borrower's Accounts share in Trust income, gains, losses
and expenses, if any, his Accounts' balances will be reduced by the unpaid
amount of any outstanding Participant Loan as of any appropriate valuation date.
(d) Interest - The interest rate charged on any Participant Loan shall
be a reasonable rate comparable to prevailing interest rates charged by
commercial lenders under similar circumstances.
(e) Security - Participant Loans shall be secured by the Eligible
Borrower's Accounts under the Plan, except that no more than 50% of the value of
the Eligible Borrower's vested, nonforfeitable Accounts balances at the time the
Participant Loan is made may be used to secure the principal amount of all
Participant Loans of the Eligible Borrower.
(f) Repayment - The repayment provisions of any Participant Loan will
be determined at the time the loan is made, subject to the requirements of this
Subsection and applicable law. Any Participant Loan shall provide for repayment
pursuant to a level amortization schedule with payments not less frequently than
quarterly. In no event, however, shall the term of any Participant Loan exceed
five (5) years. In order to receive
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a Participant Loan, an Eligible Borrower who is also an Employee of the Company
must agree, by means authorized by the Committee, to repay the loan by having
the Company withhold from the pay for the Eligible Borrower an amount sufficient
to meet any installment obligation of the loan, or any portion thereof. Any and
all amounts so withheld by the Company will be remitted to the Trustee on a
timely basis as an installment on the loan. An Eligible Borrower shall be
entitled to prepay the entire outstanding balance of any Participant Loan
without penalty at any time. In the event an Eligible Borrower has not repaid
the entire Participant Loan at his Severance from Service Date, the Committee
shall require that the Participant repay the loan by check payable to the Plan
or by such other means as may be mutually agreed upon by the Committee and the
Eligible Borrower. The Company shall remit such repayments to the Trustee on a
timely basis. Loan repayments will be suspended under this Plan as permitted
under Section 414(u)(4) of the Code.
(g) Disclosure - Every Eligible Borrower who applies for a Participant
Loan will be entitled to receive a statement of the charges involved in his loan
transaction, including the dollar amount and annual interest rate of the finance
charge, and such other disclosure information as may be required by applicable
law.
(h) Default - Failure to pay principal and interest when due (or within
such grace periods as are permitted by applicable law) or any violation of the
terms of the note executed between the Plan and an Eligible Borrower shall
constitute an event of default. In the event of default, the Committee shall
have the right to declare any unpaid balance due and payable, and to foreclose
on any security interest. Further, at the earliest date on which an Eligible
Borrower is entitled to receive a distribution from the Plan in accordance with
ERISA and the Code, the Committee shall have the right to apply the Eligible
Borrower's interest in the Plan against the unpaid amount, which amount shall in
such event be considered a distribution to the Eligible Borrower.
(I) Loan Guidelines - The Committee shall issue written loan policy
guidelines, which shall form part of the Plan, describing the procedures and
conditions for making loans, and may revise those guidelines at any time, and
for any reason. The Committee shall have the complete discretion to approve or
disapprove any loan application filed pursuant to this Section. Any such
approval or disapproval will be based on the requirements of ERISA, the Code,
the Plan and nondiscriminatory rules and procedures established by the
Committee.
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SECTION 9 - ADMINISTRATION
9.1 PLAN ADMINISTRATOR
"The Plan Administrator," within the meaning of ERISA, is the Company.
The Company shall have complete charge of the administration of the Plan. The
Company is the "named fiduciary" within the meaning of ERISA.
The Plan Administrator shall have the authority to direct the Trustee
to invest all or a portion of the Trust Fund through any common or collective
trust fund or pooled investment fund, including collective investment funds
maintained by American Express Trust Company or its successor, for the
collective investment of funds held by it in a fiduciary capacity.
9.2 THE ADMINISTRATIVE COMMITTEE
The day-to-day administration of the Plan shall be the responsibility
of the Company's Employee Benefits Committee -- herein called the "Committee".
Each member of the Committee shall serve without remuneration, but shall be
reimbursed for expenses incurred in the performance of his duties.
The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, day-to-day administrative functions within the framework of policies,
interpretations, rules, practices, and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Participant to the Committee in accordance with the
claims review procedures provided in Section 10.2. Any decisions which call for
interpretations of Plan provisions not previously made by the Committee shall be
made only by the Committee. The Administrative Delegate shall not be considered
a fiduciary with respect to the services it provides.
9.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE
The Committee may appoint a Secretary who may, but need not be, a
member of the Committee. The Committee may employ such agents and such clerical
and other services, and such legal counsel, other consultants, and accountants
as may, in the opinion of the Committee, be required for the purposes of
properly administering the Plan.
9.4 EXPENSES OF ADMINISTRATION
The Employer is not required, but may, at its discretion, pay the
expenses of administration of the Plan, including the fees and expenses of the
Trustee. If such expenses of administration are not so paid by the Employer,
they shall be paid by the Trustee from the Trust Fund. The Trustee, Investment
Adviser and recordkeeper of the Plan (collectively referred to as "Service
Providers") will receive reasonable compensation
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as may be agreed upon from time to time between the Company or the Committee and
such Service Providers. To the extent permitted by law, such compensation shall
be paid from the Trust Fund unless paid by the Company.
9.5 ACTS OF THE COMMITTEE
The Committee shall give to the Trustee any order, direction, consent
or advice required under the terms of the Plan or the Trust Agreement, and the
Trustee shall be entitled fully to rely on any instrument delivered to it
evidencing the action of the Committee as hereinabove described.
9.6 INTERPRETATIONS
The Committee shall have the exclusive right to make any finding of
fact necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of the eligibility for and the amount of any
benefit payable under the Plan. The Committee shall have the exclusive right to
interpret the terms and provisions of the Plan and to determine any and all
questions arising under the Plan or in connection with the administration
thereof, including, without limitation, the right to remedy or resolve possible
ambiguities, inconsistencies, or omissions, by general rule or particular
decision, with such interpretations or determinations to be finally conclusive
and binding on all parties affected thereby. The Committee shall make, or cause
to be made, all reports or other filings necessary to meet the reporting and
disclosure requirements of ERISA which are the responsibility of "plan
administrator" under ERISA. To the extent permitted by law, all findings of
fact, determinations, interpretations, and decisions of the Committee shall be
conclusive and binding upon all persons having or claiming to have any interest
or right under the Plan.
Notwithstanding any provision in the Plan to the contrary, Compensation
Reduction Agreements and cancellations or amendments thereto, investment
elections, changes or transfers, loans, withdrawal decisions, and any other
decision or election by a Participant (or Beneficiary) under the Plan may be
accomplished by electronic or telephonic means which are not otherwise
prohibited by law and which are in accordance with procedures and/or systems
approved or arranged by the Committee or its Administrative Delegate.
9.7 LIABILITY OF THE COMMITTEE
The members of the Committee, and each of them, shall be free from
liability for their acts and conduct in the administration of the Plan, and the
Employer shall indemnify them and hold them, and each of them, harmless from the
effects and consequences of their acts and conduct in their official capacity,
except to the extent that such effects and consequences result from their
failure to exercise ordinary care and reasonable diligence. In any event, the
Committee shall be deemed to have exercised ordinary care and reasonable
diligence if it shall have relied in good faith upon any written information
furnished to it by an Employee or Participant, the Employer, the Investment
Adviser, the
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Trustee, or by any actuary, employee benefit plan consultant, counsel,
accountant or other person employed, with or without remuneration, by the
Employer for purposes of the Plan.
9.8 APPLICABLE LAW
The Plan will be construed and enforced in accordance with the laws of
the State of Wisconsin and all provisions of the Plan will be administered in
accordance with the laws of the said State, to the extent not superseded by
ERISA.
9.9 PLAN FIDUCIARIES: ALLOCATION OF RESPONSIBILITIES AMONG THEM
Under ERISA and Regulations pursuant to ERISA, the Employer, the
Trustee, the Committee, the Plan Administrator and the Investment Adviser are
"Plan Fiduciaries." All Plan Fiduciaries shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to them under
the Plan document and the Trust Agreement. In general, the Employer, acting
through a majority of its Board of Directors or its designated committee, shall
have the sole responsibility to terminate the Plan, in whole or in part, in
accordance with Section 11 hereof and sole responsibility to appoint and remove
the Trustee. The Plan Administrator shall have ultimate responsibility for the
administration of the Plan. The Committee shall determine an allocation of Plan
assets in consideration of Plan liabilities, establish investment guidelines,
select and evaluate money managers and investment alternatives and review and
approve investment transactions and strategy. The Committee shall also have such
other duties and responsibilities as are described in the applicable provisions
of this Section 9 together with such other duties and responsibilities as may be
delegated to them by a majority of the Board of Directors of the Employer or its
designated committee or the Plan Administrator from time to time. The Trustee
shall have the responsibility of the administration of the Trust and for the
custody and management of the assets held in the Trust Fund to the extent
provided in the Trust Agreement and any contracts or agreements entered into by
and between the Trustee and the Investment Adviser.
9.10 RELIANCE ON CO-FIDUCIARIES
Each Fiduciary may rely upon any direction, information or action of
another Fiduciary as being proper under the Plan, and shall not, under normal
circumstances, be required to inquire into the propriety of any such direction,
information or action. Each Fiduciary shall be responsible for the proper
exercise of his own powers, duties, responsibilities and obligations under this
Plan and shall not be responsible for any breach of fiduciary responsibility by
another Fiduciary ("other Fiduciary") unless he participates knowingly in, or
knowingly undertakes to conceal an act or omission of such other Fiduciary,
knowing such act or omission is a breach; or by his failure to comply with
Section 9 hereof in the administration of his specific responsibilities
hereunder he has enabled such other Fiduciary to commit a breach; or he has
knowledge of a breach by such other Fiduciary and fails to make reasonable
efforts under the circumstances to
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remedy the breach. No Fiduciary guarantees the Trust Fund in any manner against
investment loss or depreciation in asset value.
9.11 FIDUCIARY DUTIES
All fiduciaries shall discharge their duties solely and exclusively in
the interest of the Participants and Beneficiaries and for the exclusive
purposes of providing benefits to Participants and their Beneficiaries and
defraying the reasonable expenses of administering the Plan and Trust. They
shall discharge their duties with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent man, acting in a like capacity
and familiar with such matters, would use in the conduct of an enterprise of a
like character and with like aims.
9.12 PROHIBITED TRANSACTIONS TO BE AVOIDED
The Fiduciaries shall not do any action prohibited under or in
violation of Part 4 of Title I of ERISA or which would subject any person or the
Employer to imposition of a tax under Section 4975 of the Code.
9.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR
The Plan Administrator shall prepare, or cause to be prepared, and
shall furnish, or cause to be furnished, to Participants and Beneficiaries, and
to the Secretary of Labor or his delegate, and to the Secretary of the Treasury
or his delegate, such plan descriptions, summaries, annual and other reports,
registration statements, notifications and other documents as may be required by
ERISA and the Code and regulations thereunder. The Plan Administrator shall
exercise such authority and responsibility as it deems appropriate in order to
comply with ERISA and the Code and regulations thereunder relating to records of
the Service of all Participants and the percentage of their Accounts which is
nonforfeitable under the Plan.
9.14 DATA SUPPLIED BY EMPLOYER
The Employer shall advise the Committee, in writing, of all data which
may be reasonably necessary in order to properly credit the Employer
Contribution Matching Accounts or Compensation Reduction Accounts of
Participants and to determine the proper allocation of respective Employer
contributions; or to determine the eligibility, Compensation, Service, and other
matters required to be determined relating to Employees of the Employer. The
Plan Administrator or Committee shall be fully protected in acting upon any such
data.
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9.15 PARTIAL EXCULPATION
The Committee or the Plan Administrator (as appropriate) shall incur no
personal liability of any nature in connection with any failure to act or in
respect of any act taken in good faith in the management and administration of
the Plan and in carrying out the directions of the Employer, except as may
otherwise be provided by ERISA. The Committee or the Plan Administrator shall be
indemnified and held harmless by the Employer from and against any such personal
liability, including all expenses reasonably incurred in its defense.
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SECTION 10 - PROVISIONS RELATING TO PARTICIPANTS
10.1 INFORMATION REQUIRED OF PARTICIPANTS
Each Participant, and, if applicable, each Beneficiary of a deceased
Participant, shall furnish the Committee (or the Plan Administrator) with such
information as the Committee (or the Plan Administrator) shall deem necessary
and desirable for purposes of administering the Plan, and the provisions of the
Plan relating to any payments hereunder to or on account of any Participant,
former or deceased Participant are conditional upon such person's furnishing
promptly such true, full and complete information as the Committee (or the Plan
Administrator) may request.
10.2 CLAIMS PROCEDURE
(A) Applications for Benefits Not Required: A formal request for a
distribution under the Plan is not required of any Participant or Beneficiary
entitled thereto.
(B) Claims for Benefits Not Received: Any claim for benefits not
received shall be made in writing to the Committee (or the Plan Administrator).
The Committee (or the Plan Administrator) shall consider such claim and shall,
within sixty (60) days next following receipt of same either approve it or deny
it. If the Committee (or the Plan Administrator) shall deny such claim, it
shall, by written notice directed to the claimant at the address shown on the
claim (or in the absence thereof, the last known address of the claimant, as
shown on the records of the Employer) inform the claimant of such denial,
including in such written notice, as a minimum, the following:
(1) The specific reason or reasons for the denial;
(2) Reference to the specific provisions of the Plan, on which
such denial is based;
(3) A description of any additional material or information
necessary for the claimant to perfect his claim and a brief description
of why such additional information is necessary; and
(4) A brief explanation of the appeals procedure which is
available to him, which, in essence, is described in paragraph (C)
below.
(C) Appeals Procedure Following Initial Denial of Claim: Each claimant
whose claim for a benefit under the Plan has been denied shall have the right to
appeal the decision to the Committee (or the Plan Administrator) in accordance
with the following procedures:
(1) Such appeal must be in writing, over the signature of the
claimant whose claim was so denied, and filed with the Committee (or
the Plan Administrator),
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addressed and delivered within the 60-day period next following the
initial denial of same, either by hand or by the United States Postal
Service, postage fully prepaid.
(2) The claimant, or his duly authorized representative (such
as, but not by way of limitation, legal counsel) shall have the right
at all reasonable times to examine Plan documents related to his claim
and to submit to the Committee (or the Plan Administrator), issues,
comments and responses, provided that they shall be in writing and
delivered to the Committee (or the Plan Administrator) as described in
subparagraph (1) above.
(3) The Committee (or the Plan Administrator) shall render its
decision as promptly as practicable, but not later than sixty (60) days
after receipt of the claimant's appeal from the initial denial by the
Committee (or the Plan Administrator).
(D) Nature of Content of Written Notices to Claimants: Notwithstanding
any provision hereof to the contrary, all written notices to claimants regarding
their claims for benefits under the Plan, shall be expressed in terms calculated
to be understood by the average claimant and shall include specific reasons for
the decision -- whether for or against the claimant -- and specific references
to the pertinent provisions of the Plan on which the decision was based.
10.3 RIGHTS IN TRUST FUND
No Participant or other person shall have any interest in, or right to,
any part of the earnings of the Trust Fund, or any rights under the Trust Fund,
or any part of the assets thereof, except as and to the extent expressly
provided in the Plan.
10.4 BENEFITS NOT ASSIGNABLE
Except as provided in Code Section 401(a)(13), no Account in the Trust
Fund shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
null and void; nor shall any such account be liable for, or subject to, the
debts, contracts, liabilities, engagement, or torts of the person entitled to
such Account.
10.5 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN
The establishment and maintenance of the Plan shall not be construed as
conferring any legal rights upon any Employee to the continuation of his
employment by the Employer, nor shall the Plan interfere with the right of the
Employer to discharge any Employee or Participant.
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10.6 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER
Notwithstanding the provisions of Section 10.4, the Plan will recognize
a "qualified domestic relations order" which shall be a judgment, decree or
order (including approval of a property settlement agreement) that meets the
requirements of (A), (B), and (C) below:
(A) the order must relate to child support, alimony, property rights to
a spouse, former spouse, child or dependent of a Participant, and must be issued
pursuant to a state domestic relations law;
(B) the order must include (1) the name and address of the Participant
and alternate payee, (2) the amount or percentage of benefits payable to the
alternate payee (or the manner in which the amount or percentage is to be
determined), (3) the period or number of payments involved, and (4) the exact
name of the plan to which the order applies; and
(C) the order cannot require a type or form of benefit or option not
otherwise offered under the Plan, cannot require the Plan to provide increased
benefits (determined on an actuarial basis), and cannot affect benefits already
the subject of a previous qualified domestic relations order.
A distribution to an alternate payee will be made at the time described
in Section 6.9.
The Committee shall notify any Participant and alternate payee of the
receipt of any order by the Plan and shall inform such Participant and alternate
payee of the Plan's procedures for determining whether the order meets the
requirements described above in this Section 10.6. Such procedures shall comply
with the requirements set forth in Code Section 414(p) and Section 206(d) of
ERISA, and any written guidelines that may be issued by the Committee, which
shall form part of the Plan, describing the procedures for determining qualified
domestic relations orders.
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SECTION 11 - MERGER OR CONSOLIDATION OF PLAN; TERMINATION; AMENDMENT
11.1 MERGER, TRANSFER OR CONSOLIDATION OF PLAN WITH OTHER PLANS
The Plan may be merged or consolidated with or the assets transferred
from or to any other retirement plan or program. In the event that the Plan
shall be merged or consolidated with, or the assets thereof transferred from or
to, any such retirement plan or program, then the benefits standing to the
credit of each Participant, former Participant, Beneficiary or other person
entitled to benefits hereunder at that time which would become payable if the
Plan were then terminated, shall not be diminished as a result of such merger,
consolidation or transfer of assets, and such merger, consolidation or transfer
of assets shall comply in all respects with Section 414(l) of the Code.
11.2 FUTURE OF THE PLAN; AMENDMENT
The Company does hereby expressly and specifically reserve the sole and
exclusive right at any time by action of the Committee to amend, modify, or
terminate the Plan. The Committee's right of amendment, modification, or
termination as aforesaid shall not require the assent, concurrence, or any other
action by any Employer notwithstanding that such action may relate in whole or
in part to persons in the employ of the Employer. However, no such modification
or amendment shall permit any part of the Trust Fund, other than such part as is
required to be disbursed in order to meet expenses involved in its termination,
to be used for, or diverted to, purposes other than for the exclusive benefit of
the Participants, their Beneficiaries, or their estates, and provided further,
that no such modification or amendment shall operate to reduce or eliminate the
Account of any Participant or other person acquired prior to the effective date
of such modification or amendment unless such Participant or other person and
all such persons shall have consented to such modification or amendment, in
writing.
If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the Participant's
nonforfeitable percentage or if the Plan is deemed amended by an automatic
change to or from a top-heavy vesting schedule, each Participant with at least
three (3) years of Service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change, to have the nonforfeitable
percentage computed under the Plan without regard to such amendment or change.
The period during which the election may be made shall commence with the date
the amendment is adopted or deemed to be made and shall end in the latest of:
(1) sixty (60) days after the amendment is adopted, (2) sixty (60) days after
the amendment becomes effective, or (3) sixty (60) days after the Participant is
issued written notice of the amendment by the Employer. Furthermore, no
amendment to the Plan shall have the effect of decreasing a Participant's vested
interest determined without regard to such amendment as of the later of the date
such amendment is adopted or the date it becomes effective.
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<PAGE>
11.3 TERMINATION OF THE PLAN
While each Employer contemplates carrying out the provisions of the
Plan indefinitely with respect to its Employees, no Employer shall be under any
obligation or liability whatsoever to maintain the Plan for any minimum or other
period of time. The Company does hereby expressly and specifically reserve the
sole and exclusive right at any time by action of the Board of Directors of the
Company to terminate the Plan. The Company's right of termination as aforesaid
shall not require the assent, concurrence, or any other action by any Employer
notwithstanding that such action by the Company may relate in whole or in part
to persons in the employ of the Employer.
The Plan may be terminated in whole or in part at any time by
appropriate action of the Board of Directors of the Company or its designee.
Upon any termination of the Plan in its entirety, or with respect to any
Employer, the Company shall give written notice thereof to the Plan
Administrator, the Trustee, and any Employer involved.
In the event an Employer terminates its connection with the Plan, or in
the event an Employer is dissolved, liquidated, or shall by appropriate legal
proceedings be adjudged bankrupt or declared insolvent, or in the event judicial
proceedings of any kind result in the involuntary dissolution of an Employer,
the Plan shall be terminated with respect to such Employer. The merger,
consolidation, or reorganization of an Employer, or the sale by it of all or
substantially all of its assets, shall not terminate the Plan if there is
delivery to such Employer by the Employer's successor or by the purchaser of all
or substantially all of the Employer's assets, of a written instrument
requesting that the successor or purchaser be substituted for the Employer and
agreeing to perform all the provisions hereof which such Employer is required to
perform. Upon the receipt of said instrument, with the approval of the Company,
the successor, or the purchaser shall be substituted for such Employer herein,
and such Employer shall be relieved and released from any obligations of any
kind, character, or description herein or in any trust agreement imposed upon
it.
In the event of any such full or partial termination of the Plan, or
the permanent discontinuance of contributions hereunder, the rights of each
Participant to the credit balance of his individual Accounts then held under the
Plan shall be fully vested and nonforfeitable. As promptly as practicable after
any such event, the Plan Administrator shall direct distribution of the assets
of the Trust Fund -- after allowance for the expenses of any such termination or
discontinuance -- as then constituted, in the amount required to pay to each
Participant concerned the credit balance, if any, to his Accounts, determined as
of the date of such termination or discontinuance, and shall direct distribution
of the assets of the Trust Fund in the proportion which the credit balances to
all Participants' Accounts bear to each other, without reference to the period
of Service of the Participants.
Such distribution shall be effected, at the advice and direction of the
Plan Administrator, in respect of all Participants affected, either by (I) the
immediate distribution of the amounts then due and payable to the Participants
- -- or, if applicable, to their
45
<PAGE>
Beneficiaries -- or (ii) by retaining their Accounts hereunder and effecting
distributions thereof in accordance with the provisions of Section 6.4.
46
<PAGE>
SECTION 12 - TOP HEAVY PLAN PROVISIONS
12.1 TOP HEAVY PLAN DEFINITIONS
Definitions relating to Top Heavy Plan provisions are as follows:
(A) Top Heavy: This Plan shall be considered "Top Heavy" if, as of the
Determination Date, the aggregate of the Accounts of Key Employees under the
Plan exceeds sixty percent (60%) of the aggregate of the Accounts of all
Participants under the Plan, as determined in accordance with Code Section
416(g). Such determination shall be made after aggregating all other plans of
the Employer which are included in the Required Aggregation Group and after
aggregating any other such plan(s) of the Employer which may be included in the
Permissive Aggregation Group, if such permissive aggregation thereby eliminates
the Top Heavy status of any plan within such Permissive Aggregation Group. The
Plan shall be deemed "Super Top Heavy" if, as of the Determination Date, the
Plan would meet the test specified above for being a Top Heavy plan if ninety
percent (90%) were substituted for sixty percent (60%) in each place it appears
in this subsection (A).
Any rollover contribution by a Participant shall not be taken into
account in determining whether the Plan is Top Heavy (or whether any aggregation
group which includes the Plan is a Top Heavy group).
If any Participant is a Non-Key Employee with respect to the Plan for
any Plan Year, but such Participant was a Key Employee with respect to the Plan
for any prior Plan Year, any Account balance of such Participant shall not be
taken into account for purposes of determining whether the Plan is Top Heavy.
Notwithstanding the above, if an individual has not performed services
for the Employer at any time during the 5-year period ending on the
Determination Date, any Account balance of such individual shall not be taken
into account in determining whether the Plan is Top Heavy.
(B) Determination Date: For purposes of determining whether the Plan is
Top Heavy for a particular Plan Year, "the Determination Date" shall be the last
day of the Plan Year.
(C) Top Heavy Valuation Date: For purposes of determining the value of
the Plan Accounts under this Section 12, the "Top Heavy Valuation Date", shall
be the same date as the Determination Date.
(D) Key Employee: A Key Employees is any Employee (including a
Beneficiary of such Employee) who at any time during the Plan Year or any of the
four (4) preceding Plan Years is one of the following:
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<PAGE>
(1) An officer of the Employer or an Affiliated Employer (but
in no event shall more than fifty (50) Employees, or if less, the
greater of three (3) or ten percent (10%) of all Employees be taken
into account under this paragraph (1) as Key Employees).
Notwithstanding, an officer of the Employer will not be considered a
Key Employee under this subsection unless he earned more than one-half
(1/2) times an amount equal to the dollar limit under Code Section
415(b)(1)(A) adjusted each Plan Year to take into account any
applicable cost-of-living adjustment provided for that year pursuant to
regulations promulgated by the Secretary of the Treasury or his
delegate under Section 415(d) of the Code;
(2) One of the ten (10) Employees owning (or considered as
owning within the meaning of Code Section 318) both a one-half percent
(1/2%) interest and the largest interests of the Employer if such
Employee's annual Compensation is in excess of the dollar limit
(adjusted for cost-of-living) as set forth in Code Section
415(c)(1)(A);
(3) A person owning (or considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the total
combined voting power of the Employer; or
(4) A person who has an annual Compensation from the Employer
of more than one hundred fifty thousand dollars ($150,000) and would be
described in paragraph (3) hereof if one percent (1%) were substituted
for five percent (5%). Notwithstanding, for purposes of applying Code
Section 318 to the provisions of this subsection (D), subparagraph (C)
of Code Section 318(a)(2) shall be applied by substituting five percent
(5%) for fifty percent (50%). In addition, the rules of subsections
(b), (d) and (m) of Code Section 414 shall not apply for purposes of
determining ownership in the Employer under this subsection (D).
(E) Non-Key Employee: A "Non-Key Employee" is any Employee (including a
Beneficiary of such Employee) who is not a Key Employee.
(F) Required Aggregation Group: For purposes of determining whether the
Plan is Top Heavy for a particular Plan Year, the "Required Aggregation Group"
shall include (1) each qualified plan of the Employer in which at least one Key
Employee participates or participated at any time during the determination
period (regardless of whether the plan has terminated) and (2) any other
qualified plan of the Employer which enables a plan described in (1) above, to
meet the requirements of Sections 401(a)(4) or 410 of the Code.
(G) Permissive Aggregation Group: For purposes of determining whether
the Plan is Top Heavy for a particular Plan Year, the "Permissive Aggregation
Group" shall include the Required Aggregation Group of plans plus any other
plans of the Employer which when considered as a group with the Required
Aggregation Group, would continue to satisfy the requirements of Sections
401(a)(4) and 410 of the Code.
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<PAGE>
12.2 MINIMUM CONTRIBUTION REQUIREMENT
The minimum contribution allocation for such Plan Year for each
Participant who is a Non-Key Employee shall be in an amount equal to at least
three percent (3%) of such Participant's Compensation for such Plan Year. Such
Non-Key Employee shall receive a minimum contribution allocation regardless of
whether he completed 1,000 Hours of Service within such Plan Year.
Notwithstanding the foregoing minimum contribution requirement as
outlined above, such contribution shall be reduced in the following
circumstances:
(A) The percentage minimum contribution required hereunder
shall in no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions or benefits under other
qualified plans in this Plan's Required Aggregation Group; and
(B) No minimum contribution will be required (or the minimum
contribution will be reduced, as the case may be) for a Participant
under this Plan for any Plan Year if the Employer maintains another
qualified plan under which a minimum benefit or contribution is being
accrued or made for such year in whole or in part for the Participant
in accordance with Code Section 416(c).
12.3 ADJUSTMENT TO OVERALL CODE SECTION 415 LIMITATIONS
If, during any Limitation Year, the Plan is Top Heavy, the Plan
Administrator shall apply the limitations of Section 4.8 to the Participant by
substituting 1.0 for 1.25 each place it appears in the fractions described in
that Section. This Section 12.4 shall apply only if:
(1) The Plan could satisfy Section 12.2 if four percent (4%) were
substituted for three percent (3%); and
(2) The Plan is not Super Top Heavy.
49
<PAGE>
IN WITNESS WHEREOF, United Wisconsin Services, Inc., and Blue Cross &
Blue Shield United of Wisconsin, by their duly authorized officers, have caused
these presents to be signed on this 14th day of August, 1997.
UNITED WISCONSIN SERVICES, INC.
[ILLEGIBLE]
-----------------------------------------------
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
[ILLEGIBLE]
-----------------------------------------------
CORPORATE SEAL
ATTEST:
[ILLEGIBLE]
- ----------------------------------------
Secretary
50
<PAGE>
SCHEDULE A - PARTICIPATING EMPLOYERS
(As of January 1, 1993)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Take Control, Inc.
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
(As of January 1, 1995)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
(Including West Allis Dental Group)
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
(As of January 1, 1997)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
United Heartland, Inc.
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<PAGE>
SCHEDULE B - EXCLUDED EMPLOYEE GROUPS
(As of January 1, 1993)
West Allis Dental Group (a division of Compcare Health Services Insurance
Corporation)
(As of January 1, 1995)
HMO of Wisconsin Insurance Corporation
HMO-W, Inc.
United Heartland, Inc.
(As of January 1, 1997)
Accountable Health Plans, Inc.
Accountable Health Plan of the Carolinas, Inc.
Advance Medical Security, Inc.
American Medical Security Holdings, Inc.
American Medical Security, Inc.
AMS HMO Holdings, Inc.
AMS Provider Partnerships, Inc.
American Medical Security Health Plans, Inc.
American Medical Security Insurance Company
American Medical Security Insurance Company of Georgia
American Medical Security Health Plan, Inc. (DBA American Medical Healthcare)
Atlantic Health Plans, Inc.
CNR Health, Inc.
Community Health Plan, Inc.
Continental Plan Services, Inc.
Crescent Medical Partnerships, Inc.
HMO-W, Inc.
Nurse Healthline, Inc.
Personal Physician Care, Inc.
U&C Real Estate Partnership
United Wisconsin Life Insurance Company
Unity Health Plans Insurance Corporation (formerly HMO of Wisconsin Insurance
Corporation)
Unity HMO of Illinois, Inc.
52
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 1
West Allis Dental Group Retirement Plan
Pursuant to Section 2.40 of the Plan, this Special Benefit Schedule is
made a part of the Plan as of the Effective Date set forth below and supersedes
any provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the transfer of assets
into the Plan from the West Allis Dental Group Retirement Plan (the "West Allis
Plan"). The Participants covered by this Special Benefit Schedule are the
Participants who immediately prior to the Effective Date were participants in
the West Allis Plan.
2. Effective Date: December 31, 1994.
3. Eligibility: A participant in the West Allis Plan immediately prior
to the Effective Date shall become a Participant in the Plan on the Effective
Date but shall not receive any Employer Matching Contributions under the Plan
for the 1994 Plan Year. Any other employee of the West Allis Dental Group
operating unit of Compcare Health Services Insurance Corporation shall become
eligible to participate in the Plan on the later of the Effective Date or the
date such employee would otherwise become eligible to participate in accordance
with the provisions of Section 3 of the Plan.
4. Transfer of Assets: The West Allis Plan shall be terminated and the
assets of the West Allis Plan transferred to the Plan effective December 31,
1994, and the assets and liabilities of the West Allis Plan shall become the
assets and liabilities of the Plan effective with the transfer of assets and
liabilities, in accordance with Section 414 (l) of the Code. Effective with the
date of the asset transfer, the provisions of the Plan shall apply to the
transferred account balances from the West Allis Plan, with the modifications
set forth below.
5. Vesting: A Participant covered by this Special Benefit Schedule
shall at all times be 100% vested in his Account Balance attributable to his
transferred account balance from the West Allis Plan. Service of Participants
covered by this Special Benefit Schedule shall include service with the West
Allis Dental Group.
6. Special Distribution Provisions: The provisions of this paragraph 6
shall apply only with respect to that portion of a Participant's benefit which
is attributable to amounts transferred to this Plan from the West Allis Plan.
(a) Notwithstanding Section 6.4 of the Plan, a Participant
shall receive his benefits as follows:
(I) A Participant who is entitled to receive a
distribution upon his Retirement, Permanent Disability, or
termination of employment, shall, unless
53
<PAGE>
the Participant elects otherwise in accordance with Section
(v) below, receive his benefits in the Qualified Joint and
Survivor Annuity Form. The Qualified Joint and Survivor
Annuity Form means, for a Participant who has a spouse, an
annuity for the life of the Participant with a survivor
annuity for the life of the Participant's spouse, where the
survivor annuity is 50% of the amount of the annuity payable
during the joint lives of the Participant and the
Participant's spouse. The Qualified Joint and Survivor Annuity
form means, for a Participant who has no spouse, an annuity
for the life of the Participant.
(ii) A Participant's death benefit shall be paid in
the form of a Qualified Pre-retirement Survivor Annuity for a
Participant who has a spouse to whom he has been continuously
married throughout the one-year period ending on the date of
his death. The Qualified Pre-retirement Survivor Annuity means
a life annuity payable to the surviving spouse of a
Participant who dies before benefits become payable under the
Plan. The Beneficiary of a Participant who does not have a
spouse who is entitled to a Qualified Pre-retirement Survivor
Annuity shall receive a single sum payment.
(iii) The optional forms of retirement benefit shall
include the following, in addition to the benefit forms
described in Section 6.4(A) of the Plan:
(A) A straight life annuity.
(B) Single life annuities with periods
certain of five, ten, and fifteen years.
(C) Survivorship life annuities with
survivorship percentages of 50, 66 2/3, or 100.
(iv) Any optional forms of death benefit shall
include the benefit forms described in Section 6.4(B) of the
Plan and any annuity that is an optional form of retirement
benefit.
(v) Any election of an optional form of benefit must
be made in writing by the Participant during the election
period. If the Participant is married, the election must be
consented to by the Participant's spouse and must meet the
following requirements:
(A) The spouse must consent to a specific
beneficiary and a particular form of benefit. The
spouse's consent must acknowledge the effect of such
election and be witnessed by a Plan representative or
a notary public. Such consent will not be required if
it is established to the Administrative Committee
that the required consent cannot be obtained because
the spouse cannot be located, or other circumstances
that may be prescribed by Treasury regulations. The
54
<PAGE>
election may be revoked by the Participant in writing
without the consent of the spouse at any time during
the election period described in subparagraph (B)
below. Any new election must comply with the
requirements of this subparagraph (A). A former
spouse's waiver shall not be binding on a new spouse.
(B) The election period to waive the
Qualified Joint and Survivor Annuity form shall be
the 90-day period, the last day of which is the
"annuity starting date." For purposes of this
Section, "annuity starting date" means the first day
of the first period for which an amount is received
as an annuity. Any elections may not be changed after
the Participant's annuity starting date.
(C) A Participant's failure to waive the
Qualified Joint and Survivor Annuity form will not
result in a decrease in any Plan accrued benefit with
respect to such Participant.
(D) An election to waive the Qualified
Pre-retirement Survivor Annuity form may be made at
any time. An election to waive the Qualified
Preretirement Survivor Annuity form which is made
before the first day of the Plan Year in which he
reaches age 35 shall become invalid on such date,
unless the Participant's employment terminates prior
to such date.
(vi) The Committee shall furnish the Participant and
the Participant's spouse a written explanation in
non-technical language of the Qualified Joint and Survivor
Annuity form of benefit, the Qualified Pre-retirement Survivor
Annuity form of benefit, the optional forms of retirement
benefits and the right of the Participant and the
Participant's spouse to defer distributions. The written
explanation of the Qualified Joint and Survivor Annuity shall
be provided no less than 30 days and no more than 90 days
before the annuity starting date. The written explanation of
the Qualified Pre-retirement Survivor Annuity shall be given
to Participants in the period beginning on the first day of
the Plan Year the Participant attains age 32 and ending on the
last day of the Plan Year the Participant attains age 35, or,
if earlier, when the Participant terminates employment.
(b) The Participant's Early Retirement Date shall be the date
as of which he has attained 55 and terminated employment. The
Participant shall be fully vested as of such Early Retirement Date and
shall be entitled to receive benefits from the Plan as of such date.
55
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 2
Hometown Insurance Services Employees
Pursuant to Section 2.40 of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the January 1, 1995 and supersedes any provisions of the
Plan which are not consistent with this Special Benefit Schedule. The
Participants covered by this Special Benefit Schedule are the Participants
listed below ("Hometown Employees") who were employed by the Employer (doing
business as Hometown Insurance Services) on December 31, 1994.
Chris Bruni Cindy Olson
Tom Burns Bruce Ohlsen
Bev Comer George Tervalon
Debrah Gunderson Lisa Tranberg
Richard Laufenberg Christine Walder
Jim Malicki
1. A Hometown Employee may elect to participate in the Plan as of the later of
(I) January 1, 1995 or (ii) the first day of the calendar quarter coincident or
next following the first anniversary of his date of hire with HMO of Wisconsin
Insurance Corporation, HMO-W, Inc., University Health Care, Inc., U-Care HMO,
Inc., or Unity Health Plans Insurance Corporation (a "Hometown Related
Employer").
2. For purposes of determining pursuant to Section 6.2 the vested percentage of
his Employer Matching Contributions Account, the Plan shall recognize, in
addition to his Service with an Employer on and after January 1, 1995, all
periods of a Participant's employment with a Hometown Related Employer prior to
January 1, 1995.
56
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 3
United Heartland, Inc. Savings Plan
United Heartland, Inc. Pension Plan
Pursuant to Section 2.40 of the Plan, this Special Benefit Schedule is
made a part of the Plan as of the Effective Date set forth below and supersedes
any provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the transfer of assets
into the Plan from the United Heartland, Inc. Savings Plan ("UH Savings Plan")
and the United Heartland, Inc. Pension Plan ("UH Pension Plan") (collectively,
the "UH Plans"). The Participants covered by this Special Benefit Schedule are
the Participants who immediately prior to the Effective Date were participants
in the UH Plans.
2. Effective Date: December 31, 1996.
3. Eligibility: A participant in the UH Plans immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective Date. Any
other employee of United Heartland, Inc. shall become eligible to participate in
the Plan on the later of the Effective Date or the date such employee would
otherwise become eligible to participate in accordance with the provisions of
Section 3 of the Plan.
4. Transfer of Assets: The UH Plans shall be terminated and the assets
of the UH Plans transferred to the Plan effective as of the Effective Date and
the assets and liabilities of the UH Plans shall become the assets and
liabilities of the Plan effective with the transfer of assets and liabilities,
in accordance with Section 414(l) of the Code. Effective with the date of the
asset transfer, the provisions of the Plan shall apply to the transferred
account balances from the UH Plans, with the modifications set forth in this
Special Benefit Schedule.
5. Vesting: A Participant covered by this Special Benefit Schedule
shall at all times be 100% vested in his Account balance attributable to salary
deferrals in his transferred account balance from the UH Savings Plan. As of the
Effective Date, a Participant covered by this Special Benefit Schedule actively
employed by United Heartland, Inc. on the Effective Date shall become vested in
his transferred account balance from the UH Savings Plan attributable to
matching contributions in the same manner as his Employer Matching Contribution
Account under Section 6.2. As of the Effective Date, a Participant covered by
this Special Benefit Schedule actively employed by United Heartland, Inc. on the
Effective Date shall become vested in his transferred account balance from the
UH Pension Plan in the same manner as his Employer Matching Contribution Account
under Section 6.2. Participants covered by this Special Benefit Schedule who are
not actively employed by United Heartland, Inc. on the Effective Date shall be
fully vested only after completing five (5) Years of Service. For vesting
purposes hereunder, Service of Partici-
57
<PAGE>
pants covered by this Special Benefit Schedule shall include service with United
Heartland, Inc., as computed under the elapsed time method used by the UH Plans.
6. Special Distribution Provisions: The provisions of this paragraph 6
shall apply only with respect to that portion of a Participant's benefit which
is attributable to amounts transferred to this Plan from the UH Plans.
(a) Notwithstanding Section 6.4 of the Plan, a Participant shall
receive his benefits as follows:
(I) A Participant who is entitled to receive a distribution
upon his Retirement, Permanent Disability, or termination of
employment, shall, unless the Participant elects otherwise in
accordance with Section (v) below, receive his benefits in the
Qualified Joint and Survivor Annuity form. The Qualified Joint and
Survivor Annuity form means, for a Participant who has a spouse, an
annuity for the life of the Participant with a survivor annuity for the
life of the Participant's spouse, where the survivor annuity is 50% of
the amount of the annuity payable during the joint lives of the
Participant and the Participant's spouse. The Qualified Joint and
Survivor Annuity form means, for a Participant who has no spouse, an
annuity for the life of the Participant.
(ii) A Participant's death benefit shall be paid in the form
of a Qualified Pre-retirement Survivor Annuity for a Participant who
has a spouse to whom he has been continuously married throughout the
one-year period ending on the date of his death. The Qualified
Pre-retirement Survivor Annuity means a life annuity payable to the
surviving spouse of a Participant who dies before benefits become
payable under the Plan. The Beneficiary of a Participant who does not
have a spouse who is entitled to a Qualified Pre-retirement Survivor
Annuity shall receive a single sum payment.
(iii) The optional forms of retirement benefit shall include
the following, in addition to the benefit forms described in Section
6.4(A) of the Plan:
(A) A straight life annuity.
(B) Single life annuities with periods certain of
five, ten, and fifteen years.
(C) Survivorship life annuities with survivorship
percentages of 50, (66- 2/3), or 100.
(iv) Any optional forms of death benefit shall include the
benefit forms described in Section 6.4(B) of the Plan and any annuity
that is an optional form of retirement benefit.
58
<PAGE>
(v) Any election of an optional form of benefit must be made
in writing by the Participant during the election period. If the
Participant is married, the election must be consented to by the
Participant's spouse and must meet the following requirements:
(A) The spouse must consent to a specific beneficiary
and a particular form of benefit. The spouse's consent must
acknowledge the effect of such election and be witnessed by a
Plan representative or a notary public. Such consent will not
be required if it is established to the Administrative
Committee that the required consent cannot be obtained because
the spouse cannot be located, or other circumstances that may
be prescribed by Treasury regulations. The election may be
revoked by the Participant in writing without the consent of
the spouse at any time during the election period described in
subparagraph (B) below. Any new election must comply with the
requirements of this subparagraph (A). A former spouse's
waiver shall not be binding on a new spouse.
(B) The election period to waive the Qualified Joint
and Survivor Annuity form shall be the 90-day period, the last
day of which is the "annuity starting date." For purposes of
this Section, "annuity starting date" means the first day of
the first period for which an amount is received as an
annuity. Any elections may not be changed after the
Participant's annuity starting date.
(C) A Participant's failure to waive the Qualified
Joint and Survivor Annuity form will not result in a decrease
in any Plan accrued benefit with respect to such Participant.
(D) An election to waive the Qualified Pre-retirement
Survivor Annuity form may be made at any time. An election to
waive the Qualified Pre retirement Survivor Annuity form which
is made before the first day of the Plan Year in which he
reaches age 35 shall become invalid on such date, unless the
Participant's employment terminates prior to such date.
(vi) The Committee shall furnish the Participant and
the Participant's spouse a written explanation in
non-technical language of the Qualified Joint and Survivor
Annuity form of benefit, the Qualified Pre-retirement Survivor
Annuity forms of benefit, the optional forms of retirement
benefits and the right of the Participant and the
Participant's spouse to defer distributions. The written
explanation of the Qualified Joint and Survivor Annuity shall
be provided no less than 30 days and no more than 90 days
before the annuity starting date. The written explanation of
the Qualified Pre-retirement Survivor Annuity shall be given
to Participants in the period beginning on the first day of
the Plan Year the Participant attains age 32 and ending on the
last day of the Plan Year the Participant attains age 35, or
if earlier when the Participant terminates employment.
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<PAGE>
(b) The Participant's Early Retirement Date with respect to the UH
Savings Plan shall be the date as of which he has attained age 55, completed six
(6) years of service, and terminated employment. The Participant shall be fully
vested as of such Early Retirement Date and shall be entitled to receive
benefits from the Plan as of such date.
(c) A Participant covered by this Special Benefit Schedule shall be
entitled to receive a Hardship Distribution pursuant to Section 6.8 of the Plan
with respect to his Employer Matching Contribution Account in addition to such
other Accounts from which Hardship Distributions are otherwise available under
the Plan.
60
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 4
EDS Deferred Compensation Plan
Pursuant to Section 2.40 of the Plan, this Special Benefit Schedule for
former Electronic Data Systems Corporation ("EDS") employees is made a part of
the Plan as of the Effective Date set forth below and supersedes any provisions
of the Plan which are not consistent with this Special Benefit Schedule.
1. Participants Covered: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the transfer of assets
into the Plan from the EDS Deferred Compensation Plan (the "EDS Plan"). The
Participants covered by this Special Benefit Schedule are the Participants who
immediately prior to the Effective Date were participants in the EDS Plan.
2. Effective Date: January 1, 1997.
3. Eligibility: A participant in the EDS Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective Date.
4. Transfer of Assets: Certain assets of the EDS Plan shall be
transferred to the Plan and the assets and liabilities of the EDS Plans shall
become the assets and liabilities of the Plan effective with the transfer of
assets and liabilities, in accordance with Section 414 (l) of the Code.
Effective with the date of the asset transfer, the provisions of the Plan shall
apply to the transferred account balances from the EDS Plan, with the
modifications set forth in this Special Benefit Schedule.
5. Vesting: A Participant covered by this Special Benefit Schedule
shall at all times be 100% vested in his Account balance transferred from the
EDS Plan. For vesting purposes hereunder, Service of Participants covered by
this Special Benefit Schedule shall include service with EDS.
6. Special Distribution Provisions: The provisions of this paragraph 6
shall apply only with respect to that portion of a Participant's benefit which
is attributable to amounts transferred to this Plan from the EDS Plan.
(a) Notwithstanding Section 6.4 of the Plan, a Participant shall
receive his benefits as follows:
(I) A Participant who is entitled to receive a distribution
upon his Retirement, Permanent Disability, or termination of
employment, shall, unless the Participant elects otherwise in
accordance with Section (v) below, receive his benefits in the
Qualified Joint and Survivor Annuity form. The Qualified Joint and
Survivor Annuity form means, for a Participant who has a spouse, an
annuity for the life of the Participant with a survivor annuity for the
life of the Participant's spouse, where the survivor annuity is 50% of
the amount of the annuity payable during the joint lives
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of the Participant and the Participant's spouse. The Qualified Joint
and Survivor Annuity form means, for a Participant who has no spouse,
an annuity for the life of the Participant.
(ii) A Participant's death benefit shall be paid in the form
of a Qualified Pre-retirement Survivor Annuity for a Participant who
has a spouse to whom he has been continuously married throughout the
one (1) year period ending on the date of his death. The Qualified
Pre-retirement Survivor Annuity means a life annuity payable to the
surviving spouse of a Participant who dies before benefits become
payable under the Plan. The Beneficiary of a Participant who does not
have a spouse who is entitled to a Qualified Pre-retirement Survivor
Annuity shall receive a payment in one of the optional forms identified
in (iii) below.
(iii) The optional forms of retirement benefit shall include a
straight life annuity in addition to the benefit forms described in
Section 6.4(A) of the Plan.
(iv) Any optional forms of death benefit shall include the
benefit forms described in Section 6.4(b) of the Plan and any annuity
that is an optional form of retirement benefit.
(v) Any election of an optional form of benefit must be made
in writing by the Participant during the election period. If the
Participant is married, the election must be consented to by the
Participant's spouse and must meet the following requirements:
(A) The spouse must consent to a specific beneficiary
and a particular form of benefit. The spouse's consent must
acknowledge the effect of such election and be witnessed by a
Plan representative or a notary public. Such consent will not
be required if it is established to the Administrative
Committee that the required consent cannot be obtained because
the spouse cannot be located, or other circumstances that may
be prescribed by Treasury regulations. The election may be
revoked by the Participant in writing without the consent of
the spouse at any time during the election period described in
subparagraph (B) below. Any new election must comply with the
requirements of this subparagraph (A). A former spouse's
waiver shall not be binding on a new spouse.
(B) The election period to waive the Qualified Joint
and Survivor Annuity form shall be the 90-day period, the last
day of which is the "annuity starting date." For purposes of
this Section, "annuity starting date" means the first day of
the first period for which an amount is received as an
annuity. Any elections may not be changed after the
Participant's annuity starting date.
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(C) A Participant's failure to waive the Qualified
Joint and Survivor Annuity form will not result in a decrease
in any Plan accrued benefit with respect to such Participant.
(D) An election to waive the Qualified Pre-retirement
Survivor Annuity form may be made at any time. An election to
waive the Qualified Preretirement Survivor Annuity form which
is made before the first day of the Plan Year in which he
reaches age 35 shall become invalid on such date, unless the
Participant's employment terminates prior to such date.
(vi) The Committee shall furnish the Participant and the
Participant's spouse a written explanation in non-technical language of
the Qualified Joint and Survivor Annuity form of benefit, the Qualified
Pre-retirement Survivor Annuity forms of benefit, the optional forms of
retirement benefits and the right of the Participant and the
Participant's spouse to defer distributions. The written explanation of
the Qualified Joint and Survivor Annuity shall be provided no less than
30 days and no more than 90 days before the annuity starting date. The
written explanation of the Qualified Pre-retirement Survivor Annuity
shall be given to Participants in the period beginning on the first day
of the Plan Year the Participant attains age 32 and ending on the last
day of the Plan Year the Participant attains age 35, or if earlier when
the Participant terminates employment.
(b) The Participant's Early Retirement Date shall be the date as of
which he has attained Age 55 and terminated employment. The Participant shall be
fully vested as of such Early Retirement Date and shall be entitled to receive
benefits from the Plan as of such date.
(c) A Participant covered by this Special Benefit Schedule shall be
entitled to receive the Hardship Distribution pursuant to Section 6.8 of the
Plan with respect to the Participant's entire Account as of December 31, 1988 in
addition to such other Accounts from which Hardship Distributions are available
under the Plan.
(d) A Participant covered by this Special Benefit Schedule shall be
entitled to receive in- service withdrawals at age 59-1/2.
7. Special Account Provisions: An Employee Contribution Account shall
be established under the Plan to hold any voluntary contributions made to the
EDS Plan and the earnings thereon. Such Employee Contribution Account shall be
subject to the withdrawal provisions of Section 6.8 of the Plan.
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Exhibit 10.36
UWSI/BCBSUW Union Employees 401(k) Plan
(As Amended and Restated Effective January 1, 1997)
<PAGE>
UWSI/BCBSUW Union Employees 401(k) Plan
TABLE OF CONTENTS
SECTION 1 - INTRODUCTION..................................................... 1
1.1 IDENTITY OF THE PLAN; EFFECTIVE DATE................................ 1
1.2 ADMINISTRATION...................................................... 1
1.3 PURPOSE OF THE PLAN................................................. 1
1.4 QUALIFIED PLAN INTENDED............................................. 1
SECTION 2 - DEFINITIONS...................................................... 2
2.1 ACCOUNT: ACCOUNTS................................................... 2
2.2 ADMINISTRATIVE COMMITTEE: COMMITTEE................................. 2
2.3 ADMINISTRATIVE DELEGATE............................................. 2
2.4 ANNUAL ADDITION..................................................... 2
2.5 AUTHORIZED LEAVE OF ABSENCE......................................... 3
2.6 BENEFICIARY......................................................... 3
2.7 BREAK IN SERVICE: ONE YEAR BREAK IN SERVICE......................... 3
2.8 CODE OR INTERNAL REVENUE CODE....................................... 3
2.9 COMPANY............................................................. 4
2.10 COMPENSATION........................................................ 4
2.12 COMPENSATION REDUCTION AGREEMENT.................................... 4
2.13 COMPENSATION REDUCTION CONTRIBUTIONS................................ 4
2.14 DEFERRED RETIREMENT DATE............................................ 5
2.15 EFFECTIVE DATE...................................................... 5
2.16 EMPLOYEE............................................................ 5
2.17 EMPLOYEE CONTRIBUTION ACCOUNT....................................... 5
2.18 EMPLOYER ........................................................... 5
2.19 EMPLOYER MATCHING CONTRIBUTION ACCOUNT.............................. 6
2.20 EMPLOYER MATCHING CONTRIBUTIONS..................................... 6
2.21 EMPLOYMENT COMMENCEMENT DATE........................................ 6
2.22 ERISA............................................................... 6
2.23 FORFEITURE; FORFEITURE ACCOUNT...................................... 7
2.24 HIGHLY COMPENSATED EMPLOYEE......................................... 7
2.25 HOUR OF SERVICE..................................................... 7
2.26 INVESTMENT ADVISER.................................................. 8
2.27 LIMITATION YEAR..................................................... 8
2.28 NON-HIGHLY COMPENSATED EMPLOYEE..................................... 8
2.29 NORMAL RETIREMENT AGE............................................... 9
2.30 NORMAL RETIREMENT DATE.............................................. 9
2.31 PARTICIPANT......................................................... 9
2.32 PERMANENT DISABILITY OR PERMANENTLY DISABLED........................ 9
2.33 PLAN................................................................ 9
2.34 PLAN ADMINISTRATOR.................................................. 9
2.35 PLAN YEAR........................................................... 9
<PAGE>
2.36 RE-EMPLOYMENT COMMENCEMENT DATE.................................... 10
2.37 RETIREMENT: RETIRED................................................ 10
2.38 SERVICE: YEAR OF SERVICE........................................... 10
2.39 SEVERANCE FROM SERVICE DATE........................................ 11
2.40 TRUST.............................................................. 11
2.41 TRUST AGREEMENT.................................................... 11
2.42 TRUST FUND......................................................... 11
2.43 TRUSTEES........................................................... 12
2.44 VALUATION DATE..................................................... 12
2.45 CONSTRUCTION....................................................... 12
SECTION 3 - ELIGIBILITY AND PARTICIPATION................................... 13
3.1 ELIGIBLE EMPLOYEES................................................. 13
3.2 PARTICIPATION...................................................... 13
3.3 PARTICIPATION FOLLOWING A BREAK IN SERVICE......................... 13
3.4 EVIDENCE OF PARTICIPATION.......................................... 14
3.5 DURATION OF PARTICIPATION.......................................... 14
3.6 RIGHTS UPON TRANSFER............................................... 14
SECTION 4 - CONTRIBUTIONS................................................... 15
4.1 NO CONTRIBUTIONS BY PARTICIPANTS................................... 15
4.2 COMPENSATION REDUCTION CONTRIBUTIONS............................... 15
4.3 PERMITTED RANGE OF COMPENSATION REDUCTION
CONTRIBUTIONS...................................................... 16
4.4 EMPLOYER MATCHING CONTRIBUTIONS.................................... 18
4.5 ORDER OF APPLICATION OF LIMITATIONS OF SECTIONS 4.3 & 4.4.......... 19
4.6 RIGHT TO CHANGE, DISCONTINUE OR SUSPEND COMPENSATION
REDUCTION CONTRIBUTIONS............................................ 20
4.7 ROLLOVER CONTRIBUTIONS............................................. 20
4.8 GENERAL LIMITATION ON ANNUAL ADDITIONS............................. 20
4.9 SPECIAL LIMITATION ON ANNUAL ADDITIONS............................. 20
4.10 DISPOSITION OF EXCESS ANNUAL ADDITIONS............................. 21
SECTION 5 - ACCOUNTING...................................................... 22
5.1 INDIVIDUAL ACCOUNTS OF PARTICIPANTS................................ 22
5.2 CREDITING OF EMPLOYER CONTRIBUTIONS AND FORFEITURES................ 22
5.3 DEBITING OF DISTRIBUTIONS.......................................... 22
5.4 SEPARATE INVESTMENT FUNDS.......................................... 22
5.5 VALUATION OF ACCOUNTS.............................................. 23
5.6 RETURN OF EMPLOYER CONTRIBUTIONS................................... 24
SECTION 6 - DISTRIBUTIONS................................................... 25
6.1 DISTRIBUTIONS UPON RETIREMENT, DEATH OR DISABILITY................. 25
6.2 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT....................... 25
6.3 FORFEITURES........................................................ 26
<PAGE>
6.4 METHOD OF DISTRIBUTION............................................. 26
6.5 RESPONSIBILITIES AND DUTIES RELATIVE TO CURRENT RECORDS............ 27
6.6 MANNER OF DISPOSING UNCLAIMED DISTRIBUTABLE INTEREST............... 27
6.7 TIME OF DISTRIBUTIONS.............................................. 27
6.8 WITHDRAWALS FROM INDIVIDUAL ACCOUNTS............................... 30
6.9 DISTRIBUTIONS TO ALTERNATE PAYEES.................................. 31
6.10 ELIGIBLE ROLLOVER DISTRIBUTIONS.................................... 31
SECTION 7 - BENEFICIARIES................................................... 33
7.1 DESIGNATION OF BENEFICIARY OR BENEFICIARIES........................ 33
7.2 MISSING BENEFICIARY(IES); RIGHT OF EMPLOYER TO MAKE
PRESUMPTION OF DEATH............................................... 34
SECTION 8 - PARTICIPANT LOANS............................................... 35
8.1 PARTICIPANT LOANS.................................................. 35
SECTION 9 - ADMINISTRATION.................................................. 37
9.1 PLAN ADMINISTRATOR................................................. 37
9.2 THE ADMINISTRATIVE COMMITTEE....................................... 37
9.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE............................ 37
9.4 EXPENSES OF ADMINISTRATION......................................... 38
9.5 ACTS OF THE COMMITTEE.............................................. 38
9.6 INTERPRETATIONS.................................................... 38
9.7 LIABILITY OF THE COMMITTEE......................................... 39
9.8 APPLICABLE LAW..................................................... 39
9.9 PLAN FIDUCIARIES; ALLOCATION OF RESPONSIBILITIES AMONG
THEM............................................................... 39
9.10 RELIANCE ON CO-FIDUCIARIES......................................... 40
9.11 FIDUCIARY DUTIES................................................... 40
9.12 PROHIBITED TRANSACTIONS TO BE AVOIDED.............................. 40
9.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR...................... 40
9.14 DATA SUPPLIED BY EMPLOYER.......................................... 41
9.15 PARTIAL EXCULPATION................................................ 41
SECTION 10 - PROVISIONS RELATING TO PARTICIPANTS............................ 42
10.1 INFORMATION REQUIRED OF PARTICIPANTS............................... 42
10.2 CLAIMS PROCEDURE................................................... 42
10.3 RIGHTS IN TRUST FUND............................................... 43
10.4 BENEFITS NOT ASSIGNABLE............................................ 43
10.5 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN...................... 44
10.6 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC RELATIONS
ORDER.............................................................. 44
SECTION 11 - MERGER OR CONSOLIDATION OF PLAN; TERMINATION;
AMENDMENT.......................................................... 45
<PAGE>
11.1 MERGER, TRANSFER OR CONSOLIDATION OF PLAN WITH OTHER
PLANS ............................................................. 45
11.2 FUTURE OF THE PLAN: AMENDMENT...................................... 45
11.3 TERMINATION OF THE PLAN............................................ 46
SECTION 12 - TOP HEAVY PLAN PROVISIONS...................................... 47
12.1 TOP HEAVY PLAN DEFINITIONS......................................... 47
12.2 MINIMUM CONTRIBUTION REQUIREMENT................................... 49
12.3 ADJUSTMENT TO OVERALL IRC SECTION 415 LIMITATIONS.................. 49
<PAGE>
SECTION 1 - INTRODUCTION
1.1 IDENTITY OF THE PLAN; EFFECTIVE DATE
The UWSI/BCBSUW Union Employees 401(k) Plan is hereby amended and
restated. The Plan and Trust are intended to meet the requirements of Section
401(a) and 501(a) of the Internal Revenue Code of 1986. The amended provisions
of this Plan shall apply only to an Employee who terminates employment on or
after the effective date of the amended provisions. Unless otherwise stated, the
amended provisions of this Plan are effective January 1, 1997 except that the
amendments relating to daily recordkeeping, including but not limited to
Sections 2.44, 4.2, 4.6, and Section 5 shall be effective July 1, 1996.
1.2 ADMINISTRATION
The "Plan Administrator," within the meaning of ERISA, is the Company.
The Plan Administrator shall have duties and responsibilities under the Plan as
described in Section 9.
All books and records of the Plan are maintained on a Plan Year basis.
1.3 PURPOSE OF THE PLAN
The Plan, as herein amended and restated, is established and maintained
for the purpose of enabling Employees of the Employer to have a portion of their
compensation contributed on a tax-deferred basis to the Plan.
1.4 QUALIFIED PLAN INTENDED
The Employer intends that the Plan, as amended and restated effective
January 1, 1997, (unless otherwise stated) and as the same may from time to time
be amended, shall constitute a qualified plan under the provisions of the
Internal Revenue Code of 1986, and shall be maintained in full compliance with
the provisions of the Employee Retirement Income Security Act of 1974, as
amended. The Employer intends to continue the Plan in effect indefinitely,
subject always, however, to the rights reserved by the Employer to amend and
terminate the Plan as herein set forth. Notwithstanding any provision in this
Plan to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u)(4)
of the Code.
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SECTION 2 - DEFINITIONS
The following terms, when used herein and initially capitalized, shall have the
following meanings for all purposes of the Plan.
2.1 ACCOUNT: ACCOUNTS
"Account" (or Accounts) means the individual Account(s) maintained for
a Participant (as described in Section 5) to record his share of the
contributions made by the Employer and adjustments relating thereto, whether it
be the Participant's Compensation Reduction Account or Employer Matching
Contribution Account, Rollover Account, Transfer Account or his Employee
Contribution Account containing voluntary contributions made by Participants to
the Plan prior to January 1, 1988.
2.2 ADMINISTRATIVE COMMITTEE: COMMITTEE
"Administrative Committee" and "Committee" means the Committee as
described in Section 9.
2.3 ADMINISTRATIVE DELEGATE
"Administrative Delegate" means one or more persons or institutions to
whom the Administrative Committee has delegated certain administrative functions
pursuant to a written agreement.
2.4 ANNUAL ADDITION
"Annual Addition," when used with reference to a Participant for any
Plan Year, means, for this Plan and any other profit-sharing or defined
contribution plan maintained by the Employer and qualified under Section 401(a)
of the Internal Revenue Code, the sum of:
(A) Employer contributions, including any contributions to the
Participant's Compensation Reduction Account,
(B) Forfeitures, if any, and
(C) Voluntary non-deductible Employee contributions, if any.
For Plan Years beginning prior to January 1, 1987, voluntary
non-deductible contributions were considered Annual Additions to the extent they
exceeded the lesser of 6% of the Participant's Compensation or one-half of the
Participant's voluntary non-deductible contributions.
2
<PAGE>
2.5 AUTHORIZED LEAVE OF ABSENCE
Authorized Leave of Absence" means any absence authorized by the
Employer for temporary disability or for other good cause provided that all
persons under similar circumstances must be treated alike in the granting of
such Authorized Leave of Absence and provided further that the Participant
returns within the period of authorized absence.
An absence due to service in the Armed Forces of the United States
shall be considered an Authorized Leave of Absence provided that the absence is
caused by war or other emergency, or provided that the Employee is required to
serve under the laws of conscription in time of peace, and further provided that
the Employee returns to employment with the Employer within the period provided
by law.
2.6 BENEFICIARY
"Beneficiary" means the person or persons entitled to receive benefits
under this Plan by reason of death of a Participant, as more definitively
described in Section 7.
2.7 BREAK IN SERVICE: ONE YEAR BREAK IN SERVICE
"Break in Service", or a "One Year Break in Service", with respect to
an Employee means a period of one or more Plan Years during which a Participant
renders 500 or less Hours of Service during each such Plan Year.
In order to prevent a One Year Break in Service from occurring for
participation and vesting purposes, an Employee or Participant who is absent
from work due to a maternity/paternity leave of absence will be treated as
having completed the number of hours that normally would have been credited but
for the absence. Such Employee or Participant will be credited with no more than
501 Hours of Service in either the Plan Year in which the maternity/ paternity
leave begins (if the crediting is necessary to prevent a Break in Service in
that Plan Year), or in the following year. For purposes of this paragraph, an
Employee or Participant will be deemed to be on a maternity/ paternity leave of
absence if such person is absent from work due to: (a) the pregnancy of the
Employee or the Participant, (b) the birth of a child of the Employee or the
Participant, (c) the placement of a child with the Employee or the Participant
in connection with the adoption of a child, or (d) the Employee's or the
Participant's caring for such child for a period beginning immediately following
such birth or placement.
2.8 CODE OR INTERNAL REVENUE CODE
"Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
3
<PAGE>
2.9 COMPANY
"Company" means United Wisconsin Services, Inc., and Blue Cross & Blue
Shield United of Wisconsin.
2.10 COMPENSATION
"Compensation" means with reference to a Participant for any Plan Year,
a Participant's base pay from an Employer, and any amount (i) deferred to this
Plan or any other 401(k) Plan pursuant to a salary reduction agreement or (ii)
contributed to a cafeteria plan qualified under Section 125 of the Code;
provided, however, that for Plan Years beginning on or after January 1, 1994,
Compensation shall not exceed $150,000 (or such other amount as may be
determined by the Secretary of Treasury in accordance with Section 401(a)(17) of
the Internal Revenue Service to reflect increases in the cost-of-living);
provided, further, that for Plan Years beginning on and after January 1, 1997,
the rules of Code Section 414(q)(6) (relating to aggregation of family members)
shall not apply with respect to the foregoing limitation. Compensation does not
include overtime pay, profit sharing and other bonuses earned by the
Participant, nor does it include any amount received by the Participant as
severance pay.
2.11 COMPENSATION REDUCTION ACCOUNT
"Compensation Reduction Account" means the separate Account of a
Participant consisting of the value attributable to contributions, if any, made
under the Plan by the Employer at any time pursuant to a Compensation Reduction
Agreement signed by the Participant, increased by net gains and decreased by net
losses and distributions therefrom, all in accordance with the provisions of the
Plan.
2.12 COMPENSATION REDUCTION AGREEMENT
"Compensation Reduction Agreement" means the agreement between a
Participant and the Employer whereby the Participant elects to defer a portion
of his Compensation and the Employer agrees to contribute such amount to such
Participant's Compensation Reduction Account on behalf of the Participant in a
manner intended to satisfy the requirements of Section 401(k) of the Code.
2.13 COMPENSATION REDUCTION CONTRIBUTIONS
"Compensation Reduction Contributions" means the pre-tax contributions
made at the Participant's election pursuant to Section 4.2
4
<PAGE>
2.14 DEFERRED RETIREMENT DATE
"Deferred Retirement Date" means the date on which a Participant
actually retires subsequent to the attainment of his Normal Retirement Date.
2.15 EFFECTIVE DATE
"Effective Date" means January 1, 1997.
2.16 EMPLOYEE
"Employee" shall mean a person who is actively employed by the Employer
as an hourly employee who is included in a unit of employees covered by a
collective bargaining agreement under which retirement benefits are the subject
of good faith bargaining and who is receiving remuneration for personal services
rendered to the Employer (or would be receiving such remuneration except for an
Authorized Leave of Absence). The term "Employee" shall not include a "Leased
Employee" as defined in Section 414(n) of the Code, except to the extent
required by law. Notwithstanding anything in this Plan to the contrary, persons
who are classified by an Employer as independent contractors shall not be
considered Employees eligible to participate in the Plan.
2.17 EMPLOYEE CONTRIBUTION ACCOUNT
"Employee Contribution Account" means the separate Account maintained
to hold voluntary contributions made by a Participant to the Plan prior to
January 1, 1988, increased by net gains and decreased by net losses and
distributions therefrom, all in accordance with the provisions of the Plan.
2.18 EMPLOYER
"Employer" means Blue Cross & Blue Shield United of Wisconsin, United
Wisconsin Services, Inc., and any other entity to which participation in the
Plan has been extended.
For purposes of calculating the maximum benefit payable under Sections
4.8, 4.9, and 4.10, determining when a Break in Service or a One-Year Break in
Service has occurred under Section 2.7, determining Years of Service under
Section 2.38, determining a Participant's rights upon an employment transfer
under Section 3.6, and determining whether an Employee has completed the
eligibility service requirement under Section 3.2, the term "Employer" shall, to
the extent required by applicable law, include:
(1) any corporation other than the Company or an Employer, (i.e.,
either a subsidiary corporation of an affiliated or associated corporation of
the Company or an Employer),
5
<PAGE>
which together with the Company or an Employer is a member of a "controlled
group" of corporations (as defined in Code Section 414(b));
(2) any organization which together with the Company or an Employer is
under "common control" (as defined in Code Section 414(c));
(3) any organization which together with the Company or an Employer is
an "affiliated service group" (as defined in Code Section 414(m)); or
(4) any other entity required to be aggregated with the Company or an
Employer pursuant to regulations under Code Section 414(o).
Notwithstanding the foregoing, the term Employer may, in the discretion
of the Committee, be defined to include an entity described in paragraphs (1)
through (4) above for any purpose under the Plan.
2.19 EMPLOYER MATCHING CONTRIBUTION ACCOUNT
"Employer Matching Contribution Account" means the separate Account of
a Participant consisting of Employer Matching Contributions allocated thereto,
increased by net gains and decreased by net losses and distributions therefrom,
all in accordance with the provisions of the Plan.
2.20 EMPLOYER MATCHING CONTRIBUTIONS
"Employer Matching Contributions" means the Employer Contributions made
pursuant to Section 4.4 based on the Compensation Reduction Contributions made
by a Participant.
2.21 EMPLOYMENT COMMENCEMENT DATE
"Employment Commencement Date" means the date on which an Employee
first performs an Hour of Service for the Employer.
2.22 ERISA
"ERISA" means the Employee Retirement Income Security Act of 1974, as
from time to time amended.
6
<PAGE>
2.23 FORFEITURE; FORFEITURE ACCOUNT
"Forfeiture" or "Forfeiture Account" means that portion of a
Participant's Employer Matching Contribution Account to which he is not entitled
upon a distribution under the Plan, as more fully described in Section 6.3.
2.24 HIGHLY COMPENSATED EMPLOYEE
A "Highly Compensated Employee" is, effective for Plan Years beginning
on or after January 1, 1997, any Employee who, during the current year or the
preceding year
(i) was a 5% owner (as defined in Code Section 416(i)); or
(ii) received Compensation from the Employer in excess of $80,000 (as
adjusted for cost-of-living by the Secretary of Treasury). Family members (i.e.,
Employee's spouse, lineal ascendants or descendants, and the spouse of such
lineal ascendants or descendants) of a Highly Compensated Employee shall be
treated as separate Employees.
2.25 HOUR OF SERVICE
"Hour of Service" shall mean:
(A) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours shall be credited to
the Employee for the computation period in which the duties are performed; and
(B) Each hour for which an Employee is paid, or entitled to payment by
the Employer on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to
vacation, personal day, holiday, illness, incapacity (including disability),
lay-off, jury duty, military duty or leave of absence. Hours under this
paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of
the Department of Labor Regulations which are incorporated herein by this
reference; and
(C) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same Hours of
Service shall not be credited both under paragraphs (A) or (B), as the case may
be, and under this paragraph (C). These hours shall be credited to the Employee
for the computation period or periods to which the award or agreement pertains
rather than the computation period in which the award, agreement or payment is
made.
(D) Each hour for which the Employee is unpaid on account of a period
of time during which no duties are performed due to illness, incapacity
(including disability), layoff,
7
<PAGE>
military duty or leave of absence. Hours under this paragraph shall be
calculated and credited pursuant to Section 2530.200b-2 of the Department of
Labor Regulations which are incorporated herein by this reference.
(E) Notwithstanding the above, an Hour of Service shall not include an
Hour of Service on account of a period in which the Employee does not perform
any duties, if payment by the Employer on behalf of the Employee is pursuant to
a plan or program maintained solely for the purpose of complying with applicable
workers' compensation, unemployment compensation or disability insurance laws,
or for any payment which is made pursuant to a long-term disability program.
(F) For Hours of Service credited under either paragraphs (B) or (D),
no more than 501 Hours of Service shall be so credited to an Employee on account
of any single continuous period during which the Employee performs no duties
(whether or not such period occurs in a single computation period). In addition,
the same Hours of Service shall not be credited under both paragraphs (B) and
(D).
(G) Hours of Service for Employees under paragraphs (A), (B) and (C)
shall be determined by crediting each Employee with 45 Hours of Service for each
week in which the Employee would have been credited with at least one (1) Hour
of Service under paragraphs (A), (B) and (C). However, for classes of Employees
paid on an hourly basis and for Employees for whom records of hours are
maintained, Hours of Service under paragraphs (A), (B) and (C) shall be
determined on the basis of hours for which Compensation is paid or due.
2.26 INVESTMENT ADVISER
"Investment Adviser" means a person or organization who is acting as
such with respect to the Trust Fund, in accordance with the terms of the Trust
Agreement. An Investment Adviser (other than a bank or insurance company) must
be registered as an Investment Adviser under the Investment Advisers Act of 1940
and must have acknowledged in writing that he is a fiduciary with respect to the
Plan and the Trust.
2.27 LIMITATION YEAR
"Limitation Year" (as defined in Section 2.01 of Revenue Ruling 75-48)
means for purposes of the limitations on contributions as imposed by Section 415
of the Code, the Plan Year.
2.28 NON-HIGHLY COMPENSATED EMPLOYEE
A "Non-Highly Compensated Employees" shall mean any Employee who is not
a Highly Compensated Employee as defined in Section 2.24.
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2.29 NORMAL RETIREMENT AGE
"Normal Retirement Age" means the date on which a Participant attains
age sixty-five (65).
2.30 NORMAL RETIREMENT DATE
"Normal Retirement Date" means the first day of the month coincident
with or next following the date as of which a Participant shall have attained
his Normal Retirement Age.
2.31 PARTICIPANT
"Participant" means an Employee of the Employer who meets the
requirements of Section 3 for eligibility and participation in the Plan,
including a former active Participant who is entitled to benefits hereunder.
2.32 PERMANENT DISABILITY OR PERMANENTLY DISABLED
"Permanent Disability" or "Permanently Disabled", when used with
reference to a Participant, means his physical or mental condition which
persists for at least six continuous months and is such that, in the opinion of
the Employer, he is no longer capable of discharging the responsibilities of his
job assignment with the Employer or the duties of such other position or job
which it makes available to him and for which such Employee is qualified by
reason of his training, education or experience.
2.33 PLAN
"Plan" means the UWSI/BCBSUW Union Employees 401(k) Plan, as amended
from time to time.
2.34 PLAN ADMINISTRATOR
The "Plan Administrator" is the Company. With respect to the Plan, the
Plan Administrator shall have the duties and responsibilities described in
Section 9 hereof.
2.35 PLAN YEAR
"Plan Year" means the annual accounting period designated as such for
purposes of the Plan by the Plan Administrator. The Plan Year commences on
January 1 and terminates on the next following December 31.
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2.36 RE-EMPLOYMENT COMMENCEMENT DATE
"Re-employment Commencement Date" means the date on which an Employee
or a Participant first performs an Hour of Service for the Employer, following
his Severance from Service Date.
2.37 RETIREMENT: RETIRED
"Retirement" or "Retired" means the termination of a Participant's
employment with the Employer, for any reason other than death, on account of his
Permanent Disability or on or after his Normal Retirement Date.
2.38 SERVICE: YEAR OF SERVICE
"Service" and "Year of Service", for purposes of determining vesting
credit, means:
(A) an Employee shall receive credit for one (1) Year of Service for
each full Plan Year of employment,
(B) for the Plan Year in which the Employee is initially employed or
for the Plan Year in which the Employee terminates employment, an Employee shall
receive credit for one (1) Year of Service for the partial Plan Year of
employment if the Employee completes 1,000 or more Hours of Service.
As of each June 30, all employees hired prior to the preceding January
1 shall be credited with 1,000 Hours of Service for vesting purposes. Employees
who terminate prior to June 30 and who actually work 1,000 Hours of Service will
receive credit for a full year of vesting service.
"Service" and "Year of Service", for purposes of determining the amount
of salary reduction contributions that an eligible Participant can make under
Section 4.2 of the Plan, means that an Employee shall receive credit for one (1)
Year of Service for each one-year period beginning on the Employee's Employment
Commencement Date and anniversaries thereof until the Employee's Severance from
Service.
Periods of temporary illness, temporary layoff and Authorized Leaves of
Absences shall not be deemed as breaking employment and shall be counted as
Years of Service.
Notwithstanding the foregoing, if a Participant who is vested in a
portion or all of his Employer Matching Contribution Account incurs a Break in
Service (and subsequently is rehired), any Years of Service attributable to his
prior period of employment shall be reinstated as of his Re-employment
Commencement Date, provided he completes a Year of Service following his
Re-employment Commencement Date.
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A Participant shall not receive more than one (1) Year of Service
credit for any Plan Year irrespective of the number of Employers a Participant
is employed by during such Plan Year.
If a Participant who is not vested in his Employer Matching
Contribution Account incurs a Break in Service (and subsequently is rehired),
any Years of Service attributable to his prior period of employment shall be
restored as of his Re-employment Commencement Date only if the number of
consecutive one (1) Year Breaks in Service is less than five (5) and the
Participant completes a Year of Service following his Reemployment Commencement
Date.
2.39 SEVERANCE FROM SERVICE DATE
"Severance from Service Date" means the date on which a Participant
resigns, retires, is discharged or dies. The Severance from Service Date is
significant in determining continuity of employment in the determination of a
Break in Service and in the determination of a Participant's vested interest in
his Employer Matching Contribution Account.
2.40 TRUST
"Trust" means effective July 1, 1996, the UWSI/BCBSUW Defined
Contribution Plans Master Trust maintained in accordance with the terms of the
Trust Agreement as from time to time amended, with constitutes part of this
Plan.
2.41 TRUST AGREEMENT
The term "Trust Agreement" means that certain Trust Agreement made
effective as of such date by and between United Wisconsin Services, Inc., Blue
Cross Blue Shield United of Wisconsin and American Express Trust Company under
which the Employer is the settlor and American Express Trust Company is the
Trustee and any successor to such Trust Agreement.
2.42 TRUST FUND
"Trust Fund" means, at time of reference, the assets of the Trust. The
term "Trust Fund" shall also mean, at time of reference, the assets or funds
held under a custodial account pursuant to an agreement between United Wisconsin
Services, Inc., Blue Cross & Blue Shield United of Wisconsin and an authorized
custodian.
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2.43 TRUSTEES
"Trustees" means the fiduciaries designated as such in the Trust
Agreement, including all "Successor Trustees" at any time acting thereunder. If
the Plan's assets are held in a custodial account pursuant to a custodial
agreement, the term "Trustees" will be deemed to include any custodian named in
such agreement.
2.44 VALUATION DATE
"Valuation Date" means any day that the New York Stock Exchange is open
for business or any other date mutually agreed upon in writing by the
Administrative Committee and the Trustee.
2.45 CONSTRUCTION
Within this Plan document, as the same may be amended from time to
time, the masculine pronoun shall be deemed to include the feminine and neuter,
and the singular shall be deemed to include the plural whenever the context
requires. The words "terminate," "terminated," "termination of employment,"
"retire," "retired," or "retirement" shall be interpreted to mean the
termination of employment or retirement of the Participant from employment with
all Employers.
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SECTION 3 - ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBLE EMPLOYEES
The Plan is applicable only to Employees of the Employer. Accordingly,
only eligible Employees who become Participants under the Plan shall have
benefits accrued hereunder.
3.2 PARTICIPATION
(A) Any Employee who was a Participant pursuant to the terms of the
Plan in effect on December 31, 1996 and who is actively employed by the Employer
on January 1, 1997 shall continue as a Participant in the Plan on January 1,
1997.
(B) With respect to any Employee who has not satisfied the
participation requirements under (A) on or after January 1, 1997, each such
Employee shall become a Participant in the Plan on the January 1, April 1, July
1, or October 1 coincident with or next following his completion of twelve (12)
consecutive months of service in which he works 1,000 Hours of Service. In the
event an Employee fails to complete 1,000 Hours of Service, during his initial
twelve (12) month period of employment, he shall become a Participant on the
January 1 next following his completion of 1,000 Hours of Service during the
Plan Year which contains the first anniversary (or succeeding anniversaries) of
his Employment Commencement Date (or Re-employment Commencement Date).
3.3 PARTICIPATION FOLLOWING A BREAK IN SERVICE
Any Participant who incurs a Break in Service (due to termination of
employment or otherwise) on and after the Effective Date (or any Participant who
had terminated his employment and subsequently returned to active employment
before incurring a Break in Service) shall be subject to the following rules for
determining his participation in the Plan:
(A) If the Participant is rehired before he has a Break in Service, he
shall again participate in the Plan as of his Re-employment Commencement Date.
(B) If a Participant incurs a Break in Service and following that Break
in Service again completes a twelve (12) consecutive month period of employment
during which he works 1,000 Hours of Service, he shall again be eligible to
participate in the Plan on the date set forth in Section 3.2 as if he were a new
employee as of his Re-employment Commencement Date.
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3.4 EVIDENCE OF PARTICIPATION
Upon completion of the requisite service requirements, the otherwise
eligible Employee shall become a Participant. The Plan Administrator shall
notify the Employee that he is eligible to be a Participant in the Plan, and the
effective date thereof. The Plan Administrator shall also furnish the
Participant with the forms and materials necessary in order for the Participant
to elect to have contributions made to his Compensation Reduction Account and to
designate a Beneficiary (or Beneficiaries) to whom distribution of his values in
the Plan should be made in the event of his death prior to the full receipt of
his interest in the Trust.
3.5 DURATION OF PARTICIPATION
An Employee who becomes a Participant shall continue to be a
Participant until he terminates employment. If a Participant has a one (1) Year
Break in Service before he is entitled to receive (then or thereafter) a benefit
hereunder, he thereupon shall cease to be a Participant, and shall so remain
unless he again becomes a Participant as specified in Section 3 3.
3.6 RIGHTS UPON TRANSFER
(A) Transfers to Non-Covered Job Classification: If a Participant is
transferred to a job classification with the Employer whereby he is no longer
eligible to be covered under the Plan (as set forth in Section 3.1), such
Participant shall cease active participation in the Plan and, except to the
extent provided in Section 5.2, no further contributions will be made on his
behalf under this Plan from and after the effective date of the transfer. As
soon as administratively feasible after the date the Participant transfers to a
new job classification, the balance of such Participant's Accounts will be
transferred to a qualified plan maintained by the Employer for employees in the
job classification that renders them ineligible for coverage under this Plan.
Such Participant shall continue to vest in the transferred Accounts balance at
least as rapidly as such Participant vested under this Plan.
(B) Transfers to Covered Job Classification: If an Employee is
transferred to a job classification whereby he is eligible to be covered under
the Plan (as set forth in Section 3.1), such Employee shall become a Participant
as of the later of his date of transfer or the date he satisfies the
requirements of Section 3.2. Such transferred Employee shall be credited with
Service for vesting purposes for any employment with the Employer before the
date of transfer, and shall continue to vest in any transferred account balance
at least as rapidly as such Employee vested under such other plan.
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SECTION 4 - CONTRIBUTIONS
4.1 NO CONTRIBUTIONS BY PARTICIPANTS
Voluntary after-tax contributions under the Plan shall not be required
or permitted of any Participant on or after January 1, 1988. However, an
Employee Contribution Account shall be maintained for Participants who made
voluntary after-tax contributions to the Plan prior to January 1, 1988.
4.2 COMPENSATION REDUCTION CONTRIBUTIONS
A Participant shall be eligible to have contributions made to his
Compensation Reduction Account as of the date on which he becomes a Participant
under Section 3.2. In order to have the Employer make a Compensation Reduction
Contribution on his behalf, a Participant must elect to make such contributions
by payroll deduction, or otherwise, to his Compensation Reduction Account.
Contributions to a Participant's Compensation Reduction Account shall at all
times be nonforfeitable and 100% vested.
Each eligible Participant may elect to have the Employer contribute a
percentage of his Compensation to his Compensation Reduction Account in
accordance with the following schedule:
<TABLE>
<CAPTION>
Percent of Compensation
Years of Service that may be Deferred
<S> <C>
1 but less than 2 1%
2 but less than 3 1% or 2%
3 but less than 4 1%, 2%, or 3%
4 but less than 5 1%, 2%, 3% or 4%
5 or more 1%, 2%, 3%, 4%, 5%,
6%, 7%, 8%, 9%, 10%,
11%, 12%, or 12-1/2%
</TABLE>
However, in the event the Administrative Committee determines that the
Actual Deferral Percentage Tests in Section 4.3(C) will not be passed, the
percentage of monthly compensation elected by a Highly Compensated Employee to
be contributed to his Compensation Reduction Account may be reduced to a level
necessary to pass the Actual Deferral Percentage tests. No Participant shall be
permitted to contribute during any calendar year more than $7,000 (as adjusted
for cost-of-living in accordance with Code Section 402(g)(5)) to his
Compensation Reduction Account.
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4.3 PERMITTED RANGE OF COMPENSATION REDUCTION CONTRIBUTIONS
The permitted range of Compensation Reduction Contributions with
respect to any year shall be determined on the basis of a Participant's total
Compensation (as defined in Section 2.10) for services rendered to the Employer
during the Plan Year. The Employer shall divide its respective Participants into
two groups - - Highly Compensated Employees and Non-Highly Compensated
Employees, respectively, as discussed herein following:
(A) Highly Compensated Employees: Subject to Section 4.2, each
Participant who is a Highly Compensated Employee (as defined in Section 2.24)
may have the Employer make Compensation Reduction Account contributions on his
behalf under the Plan based on his projected annual earnings from the Employer;
provided, however, that the average Actual Deferral Percentage (as defined in
subsection (C)) for Participants who are Highly Compensated Employees, when
compared to the average Actual Deferral Percentage for all Participants who are
Non-Highly Compensated Employees must meet either of the two tests set forth in
subsection (C) below.
(B) Non-Highly Compensated Employees: Subject to Section 4.2, each
Participant who is a "Non-Highly Compensated Employee" (as defined in Section
2.28), may have the Employer make Compensation Reduction Account contributions
on his behalf under the Plan based on his projected annual earnings from the
Employer.
(C) Actual Deferral Percentage Tests: Effective for Plan Years
beginning on or after January 1, 1987:
(1) The average Actual Deferral Percentage for all
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the average Actual Deferral Percentage for
Participants who are Non-Highly Compensated Employees for the Plan Year
multiplied by 1.25, or
(2) The average Actual Deferral Percentage for Participants
who are Highly Compensated Employees for the Plan Year shall not exceed
the average Actual Deferral Percentage for Participants who are
Non-Highly Compensated Employees for the Plan Year multiplied by two
(2), provided that the average Actual Deferral Percentage for
Participants who are Highly Compensated Employees does not exceed the
average Actual Deferral Percentage for Participants who are Non-Highly
Compensated Employees by more than two (2) percentage points (or such
lesser amount as the Secretary of Treasury may prescribe).
(3) For purposes of Paragraphs (1) and (2) above, the term
"Actual Deferral Percentage" means, with regard to Participants who,
for any Plan Year, are either considered to be Highly Compensated
Employees or Non-Highly Compensated Employees the ratio (calculated
separately for each Participant in such group) of the
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amount of Compensation Reduction Account contributions actually paid to
the Trust on behalf of each Participant for such Plan Year to the
Participant's W-2 earnings (plus any deferrals made pursuant to Code
Sections 125 and 401(k)) for such Plan Year.
(D) Excess Compensation Reduction Contributions: If neither of the
requirements of subsection (C) is satisfied, then the Compensation Reduction
Contributions with respect to Highly Compensated Employees shall be reduced, to
the extent necessary to meet the requirements of subsection (C)(1) or (C)(2),
whichever is met first. The contributions of Highly Compensated Employees
representing the highest total dollar amounts contributed shall be first reduced
in order to achieve the requirements of subsection (C)(1) or (C)(2). If
Compensation Reduction Contributions with respect to a Highly Compensated
Employee are reduced, the excess Compensation Reduction Contributions shall be
distributed, subject to the following:
(1) For purposes of this subsection, excess Compensation
Reduction Contributions shall mean the amount by which Compensation
Reduction Contributions for Highly Compensated Employees have been
reduced under this subsection.
(2) Excess Compensation Reduction Contributions (adjusted for
income or losses allocable thereto as specified in paragraph (3), if
any) shall be distributed to Participants on whose behalf such excess
contributions were made for the Plan Year no later than the last day of
the following Plan Year. Furthermore, the Employer shall attempt to
distribute such amount by the fifteenth day of the third month
following the Plan Year for which the excess contributions were made to
avoid the imposition of an excise tax under Code Section 4979.
(3) Income or losses allocable to excess Compensation
Reduction Contributions shall be determined using the following
methods:
(a) Income or losses allocable to excess
Compensation Reduction Contributions for the Plan Year shall
be determined by multiplying the amount of income or loss for
the Plan Year which is allocable to Compensation Reduction
Contributions by a fraction. The numerator of the fraction is
the Participant's excess Compensation Reduction Contributions
for the Plan Year. The denominator of the fraction is the
total balance in the Participant's Accounts attributable to
Compensation Reduction Contributions on the last day of the
Plan Year, reduced by any income (and increased by any losses)
allocable to such total amount for the Plan Year.
(b) Income or losses allocable to excess
Compensation Reduction Contributions for the Plan Year
following the Plan Year for which
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the excess was contributed shall be equal to 10% of the amount
of income determined above, multiplied by the number of
calendar months that have elapsed in such subsequent Plan Year
prior to the distribution. In determining the number of
calendar months which have elapsed, any distribution made on
or before the fifteenth day of any month shall be treated as
having been made on the last day of the preceding month, and
any distribution made after the fifteenth day of any month
shall be treated as having been made on the first day of the
next month.
4.4 EMPLOYER MATCHING CONTRIBUTIONS
(A) Amount of Employer Matching Contributions: The Employer shall make
a matching contribution to the Trust which, when combined with amounts in
suspense accounts under Section 4.9 and Forfeitures under Section 6.3
attributable to matching contributions, shall equal a specified percentage of
each Participant's Compensation that is deferred pursuant to a Compensation
Reduction Agreement. The amount of the matching contribution shall be equal to
50% of the amount of Compensation Reduction Contributions (excluding
Compensation Reduction Contributions in excess of 5% of a Participant's
Compensation) made on behalf of a Participant by the Employer for the Plan Year.
(B) Nondiscrimination Tests: Notwithstanding the foregoing, effective
for Plan Years beginning on and after January 1, 1987, the average Contribution
Percentage for all Participants who are Highly Compensated Employees, when
compared to the average Compensation Percentage for all Participants who are
Non-Highly Compensated Employees must meet either of the following two tests:
1) The average Contribution Percentage for Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
average Contribution Percentage for Participants who are Non-Highly
Compensated Employees for the Plan Year multiplied by 1.25, or
(2) The average Contribution Percentage for Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
average Contribution Percentage for Participants who are Non-Highly
Compensated Employees for the Plan Year multiplied by two (2), provided
that the average Contribution Percentage for Participants who are
Highly Compensated Employees does not exceed the average Contribution
Percentage of Participants who are Non-Highly Compensated Employees by
more than two (2) percentage points (or such lesser amount as the
Secretary of Treasury shall prescribe).
For purposes of the preceding two tests, the term "Contribution
Percentages" shall mean the ratio (expressed as a percentage) of the sum of all
Employer Matching
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<PAGE>
Contributions under the Plan on behalf of a Participant for the Plan Year, to
such Participant's W-2 earnings, adjusted for salary reduction contributions,
for the Plan Year.
(C) Excess Employer Matching Contributions: If neither of the
requirements of subsection (B) is satisfied, then the Employer Matching
Contributions with respect to Highly Compensated Employees shall be reduced, to
the extent necessary to meet the requirements of paragraph (B)(1) or (B)(2),
whichever is met first. The contributions to the accounts of Highly Compensated
Employees representing the highest total dollar amounts contributed will be
first reduced in order to achieve the requirements of paragraph (B)(1) or
(B)(2). The adjustments shall be made by distributing the Participant's Employer
Matching Contributions (adjusted for income or losses attributable to such
contributions) as provided in this subsection.
(1) For purposes of this subsection, "Excess Employer Matching
Contributions" shall mean the amount by which Employer Matching
Contributions must be reduced under the first paragraph of this
subsection.
(2) Excess Employer Matching Contributions (adjusted for
income or losses allocable thereto) shall be forfeited (if otherwise
forfeitable under the provisions of Section 6.2 if the Participant were
to terminate employment) on the last day of the Plan Year for which the
contributions were made, and shall be used, along with all other
Forfeitures arising in that Plan Year, to reduce Employer Matching
Contributions in accordance with Section 6.3. Excess Employer Matching
Contributions which are non-forfeitable (adjusted for income or losses
allocable thereto) shall be distributed to Participants on whose behalf
such excess contributions were made for the Plan Year no later than the
last day of the following Plan Year. Furthermore, the Employer shall
attempt to distribute such amount by the fifteenth day of the third
month following the Plan Year for which the excess contributions were
made to avoid the imposition on the Employer of an excise tax under
Code Section 4979.
(3) Income or losses allocable to excess contributions shall
be determined in the same manner specified for excess Compensation
Reduction Contributions under Section 4.3(D)(3).
4.5 ORDER OF APPLICATION OF LIMITATIONS OF SECTIONS 4.3 & 4.4
Any reductions required in Participant contributions or Employer
Matching Contributions because of the multiple use of the limits in Section
4.3(C)(2) and 4.4(B)(2) shall be governed by Code Section 401(m)(6).
19
<PAGE>
4.6 RIGHT TO CHANGE, DISCONTINUE OR SUSPEND COMPENSATION
REDUCTION CONTRIBUTIONS
A Participant may elect to increase or decrease the rate of the
contribution to his Compensation Reduction Account; such newly changed rate
shall be effective until changed by the Participant. A Participant may also
elect to have the Employer suspend making contributions to his Compensation
Reduction Account under the Plan altogether. Such changes shall be made by
telephonic or other electronic means and shall be effected as soon as
administratively feasible.
4.7 ROLLOVER CONTRIBUTIONS
Each Participant, and each other Employee who is not a Participant, may
apply in writing to the Employer (on the form provided for that purpose) to make
a Rollover Contribution to the Plan. The Employer will approve any such requests
which comply with the applicable requirements of the Code. Upon approval by the
Employer, the Rollover Contribution shall be deposited to the Trust Fund and
credited to such Participant's Rollover Account.
4.8 GENERAL LIMITATION ON ANNUAL ADDITIONS
In no event shall the total Annual Addition for any Participant for any
Plan Year exceed the lesser of:
(A) $30,000 (or such other amount as adjusted for the
cost-of-living in accordance with Section 415(d) of the Code), or
(B) Twenty-five percent (25%) of such Participant's total
Compensation which is included in gross income for the Plan Year, plus
on or after January 1, 1998, any amounts contributed by the Employer
pursuant to a salary reduction agreement and which is not included in
the Participant's gross income under Code Sections 125 or 402(a)(8).
4.9 SPECIAL LIMITATION ON ANNUAL ADDITIONS
Prior to January 1, 2000, if the Participant is, or was, covered under
a defined benefit plan and a defined contribution plan maintained by the
Employer, the sum of the Participant's defined benefit plan fraction and defined
contribution plan fraction may not exceed 1.0 in any Plan Year.
The defined benefit plan fraction is a fraction, the numerator of which
is the sum of the Participant's projected annual benefits under all defined
benefit plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of (i)
20
<PAGE>
1.25 times the dollar limitation of Section 415(b)(1)(A) of the Code in effect
for the Plan Year, or (ii) 1.4 times the Participant's average Compensation for
the three consecutive years that produces the highest average.
The defined contribution plan fraction is a fraction, the numerator of
which is the sum of the Annual Additions to the Participant's Accounts under all
defined contribution plans maintained by the Employer (whether or not
terminated) for the current and all prior Plan Years, and the denominator of
which is the sum of the lesser of the following amounts determined for such Plan
Year end for each prior Year of Service with the Employer: (i) 1.25 times the
dollar limitation in effect under Section 415 (c)(1)(A) of the Code for each
such Plan Year (as modified by Code Section 416(h) to the extent applicable if
the Plan is Top Heavy), or (ii) 1.4 times the amount which may be taken into
account under Section 415 (c)(1)(B) of the Code.
Projected annual benefit means the annual benefit to which the
Participant would be entitled under the terms of the Plan, if the Participant
continued employment until his Normal Retirement Age (or current age, if later)
and the Participant's Compensation for the Plan Year and all other relevant
factors used to determine such benefit remained constant until Normal Retirement
Age (or current age, if later).
4.10 DISPOSITION OF EXCESS ANNUAL ADDITIONS
If the total Annual Additions for any Participant for any Plan Year
would otherwise exceed the maximum Annual Addition permitted under Sections 4.8
and 4.9, the excess amount will be disposed of as follows:
(A) First, by returning to such Participant, to the extent necessary,
any Compensation Reduction Contributions made on his behalf, with investment
gains attributable to such Compensation Reduction Contributions, to the extent
provided by current law and regulations;
(B) Second, any Excess Employer Matching Contributions are to be used
to (i) reduce Employer Matching Contributions for other eligible Participants,
or (ii) if needed, restore previously forfeited Employer Matching Contributions.
21
<PAGE>
SECTION 5 - ACCOUNTING
5.1 INDIVIDUAL ACCOUNTS OF PARTICIPANTS
The Employer shall establish and maintain for each Participant two (2)
separate Accounts, to be called, respectively, the Compensation Reduction
Account and the Employer Matching Contribution Account; each such Account shall
be credited or debited to the extent required by this Section 5. In addition,
where applicable, the Employer shall establish and maintain a Rollover Account,
as may be required under Section 4.7 and an Employee Contribution Account (if
applicable) in accordance with Section 4.1. The Employer shall maintain adequate
records to reflect the interest of each Participant or Beneficiary in the Trust,
and shall disclose such information at least once annually. All entries to such
individual Accounts shall be conclusive and binding upon all parties, except
that both arithmetical errors and errors resulting from mistakes in procedure
may be corrected by the Employer at any time.
5.2 CREDITING OF EMPLOYER CONTRIBUTIONS AND FORFEITURES
(A) Matching Contributions: Employer Matching Contributions shall be
credited each payroll period to each Participant equal to 50% of the
Participant's Compensation Reduction Contributions (excluding Compensation
Reduction Contributions in excess of 5% of the Participant's Compensation)
during such payroll period.
(B) Compensation Reduction Contributions: The Employer shall allocate
any Compensation Reduction Contribution to the Compensation Reduction Account of
any Participant who had a Compensation Reduction Contribution made on his behalf
on the date such funds are deposited in the Trust Fund.
(C) Forfeitures: Forfeitures (as described in Section 6.3) shall be
used as soon as feasible to reduce subsequent Employer Matching Contributions.
5.3 DEBITING OF DISTRIBUTIONS
The amounts, if any, distributed or paid to or on behalf of a
Participant hereunder at any time shall, concurrent with such payment, be
debited against his Accounts, as applicable.
5.4 SEPARATE INVESTMENT FUNDS
(A) Administrator May Establish Separate Funds: The Plan Administrator
may direct the Trustee to invest in one or more separate investment funds,
having different specific investment objectives as the Plan Administrator shall
from time to time determine. The Plan Administrator shall determine and may from
time to time redetermine the number of
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<PAGE>
investment funds and the specific objectives of said funds and the investments
or kinds of investment which shall be authorized therefor. From time to time the
Plan Administrator may add or delete funds without amending the Plan.
Participants will be informed as to the various investment options available.
(B) Participant Direction Permitted: Each Participant has the right to
instruct the Plan Administrator to direct the Trustee to invest his Accounts in
one or more separate investment funds as established above.
(C) Administrator to Establish Rules: The Plan Administrator may at any
time make such uniform and nondiscriminatory rules as it determines are
necessary regarding the administration of this directed investment option. The
Plan Administrator shall develop and maintain rules governing the rights of
Participants to change their investment directions and the frequency with which
such changes can be made.
(D) Investment Advisers: The Plan Administrator may, from time to time,
retain the services of one or more persons or firms designated as Investment
Adviser for the management of (including the power to acquire and dispose of)
all or any part of the Trust, provided that each of such persons or firms (a) is
registered as an investment advisor under the Investment Advisers Act of 1940,
(b) is a bank (as defined in that Act), or an insurance company qualified to
perform manage, acquire, or dispose of trust assets under the laws of more than
one State of the United States. Each such Investment Adviser shall acknowledge
in writing that it is a fiduciary with respect to the assets of the Trust under
its authority and management.
The Plan Administrator has the authority to direct the Trustee to
investment all or a portion of the Trust Fund through any common or collective
trust fund or pooled investment fund, including collective investment funds
maintained by the Trustee, or its successor, for the collective investment of
funds held by it in a fiduciary capacity.
5.5 VALUATION OF ACCOUNTS
As of each Valuation Date, all assets of the Trust Fund shall be
valued, net gains or losses shall be allocated, and additions to and withdrawals
from Account balances shall be processed in the following manner:
(A) The fair market value of securities and/or the other assets
comprising each investment fund designated by the Committee for direction of
investment by the participants of this Plan shall be computed. Each Account
balance shall be adjusted each Valuation Date by applying the closing market
price of the investment fund on the current Valuation Date to the share/unit
balance of the investment fund as of the close of business on the current
Valuation Date.
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(B) Any requests for additions or withdrawals made to or from a
specific designated investment fund by any Participant, including allocations of
contributions and forfeitures shall then be accounted for. In completing the
valuation procedure described above, such adjustments in the amounts credited to
such accounts shall be made on the Valuation Date to which the investment
activity relates. Contributions received by the Trustee pursuant to this Plan
shall not be taken into account until the Valuation Date coinciding with or next
following the date such contribution was both actually paid to the Trustee and
allocated among the accounts of Participants.
(C) Notwithstanding paragraphs A and B above, in the event a pooled
investment fund is created as a designated fund for Participant investment
election in this Plan, valuation of the pooled investment fund and allocation of
earnings of the pooled investment fund shall be governed by the administrative
services agreement of such pooled investment fund. The provisions of any such
administrative services agreement shall be deemed a part of this Plan.
(D) It is intended that this Section operate to distribute among each
Participant Account in the Trust Fund, all income of the Trust Fund and changes
in the value of the assets of the Trust Fund.
5.6 RETURN OF EMPLOYER CONTRIBUTIONS
If an amount is contributed by the Employer due to a mistake of fact,
the Employer shall be entitled to recover such amount within one (1) year of the
date such contribution is made. If an amount is contributed by the Employer
which is disallowed as a deduction under Code Section 404, the Employer shall be
entitled to recover such amount within one (1) year of the date such deduction
is disallowed. Trust income attributable to the amount to be recovered shall not
be paid to the Employer, but Trust loss attributable thereto shall reduce such
amount.
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SECTION 6 - DISTRIBUTIONS
6.1 DISTRIBUTIONS UPON RETIREMENT, DEATH OR DISABILITY
If a Participant's Severance from Service Date occurs because of the
Participant's retirement, death or Permanent Disability, such Participant (or
his Beneficiary) shall be entitled to receive a distribution of 100% of his
Employer Matching Contribution Account, Compensation Reduction Account, Employee
Contribution Account (if any) and Rollover Account as soon as feasible following
his Severance from Service Date, provided such Participant complies with such
administrative procedures for distribution as are authorized by the
Administrative Committee. The balance of a Participant's Accounts upon
distribution shall be based on the value of such Accounts as of the Valuation
Date on which the administrative procedures authorized by the Committee for
distribution are completed.
6.2 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT
If a Participant's Severance from Service Date occurs because of the
Participant's resignation or dismissal, such Participant shall be entitled to
receive a distribution of 100% of the balance of his Compensation Reduction
Account, Employee Contribution Account (if any) and Rollover Account (if any),
plus the vested percentage of his Employer Matching Contribution Account and
Transfer Account (if any) as soon as feasible following his Severance from
Service Date, provided such Participant complies with such administrative
procedures for distribution as are authorized by the Administrative Committee.
The balance of a Participant's Accounts upon distribution shall be based on the
value of such Accounts as of the Valuation Date on which the administrative
procedures authorized by the Committee for distribution are completed. The
vested percentage of his Employer Matching Contribution Account shall be
determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Completed
at Severance from Service Date Nonforfeitable Percentage
------------------------------ -------------------------
<S> <C>
Less than 1 Year 0%
1 but Less than 2 Years 20%
2 but Less than 3 Years 35%
3 but Less than 4 Years 50%
4 but Less than 5 Years 65%
5 but less than 6 Years 80%
6 Years or More 100%
</TABLE>
Notwithstanding the above schedule, a Participant will be 100% vested in his
Employer Matching Contribution Account upon the attainment of his Normal
Retirement Age.
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6.3 FORFEITURES
That portion of the Employer Matching Contribution Account to which the
Participant is not entitled at his Severance from Service Date shall be credited
to his Forfeiture Account, established and maintained by the Employer in the
terminated Participant's name.
If the Participant does not return to employment as of the last day of
the calendar quarter in which his Severance from Service Date occurs, then the
credit balance to such Forfeiture Account shall, subject to the provisions of
Section 6.2 hereof, be a Forfeiture and shall, together with all other
applicable Forfeitures occurring during the same calendar quarter, be used to
reduce Employer Matching Contributions for the calendar quarter in which the
Forfeiture occurs, or in any subsequent calendar quarter.
If the Participant returns to the employment of the Employer prior to
incurring five (5) consecutive One Year Breaks in Service, any Forfeitures of
such Participant's Employer Matching Contribution Account which have been
previously forfeited shall be restored to the Participant's Employer Matching
Contribution Account effective as of the date the Participant repays the entire
amount of the distribution he received from his Employer Matching Contribution
Account under Section 6.2 upon his previous termination of employment. Such
repayment shall be made within the five (5) year period following the date of
the distribution and shall constitute the beginning balance in his new Employer
Matching Contribution Account.
If the Participant returns to employment with the Employer before the
end of the calendar quarter in which his Severance from Service Date occurs,
then the credit balance to such Forfeiture Account shall be transferred back to
his reconstituted Employer Matching Contribution Account.
6.4 METHOD OF DISTRIBUTION
(A) If a Participant is entitled to receive a distribution upon his
retirement, Permanent Disability or termination of employment, such distribution
shall be paid under one of the following forms:
(a) Lump sum distribution, or
(b) Equal installments to be paid over a period not exceeding
the lesser of fifteen (15) years and the life expectancy of the
Participant, or the joint life expectancy of the Participant and his
designated Beneficiary.
(c) Equal installments for a period not exceeding the life
expectancy of the Participant or the joint life expectancy of the
Participant and his designated beneficiary
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(B) If a Participant dies prior to receiving the balance in his
Accounts, and he is not married at the time of death, the remaining balance in
his Accounts will be distributed in a lump sum to his designated beneficiary. If
a Participant is married at the time of his death, his remaining balance in his
Accounts shall be paid to his surviving spouse, unless the spouse consents in
writing in accordance with Section 7.1 to the designation of another
Beneficiary.
6.5 RESPONSIBILITIES AND DUTIES RELATIVE TO CURRENT RECORDS
Each Participant, and each Beneficiary of a deceased Participant shall
file with the Employer from time to time, in writing, his post office address
and each change of post office address. Any communication, statement or notice
addressed to such person at his last post office address filed with the
Employer, or if no such address was filed, then at his last post office address
as otherwise shown in the Employer's records, if any, shall be binding on such
person for all purposes of the Plan, and neither the Employer nor the Trustee
shall be obliged to search for or ascertain the whereabouts or identity of any
Participant or Beneficiary.
6.6 MANNER OF DISPOSING UNCLAIMED DISTRIBUTABLE INTEREST
If all or any part of the interest of any Participant or Beneficiary
becomes distributable hereunder and the Plan Administrator, after a reasonable
search, cannot locate the Participant or his Beneficiary, if such Beneficiary is
entitled to payment, the vested Account balance shall be forfeited and
reallocated in accordance with Section 6.3 as of the day the Participant
incurred a Break in Service, or such later date as the Plan Administrator may
decide. If the Participant or his Beneficiary subsequently presents a valid
claim for benefits to the Plan Administrator, the Plan Administrator shall cause
the vested Account balance, equal to the amount which was forfeited under this
Section, to be restored.
6.7 TIME OF DISTRIBUTIONS
Notwithstanding any provision of the Plan to the contrary, the
following provisions of this Section shall be applicable with respect to the
payments of benefits to any Participant or Beneficiary:
(A) Distribution Prior to Participant's Death: Unless a Participant
elects otherwise, in no event shall payments commence later than 60 days
following the end of the Plan Year in which (i) the Participant reaches age 65,
(ii) the Participant terminates employment, or (iii) the Participant attains the
tenth (10th) anniversary of the date on which he commenced participation in the
Plan, whichever is later. In the case of a Participant who terminates employment
due to resignation or dismissal, the Participant may request payment of his
benefit at an earlier date. Notwithstanding the above, the entire vested
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<PAGE>
balance of a Participant's Accounts must not be distributed later than the date
set forth in paragraph (1) or paragraph (2) below, namely:
(1) Distribution in a Single Sum: Distribution of a
Participant's Accounts in a single sum must be effected no later than
April 1 of the calendar year immediately following the later of: the
calendar year in which the Participant attains age 70-1/2, or the
calendar year in which the Participant retires from active service with
the Employer. Notwithstanding the preceding sentence, any Participant
who attains age 70-1/2 and was a 5% owner at any time during the Plan
Year ending with or within the calendar year in which such Participant
attained age 70-1/2 or any subsequent Plan Year must receive a
distribution of his Accounts no later than April 1 of the calendar year
following the calendar year in which the Participant attains age
70-1/2.
(2) Distribution by Periodic Payments:
(a) If distribution is by periodic payments (by which
term, for purposes of this Section, is meant distribution in
any form other than a single sum, as described in paragraph
(1) above) then, distribution of the Participant's vested
Accounts under the Plan must commence not later than April 1
of the calendar year immediately following the later of: the
calendar year in which the Participant attains age 70-1/2 or
the calendar year in which the Participant retires from active
service with the Employer, and must be spread over a period
not greater than any of the following, namely: (i) the
remaining lifetime of the Participant; or (ii) the remaining
lifetime of the Participant and a designated Beneficiary or
contingent annuitant; or (iii) a period not extending beyond
the life expectancy of the Participant, as determined by such
life expectancy tables under Regulations; to Section 72 of the
Code; or (iv) a period not extending beyond the life
expectancy of the Participant and a designated Beneficiary or
contingent annuitant, as determined by such life expectancy
tables, as aforesaid.
(b) If distribution shall be in accordance with clause
(iii) of the immediately preceding sentence of this paragraph
(2), then, in accordance with applicable governmental
regulations, the remaining life expectancy of the Participant
-- and, if applicable, his spousal Beneficiary -- may be
redetermined each year, and the amount of periodic payments so
distributed may be annually adjusted accordingly.
(c) Notwithstanding the preceding, any Participant who
attains age 70-1/2 and was a 5% Owner at any time during the
Plan Year ending with or within the calendar year in which
such Participant attained age 70-1/2, or any subsequent Plan
Year, must begin to receive a distribution of his Accounts
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<PAGE>
no later than April 1 of the calendar year following the
calendar year in which the Participant attains age 70-1/2.
(d) Any Participant who is not a 5% owner, and attained
age 70-1/2 prior to January 1, 1997, and who was required (or
would have been required) to commence distributions under the
rules in effect prior to January 1, 1997, may make an election
(at such time or in such form as may be prescribed by the Plan
Administrator) to suspend such distributions until the date of
the Participant's actual retirement.
(B) Distributions After Participant's Death: In the event of the
Participant's death, his entire or remaining interest under the Plan must be
distributed in accordance with either paragraph (1) or paragraph (2) below,
namely:
(1) Death after Commencement of Benefits: If the Participant
shall die after commencement of his benefit payments under the Plan,
the remaining values must be distributed at least as rapidly as under
the method of distribution selected under paragraph (2) of subsection
(A) above in this Section.
(2) Death Prior to Commencement of Benefits: If a Participant
shall die after retirement under the Plan but prior to the commencement
of benefit payments on that account hereunder, then, in such event, the
entire interest of the Participant must be distributed within the
5-year period measured from the date of the Participant's death;
provided, however, that such "5 Year Rule" shall NOT be applicable in
the following instances described in subparagraph (a) or subparagraph
(b), below:
(a) The "5 Year Rule" described above shall not apply if
the following three conditions are met at the date of death of
the Participant, namely: (i) if any portion of the
Participant's interest under the Plan is payable to, or for
the benefit of, a designated Beneficiary; and (ii) the portion
of the Participant's interest to which the Beneficiary is
entitled will be distributed over the remaining lifetime of
the Beneficiary (or over a period not extending beyond the
remaining life expectancy of such Beneficiary); and (iii) the
distributions commence no later than one year after the date
of the Participant's death (or such later date which the
Secretary of the U.S. Treasury Department may, under pertinent
regulations, prescribe);
(b) The 5 Year Rules described above shall not apply if
the following two conditions are met at the date of death of
the Participant, namely: (i) the portion of the Participant's
interest to which the surviving spouse is entitled will be
distributed over the remaining lifetime of the surviving
spouse (or over a period not extending beyond the life
expectancy of the surviving spouse);
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<PAGE>
and (ii) the distributions commence no later than the date as
of which the Participant would have attained age 70-1/2. If
the surviving spouse dies before the distributions to such
spouse begin, then the provisions of this paragraph (2) will
apply as if the spouse was the Participant.
(C) Distributions to Minor Children: For purposes of subsections (A)
and (B), any amount paid to a child under the age of majority shall be treated
as if it had been paid to the surviving spouse if the amount becomes payable to
the surviving spouse when the child reaches the age of majority.
(D) Incidental Death Benefits: Notwithstanding the foregoing
subsections, all distributions shall be made in accordance with the incidental
death benefit requirements of Code Section 401(a)(9)(G) and the regulations
thereunder.
6.8 WITHDRAWALS FROM INDIVIDUAL ACCOUNTS
(A) A Participant may not withdraw any of the values in his Employer
Contribution Matching Account.
(B) A Participant may make a partial or total withdrawal from his
Employee Contribution Account at any time while remaining in the Service of the
Employer. Upon demonstrating a financial hardship, a Participant may withdraw
any contributions (but not earnings) that have been credited to his Compensation
Reduction Account subject to the following provisions. Effective for withdrawals
made on or after January 1, 1989, a withdrawal shall be considered to have been
made on account of a financial hardship if such withdrawal is (i) made on
account of an immediate and heavy financial need of the Participant and (ii) is
necessary to satisfy such financial need. The determination of the existence of
an immediate and heavy financial need and of the amount necessary to meet the
need (including amounts necessary to pay any federal, state, or local income
taxes or penalties reasonably anticipated to result from the withdrawal) shall
be made in a nondiscriminatory manner and after appropriate documentation is
submitted and only after the approval of the Committee.
(1) A withdrawal will be deemed to be made on account of an
immediate and heavy financial need of the Participant as defined by the
IRS regulations and which currently include:
(a) Medical expenses described in Code Section 213(d)
which are incurred by the Participant, the Participant's
spouse, or any dependents of the Participant (as defined in
Code Section 152) or necessary for these persons to obtain
medical care as described in Code Section 213(d);
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<PAGE>
(b) Purchase (excluding mortgage payments) of a
principal residence for the Participant;
(c) Payment of tuition and related educational expenses
for the next twelve (12) months of post-secondary education
for the Participant, his or her spouse, children or dependents
as defined in Code Section 152; or
(d) The need to prevent the eviction of the Participant
from his principal residence or foreclosure on the mortgage of
the Participant's principal residence.
(2) A withdrawal will be deemed necessary to satisfy an
immediate and heavy financial need of a Participant if the Employee
represents that the need cannot be relieved:
(a) Through reimbursement or compensation by insurance
or otherwise;
(b) By liquidation of the Participant's assets to the
extent that such liquidation would not cause an immediate and
heavy financial need;
(c) By cessation of Compensation Reduction
Contributions under the Plan; or
(d) By other distributions or loans from this Plan or
any other plan or by borrowing from commercial sources on
reasonable terms.
6.9 DISTRIBUTIONS TO ALTERNATE PAYEES
Notwithstanding the above, in the event any portion of a Participant's
Account becomes payable to an alternate Payee because of a qualified domestic
relations order, such Alternate Payee may apply for and receive an immediate
distribution of the entire amount he is entitled to under the Plan as set forth
in Section 6.7.
6.10 ELIGIBLE ROLLOVER DISTRIBUTIONS
(A) Direct Rollover. In the case of a distribution after December 31,
1992 that would be an eligible rollover distribution within the meaning of Code
Section 402 if made to the Participant or Beneficiary ("distributee"), the
distributee may elect, to the extent required by law and regulation and in the
manner prescribed by the Committee, to have such distribution paid directly to
an eligible retirement plan (as defined in Code Section 401 (a)(31)). The amount
of such direct rollover shall be limited to the amount of the eligible rollover
distribution which would otherwise be includible in the distributee's gross
income
31
<PAGE>
in the absence of a direct transfer and without regard to the rollover rules of
Code Sections 402 and 403.
(B) Withholding. In the case of an eligible rollover distribution which
is not directly transferred to an eligible retirement plan pursuant to
Subsection (A) above, the Plan shall reduce the amount of the distribution (or
otherwise withhold) by the amount of the tax required to be withheld by law and
regulations.
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SECTION 7 - BENEFICIARIES
7.1 DESIGNATION OF BENEFICIARY OR BENEFICIARIES
Any Participant may, by instrument in writing, executed and delivered
to the Employer during his lifetime, designate a Beneficiary or Beneficiaries to
whom distribution of his interest in the Trust shall be made in the event of his
death prior to the receipt of his entire interest in the Trust, and he may
designate the proportions of his Accounts to be distributed to each such
designated Beneficiary if there be more than one. Any such designation may be
revoked or changed by the Participant or former Participant at any time, and
from time to time, by similar instruments in writing delivered as aforesaid.
Notwithstanding the preceding, in the event that a married Participant
desires to have his interest distributed to a Beneficiary other than his spouse,
his spouse must first consent in writing to this distribution and to the
specific Beneficiary. The spouse's consent must be witnessed by a Plan
representative or Notary Public and must acknowledge that the spouse is aware of
the effect of such consent.
The spousal consent specified herein shall not be required, however, if
(i) the Participant establishes, to the satisfaction of the Plan representative,
that such consent may not be obtained because there is no spouse, or the spouse
cannot be located, or (ii) such consent may, under U.S. Treasury Department
Regulations, be waived. Moreover, such spousal consent shall in no event be
transferable (i.e., it is applicable only to the spouse so consenting, and not
to any subsequent spouse of the Participant).
The spousal consent required for Beneficiary designations must be made
during the period beginning with the first day of the Plan Year in which the
Participant attains age 35 and ending on the date of the Participant's death;
provided, however, to the extent permitted under applicable regulations, the
spouse may validly consent to a Beneficiary designation prior to the first day
of the Plan Year in which the Participant attains age 35.
If there is no designated Beneficiary living upon the death of a
Participant or former Participant or if all such designated Beneficiaries die
prior to the full distribution of his interest, the then legal representative of
the last surviving of the Participant and the designated Beneficiaries, or if
the Employer fails to receive notice of the appointment of any such legal
representative within one year after such death, the heirs at law of such
survivor (in the proportions in which they would inherit his intestate personal
property) shall be the Beneficiary to whom the then remaining balance of such
interest shall be distributed.
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7.2 MISSING BENEFICIARY(IES); RIGHT OF EMPLOYER TO MAKE A
PRESUMPTION OF DEATH
If the Employer, after reasonable inquiry, is unable within one year to
determine whether or not a designated Beneficiary did in fact survive the event
that entitled him to receive distribution of any sum hereunder, it shall be
conclusively presumed that such Beneficiary did in fact die prior to such event.
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SECTION 8 - PARTICIPANT LOANS
8.1 PARTICIPANT LOANS
(A) Administration - Loans shall be made available in writing or by any
other means authorized by the Committee. Any Participant who is a "party in
interest" to the Plan as that term is defined in Section 3(14) of ERISA
(hereinafter collectively referred to as "Eligible Borrowers"), may apply for a
loan from the Plan (hereinafter referred to as a "Participant Loan"). Eligible
Borrowers requesting a Participant Loan from the Plan may obtain and complete a
loan application. An Eligible Borrower may have only two loans outstanding from
this Plan at any one time and no loan shall be made in an amount less than
$1,000. Loans may be made as soon as administratively feasible following the
request of the Eligible Borrower. The approval or disapproval of any loan
application filed pursuant to this Section will be based on the requirements of
ERISA, the Code, the Plan and nondiscriminatory rules and procedures established
by the Committee.
(B) Limitations - The total amount of Participant Loans from the Plan
outstanding to any Eligible Borrower, when combined with all loans from all
Plans maintained by the Company and any Employer, shall not exceed the lesser
of: (i) $50,000,00 (reduced by principal repayments made during the previous
year on any Participant Loans from the Plan); or (ii) 1/2 of the Eligible
Borrower's vested, nonforfeitable interest in his Accounts under the Plan.
(C) Treated as Investment - All Participant Loans granted to an
Eligible Borrower under this Section will be considered investments of the
Accounts of such Eligible Borrower and the principal and interest payments made
by him will be credited to his Accounts. For purposes of determining the extent
to which the Eligible Borrower's Accounts share in Trust income, gains, losses
and expenses, if any, his Accounts' balances will be reduced by the unpaid
amount of any outstanding Participant Loan as of any appropriate Valuation Date
(D) Interest - The interest rate charged on any Participant Loan shall
be a reasonable rate comparable to prevailing interest rates charged by
commercial lenders under similar circumstances.
(E) Security - Participant Loans shall be secured by the Eligible
Borrower's Accounts under the Plan, except that no more than 50% of the value of
the Eligible Borrower's vested, nonforfeitable Accounts balances at the time the
Participant Loan is made may be used to secure the principal amount of all
Participant Loans of the Eligible Borrower.
(F) Repayment - The repayment provisions of any Participant Loan will
be determined at the time the loan is made, subject to the requirements of this
Subsection and applicable law. Any Participant Loan shall provide for repayment
pursuant to a level amorti-
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<PAGE>
zation schedule with payments not less frequently than quarterly. In no event,
however, shall the term of any Participant Loan exceed five (5) years. In order
to receive a Participant Loan, an Eligible Borrower who is also an Employee of
the Company must agree to repay the loan by having the Company withhold from the
pay for the Eligible Borrower an amount sufficient to meet any installment
obligation of the loan, or any portion thereof. Any and all amounts so withheld
by the Company will be remitted to the Trustee on a timely basis as an
installment on the loan. An Eligible Borrower shall be entitled to prepay the
entire outstanding balance of any Participant Loan without penalty at any time.
In the event an Eligible Borrower has not repaid the entire Participant Loan at
his Severance from Service Date, the Committee shall require that the
Participant repay the loan by check payable to the Plan or by such other means
as may be mutually agreed upon by the Committee and the Eligible Borrower. The
Company shall remit such payments to the Trustee on a timely basis. Loan
repayments will be suspended under this Plan as permitted under Section
414(u)(4) of the Code.
(G) Disclosure - Every Eligible Borrower who applies for a Participant
Loan will be entitled to receive from the Committee a statement of the charges
involved in his loan transaction, including the dollar amount and annual
interest rate of the finance charge, and such other disclosure information as
may be required by applicable law.
(H) Default - Failure to pay principal and interest when due (or within
such grace periods as are permitted by applicable law) or any violation of the
terms of the note executed between the Plan and an Eligible Borrower shall
constitute an event of default. In the event of default, the Committee shall
have the right to declare any unpaid balance due and payable, and to foreclose
on any security interest. Further, at the earliest date on which an Eligible
Borrower is entitled to receive a distribution from the Plan in accordance with
ERISA and the Code, the Committee shall have the right to apply the Eligible
Borrower's interest in the Plan against the unpaid amount, which amount shall in
such event be considered a distribution to the Eligible Borrower.
(I) Loan Guidelines - The Committee shall issue written loan policy
guidelines, which shall form part of the Plan, describing the procedures and
conditions for making loans, and may revise those guidelines at any time, and
for any reason. The Committee shall have the complete discretion to approve or
disapprove any loan application filed pursuant to this Section. Any such
approval or disapproval will be based on the requirements of ERISA, the Code,
the Plan and nondiscriminatory rules and procedures established by the
Committee.
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<PAGE>
SECTION 9 - ADMINISTRATION
9.1 PLAN ADMINISTRATOR
The "Plan Administrator", within the meaning of ERISA, is the Company.
The employer shall have complete charge of the administration of the Plan. The
Company is the "named fiduciary" within the meaning of ERISA.
The Plan Administrator shall have the authority to direct the Trustee
to invest all or a portion of the Trust Fund through any common or collective
trust fund or pooled investment fund, including collective investment funds
maintained by American Express Trust Company or its successor, for the
collective investment of funds held by it in a fiduciary capacity.
9.2 THE ADMINISTRATIVE COMMITTEE
The day-to-day administration of the Plan shall be the responsibility
of the Company's Employee Benefits Committee -- herein called the "Committee".
Each member of the Committee shall serve without remuneration, but shall be
reimbursed for expenses incurred in the performance of his duties.
The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, day-to-day administrative functions within the framework of policies,
interpretations, rules, practices, and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Participant to the Committee in accordance with the
claims review procedures provided in Section 10.2. Any decisions which call for
interpretations of Plan provisions not previously made by the Committee shall be
made only by the Committee. The Administrative Delegate shall not be considered
a fiduciary with respect to the services it provides.
9.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE
The Committee may appoint a Secretary who may, but need not be, a
member of the Committee. The Committee may employ such agents and such clerical
and other services, and such legal counsel, other consultants, and accountants
as may, in the opinion of the Committee, be required for the purposes of
properly administering the Plan.
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9.4 EXPENSES OF ADMINISTRATION
The Employer is not required, but may, at its discretion, pay the
expenses of administration of the Plan, including the fees and expenses of the
Trustee. If such expenses of administration are not so paid by the Employer,
they shall be paid by the Trustee from the Trust Fund. The Trustee, Investment
Adviser and recordkeeper of the Plan (collectively referred to as "Service
Providers") will receive reasonable compensation as may be agreed upon from time
to time between the Company or the Committee and such Service Providers. To the
extent permitted by law, such compensation shall be paid from the Trust Fund
unless paid by the Company.
9.5 ACTS OF THE COMMITTEE
The Committee shall give to the Trustee any order, direction, consent
or advice required under the terms of the Plan or the Trust Agreement, and the
Trustee shall be entitled fully to rely on any instrument delivered to it
evidencing the action of the Committee.
9.6 INTERPRETATIONS
The Committee shall have the exclusive right to make any finding of
fact necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of the eligibility for and the amount of any
benefit payable under the Plan. The Committee shall have the exclusive right to
interpret the terms and provisions of the Plan and to determine any and all
questions arising under the Plan or in connection with the administration
thereof, including, without limitation, the right to remedy or resolve possible
ambiguities, inconsistencies, or omissions, by general rule or particular
decision, with such interpretations or determinations to be finally conclusive
and binding on all parties affected thereby. The Committee shall make, or cause
to be made, all reports or other filings necessary to meet the reporting and
disclosure requirements of ERISA which are the responsibility of "plan
administrator" under ERISA. To the extent permitted by law, all findings of
fact, determinations, interpretations, and decisions of the Committee shall be
conclusive and binding upon all persons having or claiming to have any interest
or right under the Plan. Notwithstanding the foregoing, certain day-to-day
administrative functions may be delegated pursuant to a written agreement to an
Administrative Delegate.
Notwithstanding any provision in the Plan to the contrary, Compensation
Reduction Agreements and cancellations or amendments thereto, investment
elections, changes or transfers, loans, withdrawal decisions, and any other
decision or election by a Participant (or Beneficiary) under the Plan may be
accomplished by electronic or telephonic means which are not otherwise
prohibited by law and which are in accordance with procedures and/or systems
approved or arranged by the Committee or its Administrative Delegate.
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<PAGE>
9.7 LIABILITY OF THE COMMITTEE
The members of the Committee, and each of them, shall be free from
liability for their acts and conduct in the administration of the Plan, and the
Employer shall indemnify them and hold them, and each of them, harmless from the
effects and consequences of their acts and conduct in their official capacity,
except to the extent that such effects and consequences result from their
failure to exercise ordinary care and reasonable diligence. In any event, the
Committee shall be deemed to have exercised ordinary care and reasonable
diligence if it shall have relied in good faith upon any written information
furnished to it by an Employee or Participant, the Employer, the Investment
Adviser, the Trustee, or by any actuary, employee benefit plan consultant,
counsel, accountant or other person employed, with or without remuneration, by,
the Employer for purposes of the Plan.
9.8 APPLICABLE LAW
The Plan will be construed and enforced in accordance with the laws of
the State of Wisconsin and all provisions of the Plan will be administered in
accordance with the laws of the said State, to the extent not superseded by
ERISA.
9.9 PLAN FIDUCIARIES; ALLOCATION OF RESPONSIBILITIES AMONG THEM
Under ERISA and Regulations made pursuant to ERISA, the Employer, the
Trustee, the Committee, the Plan Administrator and the Investment Adviser are
"Plan Fiduciaries." All Plan Fiduciaries shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to them under
the Plan document and the Trust Agreement. In general, the Employer, acting
through a majority of its Board of Directors or its designated committee, shall
have the sole responsibility to terminate the Plan, in whole or in part, in
accordance with Section 11 hereof and sole responsibility to appoint and remove
the Trustee. The Plan Administrator shall have ultimate responsibility for the
administration of the Plan. The Committee shall determine an allocation of Plan
assets in consideration of Plan liabilities, establish investment guidelines,
select and evaluate money managers and investment alternatives and review and
approve investment transactions and strategy. The Committee shall also have such
other duties and responsibilities as are described in the applicable provisions
of this Section 9 together with such other duties and responsibilities as may be
delegated to them by a majority of the Board of Directors of the Employer or its
designated committee or the Plan Administrator from time to time. The Trustee
shall have the responsibility of the administration of the Trust and for the
custody and management of the assets held in the Trust Fund to the extent
provided in the Trust Agreement and any contracts or agreements entered into by
and between the Trustee and the Investment Adviser.
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<PAGE>
9.10 RELIANCE ON CO-FIDUCIARIES
Each Fiduciary may rely upon any direction, information or action of
another Fiduciary as being proper under the Plan, and shall not, under normal
circumstances, be required to inquire into the propriety of any such direction,
information or action. Each Fiduciary shall be responsible for the proper
exercise of his own powers, duties, responsibilities and obligations under this
Plan and shall not be responsible for any breach of-fiduciary responsibility by
another Fiduciary ("other Fiduciary") unless he participates knowingly in, or
knowingly undertakes to conceal an act or omission of such other Fiduciary,
knowing such act or omission is a breach; or by his failure to comply with
Section 9 hereof in the administration of his specific responsibilities
hereunder he has enabled such other Fiduciary to commit a breach; or he has
knowledge of a breach by such other Fiduciary and fails to make reasonable
efforts under the circumstances to remedy the breach. No Fiduciary guarantees
the Trust Fund in any manner against investment loss or depreciation in asset
value.
9.11 FIDUCIARY DUTIES
All Fiduciaries shall discharge their duties solely and exclusively in
the interest of the Participants and Beneficiaries and for the exclusive
purposes of providing benefits to Participants and their Beneficiaries and
defraying the reasonable expenses of administering the Plan and Trust. They
shall discharge their duties with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent man, acting in a like capacity
and familiar with such matters, would use in the conduct of an enterprise of a
like character and with like aims.
9.12 PROHIBITED TRANSACTIONS TO BE AVOIDED
The Fiduciaries shall not do any action prohibited under or in
violation of Part 4 of Title I of ERISA or which would subject any person or the
Employer to imposition of a tax under Section 4975 of the Code.
9.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR
The Plan Administrator shall prepare, or cause to be prepared, and
shall furnish, or cause to be furnished, to Participants and Beneficiaries, and
to the Secretary of Labor or his delegate, and to the Secretary of the Treasury
or his delegate, such plan descriptions, summaries, annual and other reports,
registration statements, notifications and other documents as may be required by
ERISA and the Code and regulations thereunder. The Plan Administrator shall
exercise such authority and responsibility as it deems appropriate in order to
comply with ERISA and the Code and regulations thereunder relating to records of
the Service of all Participants and the percentage of their Accounts which is
nonforfeitable under the Plan.
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<PAGE>
9.14 DATA SUPPLIED BY EMPLOYER
The Employer shall advise the Committee, in writing, of all data which
may be reasonably necessary in order properly to credit the Employer
Contribution Matching Accounts or Compensation Reduction Accounts of
Participants and to determine the proper allocation of respective Employer
contributions; or to determine the eligibility, Compensation, Service, and other
matters required to be determined relating to Employees of the Employer. The
Plan Administrator or Committee shall be fully protected in acting upon any such
data.
9.15 PARTIAL EXCULPATION
The Committee or the Plan Administrator (as appropriate) shall incur no
personal liability of any nature in connection with any failure to act or in
respect of any act taken in good faith in the management and administration of
the Plan and in carrying out the directions of the Employer, except as may
otherwise be provided by ERISA. The Committee or the Plan Administrator shall be
indemnified and held harmless by the Employer from and against any such personal
liability, including all expenses reasonably incurred in its defense.
41
<PAGE>
SECTION 10 - PROVISIONS RELATING TO PARTICIPANTS
10.1 INFORMATION REQUIRED OF PARTICIPANTS
Each Participant, and, if applicable, each Beneficiary of a deceased
Participant, shall furnish the Committee (or the Plan Administrator) with such
information as the Committee (or the Plan Administrator) shall deem necessary
and desirable for purposes of administering the Plan, and the provisions of the
Plan relating to any payments hereunder to or on account of any Participant,
former or deceased Participant are conditional upon such person's furnishing
promptly such true, full and complete information as the Committee (or the Plan
Administrator) may request.
10.2 CLAIMS PROCEDURE
(A) Applications for Benefits Not Required: A formal request for a
distribution under the Plan is not required of any Participant or Beneficiary
entitled thereto.
(B) Claims for Benefits Not Received: Any claim for benefits not
received shall be made in writing to the Committee (or the Plan Administrator).
The Committee (or the Plan Administrator) shall consider such claim and shall,
within 60 days next following receipt of same either approve it or deny it. If
the Committee (or the Plan Administrator) shall deny such claim, it shall, by
written notice directed to the claimant at the address shown on the claim (or in
the absence thereof, the last known address of the claimant, as shown on the
records of the Employer) inform the claimant of such denial, including in such
written notice, as a minimum, the following:
(1) The specific reason or reasons for the denial;
(2) Reference to the specific provisions of the Plan, on which
such denial is based;
(3) A description of any additional material or information
necessary for the claimant to perfect his claim and a brief description
of why such additional information is necessary; and
(4) A brief explanation of the appeals procedure which is
available to him, which, in essence, is described in paragraph (C)
below.
(C) Appeals Procedure Following Initial Denial of Claim: Each claimant
whose claim for a benefit under the Plan has been denied shall have the right to
appeal the decision to the Committee (or the Plan Administrator) in accordance
with the following procedures:
42
<PAGE>
(1) Such appeal must be in writing, over the signature of the
claimant whose claim was so denied, and filed with the Committee (or
the Plan Administrator), addressed and delivered, within the 60-day
period next following the initial denial of same, either by hand or by
the United States Postal Service, postage fully prepaid.
(2) The claimant, or his duly authorized representative (such
as, but not by way of limitation, legal counsel) shall have the right
at all reasonable times to examine Plan documents related to his claim
and to submit to the Committee (or the Plan Administrator), issues,
comments and responses, provided that they shall be in writing and
delivered to the Committee (or the Plan Administrator) as described in
subparagraph (1) above.
(3) The Committee (or the Plan Administrator) shall render its
decision as promptly as practicable, but not later than 60 days after
receipt of the claimant's appeal from the initial denial by the
Committee (or the Plan Administrator).
(D) Nature of Content of Written Notices to Claimants: Notwithstanding
any provision hereof to the contrary, all written notices to claimants regarding
their claims for benefits under the Plan, shall be expressed in terms calculated
to be understood by the average claimant and shall include specific reasons for
the decision -- whether for or against the claimant -- and specific references
to the pertinent provisions of the Plan on which the decision was based.
10.3 RIGHTS IN TRUST FUND
No Participant or other person shall have any interest in, or right to,
any part of the earnings of the Trust Fund, or any rights under the Trust Fund,
or any part of the assets thereof, except as and to the extent expressly
provided in the Plan.
10.4 BENEFITS NOT ASSIGNABLE
Except as provided in Code Section 401(a)(13), no Account in the Trust
Fund shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
null and void; nor shall any such account be liable for, or subject to, the
debts, contracts, liabilities, engagement, or torts of the person entitled to
such Account.
43
<PAGE>
10.5 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN
The establishment and maintenance of the Plan shall not be construed as
conferring any legal rights upon any Employee to the continuation of his
employment by the Employer, nor shall the Plan interfere with the right of the
Employer to discharge any Employee or Participant.
10.6 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER
Notwithstanding the provisions of Section 10.4, the Plan will recognize
a "qualified domestic relations order" which shall be a judgment, decree or
order (including approval of a property settlement agreement) that meets the
requirements of (A), (B), and (C) below:
(A) the order must relate to child support, alimony, property rights to
a spouse, former spouse, child or dependent of a Participant, and must be issued
pursuant to a state domestic relations law;
(B) the order must include (i) the name and address of the Participant
and alternate payee, (ii) the amount or percentage of benefits payable to the
alternate payee (or the manner in which the amount or percentage is to be
determined), (iii) the period or number of payments involved, and (iv) the exact
name of the plan to which the order applies; and
(C) the order cannot require a type or form of benefit or option not
otherwise offered under the Plan, cannot require the Plan to provide increased
benefits (determined on an actuarial basis), and cannot affect benefits already
the subject of a previous qualified domestic relations order.
A distribution to an alternate payee will be made at the time described in
Section 6.9.
The Committee shall notify any Participant and alternate payee of the
receipt of any order by the Plan and shall inform such Participant and alternate
payee of the Plan's procedures for determining whether the order meets the
requirements described above in this Section 10.6. Such procedures shall comply
with the requirements set forth in Code Section 414(p) and Section 206(d) of
ERISA, and any written guidelines that may be issued by the Committee, which
shall form part of the Plan, describing the procedures for determining qualified
domestic relation orders.
44
<PAGE>
SECTION 11 - MERGER OR CONSOLIDATION OF PLAN; TERMINATION; AMENDMENT
11.1 MERGER, TRANSFER OR CONSOLIDATION OF PLAN WITH OTHER PLANS
The Plan may be merged or consolidated with or the assets transferred
from or to any other retirement plan or program. In the event that the Plan
shall be merged or consolidated with, or the assets thereof transferred from or
to, any such retirement plan or program then the benefits standing to the credit
of each Participant, former Participant, Beneficiary or other person entitled to
benefits hereunder at that time which would become payable if the Plan were then
terminated, shall not be diminished as a result of such merger, consolidation or
transfer of assets, and such merger, consolidation or transfer of assets shall
comply in all respects with Section 414(1) of the Code.
11.2 FUTURE OF THE PLAN: AMENDMENT
The Employer hopes and expects to continue the Plan indefinitely, but
necessarily reserves the right, at any time, to discontinue its contributions to
the Trust, as herein provided. While each Employer contemplates carrying out the
provisions of the Plan indefinitely with respect to its Employees, no Employer
shall be under any obligation or liability whatsoever to maintain the Plan for
any minimum or other period of time. The Company does hereby expressly and
specifically reserve the sole and exclusive right at any time by action of the
Committee to amend, modify, or terminate the Plan. The Committee's right of
amendment, modification, or termination as aforesaid shall not require the
assent, concurrence, or any other action by any Employer notwithstanding that
such action by the Company may relate in whole or in part to persons in the
employ of the Employer. However, no such modification or amendment shall permit
any part of the Trust Fund to be used for, or diverted to, purposes other than
for the exclusive benefit of the Participants, their Beneficiaries, or their
estates, and provided further, that no such modification or amendment shall
operate to reduce or eliminate the Account of any Participant or Beneficiary
acquired prior to the effective date of such modification or amendment unless
such Participant or Beneficiary and all such persons shall have consented to
such modification or amendment, in writing.
If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the Participant's
nonforfeitable percentage or if the Plan is deemed amended by an automatic
change to or from a top-heavy vesting schedule, each Participant with at least
three (3) years of Service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change, to have the nonforfeitable
percentage computed under the Plan without regard to such amendment or change.
The period during which the election may be made shall commence with the date
the amendment is adopted or deemed to be made and shall end in the latest of:
(1) sixty (60) days after the amendment is adopted, (2) sixty (60) days after
the amendment becomes effective, or (3) sixty (60) days after the Participant is
issued written notice of the
45
<PAGE>
amendment by the Employer. Furthermore, no amendment to the Plan shall have the
effect of decreasing a Participant's vested interest determined without regard
to such amendment as of the later of the date such amendment is adopted or the
date it becomes effective.
11.3 TERMINATION OF THE PLAN
The Plan may be terminated in whole or in part at any time by
appropriate action of the Board of Directors of the Company or its designee.
Upon any termination of the Plan in its entirety, or with respect to any
Employer, the Company shall give written notice thereof to the Plan
Administrator, the Trustee, and any Employer involved.
In the event an Employer terminates its connection with the Plan, or in
the event an Employer is dissolved, liquidated, or shall by appropriate legal
proceedings be adjudged bankrupt or declared insolvent, or in the event judicial
proceedings of any kind result in the involuntary dissolution of an Employer,
the Plan shall be terminated with respect to such Employer. The merger,
consolidation, or reorganization of an Employer, or the sale by it of all or
substantially all of its assets, shall not terminate the Plan if there is
delivery to such Employer by the Employer' successor or by the purchaser of all
or substantially all of the Employer's assets, of a written instrument
requesting that the successor or purchaser be substituted for the Employer and
agreeing to perform all the provisions hereof which such Employer is required to
perform. Upon the receipt of said instrument, with the approval of the Company,
the successor, or the purchaser shall be substituted for such Employer herein,
and such Employer shall be relieved and released from any obligations of any
kind, character, or description herein or in any trust agreement imposed upon
it.
In the event of any such full or partial termination of the Plan, or
the permanent discontinuance of contributions hereunder, the rights of each
Participant to the credit balance of his individual Accounts then held under the
Plan shall be fully vested and nonforfeitable. As promptly as practicable after
any such event, the Plan Administrator shall direct distribution of the assets
of the Trust Fund -- after allowance for the expenses of any such termination or
discontinuance -- as then constituted, in the amount required to pay to each
Participant concerned the credit balance, if any, to his Accounts, determined as
of the date of such termination or discontinuance, and shall direct distribution
of the assets of the Trust Fund in the proportion which the credit balances to
all Participants' Accounts bear to each other, without reference to the period
of Service of the Participants.
Such distribution shall be effected, at the advice and direction of the
Plan Administrator, in respect of all Participants affected, either by (i) the
immediate distribution of the amounts then due and payable to the Participants
- -- or, if applicable, to their Beneficiaries -- or (ii) by retaining their
Accounts hereunder and effecting distributions thereof in accordance with the
provisions of Section 6.4.
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SECTION 12 - TOP HEAVY PLAN PROVISIONS
12.1 TOP HEAVY PLAN DEFINITIONS
Definitions relating to Top Heavy Plan provisions are as follows:
(A) Top Heavy: This Plan shall be considered "Top Heavy" if, as of the
Determination Date, the aggregate of the Accounts of Key Employees under the
Plan exceeds sixty percent (60%) of the aggregate of the Accounts of all
Participants under the Plan, as determined in accordance with Code Section
416(g). Such determination shall be made after aggregating all other plans of
the Employer which are included in the Required Aggregation Group and after
aggregating any other such plan(s) of the Employer which may be included in the
Permissive Aggregation Group, if such permissive aggregation thereby eliminates
the Top Heavy status of any plan within such Permissive Aggregation Group. The
Plan shall be deemed "Super Top Heavy" if, as of the Determination Date, the
Plan would meet the test specified above for being a Top Heavy plan if ninety
percent (90%) were substituted for sixty percent (60%) in each place it appears
in this subsection (A).
Any rollover contribution by a Participant shall not be taken into
account in determining whether the Plan is Top Heavy (or whether any aggregation
group which includes the Plan is a Top Heavy group).
If any Participant is a Non-Key Employee with respect to the Plan for
any Plan Year, but such Participant was a Key Employee with respect to the Plan
for any prior Plan Year, any Account balance of such Participant shall not be
taken into account for purposes of determining whether the Plan is Top Heavy.
Notwithstanding the above, if an individual has not performed services
for the Employer at any time during the 5-year period ending on the
Determination Date, any Account balance of such individual shall not be taken
into account in determining whether the Plan is Top Heavy.
(B) Determination Date: For purposes of determining whether the Plan is
Top Heavy for a particular Plan Year, the "Determination Date" shall be the last
day of the Plan Year.
(C) Top Heavy Valuation Date: For purposes of determining the value of
the Plan Accounts under this Section 12, the "Top Heavy Valuation Date", shall
be the same date as the Determination Date.
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<PAGE>
(D) Key Employee: A "Key Employee" is any Employee (including a
Beneficiary of such Employee) who at any time during the Plan Year or any of the
four (4) preceding Plan Years is one of the following:
(1) An officer of the Employer or an Affiliated Employer (but
in no event shall more than fifty (50) Employees, or if less, the
greater of three (3) or ten percent (10%) of all Employees be taken
into account under this paragraph (1) as Key Employees).
Notwithstanding, an officer of the Employer will not be considered a
"Key Employee" under this subsection unless he earned more than
one-half (1/2) times an amount equal to the dollar limit under Code
Section 415(b)(1)(A) adjusted each Plan Year to take into account any
applicable cost-of-living adjustment provided for that year pursuant to
regulations promulgated by the Secretary of the Treasury or his
delegate under Section 415(d) of the Code:
(2) One of the ten (10) Employees owning (or considered as
owning within the meaning of Code Section 318) both a 1/2% interest and
the largest interests of the Employer if such Employee's annual
Compensation is in excess of the dollar limit (adjusted for
cost-of-living) as set forth in paragraph (D)(1) hereof;
(3) A person owning (or considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the total
combined voting power of the Employer; or
(4) A person who has an annual Compensation from the Employer
of more than one hundred fifty thousand dollars ($150,000) and would be
described in paragraph (3) hereof if one percent (1%) were substituted
for five percent (5%). Notwithstanding, for purposes of applying Code
Section 318 to the provisions of this subsection (D), subparagraph (C)
of Code Section 318(a)(2) shall be applied by substituting five percent
(5%) for fifty percent (50%). In addition, the rules of subsections
(b), (d) and (m) of Code Section 414 shall not apply for purposes of
determining ownership in the Employer under this subsection (D).
(E) Non-Key Employee: A "Non-Key Employee" is any Employee (including a
Beneficiary of such Employee) who is not a Key Employee.
(F) Required Aggregation Group: For purposes of determining whether the
Plan is Top Heavy for a particular Plan Year, the "Required Aggregation Group"
shall include (1) each qualified plan of the Employer in which at least one Key
Employee participates or participated at any time during the determination
period (regardless of whether the plan has terminated) and (2) any other
qualified plan of the Employer which enables a plan described in (1) above, to
meet the requirements of Sections 401(a)(4) or 410 of the Code.
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(G) Permissive Aggregation Group: For purposes of determining whether
the Plan is Top Heavy for a particular Plan Year, the "Permissive Aggregation
Group" shall include the Required Aggregation Group of plans plus any other
plans of the Employer which when considered as a group with the Required
Aggregation Group, would continue to satisfy the requirements of Sections
401(a)(4) and 410 of the Code.
12.2 MINIMUM CONTRIBUTION REQUIREMENT
The minimum contribution allocation for such Plan Year for each
Participant who is a Non-Key Employee shall be in an amount equal to at least
three percent (3%) of such Participant's Compensation for such Plan Year. Such
Non-Key Employee shall receive a minimum contribution allocation regardless of
whether he completed 1,000 Hours of Service within such Plan Year.
Notwithstanding the foregoing minimum contribution requirement as
outlined above, such contribution shall be reduced in the following
circumstances:
(A) The percentage minimum contribution required hereunder
shall in no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions or benefits under other
qualified plans in this Plan's Required Aggregation Group; and
(B) No minimum contribution will be required (or the minimum
contribution will be reduced, as the case may be) for a Participant
under this Plan for any Plan Year if the Employer maintains another
qualified plan under which a minimum benefit or contribution is being
accrued or made for such year in whole or in part for the Participant
in accordance with Code Section 416(c).
12.3 ADJUSTMENT TO OVERALL IRC SECTION 415 LIMITATIONS
If, during any Limitation Year, the Plan is Top Heavy, the Plan
Administrator shall apply the limitations of Section 4.8 to the Participant by
substituting 1.0 for 1.25 each place it appears in the fractions described in
that Section. This Section 12.3 shall apply only if:
(1) The Plan could satisfy Section 12.2 if four percent (4%) were
substituted for three percent (3%); and
2) The Plan is not Super Top Heavy.
49
<PAGE>
IN WITNESS WHEREOF, United Wisconsin Services, Inc., and Blue Cross & Blue
Shield United of Wisconsin, by their duly authorized officers, have caused these
presents to be signed on this 14 day of August, 1997.
UNITED WISCONSIN SERVICES, INC.
[ILLEGIBLE]
-------------------------------
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
[ILLEGIBLE]
--------------------------------
CORPORATE SEAL
ATTEST:
[ILLEGIBLE]
- ------------------------------------------
Secretary
50
<PAGE>
Exhibit 10.37
UNITED WISCONSIN SERVICES, INC./
UNITY HEALTH PLANS
INSURANCE CORPORATION
1998 PROFIT SHARING PLAN
<PAGE>
1998 PROFIT SHARING PLAN
OBJECTIVES
1. To focus participant awareness on corporate and business unit
financial results and to motivate employees to strive for
financial success.
2. To motivate participants to focus on the importance of
providing excellent service to our customers and to maximize
customer satisfaction results.
ELIGIBILITY
In order to be a participant in the 1998 Profit Sharing Plan ("Plan"), the
following requirements must be met:
1. The employee must be actively at work on or before the first
day of the Plan Year, January 2, 1998, and have completed one
full year of service on the last day of the Plan Year,
December 31, 1998.
2. The employee must be continuously employed by Unity Health
Plans Insurance Corporation ("Unity") or by one or more of the
following employers: Blue Cross & Blue Shield United of
Wisconsin; United Wisconsin Services, Inc.; Compcare Health
Services Insurance Corporation; United Wisconsin Insurance
Company; United Wisconsin Life Insurance Company; Heartland
Dental Plan, Inc.; Meridian Resource Corporation; Valley
Health Plan; United Wisconsin Proservices, Inc.; United
Heartland, Inc.; Meridian Managed Care, Inc.; Meridian
Marketing Services, Inc.; and Hometown Insurance Services,
Inc. through the date of payment (anticipated to be in March
1998).
COMPONENTS OF THE PROGRAM
The components of the 1998 Profit Sharing Plan are as follows:
1. Profit Sharing of Combined Financial Results ("Corporate
Component")
2. Profit Sharing of Unity Health Plans' Financial Results
3. Profit Sharing Based on Risk Pool Withhold Available to be
Returned
4. Customer Satisfaction Modifier
Profit sharing payouts for each eligible employee will be based on a percentage
of Base Earnings paid during the Plan Year. For purposes of this Plan, Base
Earnings shall be limited to: compensation for hours actually worked, not
including overtime; holiday pay; vacation pay, not including payouts for either
accrued or unused vacation time; benefits received under Unity's Short Term
Disability Plan; sick pay; funeral pay; total compensa tion received by a
participant from Unity and from a third party for jury duty, military
2
<PAGE>
service, and serving as a witness. To be considered Base Earnings, the items
must have actually been paid during the Plan Year.
PROFIT SHARING OF FINANCIAL RESULTS
Components 1 and 2 above provide eligible employees with profit sharing when the
financial objectives on the attached schedules are achieved. The financial
performance objectives and the payout schedules are established by the
Management Review Committee of the Board of Directors ("Management Review
Committee") of United Wisconsin Services, Inc. and the Board of Directors of
Unity Health Plans.
The Combined Financial Results component of this Plan can pay out a maximum of
3% of a participant's Base Earnings. Combined Financial Results for purposes of
this Plan are based on net income as reported in the audited combined financial
statements for Blue Cross & Blue Shield United of Wisconsin. For purposes of
this Plan, Combined Financial Results shall exclude net income or loss from
"extraordinary items." "Extraordinary items" include, but are not limited to,
sale of one or more buildings, sale of one or more subsidiaries, sale of one or
more joint ventures, and sales of UWS stock by Blue Cross & Blue Shield United
of Wisconsin. The Management Review Committee shall have sole and complete
discretion to determine what constitutes "extraordinary items."
The Unity Financial Results component of the Plan is based solely on the
performance of Unity. This component of the Plan can pay out a maximum of 3% of
a participant's Base Earnings.
The Combined Financial Results component schedule and the Unity Financial
Results component schedule are on page 5 of this document.
PROFIT SHARING OF RISK POOL WITHHOLD AVAILABLE TO BE RETURNED
The Aggregate Risk Pool Withhold Return component of this Plan can pay out a
maximum of 3% of a participant's Base Earnings if 100% of the withhold is
available to be returned. The Aggregate Risk Pool Withhold Return component
schedule is also found on page 5 of this document.
CUSTOMER SATISFACTION MODIFIER
The Customer Satisfaction Modifier can increase or decrease the amount paid
under the other Profit Sharing Components. The modifier is based on customer
satisfaction surveys conducted throughout the year. Unity will be measured
according to the following schedule:
<TABLE>
<CAPTION>
-2% -1% No Change +1% +2% +3%
--- --- --------- --- --- ----
<S> <C> <C> <C> <C> <C>
89.9% or 90.0% to 91.5% to 92.6% to 94.1% to 95.6% or
less 91.4% 92.5% 94.0% 95.5% more
</TABLE>
3
<PAGE>
PAYMENT OF AWARDS
No payments will be made under any other Plan components unless a payment is
earned under the Combined Financial Results component of the Plan.
Notwithstanding the previous sentence, the Management Review Committee, at its
discretion, may award a Profit Sharing payout if such a payout is warranted.
Profit Sharing will be awarded in cash within 30 days following approval by the
Management Review Committee.
Participants who otherwise meet eligibility requirements for the Plan Year but
who die, become disabled or retire before the end of the Plan Year, will be
eligible for a pro rata payout. Participants who otherwise meet eligibility
requirements for the Plan Year but who die, become disabled or retire before the
payment date but after completing the full Plan Year of service will be eligible
for a full payout. In the case of death, payment will be made to the
participant's estate.
Employees who otherwise terminate employment with Unity prior to the payment
date will not be eligible for a Profit Sharing payout.
PLAN ADMINISTRATION
The Management Review Committee maintains overall responsibility for the Profit
Sharing Plan and is given complete discretion to administer the Plan and to
interpret and/or modify all terms and conditions of the Plan.
The Committee, at its discretion, reserves the right to amend, suspend or
terminate the Profit Sharing Plan provided that no such amendment, suspension or
termination shall reduce or impair the value of any awards after such awards are
made by the Management Review Committee.
4
<PAGE>
Exhibit 10.38
UNITED WISCONSIN SERVICES, INC.
AND
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
1998 PROFIT SHARING PLAN
<PAGE>
1998 PROFIT SHARING PLAN
OBJECTIVES
1. To focus participant awareness on Corporate and Business
Unit/Regional Area financial results and to motivate employees
to strive for financial success.
2. To motivate participants to focus on the importance of
providing excellent service to our customers and to maximize
customer satisfaction results.
ELIGIBILITY
In order to be a participant in the 1998 Profit Sharing Plan ("Plan"), the
following requirements must be met:
1. The employee must be actively at work on or before the first
day of the Plan Year, January 2, 1998, and have completed one
full year of service on the last day of the Plan Year,
December 31, 1998.
2. The employee must be continuously employed by the Corporation
through the date of payment (anticipated to be in March 1999).
For the purpose of this eligibility requirement, employees who
are laid-off with recall rights on the date of payment shall
not be considered to be employed by the Corporation. Further,
employment by one or more of the following employers shall
constitute employment by the Corporation: Blue Cross & Blue
Shield United of Wisconsin (except those employees of Blue
Cross & Blue Shield in the Government Programs Division who
work on the Medicaid subcontract); United Wisconsin Services,
Inc.; Compcare Health Services Insurance Corporation; United
Wisconsin Insurance Company; United Wisconsin Life Insurance
Company; Heartland Dental Plan, Inc.; Meridian Resource
Corporation; Valley Health Plan; United Wisconsin Proservices,
Inc.; United Heartland, Inc.; Meridian Managed Care, Inc.;
Meridian Marketing Services, Inc.; Hometown Insurance
Services, Inc.; and Unity Health Plans.
COMPONENTS OF THE PROGRAM
The components of the 1998 Profit Sharing Plan are as follows:
1. Profit Sharing of Combined Financial Results ("Corporate
Component")
2. Business Unit/Regional Area Financial Results ("Local
Component")
3. Customer Satisfaction Component
The Components are established by the Management Review Committees of the Boards
of Directors of Blue Cross & Blue Shield United of Wisconsin and United
Wisconsin Services, Inc. (collectively the "Committee").
1
<PAGE>
Profit sharing payouts for each eligible employee will be based on a percentage
of Base Earnings paid during the Plan Year. For purposes of this Plan, Base
Earnings shall be limited to: compensation for hours actually worked, not
including overtime; holiday pay; vacation pay, not including payouts for either
accrued or unused vacation time; benefits received under the Corporation's Short
Term Disability Plan; sick pay; pay for personal days, not including pay for
unused personal days; funeral pay; total compensation received by a participant
from the Corporation and from a third party for jury duty, military service, and
serving as a witness; and exam pay. To be considered Base Earnings, the item
must have actually been paid during the Plan Year.
CORPORATE COMPONENT
The Corporate Component of this Plan can pay out a maximum of 7% of a
participant's Base Earnings. The Corporate Component is based on income after
tax as reported in the audited combined financial statements for Blue Cross &
Blue Shield United of Wisconsin. For purposes of this Plan, Combined Financial
Results shall exclude net income or loss from "extraordinary items."
"Extraordinary items" include, but are not limited to, sale of one or more
buildings, sale of one or more subsidiaries, sale of one or more joint ventures,
and sales of UWS stock by Blue Cross & Blue Shield United of Wisconsin. The
Committee shall have sole and complete discretion to determine what constitutes
"extraordinary items."
LOCAL COMPONENT
The Local Component of this Plan is established individually for each Business
Unit/Regional Area. This Component can pay out a maximum of 7% of a
participant's Base Earnings. The Local Component is based on income before tax
(except for United Wisconsin Group and United Heartland which use net operating
income). The financial results of the following Business Units/Regional Areas
will be measured to determine the Local Component of the 1998 Plan:
1. Meridian Resource Corporation
2. Meridian Managed Care, Inc., Pharmacy Services, and CNR Health, Inc.
3. Heartland Dental
4. United Heartland
5. United Wisconsin Group
6. United Government Services (includes Proservices)
7. North Central Region (Blue Cross)
8. Northeast Region (Blue Cross)
9. Southeast Region - ASO
10. Southeast Region - Blue Cross & Compcare Insured (Local)
11. Southeast Region - National Business & Government Employees
12. Southwest Region (Blue Cross & Hometown Insurance Services)
13. Western Region (Blue Cross & Valley Health Plan)
14. Meridian Marketing Services, Inc.
2
<PAGE>
The Local Component schedule and the Corporate Component schedule are on page 8
of this document.
The Local Component for the following units will be measured on the average of
the payout results of the separately specified measured Local Components:
1. United Wisconsin Services Corporate will be measured on the average of
the payout results of the fourteen separately measured Local Components
listed on page two (2). In addition to regular UWS corporate functions,
"United Wisconsin Services Corporate" will include: Group Relations;
Information Support Services; Network Management; Network Financial
Services; Network Reporting and Analysis; Quality Improvement; Meridian
Marketing; HMO/Special Markets Reporting and Accounting; United 24;
Blue Cross & Blue Shield Cash Control, Cash Receipts, Financial
Statements, Group Agreement, National Accounts and Accounting; and the
Core System Migration Team.
2. Southeast Region Combined will be measured on the average of the payout
results of the separately measured Local Components for the Southeast
Region - ASO, the Southeast Region - Blue Cross & Compcare Insured
(Local), and the Southeast Region - National Business & Government
Employees.
3. Blue Cross Regional Services will be measured on the average of the
payout results of the separately measured Local Components for the
North Central Region, the Northeast Region, the Southeast Region - ASO,
the Southeast Region - Blue Cross & Compcare Insured (Local), the
Southwest Region, and the Western Region.
4. Regional Services Combined will be measured on the average of the
payout results of the separately measured Local Components for the
North Central Region, the Northeast Region, the Southeast Region - ASO,
the Southeast Region - Blue Cross & Compcare Insured (Local), the
Southwest Region, the Western Region, and Meridian Marketing Services,
Inc.
The Corporate Component schedule for the four units listed above is on Page 8 of
this document.
CUSTOMER SATISFACTION COMPONENT
The Customer Satisfaction Component can pay out a maximum of 7% of a
participant's Base Earnings. The customer satisfaction component is based on
surveys conducted throughout the year (except for United Government Services
which uses the ratio of program savings to program costs).
Each Business Unit/Regional Area will be measured individually against the
following targets:
3
<PAGE>
TARGET FOR REGIONAL AREAS
NORTH CENTRAL, NORTHEAST, SOUTHEAST - ASO,
SOUTHEAST - NATIONAL BUSINESS & GOVERNMENT
EMPLOYEES, SOUTHWEST, AND WESTERN
Each Regional Area will be measured individually against the schedule below. The
payout to Hometown Insurance Services, Inc. employees will be based on the
customer satisfaction survey results for the Southwestern Region. For purposes
of the Customer Satisfaction Component, the Western Regional Area will not
include Valley Health Plan, which will be measured separately. The Blue Cross
and Compcare subscribers of the Southeast Region - National Business &
Government Employees area will include Title 19 recipients.
<TABLE>
<CAPTION>
+1 +2 +3 +5 +7
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
88.0%-89.7% 89.8%-91.5% 91.6%-93.2% 93.3%-94.8% 94.9%-100%
</TABLE>
TARGET FOR MERIDIAN MARKETING SERVICES
Meridian Marketing Services employees will be measured on the basis of customer
satisfaction survey results collected from individual policyholders.
<TABLE>
<CAPTION>
+1 +2 +3 +5 +7
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
91.0%-92.6% 92.7%-93.9% 94.0%-95.2% 95.3%-96.8% 96.9%-100%
</TABLE>
TARGET FOR SOUTHEAST REGION -
BLUE CROSS & COMPCARE INSURED (LOCAL)
The Blue Cross and Compcare subscribers of the Southeast Region of Blue Cross &
Compcare "Local" Insured will be measured separately; however, the payout to
employees will be the same and will be based on a weighted average of the
results of both measurements.
<TABLE>
<CAPTION>
+1 +2 +3 +5 +7
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
86.0%-88.2% 88.3%-90.4% 90.5%-93.0% 93.1%-94.8% 94.9%-100%
</TABLE>
TARGET FOR VALLEY HEALTH PLAN
Valley Health Plan employees will be measured on the basis of customer
satisfaction survey results collected from its customers.
<TABLE>
<CAPTION>
+1 +2 +3 +5 +7
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
92.6%-93.7% 93.8%-94.9% 95.0%-96.1% 96.2%-97.3% 97.4%-100%
</TABLE>
TARGET FOR HEARTLAND DENTAL
Heartland Dental employees will be measured on the basis of customer
satisfaction survey results collected from its customers.
<TABLE>
<CAPTION>
+1 +2 +3 +4 +5 +6 +7
----------- ----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
86.0%-88.0% 88.1%-90.0% 90.1%-92.0% 92.1%-94.0% 94.1%-96.0% 96.1%-98.5% 98.6%-100%
</TABLE>
4
<PAGE>
TARGET FOR UNITED HEARTLAND
United Heartland employees will be measured on the basis of group satisfaction
according to the following scale:
<TABLE>
<CAPTION>
+1 +2 +3 +4 +5 +6 +7
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
93.0%-95.0% 95.1%-96.5% 96.6%-98.0% 98.1%-98.5% 98.6%-99.0% 99.1%-99.5% 99.6%-100%
</TABLE>
TARGET FOR UNITED GOVERNMENT SERVICES
United Government Services employees will be measured on the basis of ratio of
program savings to program costs according to the following schedule:
<TABLE>
<CAPTION>
+1 +2 +3 +4 +5 +6 +7
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
15:1%-22.1% 22.1:1%- 23.1:1%- 24.1:1%- 26.1:1%- 28.1:1%- 30.1:1% or
23.1% 24.1% 26.1% 28.1% 30.1% more
</TABLE>
TARGET FOR UWG
UWG employees will be measured using the following schedules:
CLAIMANT SATISFACTION: A weighted average of survey responses from STD and LTD
and dental claimants.
<TABLE>
<CAPTION>
+0.333 +0.667 +1.00 +1.333 +1.667 +2.00 2.334
------ ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
91.0%- 92.0%- 92.7%- 93.5%- 94.4%- 95.6%- 97.0%-
91.9% 92.6% 93.4% 94.3% 95.5% 97.0% 100%
</TABLE>
GROUP SATISFACTION: A weighted average of surveys of groups with claims activity
and group enrollments of new and existing groups.
<TABLE>
<CAPTION>
+0.333 +0.667 +1.00 +1.333 +1.667 +2.00 2.333
------ ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
93.0%- 95.1%- 96.1%- 97.1%- 97.6%- 98.1%- 99.1%-
95.0% 96.0% 97.0% 97.5% 98.0% 99.0% 100%
</TABLE>
AGENT SATISFACTION: An average of surveys of agents who sold UWG products to new
groups.
<TABLE>
<CAPTION>
+0.333 +0.667 +1.00 +1.333 +1.667 +2.00 2.333
------ ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
92.0%- 95.0%- 96.1%- 97.1%- 97.6%- 98.1%- 99.1%-
94.9% 96.0% 97.0% 97.5% 98.0% 99.0% 100%
</TABLE>
TARGET FOR MERIDIAN MANAGED CARE
Meridian Managed Care employees will be measured on the basis of customer
satisfaction survey results collected from its customers. The following scale
will be used:
<TABLE>
<CAPTION>
+1 +2 +3 +4 +5 +6 +7
------ ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
91.5%- 92.6%- 94.6%- 95.6%- 96.6%- 97.6%- 98.6%-
92.5% 94.5% 95.5% 96.5% 97.5% 98.5% 100%
</TABLE>
5
<PAGE>
TARGET FOR SOUTHEAST REGION COMBINED
The Customer Service Component to be used for the Southeast Region Combined
staff will be based on an average of the combined customer satisfaction results
for the Southeast Region - ASO, the Southeast Region - Blue Cross & Compcare
(Local), and the Southeast Region - National Business/Government Employees.
TARGET FOR BLUE CROSS REGIONAL SERVICES
The Customer Satisfaction Component to be used for the Blue Cross Regional
Services staff will be based on an average of the combined customer satisfaction
results for the North Central Region, the Northeast Region, the Southeast Region
- - Blue Cross & Compcare Insured (Local), the Southeast Region - ASO, the
Southwest Region, and the Western Region.
TARGET FOR REGIONAL SERVICES COMBINED
The customer satisfaction component to be used for the Regional Services
Combined staff will be based on an average of the combined customer satisfaction
results for the North Central Region, the Northeast Region, the Southeast Region
- - Blue Cross & Compcare Insured (Local), the Southeast Region - ASO, the
Southwest Region, the Western Region, and Meridian Marketing Services, Inc.
TARGET FOR UWS CORPORATE STAFF
The customer satisfaction component to be used for UWS Corporate staff will be
based on an average of the combined customer satisfaction results for all
separately measured areas. In addition to regular UWS corporate functions, Group
Relations; Investigation and Recovery Services; Pharmacy Services; Information
Support Services; Meridian Resource Corporation; Network Management; Network
Financial Services; Network Reporting and Analysis; Quality Improvement;
Meridian Marketing; HMO/Special Markets Reporting and Accounting; United 24;
Blue Cross & Blue Shield Cash Control, Cash Receipts, Financial Statements,
Group Agreement, National Accounts and Accounting, and the Core System Migration
Team will be included in the UWS Corporate staff measurement.
PAYMENT OF AWARDS
No payments will be made under the Local Component or the Customer Satisfaction
Component unless a payment is earned under the Corporate Component of the Plan.
Notwithstanding the previous sentence, the Committee, at its discretion, may
selectively award Profit Sharing payouts to specified Business Units/Regional
Areas, or portions thereof, if such payouts are warranted.
Profit Sharing will be awarded in cash within 30 days following approval by the
Committee.
The Local Component of the Plan will be prorated based on months of service for
participants who transfer from one Business Unit/Regional Area to another during
the Plan Year. The Customer Satisfaction Component will also be prorated based
on months of service for participants who transfer from one individually rated
entity (e.g. United Heartland, Meridian Marketing Services, Valley Health Plan)
to another individually rated entity during the Plan Year. For purposes of
proration, the results of the Local Components and the Customer Satisfaction
Components will be determined as of the end of the Plan Year.
6
<PAGE>
Participants who otherwise meet eligibility requirements for the Plan Year but
who die, become disabled or retire before the end of the Plan Year, will be
eligible for a pro-rata payout. Participants who otherwise meet eligibility
requirements for the Plan Year but who die, become disabled or retire before the
payment date but after completing the full Plan Year of service will be eligible
for a full payout. In the case of death, payment will be made to the
participant's estate.
Employees who otherwise terminate employment with the Corporation prior to the
payment date will not be eligible for a profit sharing payout.
PLAN ADMINISTRATION
The Committee maintains overall responsibility for the Profit Sharing Plan and
is given complete discretion to administer the Plan and to interpret and/or
modify all terms and conditions of the Plan.
The Committee, at its discretion, reserves the right to amend, suspend or
terminate the Profit Sharing Plan provided that no such amendment, suspension or
termination shall reduce or impair the value of any awards after such awards are
made by the Committee.
7
<PAGE>
Exhibit 10.39
UNITED WISCONSIN SERVICES, INC.
VOLUNTARY DEFERRED COMPENSATION PLAN
<PAGE>
UNITED WISCONSIN SERVICES, INC.
VOLUNTARY DEFERRED COMPENSATION PLAN
<TABLE>
<CAPTION>
Section Page
<S> <C>
Article I. Purpose, Definitions and Construction
1.1 Purpose 1
1.2 Definitions 2
(a) Administration Committee 2
(b) Administrative Delegate 2
(c) Adoption Agreement 2
(d) Beneficiary 2
(e) Company 3
(f) Deferral Account 3
(g) Deferral Contributions 3
(h) Deferral Form 3
(i) Disability 3
(j) Distribution Date 3
(k) Effective Date 4
(l) Insolvency 4
(m) Participant 4
(n) Plan 4
(o) Plan Year 4
(p) Trust 4
(q) Trust Agreement 5
(r) Trustee 5
1.3 Gender and Number 5
1.4 Headings 5
1.5 Plan Provisions Controlling 5
1.6 Severability 5
1.7 Applicable Law 6
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Article II. Deferral Elections, Contributions and Accounting Procedures
2.1 Availability of Deferral Election 6
2.2 Maintenance of Separate Deferral Accounts 6
2.3 Treatment of Amounts Deferred 6
2.4 Irrevocability and Nonassignability of Deferrals 7
2.5 Accounting Procedure 7
2.6 Assumption of Prior Plan Liabilities 8
Article III. Deferred Compensation Payments
3.1 Eligibility for Deferred Compensation 8
(a) Retirement or Termination 8
(b) Disability 8
(c) Death 9
3.2 Amount and Method of Payment of Deferred Compensation 9
Article IV. Trust Fund
4.1 Establishment of Trust 11
Article V. Administration
5.1 Committee to Administer Plan 12
5.2 Claims Procedure 12
Article VI. Miscellaneous
6.1 Employment Rights 13
6.2 Absence of Liability 13
6.3 Amendment and Termination 13
6.4 Company Not an Advisor 14
</TABLE>
(ii)
<PAGE>
UNITED WISCONSIN SERVICES, INC.
VOLUNTARY DEFERRED COMPENSATION PLAN
Article I. Purpose, Definitions and Construction
Section 1.1 Purpose - United Wisconsin Services, Inc., formerly
Newco/UWS, Inc. (the "Company"), acting for itself and on behalf of its
subsidiaries, hereby adopts this Voluntary Deferred Compensation Plan (the
"Plan") and separate Trust to permit certain salaried employees selected by the
Company to defer a portion of their anticipated salary and to have such deferred
salary amounts held in the separate Trust.
The Plan is being created in connection with the distribution by the
corporation formerly known as United Wisconsin Services, Inc. (currently
American Medical Security Group, Inc.), of shares in the Company in connection
with the spin-off of the managed care and specialty products business to the
Company and the assumption by the Company of the United Wisconsin Services, Inc.
name. The Company is assuming certain of the Adoption Agreements, Deferral Forms
and Beneficiary Designation Forms in effect on the Distribution Date. Further,
the Company is assuming certain obligations of the corporation formerly known as
United Wisconsin Services, Inc. (currently American Medical Security Group,
Inc.) under the United Wisconsin Services, Inc. Voluntary Deferred Compensation
Plan dated December 1, 1995 (the "Prior Plan").
It is intended that the Plan and the Trust shall constitute, and shall
be construed and administered as, an unfunded plan of deferred compensation
within the meaning of the Employee Retirement Income Security Act of 1974 as
amended ("ERISA") and the Internal
1
<PAGE>
Revenue Code of 1986, as amended (the "Code"). The Plan and Trust are not
intended to be qualified under Section 401(a) of the Code.
Section 1.2 Definitions - For purposes of this Plan, the following
words and phrases shall have the meanings set forth below unless a different
meaning is plainly required by the context.
(a) Administration Committee - means the Company's Employee
Benefits Committee -- herein called the "Committee". Each member of the
Committee shall serve without remuneration, but shall be reimbursed for expenses
incurred in the performance of his duties.
(b) Administrative Delegate - means one or more persons or
institutions to whom the Administrative Committee has delegated certain
administrative functions pursuant to a written agreement.
(c) Adoption Agreement (or Agreement) - means the separate
Adoption Agreement between a Participant and the Company, which forms a part of
the Plan, under which the Company has agreed to allow the Participant to
participate in the Plan and under which the Participant has agreed to his
participation in the Plan on the terms set forth herein.
(d) Beneficiary - means the person or persons designated by a
Participant in his most recent Beneficiary Designation Form to receive payments
under the Plan in the event of the Participant's death; provided that if the
Participant has failed to designate a Beneficiary, or if all designated
Beneficiaries predecease the Participant, any remaining distribution due under
the Plan shall be payable to the Participant's surviving spouse or,
2
<PAGE>
if none, to his surviving issue per stirpes or, if none, then to his estate.
(e) Company - means United Wisconsin Services, Inc., a
Wisconsin corporation until the Effective Date (as defined below) formerly known
as Newco/UWS, Inc., a Wisconsin corporation, acting for itself and on behalf of
its subsidiaries, and any successor thereto which assumes the rights and
obligations of the Company under the Plan and Trust Agreement.
(f) Deferral Account - means the account maintained for a
Participant to record the total of his deferred compensation under the Plan and
any adjustments relating thereto.
(g) Deferral Contributions - means contributions to the Trust
which are made by the Company pursuant to this Plan and the then current
Deferral Form.
(h) Deferral Form - means a Participant's then current
Deferral Election Form, if any, to be executed by the Participant prior to the
start of each Plan Year specifying the percentage or dollar amount of salary
elected to be deferred during the upcoming Plan Year. The Deferral Form shall
remain in effect until the end of the Plan Year for which it is executed unless
earlier revoked or amended to reduce the percentage or dollar amount of the
deferral for amounts not yet earned during such year.
(i) Disability - means such total and permanent physical or
mental disability as, in the Committee's sole and absolute discretion, would
prevent the Participant from engaging in substantially gainful employment.
(j) Distribution Date - means the date on which the
distribution, by the corporation formerly known as United Wisconsin Services,
Inc., of shares in the Company
3
<PAGE>
occurs in connection with the spin-off of the managed care and specialty
products business to the Company and the assumption by the Company of the United
Wisconsin Services, Inc. name.
(k) Effective Date - means the Distribution Date.
(l) Insolvency - means (i) the Company is unable to pay its
debts as they become due, or (ii) the Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code, or (iii) the Company is
determined to be insolvent by the Wisconsin Commissioner of Insurance.
(m) Participant - means a person who is one of the
Company-selected salaried employees who, by having executed an Adoption
Agreement with the Company, is participating in the Plan. Such person shall
cease to be a Participant after his employment with the Company terminates, or
the balance in his Deferral Account is reduced to zero ($0), whichever is later.
(n) Plan - means the United Wisconsin Services, Inc. Voluntary
Deferred Compensation Plan as set forth herein.
(o) Plan Year - means the twelve (12) month period adopted
under this Plan for reporting purposes, which is the period commencing on
January 1 and ending on December 31.
(p) Trust - means the United Wisconsin Services, Inc.
Voluntary Deferred Compensation Trust and the entire Trust estate as it may,
from time to time, be constituted, including but not limited to Deferral
Contributions, investments, income from any and all investments and any and all
other assets, property or money received by or held by the
4
<PAGE>
Trustee for the uses and purposes of the Trust.
(q) Trust Agreement - means the separate agreement between the
Company and the Trustee under which the Trust is established and maintained.
(r) Trustee - means the individual or individuals or entity or
entities appointed by the Committee to administer the Trust; provided that an
individual who is a Participant, a member of the Board of Directors of the
Company or the Chief Executive Officer of the Company may not be a Trustee.
Section 1.3 Gender and Number - Except when otherwise indicated by the
context, any masculine terminology used herein shall also include the feminine
and the definition of any term herein in the singular shall also include the
plural.
Section 1.4 Headings - The headings of the various Articles, Sections
and Subsections are inserted for convenience of reference and are not to be
regarded as part of this Plan or as indicating or controlling the meaning or
construction of any provision.
Section 1.5 Plan Provisions Controlling - In the event the terms or
provisions of the Trust Agreement or of any summary or description of the Plan
or of any other instrument, agreement, or document are in any construction
interpreted as being in conflict with the provisions of the Plan as herein set
forth, the provisions of the Plan shall be controlling.
Section 1.6 Severability - In the event any provision of the Plan shall
be held illegal or invalid for any reason, this illegality or invalidity shall
not affect the remaining provisions of the Plan, and such remaining provisions
shall be fully severable and the Plan shall, to the extent practicable, be
construed and enforced as if the illegal or invalid provision had never been
inserted therein.
5
<PAGE>
Section 1.7 Applicable Law - Subject to the intent that the Plan and
Trust be unfunded and non-qualified as provided in Section 1.1, the provisions
of the Plan shall be construed in accordance with the laws of the State of
Wisconsin, except to the extent, if any, preempted by federal law.
Article II. Deferral Elections, Contributions and Accounting Procedures
Section 2.1 Availability of Deferral Election - The Company shall make
available, in December of each Plan Year, to each Participant who is then an
employee, a Deferral Form which may be used by the Participant to designate for
deferral a portion of the salary he anticipates earning from the Company in the
upcoming Plan Year. All amounts elected to be deferred by a Participant shall be
subject to the terms and conditions of this Plan and shall be subject to FICA
taxes. No requested deferral shall be effective for any Plan Year unless the
appropriate Deferral Form is completed and filed with the Committee prior to
January 1 of the Plan Year for which the deferral is elected.
Section 2.2 Maintenance of Separate Deferral Accounts - If not done by
the Company, the Trustee shall create and maintain adequate records to disclose
the interest in the Trust of all Participants. Such records shall be in the form
of separate, individual Deferral Accounts, and credits and charges shall be made
thereto in the manner described in this Plan. The maintenance of individual
Deferral Accounts for Participants is only for accounting purposes and a
segregation of the assets of the Trust Fund to each account shall not be
required. Distribution made from an account shall be charged to that account as
of the date paid.
Section 2.3 Treatment of Amounts Deferred - Upon execution and filing
by the
6
<PAGE>
Participant of an effective Deferral Form, the Company shall make a Deferral
Contribution to such Participant's Deferral Account to be deposited in the Trust
no later than ten (10) days after the end of the payroll period(s) during which
the Participant would have otherwise been entitled to receive the amount to be
contributed by the Company except for the Participant's election pursuant to
this Plan and the Deferral Form.
Section 2.4 Irrevocability and Nonassignability of Deferrals - All
amounts credited to a Participant's Deferral Account shall be treated as having
been irrevocably deferred and no payment based on such amounts may be received
except in accordance with the eligibility requirements, terms and conditions of
this Plan. Neither the Participant nor any Beneficiary shall have any right or
ability to alienate, sell, transfer, assign, pledge, encumber or submit to
garnishment, execution or levy, either voluntarily or involuntarily, any amount
due or expected to become due under this Plan. Amounts due under this Plan shall
be paid, transferred, delivered or otherwise conveyed only to the Participant or
his Beneficiary, subject to the limitations of Section 4.1.
Notwithstanding the foregoing, a Deferral Form election may be
cancelled, or amended not more than once annually to reduce the percentage or
dollar amount of the deferral during a Plan Year for amounts not yet earned
during such year, provided that once the Deferral Form election is cancelled no
further amounts may be deferred under this Plan for such year.
Section 2.5 Accounting Procedure - Subject to the provisions hereof
relative to separate accounts, the respective Deferral Accounts of Participants
shall be adjusted as soon as is practicable after, but as of, the close of each
quarter of a Plan Year (and as of any other date if the Committee determines it
advisable for any reason) to reflect the
7
<PAGE>
deferrals to, distributions and withdrawals from, and net income or loss of the
Trust for the period then completed as deemed reasonable by the Trustee, subject
to the approval of the Committee.
In the administration of the accounts of Participants and the
allocation of Trust income or loss, appropriate adjustment shall be made in the
case of any Participant whose account, or any portion thereof, is invested in
investments held for his separate benefit.
Section 2.6 Assumption of Prior Plan Liabilities - The Company assumes,
as of the Distribution Date, the liability to pay deferred compensation to all
Prior Plan participants other than Samuel V. Miller. The Deferral Account
balance of each such Prior Plan participant under this Plan as of the
Distribution Date shall be equal to the balance in his Deferral Account under
the Prior Plan immediately prior to the Distribution Date. The liability to pay
deferred compensation to Samuel V. Miller shall remain with the Prior Plan.
Article III. Deferred Compensation Payments
Section 3.1 Eligibility for Deferred Compensation - Subject to any
limiting conditions set forth in this Plan, the Participant, or in the event of
Participant's death his Beneficiary, will become eligible for receipt of
deferred compensation under this Plan as follows:
(a) Retirement or Termination - Upon retirement or other
termination of regular employment with the Company, the Participant shall become
eligible for deferred compensation payments under this Plan.
(b) Disability - Upon cessation of active employment with the
Company as a result of Disability, Participant shall become eligible for
deferred compensation payments under this Plan.
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(c) Death - In the event of Participant's death prior to the
Participant's receipt of deferred compensation payments under the Plan reducing
Participant's Deferral Account balance to zero ($0), the Participant's
Beneficiary shall be eligible for deferred compensation payments under the Plan.
Section 3.2 Amount and Method of Payment of Deferred Compensation - The
total deferred compensation to be paid to a Participant shall be distributed to
the Participant and, upon the Participant's death, to his Beneficiary, in one of
the following modes of distribution selected by the Participant: (i) lump sum
payment; or (ii) annual installments over a period not to exceed the life
expectancy of the Participant (as determined by the Committee as of the date
payment is to commence) or 15 years, whichever is greater. Each Participant
shall notify the Company in writing of the mode of distribution he has selected
prior to the commencement of the first Plan year for which such Participant has
made a deferral election hereunder; provided, however, that if a Participant
fails to notify the Company of a mode of distribution before the deadline
prescribed by this section, he shall be deemed to have selected the installment
mode of distribution described in (ii) above. Once the mode of distribution is
determined, it shall remain in force until the Participant's account balance is
reduced to zero, except that if the Participant has an unforeseeable emergency,
as hereunder defined, or if the Participant has died and his Beneficiary has an
unforeseeable emergency, the Committee may direct that any or all of the
remaining account balance be distributed at any time as the Committee may deem
advisable and proper, but only to the extent reasonably needed to satisfy the
emergency need. "Unforeseeable emergency" means a severe financial hardship
resulting from a
9
<PAGE>
sudden and unexpected illness or accident to the Participant, the Beneficiary or
a dependent (as defined in Section 152(a) of the Code), loss of the
Participant's or Beneficiary's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant or the Beneficiary.
If a lump sum mode of distribution is used, the total deferred
compensation to be paid to a Participant or Beneficiary shall be an amount equal
to the Participant's Deferral Account balance as of the close of the Plan Year
which coincides with or follows his retirement, termination, disability or
death. A lump sum payment of deferred compensation under this Plan shall be made
within sixty (60) days following the close of the Plan Year during which the
Participant retired, died, terminated or became disabled, or, if later, within a
reasonable time after the Participant's interest is determined pursuant to the
preceding sentence.
If an installment mode of distribution is used, the first installment
payment of deferred compensation under the Plan shall be made within sixty (60)
days following the close of the Plan Year during which the Participant retired,
died, terminated or became disabled, and each annual installment payable
thereafter shall be distributed within sixty (60) days after the close of
subsequent Plan Years. The installment amount to be distributed within sixty
(60) days after the close of any Plan Year shall equal the balance of the
Participant's Deferral Account determined at the beginning of such Plan Year,
divided by the number of years remaining in the payment period over which
payment of benefits is being made.
10
<PAGE>
Article IV. Trust Fund
Section 4.1 Establishment of Trust - All Deferral Contributions under
this Plan shall be paid to the Trustee and deposited in the Trust Fund, and
shall be subject to the provisions of the Trust Agreement. Participants and
Beneficiaries have only an unsecured interest in the Trust assets in the event
of the Company's Insolvency (as defined in Section 1.2). The Company makes only
an unsecured promise to pay any deferred amounts plus income thereon in the
event of the Company's Insolvency. Subject to the foregoing limitations, all
assets of the Trust Fund, including investment income, shall be retained for the
exclusive benefit of Participants and Beneficiaries (but the Company's general
creditors shall have access to Trust assets in the event of the Company's
Insolvency and shall be used to pay benefits to such persons and to pay
administrative expenses and taxes of the Trust Fund as provided in Section 8 of
the Trust Agreement to the extent not paid by the Company and shall not revert
to or accrue to the benefit of the Company, except to the extent that
contributions made by the Company by a mistake of fact shall revert and be paid
back to the Company provided the Company has made a timely demand therefor).
The Trustee shall be required to hold the Trust assets and income for
the benefit of the Company's general creditors in the event of the Company's
Insolvency and in such case no Participant or Beneficiary shall have a preferred
claim on the Trust assets. The Committee and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the Company's
Insolvency within three (3) days of such event. When so informed, the Trustee
shall suspend payments to all Participants and Beneficiaries, and shall hold
Trust assets for the benefit of the Company's general
11
<PAGE>
creditors. In the case of the Trustee's actual knowledge of the Company's
Insolvency, the Trustee will deliver Trust assets to satisfy claims of the
Company's general creditors as directed by a court of competent jurisdiction.
Article V. Administration
Section 5.1 Committee to Administer Plan - The Committee, except as
otherwise provided in the Plan, shall administer the Plan. The Committee shall
also have the authority and discretion to engage an Administrative Delegate who
shall perform, without discretionary authority or control, day-to-day
administrative functions within the framework of policies, interpretations,
rules, practices, and procedures made by the Committee. Any action made or taken
by the Administrative Delegate may be appealed by an affected Participant to the
Committee in accordance with the claims review procedures provided in Section
5.2. Any decisions which call for interpretations of Plan provisions not
previously made by the Committee shall be made only by the Committee.
The Committee shall have the authority to direct the Trustee to invest
all or a portion of the Trust Fund through any common or collective trust fund
or pooled investment fund, including collective investment funds maintained by
Marshall & Ilsley Trust Company or its successor, for the collective investment
of funds held by it in a fiduciary capacity.
Section 5.2 Claims Procedure - The Committee shall consider all claims
by the Participant or any Beneficiary for payments under this Plan and shall
promptly notify the claimant of its action on any such claim. In the event of
any question regarding handling of the claim, the Committee shall meet with the
claimant at the Company's offices to discuss such question and to attempt to
resolve any areas of possible disagreement. If the
12
<PAGE>
claimant's concerns remain unresolved after such meeting with the Committee, the
claimant may request the Company's Board of Directors to review the matter in
dispute.
Article VI. Miscellaneous
Section 6.1 Employment Rights - Any payment under this Plan shall be
independent of, and in addition to, payments made under any other agreement or
under any qualified retirement plan which may be in force between the Company
and any Participant or Beneficiary, or any other compensation payable to
Participant or his Beneficiary by the Company. Neither this Plan nor any
Deferral Form executed in connection herewith shall be construed as (i)
constituting or creating a contract of employment, (ii) restricting either the
Company's right to discharge Participant with or without cause or Participant's
right to terminate his employment, or (iii) creating any guarantee or
representation as to the amount of compensation to be paid to Participant by the
Company during any period of regular employment.
Section 6.2 Absence of Liability - Any and all liability created to
administer this Plan and the Trust or to provide any Participant or Beneficiary
with benefits under this Plan shall be exclusively and solely that of the
Company. No member of the Committee, officer, director or employee, past,
present or future, of the Company shall have any liability to any Participant or
Beneficiary, or to any other person or entity, to provide or pay such benefits,
such liability hereby being expressly and unconditionally denied.
Section 6.3 Amendment and Termination - This Plan may be altered,
amended, or revoked by the Company, provided that no such action shall be taken
that is not allowed by Section 12 of the Trust Agreement, and provided further
that if any amendment to the
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<PAGE>
Plan or the adoption of the Plan by the Participant would constitute a
subsequent Participant deferral election that would cause a Participant or
Beneficiary to be in constructive receipt of past deferred amounts, then such
amendment or adoption will only be applicable with respect to future deferrals.
No amendment to, or termination of, the Plan shall reduce a Participant's
Deferral Account balance. Notwithstanding the foregoing, the Company may
unilaterally amend the Plan to provide that no future deferrals may be made by
Participants and to conform the Plan to ERISA and Code requirements with respect
to unfunded plans of deferred compensation.
The Plan may not be amended or terminated during the period immediately
preceding the Company's Insolvency if the intended result would be to accelerate
the payment of benefits to Participants or Beneficiaries so that the Trust
assets would be unavailable to the Company's general creditors.
Section 6.4 Company Not An Advisor - The Company offers this Plan to
Participants without assuming any responsibility or liability as an advisor or
consultant relative to tax or other aspects of this Plan and the Trust or the
payment of benefits hereunder.
14
<PAGE>
Exhibit 10.40
07/98
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C>
SECTION 1 - ESTABLISHMENT OF TRUST.............................................. 2
SECTION 2 - PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES.................... 4
SECTION 3 - TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT....................... 5
SECTION 4 - PAYMENTS TO COMPANY................................................. 8
SECTION 5 - INVESTMENT AUTHORITY................................................ 8
SECTION 6 - DISPOSITION OF INCOME............................................... 10
SECTION 7 - ACCOUNTING BY TRUSTEE............................................... 10
SECTION 8 - RESPONSIBILITY OF TRUSTEE........................................... 11
SECTION 9 - COMPENSATION AND EXPENSES OF TRUSTEE................................ 14
SECTION 10 - RESIGNATION AND REMOVAL OF TRUSTEE.................................. 14
SECTION 11 - APPOINTMENT OF SUCCESSOR............................................ 15
SECTION 12 - AMENDMENT OR TERMINATION............................................ 16
SECTION 13 - MISCELLANEOUS....................................................... 16
SECTION 14 - EFFECTIVE DATE...................................................... 17
</TABLE>
i
<PAGE>
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION TRUST
This Agreement made this 3rd day of August 1998, by and between United
Wisconsin Services, Inc., formerly Newco/UWS,Inc. (the "Company") and Marshall &
Ilsley Trust Company (the "Trustee") is being created in connection with the
distribution by the corporation formerly known as United Wisconsin Services,
Inc. (currently American Medical Security Group, Inc.), of shares in the Company
in connection with the spin-off of the managed care and specialty products
business to the Company and the assumption by the Company of the United
Wisconsin Services, Inc. name.
WHEREAS, Company has adopted the United Wisconsin Services, Inc.
Deferred Compensation Plan for Directors, the United Wisconsin Services, Inc.
Voluntary Deferred Compensation Plan and has entered into (and expects to enter
into in the future) other deferred compensation plans, contracts and agreements
providing deferred compensation to employees of the Company and its subsidiaries
(collectively referred to as the "Plans");
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plans with respect to the individuals participating in such Plans;
1
<PAGE>
WHEREAS, Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined, until paid to the Plans' participants and their
beneficiaries in such manner and at such times as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plans
as unfunded plans maintained for the purpose of providing deferred compensation
for a select group of management or highly compensated employees for purposes of
Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plans;
NOW THEREFORE,
The parties do hereby establish the Trust and agree that the Trust
shall be comprised, held and disposed of as follows:
SECTION 1 - ESTABLISHMENT OF TRUST
(a) Company has deposited contributions with the Trustee to be held,
administered and disposed of by Trustee as provided in this Trust Agreement.
2
<PAGE>
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of the Plans' participants and general creditors as herein
set forth. The Plans' participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plans and this Trust Agreement shall be mere
unsecured contractual rights of the Plans' participants and their beneficiaries
against Company. Any assets held by the Trust will be subject to the claims of
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any of the Plans'
participants or
3
<PAGE>
beneficiaries shall have any right to compel such additional deposits.
(f) Company will promptly provide Trustee with copies of all Plans and
any amendments thereto.
SECTION 2 - PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under the
Plans), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plans'
participants and their beneficiaries in accordance with such Payment Schedule.
The Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of a Plan and shall pay amounts
withheld to the appropriate taxing authorities or determine that such amounts
have been reported, withheld and paid by Company.
(b) The entitlement of a Plan's participants or his or her
beneficiaries to benefits under a Plan shall be determined by
4
<PAGE>
Company or such party as it shall designate under a Plan and any claim for such
benefits shall be considered and reviewed under the procedures set out in a
Plan.
(c) Company may make payment of benefits directly to the Plans'
participants or their beneficiaries as they become due under the terms of the
Plans. Company shall notify Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plans, Company shall make the balance of each such payment as it
falls due. Trustee shall notify Company where principal and earnings are not
sufficient.
SECTION 3 - TRUSTEE RESPONSIBILITY REGARDING
PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT
(a) Trustee shall cease payment of benefits to the Plans' participants
and their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code, or (iii) Company is
5
<PAGE>
determined to be insolvent by the Wisconsin Commissioner of Insurance.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in writing
to Trustee that Company has become Insolvent, Trustee shall determine whether
Company is Insolvent and, pending such determination, Trustee shall discontinue
payment of benefits to the Plans' participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming to be a
creditor alleging that Company is Insolvent, Trustee shall have no duty to
inquire whether Company is Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and that
provides Trustee with a reasonable basis for making a determination concerning
Company's solvency.
6
<PAGE>
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to the Plans' participants or
their beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of the Plans' participants or their beneficiaries to pursue
their rights as general creditors of Company with respect to benefits due under
the Plans or otherwise.
(4) Trustee shall resume the payment of benefits to the Plans'
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not Insolvent (or is
no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Plans' participants or their beneficiaries under the terms of the Plans for the
period of such discontinuance, less the aggregate amount of any payments made to
the Plans' participants or their beneficiaries by Company in lieu of the
payments provided for hereunder during any such period of discontinuance.
7
<PAGE>
(d) As indicated in Section 13(d), the term "Company" includes where
appropriate each subsidiary which has adopted a Plan and been permitted to
contribute to the Trust. Accordingly, this Section 3 shall be applied on an
employer-by-employer basis in the event of the Insolvency of any employer which
has adopted a Plan and been permitted to contribute to the Trust. The portion of
the Trust that will be subject to claims of general creditors of an employer,
shall be the allocable share of contributions made by that employer (as adjusted
for income, losses and distributions).
SECTION 4 - PAYMENTS TO COMPANY
Except as provided in Section 3 hereof Company shall have no right or
power to direct Trustee to return to Company or to direct to others any of the
Trust assets before all payment of benefits have been made to the Plans'
participants and their beneficiaries pursuant to the terms of the Plans.
SECTION 5 - INVESTMENT AUTHORITY
The Trustee may invest any part or all of the Trust assets in: any
common or preferred stocks, open-end or closed-end mutual funds, put and call
options traded on a national exchange, United States retirement plan bonds,
corporate bonds, debentures, convertible debentures, commercial paper, U.S.
Treasury bills, U.S. Treasury notes and other direct or indirect obligations of
the
8
<PAGE>
United States government or its agencies, improved or unimproved real estate
situated in the United States, limited partnerships, insurance contracts of any
type, mortgages, notes or other property of any kind, real or personal, options
on common stock on a nationally recognized exchange with or without holding the
underlying common stock, commodities, commodity options and contracts for the
future delivery of commodities, and any other investments the Trustee deems
appropriate, as a prudent man would do under like circumstances with due regard
for the purposes of this Trust. The Trustee may also retain in cash so much of
the Trust assets as it may deem advisable to satisfy liquidity needs of the
Trust, to deposit any cash held in the Trust assets in a bank account at
reasonable interest, and to deposit in any type of deposit of the Trustee (or of
a bank related to the Trustee within the meaning of Internal Revenue Code
Section 414(b)) at a reasonable rate of interest.
Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by Company. All rights associated with assets of
the Trust shall be exercised by Trustee or the person designated by Trustee and
shall in no event be exercisable by or rest with the Plans' participants, except
that voting rights with respect to Trust assets will be exercised by the
9
<PAGE>
Company. Company shall have the right at anytime and from time to time in its
sole discretion to substitute the assets of equal fair market value for any
asset held by the Trust. This right is exercisable by the Company in a
non-fiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
SECTION 6 - DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7 - ACCOUNTING BY TRUSTEE
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 90 days following the close of each calendar quarter
and within 90 days after the removal or resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net
10
<PAGE>
proceeds of such year or as of the date of such removal or resignation, as the
case may be.
SECTION 8 - RESPONSIBILITY OF TRUSTEE
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct and with like
aims, provided, however, that Trustee shall incur no liability to any person for
any action taken pursuant to a direction, request or approval given by Company
which is contemplated by, and in conformity with, the terms of a Plan or this
Trust and is given in writing by Company. In the event of a dispute between
Company and a party, Trustee may apply to a court of competent jurisdiction to
resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If Company does not pay such costs, expenses and liabilities in a
reasonably timely manner, Trustee may obtain payment from the Trust.
11
<PAGE>
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
(d) Trustee may, with the Company's prior written consent which may not
be unreasonably withheld, hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
12
<PAGE>
(g) Indemnification - The Company recognizes that a burden of
litigation, claim or action may be imposed upon the Trustee as a result of some
act or transaction for which it has no responsibility or over which it has no
control under this Trust.
Therefore, in consideration of the Trustee agreeing to enter into this
Trust Agreement, the Company hereby agrees to indemnify and hold harmless the
Trustee and its Affiliates (as defined under Rule 10b-18 promulgated pursuant to
the Securities Exchange Act of 1934), directors, officers, employees, and agents
of the Trustee and its Affiliates (the "Indemnifiable Parties") from and against
all amounts, including, without limitation, taxes, expenses (including
reasonable counsel fees), liabilities, claims, damages, actions, suits or other
charges incurred by or assessed against the Trustee and/or the Indemnifiable
Parties (i) as a direct or indirect result of any act or omission done in good
faith, or alleged to have been done or omitted, by or on behalf of the Trustee
in connection with the Plan or Trust in reliance upon the directions (or absence
of directions) of the Company, an advisory committee or any investment advisor,
or (ii) as a direct or indirect result of the failure of the Company, any
employee thereof or any other designated agent, directly or through its agents,
to adequately, carefully, and diligently discharge their respective
13
<PAGE>
duties and responsibilities under the Plans, the Trust or applicable law,
provided that nothing herein shall be deemed to relieve the Trustee and/or the
Indemnifiable Parties from responsibility for their own negligence, willful
misconduct or lack of good faith.
SECTION 9 - COMPENSATION AND EXPENSES OF TRUSTEE
Company shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10 - RESIGNATION AND REMOVAL OF TRUSTEE
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 30 days after receipt of such notice unless Company and
Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days notice or upon shorter
notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless Company extends the time limit.
(d) If Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective
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<PAGE>
date of resignation or removal under paragraphs (a) or (b) of this section. If
no such appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
SECTION 11 - APPOINTMENT OF SUCCESSOR
(a) If Trustee resigns (or is removed) in accordance with Section 10(a)
or (b) hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor Trustee
to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any claim or
liability
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<PAGE>
resulting from any action or inaction of any prior Trustee or from any other
past event, or any condition existing at the time it becomes successor Trustee.
SECTION 12 - AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of a Plan or shall make the Trust
revocable.
(b) The Trust shall not terminate until the date on which the Plans'
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plans. Upon termination of the Trust any assets remaining in
the Trust shall be returned to the Company.
SECTION 13 - MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Plans' participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
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(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.
(d) The term "Company" as used herein shall include, where appropriate,
each subsidiary which has adopted a Plan and been permitted to contribute to the
Trust.
SECTION 14 - EFFECTIVE DATE
The effective date of this Trust Agreement shall be August 3,
1998.
Attest: UNITED WISCONSIN SERVICES, INC.
-----------------------
By:
--------------------------------
President
MARSHALL & ILSLEY TRUST COMPANY
Trustee
Attest: By:
----------------------- --------------------------------
Title:
-----------------------------
17
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Exhibit 10.41
UWSI/BCBSUW Hourly
Pension Plan
(As Amended and Restated
Effective January 1, 1997)
<PAGE>
Contents
<TABLE>
<S> <C>
Article 1. Definitions and Construction 3
1.1 Definitions 3
1.2 Construction 10
Article 2. Participation 11
2.1 Eligibility 11
2.2 Cessation of Participation 11
2.3 Participation Upon Reemployment 12
2.4 Transfers 13
Article 3. Requirements For Retirement Benefits 14
3.1 Normal Retirement 14
3.2 Early Retirement 14
3.3 Disability Retirement 14
3.4 Deferred Vested Pension 16
Article 4. Amount of Retirement Benefit 17
4.1 Normal Retirement Pension 17
4.2 Early Retirement Pension 17
4.3 Disability Retirement Pension 18
4.4 Deferred Vested Pension 19
4.5 Reserved 19
4.6 Maximum Pension 19
4.7 No Duplication of Benefits 20
Article 5. Manner of Payment and Optional Benefits 21
5.1 Payment of Retirement Benefits 21
5.2 Optional Forms of Retirement Benefit Payments 21
5.3 Election Procedures For Optional Retirement Benefits 22
5.4 Employment After Normal Retirement Date 23
5.5 Payment of Death Benefits 24
5.6 Time of Distributions 26
5.7 Lump Sum Payment of Small Pensions 27
5.8 Eligible Rollover Distributions 27
</TABLE>
i
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<TABLE>
<S> <C>
Article 6. Year of Benefit Service; Year of Vesting Service 30
6.1 Year of Benefit Service 30
6.2 Year of Vesting Service 32
Article 7. Plan Financing 33
7.1 Contributions 33
7.2 Trust Fund 33
Article 8. Administration of the Plan 34
8.1 Plan Administrator 34
8.2 The Administrative Committee 34
8.3 Employment of Services by the Committee 35
8.4 Expenses of Administration 35
8.5 Acts of the Committee 35
8.6 Interpretations 35
8.7 Liability of the Committee 36
8.8 Applicable Law 36
8.9 Plan Fiduciaries: Allocation of Responsibilities Among Them 36
8.10 Reliance on Cofiduciaries 37
8.11 Fiduciary Duties 37
8.12 Prohibited Transaction to be Avoided 38
8.13 Records and Reports of the Plan Administrator 38
8.14 Data Supplied by Employer 38
8.15 Partial Exculpation 38
8.16 Information Required of Participants 38
8.17 Claims Procedure 39
8.18 Beneficiary Designations 40
Article 9. Miscellaneous 42
9.1 Nonguarantee of Employment 42
9.2 Rights to Trust Fund Assets 42
9.3 Nonalienation of Benefits 42
9.4 Governing Law 43
9.5 Participant Information 43
9.6 Payments Pursuant to a Qualified Domestic Relations Order 43
</TABLE>
ii
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<TABLE>
<S> <C>
Article 10. Amendments and Actions by the Employer 46
10.1 Amendments 46
10.2 Limitation on Amendments 46
10.3 Action by Employer 47
Article 11. Successor Employer and Merger or Consolidation of Plans 48
11.1 Successor Employer 48
11.2 Plan Assets 48
Article 12. Temporary Restrictions on Benefits 49
12.1 Temporary Limitation on Benefits of Restricted Participants 49
Article 13. Plan Termination 50
13.1 Termination 50
13.2 Distribution on Termination and Partial Termination 51
13.3 Manner of Distribution 51
13.4 Residual Amounts 51
13.5 Effect of Bankruptcy and Other Contingencies Affecting an Employer 52
Article 14. Top-Heavy Provisions 53
14.1 Top-Heavy Provisions 53
14.2 Top-Heavy Plan Definitions 53
14.3 Minimum Vesting Requirements 56
14.4 Minimum Benefits 56
14.5 Additional Accruals 57
14.6 Adjustment to Overall IRC Section 415 Limitations 58
Article 15. Cash Balance Provisions Relating to Nonunion Hourly
Employees 59
15.1 Introduction 59
15.2 Definitions 59
15.3 Requirements for Retirement Benefits 62
15.4 Normal Retirement Pension 63
15.5 Amount and Manner of Payment; Optional Benefits 67
15.6 Year of Vesting Service 74
</TABLE>
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<TABLE>
<S> <C>
Schedule A. Actuarial Assumptions 77
Schedule B. Participating Employers 78
Schedule C. Excluded Employee Groups 80
Special Benefit Schedule No. 1 81
Special Benefit Schedule No. 2 82
Special Benefit Schedule No. 3 83
Special Benefit Schedule No. 4 84
Special Benefit Schedule No. 5 86
Special Benefit Schedule No. 6 88
</TABLE>
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Introduction
The UWSI/BCBSUW Hourly Pension Plan (formerly called the "Blue Cross & Blue
Shield United of Wisconsin Hourly Employees Retirement Plan") is hereby amended
and restated effective January 1, 1997 (unless stated to the contrary) in order
to adopt a cash balance formula affecting those hourly employees whose
retirement benefits are not subject to collective bargaining ("Nonunion Hourly
Employees").
It is intended that the Plan, as herein amended and restated, will continue to
comply with the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA") and will continue to qualify under the Internal Revenue Code of
1986 ("Code") and any later amendments to either ERISA or the Code.
Notwithstanding any provisions in this Plan to the contrary, the rights and
benefits, if any, provided to Participants whose termination of employment
occurred prior to January 1, 1997 (except as specifically provided herein) shall
be paid pursuant to the terms of the Plan in effect prior to that date.
The Plan provides for a uniform body of provisions found in Article 1 (if
applicable), 2, 3 (Sections 3.1 and 3.3 only), 5 (Section 5.6, 5.7, and 5.8
only), 7, 8, 9, 10, 11, 12, 13, and 14 that are applicable to all Participants
in the Plan, except as specified in Article 15 of the Plan. Article 15 describes
the retirement benefits provided to Nonunion Hourly Employees.
The following chart summarizes the principal changes or additions made to Plan
provisions since January 1, 1991, along with the applicable effective dates:
1
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<TABLE>
<CAPTION>
Effective Date Summary of Plan Provision
<S> <C>
1/1/91 Plan now pays LTD benefits (see Section 4.3 of the Plan).
1/1/93 Withholding requirements added (see Section 5.8 of the Plan).
7/1/94 Increased dollar multiplier to $23 for years of service
credited to Participant 1/1/90 and later (see Section 4.1 of
the Plan).
7/1/94 Revises description of Benefit Service to include a
Participant's unused credit sick time in year of retirement
(see Section 6.1 of the Plan).
7/1/94 Revises Hours of Service definition to include any hours a
Participant spends as a union representative or performing
union business while employed by an Employer since 1/1/90 (see
Section 1.1(r) of the Plan).
1/1/97 Adopts a cash balance formula affecting benefits of Nonunion
Hourly Employees participating in the Plan (see Article 15 of
the Plan).
</TABLE>
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<PAGE>
Article 1. Definitions and Construction
1.1 Definitions
Where the following words and phrases appear in this Plan, they shall have the
respective meanings set forth below, unless otherwise provided for in Article 15
or the context clearly indicates to the contrary:
(a) Accrued Benefit. The amount determined in accordance with Section 4.1
or Section 15.4, whichever is applicable, for Retirement at the Normal
Retirement Date.
(b) Actuarial (or Actuarially) Equivalent. A benefit or amount that
replaces another and has the same value as the benefit or amount it
replaces, based on actuarial assumptions as set forth in Schedule A to
this Plan or in Section 15.2(a), whichever is applicable.
(c) Actuary. The individual actuary who is an enrolled actuary under ERISA
or firm of actuaries employing an enrolled actuary selected by the
Employer and approved by the Administrator, to provide actuarial
services in connection with the administration of the Plan.
(d) Administrative Committee or Committee. The Committee as described in
Article 8.
(e) Administrative Delegate. One or more persons or institutions to whom
the Administrative Committee has delegated certain administrative
functions pursuant to a written agreement.
(f) Beneficiary. A person or persons (natural or otherwise) designated by
a Participant to receive any death benefits which shall be payable
under this Plan.
(g) Claimant. Any individual who has made a claim as provided in Section
8.17.
(h) Code. The Internal Revenue Code of 1986, as amended.
(i) Company. United Wisconsin Services, Inc. and Blue Cross & Blue Shield
United of Wisconsin.
3
<PAGE>
(j) Contingent Annuitant. The surviving spouse of a Participant who is
eligible for either a Qualified Joint and 50% Survivor Annuity, a
Joint and 66-2/3% Survivor Annuity, or the Qualified Preretirement
Survivor Annuity.
(k) Early Retirement Date. The first day of the month coincident with or
next following the date on which the Participant has attained age 60
and has completed 15 years of Vesting Service, provided he has
terminated employment.
(l) Earnings. A Participant's total regular wages from an Employer,
including shift differential and any short-term disability payments
from the Employer's disability plan that are made to the Participant
for the calendar year, excluding overtime and any other form of
special compensation paid or deferred; provided, however, if the
Participant is granted a leave with no pay or reduced pay for a
continuous period of more than 30 days, his Earnings shall be computed
as if he had received his full basic compensation during the period of
such leave, as determined by his Employer.
Earnings in excess of $150,000 (or such other amount as may be
determined by the Secretary of the Treasury in accordance with Section
401(a)(17) of the Code to reflect increases in cost-of-living) for any
calendar year shall not be taken into account.
(m) Effective Date. The Effective Date of this amended and restated Plan
is January 1, 1997.
(n) Employee. A person who, on or after the Effective Date, is actively
employed as a hourly employee by an Employer which participates in
this Plan (as set forth in Schedule B to this Plan), is not in a group
of employees specifically excluded from participating in the Plan (as
set forth in Schedule C to this Plan), and is receiving remuneration
for personal services rendered to such Employers (or would be
receiving such remuneration except for an authorized leave of
absence). The term "Employee" shall not include a "Leased Employee" as
defined in Section 414(n) of the Code, except to the extent required
by law.
4
<PAGE>
Notwithstanding anything in this Plan to the contrary, persons who are
classified by an Employer as independent contractors shall not be
considered Employees eligible to participate in the Plan.
(o) Employer. Employers which are participating in this Plan as set forth
in Schedule B to this Plan. Any Employers not included in Schedule B
shall be deemed nonparticipating Employers in this Plan.
For purposes of calculating the maximum benefit payable under Section
4.6, determining when a One-Year Break in Service has occurred under
Section 1.1(w) or 15.2(j), determining a Participant's rights upon an
employment transfer under Sections 2.4, 4.5, or 15.4(n), determining
whether an Employee has completed the service eligibility requirement
under Section 2.1, and determining Years of Vesting Service under
Section 6.2 or 15.6(a), the term "Employer" shall, to the extent
required by applicable law, include--
(1) any corporation other than the Company or an Employer, i.e.,
either a subsidiary corporation of an affiliated or associated
corporation of the Company or an Employer, which together with
the Company or an Employer is a member of a "controlled group"
of corporations (as defined in Code Section 414(b));
(2) any organization which together with the Company or an Employer
is under "common control" (as defined in Code Section 414(c));
(3) any organization which together with the Company or an Employer
is an "affiliated service group" (as defined in Code Section
414(m)); or
(4) any other entity required to be aggregated with the Company or
an Employer pursuant to regulations under Code Section 414(o).
Notwithstanding the foregoing, the term Employer may, in the
discretion of the Committee, be defined to include an entity
described in paragraphs (1) through (4) above for any purpose
under the Plan.
(p) Employment Commencement Date. The date a Employee first performs an
Hour of Service.
5
<PAGE>
(q) ERISA. Public Law No. 93-406, the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(r) Hours of Service.
(1) An Hour of Service is each hour for which an Employee is paid,
or entitled to payment, for the performance of duties for the
Employer during the applicable computation period.
(2) An Hour of Service is each hour for which an Employee is paid,
or entitled to payment, by the Employer on account of a period
of time during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, personal day, illness, incapacity
(including disability), layoff, Jury duty, military duty, or
leave of absence. Notwithstanding the preceding sentence:
(A) An hour for which an Employee is directly or
indirectly paid, or entitled to payment, on account
of a period during which no duties are performed
shall not be credited to the Employee if such payment
is made or due under a plan maintained solely for the
purpose of complying with applicable workers'
compensation or unemployment compensation or
disability insurance laws; and
(B) Hours of Service shall not be credited for a payment
which solely reimburses an Employee for medical or
medically-related expenses incurred by the Employee;
and
For purposes of this subsection (2)(B), a payment
shall be deemed to be made by or due from the
Employer regardless of whether such payment is made
by or due from the Employer directly, or indirectly,
through, among others, a trust fund or insurer, to
which the Employer contributes or pays premiums and
regardless of whether contributions made or due to
the trust fund, insurer or other entity are for the
benefit of particular Employees or on behalf of a
group of Employees in the aggregate.
(C) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the Employer. The
6
<PAGE>
same Hours of Service shall not be credited both
under subparagraph (A) or (B) of this subsection, as
the case may be, and under this subparagraph (C).
These hours shall be credited to the Employee for the
computation period or periods to which the award or
agreement pertains rather than the computation period
in which the award, agreement or payment is made.
(D) Hours of Service for reasons other than performance
of duties shall be determined and Hours of Service
shall be credited to computation periods in
accordance with Department of Labor Regulations
Section 2530.200b-2(b) and (c).
(E) Each hour that the Employee served since January 1,
1990 or will serve as a union representative while
employed by an Employer, or each hour that the
Employee performed since January 1, 1990 or will
perform administrative duties for the union in an
official capacity while employed by an Employer shall
be included as an Hour of Service.
For purpose of determining the Hours of Service which must be
credited to an Employee for a computation period, Hours of
Service shall be determined from records of hours worked and
hours for which payment is made if due.
(s) Nonunion Hourly Employee. An hourly employee whose retirement benefits
are not subject to collective bargaining.
(t) Normal Form. The Normal Form of benefit at retirement under this Plan
is a Life with Ten Years Certain Annuity (as described in Article 5)
or a Life Annuity (as described in Article 15), whichever is
applicable.
(u) Normal Retirement Age. A Participant's Normal Retirement Age under
this Plan is age 65.
(v) Normal Retirement Date. The first day of the calendar month coincident
with or immediately following the Participant's 65th birthday.
(w) One-Year Break in Service. A One-Year Break in Service means a Plan
Year in which an Employee (or former Employee) is not credited with
more than 500 Hours of Service. For purposes of determining whether
7
<PAGE>
there has been a Break in Service, an Employee shall be credited with
Hours of Service for the period during which he or she is on Parental
Leave as follows:
(1) the Employee shall be credited with the number of Hours of
Service he or she would normally be credited with but for the
absence (or if the Employee's normal Hours of Service cannot be
determined, eight Hours of Service for each day of the
absence),
(2) the total number of Hours of service credited for the absence
shall not exceed 501, and
(3) the Hours of Service credited for the absence shall be credited
to the Plan Year in which the absence begins if the Employee
would be prevented from incurring a Break In Service in that
Plan Year solely because of the crediting of Hours of Service
in accordance with clauses (1) and (2) of this definition, or
in any other case, the immediately following Plan Year.
(x) Parental Leave. An Employee's leave of absence from employment with
the Employer because of pregnancy, birth of the Employee's child,
placement of a child with the Employee in connection with adoption of
the child or caring for a child immediately following birth or
adoption. The Employer shall determine the first and last day of any
Parental Leave.
(y) Participant. An Employee participating in the Plan in accordance with
the provisions in Section 2.1.
(z) Pension. A series of monthly amounts which are payable to a person who
is entitled to receive benefits under the Plan.
(aa) Plan. UWSI/BCBSUW Hourly Pension Plan, the Plan as set forth herein,
as amended from time to time.
(bb) Plan Administrator. The Company, within the meaning of ERISA. The Plan
Administrator shall have duties and responsibilities under the Plan as
described in Article 8.
(cc) Plan Year. The term "Plan Year" means the 12-month period commencing
January 1 and ending on December 31.
(dd) Predecessor Plan. The retirement plan of the Employer before the
Effective Date, as explained in the Introduction.
8
<PAGE>
(ee) Preretirement Death Benefit. The death benefits payable under Section
5.5 or Section 15.5(f), whichever is applicable, to the Beneficiary of
a Participant who dies before his annuity starting date.
(ff) Qualified Preretirement Survivor Annuity. A survivor annuity for the
life of the Participant's spouse. Each payment under the survivor
annuity must not be less than the payment that would have been made to
the spouse.
(1) in the case of a Participant who dies after his earliest
retirement date, under the survivor annuity the Participant's
spouse would have received if the Participant had terminated
employment or retired on the day before his or her death and
received distribution of benefits in the form of an immediate
Joint and 50% Survivor Annuity, or
(2) in the case of a Participant who dies on or before his earliest
retirement date, under the survivor annuity the Participant's
spouse would have received if the Participant had terminated
employment on the day of his or her death, survived to his
earliest Retirement Date, received distribution of benefits in
the form of a Joint and 50% Survivor Annuity on his earliest
Retirement Date and died on the day after his earliest
Retirement Date.
(gg) Reemployment Commencement Date. The first day an Employee is credited
with an Hour of Service for performing duties following his return to
employment with the Employer.
(hh) Retirement. Termination of employment with the Employer for reason
other than death after a Participant has fulfilled all requirements
for a Normal, Early or Disability Retirement Pension. Retirement shall
be considered as commencing on the day immediately following a
Participant's last day of employment.
(ii) Service. The period of a Participant's employment considered in the
determination of his eligibility to participate in the Plan,
eligibility for benefits and amount of benefits payable under the Plan
in accordance with Article 6 or Article 15, whichever is applicable.
(jj) Special Benefit Schedule. A set of supplementary Plan provisions
adopted by the Administrative Committee setting forth any special Plan
provisions in effect for a specific Employer or group of Employees
covered by the Plan. If any provisions contained in a Special Benefit
Schedule conflict with the remaining provisions of the Plan, the
Special
9
<PAGE>
Benefit Schedule shall govern. The existence of Special Benefit
Schedules shall not be construed as the creation of different plans
for purposes of the Code or ERISA.
(kk) Trust. The Blue Cross & Blue Shield United of Wisconsin Master Trust
maintained in accordance with the terms of the Trust Agreement as from
time to time amended, which constitutes part of this Plan. The term
"Trust" shall also refer to any custodial account established pursuant
to a custodial agreement entered into between the Company and an
authorized custodian.
(ll) Trust Agreement. The agreement which provides for the continuation of
the Trust, as that agreement may from time to time be amended or
supplemented.
(mm) Trust Fund. All cash, securities and other property arising from
contributions under this Plan and the Predecessor Plan received by the
Trustee, all increments thereto, and receipts from any other sources
whatsoever.
(nn) Trustee. The trustee from time to time acting under the Trust
Agreement.
(oo) Year of Service. A Plan Year for which an Employee has been credited
with at least 1,000 Hours of Service.
1.2 Construction
The masculine gender, where appearing in the Plan, shall be deemed to include
the feminine gender, and the singular may include the plural, unless the context
clearly indicates to the contrary. The words "hereof", "herein", "hereunder" and
other similar compounds of the word "here" shall mean and refer to the entire
Plan, not to any particular provision or Section.
"The words "terminate," "terminated," "termination of employment," "retire,"
"retired," or "retirement" shall be interpreted to mean the termination of
employment or retirement of the Participant from employment with all
participating Employers and nonparticipating Employers."
10
<PAGE>
Article 2. Participation
2.1 Eligibility
(a) Any Employee on December 31, 1996, who was a Participant in the Plan
on December 31, 1996 shall continue to participate under this Plan on
January 1, 1997.
(b) Any other Employee who was not a Participant under the Predecessor
Plan as of December 31, 1996 shall participate in this Plan on the
first day of the month coincident with or next following the first
anniversary of his date of hire, provided the Employee has been
credited with at least 1,000 Hours of Service. If an Employee does not
complete 1,000 Hours of Service in the 12-month period commencing with
the Employee's first Hour of Service, he shall become a Participant on
the first day of the Plan Year following the Plan Year in which he has
been credited with at least 1,000 Hours of Service.
(c) An Employee on leave for service in the Armed Forces of the United
States will be considered an Employee on a leave of absence for
purposes of Plan participation and will continue to participate in the
Plan during such leave.
2.2 Cessation of Participation
An Employee will cease to be a Participant on the earlier of the following:
(a) the date of his death,
(b) the date he receives a single sum distribution which is in lieu of all
his benefits under the Plan if his Accrued Benefit were 100% vested,
(c) the earlier of the date an Employee incurs a One-Year Break in Service
or the date he is deemed to receive a lump sum distribution of his
Accrued Benefit, if such Accrued Benefit were 0% vested, or
11
<PAGE>
(d) the date on which he is transferred from a position with the Employer
in which he was eligible to participate in the Plan to a position in
which he is excluded from participation.
2.3 Participation Upon Reemployment
(a) Subject to Section 2.3(b), if a rehired Employee satisfies the
requirements of Section 2.1 as of the date he is reemployed by an
Employer, the rehired Employee shall again become a Participant as of
that day. If the rehired Employee has not satisfied the requirements
of Section 2.1 as of the day he or she is reemployed, the rehired
Employee shall become a Participant in accordance with Section 2.1.
(b) If the rehired Employee incurred a One-Year Break in Service before
his reemployment. The rehired Employee shall not become a Participant
as provided in Section 2.3(a) until (1) the first day of the month
following the anniversary at his date of rehire, provided he is
credited with at least 1,000 Hours of Service for the 12-month period
commencing with his first Hour of Service after reemployment or (2)
the first day of the Plan Year after which he has been credited with
at least 1,000 Hours of Service for any Plan Year commencing after
that first Hour of Service.
(c) In determining whether a rehired Employee has satisfied the
requirements of Section 2.1 as of the day the rehired Employee is
reemployed, if the rehired Employee has no vested Accrued Benefit and
has a number of consecutive One-Year Breaks in Service equal to (or
greater than) the greater of five and the number of his or her
previous Years of Service (excluding Years of Service previously
disregarded under this Section 2.3(c)), the rehired Employee's
previous service as an Employee shall be disregarded for purposes of
determining when he again becomes a Participant. for purposes of
determining Years of Service under this Section 2.3(c), any Employee
who is credited with at least 1,000 Hours of Service in both the
12-month period commencing with his first Hour of Service and the
first Plan Year beginning after his first Hour of Service shall be
credited with two Years of Service.
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<PAGE>
2.4 Transfers
If an Employee is transferred from a position with the Employer in which he was
excluded from participation in tile Plan to a position in which he is not so
excluded, he shall be eligible to participate under the Plan as of the first day
of the month coincident with or next following such transfer, provided he has
first met the requirements of Section 2.1.
13
<PAGE>
Article 3. Requirements For Retirement Benefits
3.1 Normal Retirement
A Participant shall be eligible for a Normal Retirement Pension if his
employment is terminated on or after his 65th birthday. Payment of a Normal
Retirement Pension shall commence as of the first day of the calendar month
coincident with or next following the date of Retirement.
3.2 Early Retirement
A Participant shall be eligible for an Early Retirement Pension if his
employment is terminated on or after his 60th birthday and after he has
completed 15 or more Years of Vesting Service. Payment of an Early Retirement
Pension shall commence as of the Participant's Normal Retirement Date. However,
a retired Participant who is eligible for an Early Retirement Pension may
request the commencement of the Participant's Early Retirement Pension as of the
first day of any calendar month following the Participant's early retirement but
before the Participant's Normal Retirement Date.
3.3 Disability Retirement
An Employee shall be eligible for a Disability Retirement Pension if, after
completing the requirements for participation, outlined in Article 2, and one
hundred and fifty (150) days of continuous full-time employment, such Employee's
employment is terminated by disability which causes his complete inability, due
to injury and/or illness, and based upon objective medical documentation, to
perform with reasonable continuity any of the material and substantial duties of
his regular occupation during the elimination period of one hundred and fifty
(150) days and the first 24 months of each benefit period; and thereafter, such
duties of any occupation for which the Employee may be or become qualified by
reason of education and/or training and/or experience. Payment of the monthly
Disability Retirement Pension shall commence as of the end of the elimination
period, provided the Employee is under the regular care and treatment of a
physician.
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<PAGE>
Such payments shall continue until the earliest to occur of the following:
(a) the date the Employee ceases to be totally disabled; or
(b) the date the Employee is no longer under the regular care and
treatment of a physician for the disabling condition; or
(c) the date the Employee returns to active work, unless such active work
is part of an approved program of rehabilitation; or
(d) the date the Employee dies; or
(e) the date the maximum benefit period has been paid according to the
Employer's insurance policy schedule; or
(f) the date the Employee fails to provide adequate proof of total
disability or fails to agree to an independent medical exam; or
(g) the date the Employee is determined not to be totally disabled based
on the objective medical findings of an independent medical exam; or
(h) the date the Employee is determined not to be totally disabled based
on the review of the objective medical findings by a medical case
examiner; or
(i) the date the Employee fails to cooperate in rehabilitation; or
(j) the Employee's attainment of age 65, if the Employee became disabled
prior to age 60; or
(k) the date on which the Employee has received disability retirement
benefits for a period of five years, if the Employee became disabled
after the attainment of age 60, but before the attainment of age 69;
or
(l) the date on which the Employee has received disability retirement
benefits for a period of one year, if the Employee became disabled
after attainment of age 69.
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<PAGE>
3.4 Deferred Vested Pension
A Participant shall be eligible for a Deferred Vested Pension in accordance with
the provisions of Section 4.4 if his employment is terminated with the Employer
before death or Retirement after he has completed at least 5 Years of Vesting
Service (as set forth in Section 6.2). Payment of a Deferred Vested Pension
shall commence as of the Participant's Normal Retirement Date. However, a
retired Participant who is eligible for a Deferred Vested Pension may request
the commencement of a reduced amount as of the first day of any calendar month
coinciding with or next following the date he satisfies the requirements for an
Early Retirement Pension under Section 3.2 and prior to his Normal Retirement
Date.
Notwithstanding the above, a Participant's right to his Accrued Benefit will be
nonforfeitable upon his attainment of Normal Retirement Age.
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<PAGE>
Article 4. Amount of Retirement Benefit
4.1 Normal Retirement Pension
Subject to the provisions of Section 4.6, the monthly Normal Retirement Pension
payable in the Normal Form shall be an amount equal to:
(a) an amount equal to the Participant's accrued benefit as of December
31, 1989 calculated in accordance with the provisions of the Plan as
of that date plus
(b) for retirements prior to July 1, 1994, an amount equal to $21.00 times
the Participant's Years of Benefit Service (as set forth in Section
6.1) not in excess of thirty, less the Years of Benefit Service
credited prior to January 1, 1990.
(c) for retirements on or after July 1, 1994, an amount equal to $23.00
times the Participant's Years of Benefit Service (as set forth in
Section 6.1) not in excess of thirty, less the Years of Benefit
Service credited prior to January 1, 1990.
If a Participant retires subsequent to his Normal Retirement Date, his Pension
shall be equal to the Pension to which he is entitled under this Section upon
his actual Retirement, taking into account the Participant's Years of Benefit
Service earned as of his actual Retirement.
4.2 Early Retirement Pension
Subject to the provisions of Section 4.6, a Participant's retirement benefit on
his Early Retirement Date will be equal to his Accrued Benefit on his Early
Retirement Date, reduced as follows for each full month that the commencement
date of the Pension precedes the Participant's Normal Retirement Date:
(a) .25 of 1% for the first 36 months, and
(b) 2/3 of 1% for each month in excess of 36 months.
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<PAGE>
4.3 Disability Retirement Pension
Subject to the provisions of Section 4.6, the amount of the monthly Disability
Retirement Pension shall be equal to fifty percent (50%) of the Employee's
average monthly salary, but not less than fifty dollars ($50.00) per month. For
purposes of this Section 4.3, the term "average monthly salary" shall mean the
Employee's monthly rate of compensation in effect at the date of the Employee's
disability, excluding overtime pay, commissions, bonuses and other extra
compensation.
Notwithstanding the preceding, in no event shall an Employee's benefit under
this Section exceed the benefit he would be entitled to receive under Section
4.1 or 15.4, whichever is applicable, if he terminated employment as of his
Normal Retirement Date.
The monthly benefit amount for which an Employee is eligible will be reduced
equally by the amount of any payment the, Employee may either be entitled to,
whether applied for or not, or receive from any of the sources listed below:
(a) primary Social Security benefits under the Federal Social Security Act
or similar statute of any state or country; or
(b) family Social Security benefits under the Federal Social Security Act
or similar statute of any state or country; or
(c) any workers' compensation act; or
(d) any Employer liability law; or
(e) any occupational disease law; or
(f) any state or federally sponsored disability or retirement plan; or
(g) any Employer or policyholder sponsored salary continuation plan or
sick leave pay plan; or
(h) any Employer or policyholder sponsored disability plan under a group
master policy, other than the Employer sponsored plan designed to
provide disability benefits that would be payable by this Plan except
for the limitations of Section 411(a)(9), of the Code; or
(i) any retirement benefits payable under Sections 4.1, 4.2, or 15.4; or
18
<PAGE>
(j) any Veteran's Administration disability plan; or
(k) any disability benefit payable under any no fault insurance plan
provided, however, that the payment received from any such source,
exclusive of retirement benefits, are payable as a result of the total
disability for which a benefit is payable under this Plan.
4.4 Deferred Vested Pension
Subject to the provisions of Section 4.6, the amount of a Participant's Deferred
Vested Pension payable in the Normal Form, commencing as of his Normal
Retirement Date, shall be equal to his Accrued Benefit, determined as of the
date he terminated employment with the Employer.
If payment of a Deferred Vested Pension commences prior to the Participant's
Normal Retirement Date, the amount of the Pension otherwise payable at Normal
Retirement Date shall be reduced by .5 of 1% for each full month by which the
benefit commencement date precedes the Normal Retirement Date.
4.5 Reserved.
4.6 Maximum Pension
Notwithstanding any provisions of the Plan to the contrary, in no event shall
the amount of a benefit payable to a Participant (or the spouse of a deceased
Participant) each year together with any and all other benefits which are paid
to him under any other qualified plan exceed the maximum benefits that are
payable pursuant to Sections 415(b) and (e) of the Code and regulations
thereunder.
If a Participant is also a participant in a defined contribution plan maintained
by the Employer, then the benefits under this Plan shall be reduced to the
extent required to satisfy the limitation contained in Section 415(e) of the
Code.
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<PAGE>
4.7 No Duplication of Benefits
(a) Application by a Participant, spouse or Beneficiary for a Plan benefit
for which he is eligible will prevent such person from becoming
simultaneously eligible for any other Plan benefit.
(b) Any retirement benefit payable to a person under the Plan shall be
reduced by any other retirement benefit payable to such person under
any other qualified defined benefit retirement plan (except Social
Security to which contributions have been made on behalf of the
Participant) to the extent that such other retirement plan benefit is
based on Benefit Service used in computing such retirement benefit
payable under the Plan.
20
<PAGE>
Article 5. Manner of Payment and Optional Benefits
5.1 Payment of Retirement Benefits
If a Participant does not have a spouse at the time of the commencement of
payment of a Normal, Early, or Deferred Vested Pension, he will receive the
value of his vested Accrued Benefit in the form of a Life with Ten Years Certain
Annuity, as described in Section 5.2(b) below, unless he elects an optional form
of benefits under Section 5.2.
If a Participant is married as of the date his benefits commence, he shall
receive the value of his vested Accrued Benefit in the form of a Qualified Joint
and 50% Survivor Annuity, as described in Section 5.2(d) below, unless he elects
an optional form of benefits under Section 5.2, in accordance with the
provisions of Section 5.3.
5.2 Optional Forms of Retirement Benefit Payments
Subject to the written election procedures described below, a Participant may
receive his Normal, Early, or Deferred Vested Pension under any of the following
optional methods:
(a) Life Only Annuity. This optional form provides a monthly annuity for
the Participant's lifetime, with no further benefits being paid upon
his death. Each payment to a Participant under this option will be
equal to the otherwise payable benefit, increased by 6%.
(b) Life With Ten Years Certain Annuity. This optional form provides a
monthly annuity for the lifetime of the Participant, and if the
Participant's death occurs within a period of 10 years after the
commencement date of his benefits, payment of the benefits will be
continued in an amount equal to 70% of the original amount to the
beneficiary or beneficiaries designated by the Participant for the
balance of the 10-year period.
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<PAGE>
(c) Joint And Survivor Annuity. This optional form provides a reduced
monthly annuity for the lifetime of the Participant and, upon his
death, a percentage of 66-2/3% of such annuity will continue for the
lifetime of his spouse. If the Participant and his spouse were born in
the same calendar year, the reduced benefit payable to the Participant
shall be 90% of the benefit otherwise payable. The 90% factor will be
increased or decreased by 7/10 of 1% for each full year that the date
of birth of the spouse precedes or Follows the Participant's date of
birth, provided the adjusted benefit payable to the Participant shall
not exceed the benefit otherwise payable.
(d) Qualified Joint and 50% Survivor Annuity. This form of payment is an
annuity for the life of a Participant with a survivor annuity for the
life of the Participant's spouse where the survivor annuity is 50% of
the amount of the annuity payable during the joint lives of the
Participant and the Participant's spouse and shall be 93% of the
benefit otherwise payable, if the Participant and his spouse were born
in the same calendar year. The 93% factor will be increased or
decreased by 6/10 of 1% for each full year that the date of birth of
the spouse precedes or follows the Participant's date of birth,
provided the adjusted benefit payable to the Participant shall not
exceed the benefit otherwise payable.
5.3 Election Procedures For Optional Retirement Benefits
In lieu of receiving benefits in the form of a Life with Ten Years Certain
Annuity or a Qualified Joint and 50% Survivor Annuity, the Participant may make
an election to receive benefits in an optional form described in Section 5.2.
However, such an election must be made in writing by the Participant during the
election period. If he is married, the election must be consented to by the
Participant's spouse and must meet the following requirements:
(a) The spouse's consent must acknowledge the effect of such election and
be witnessed by a Plan representative or a notary public. Such consent
will not be required if it is established to the Plan Administrator
that the required consent cannot be obtained because there is no
spouse, the spouse cannot be located, or other circumstances that may
be prescribed by Treasury regulations. The election may be revoked by
the Participant in writing without the consent of the spouse at any
time during the
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<PAGE>
election period described in subparagraph (b) below. Any new election
midst comply with the requirements of this subparagraph (a). A former
spouse's waiver shall not be binding on a new spouse.
(b) The election period to waive the Qualified Joint and Survivor Annuity
shall be the 90-day period, the last day of which is the "annuity
starting date". For purposes of this Section, "annuity starting date"
means the first day of the first period for which an amount is
received as an annuity. Any elections may not be changed after the
Participant's annuity starting date.
(c) A Participant's failure to waive the Qualified Joint and 50% Survivor
Annuity. will not result in a decrease in any Plan accrued benefit
with respect to such Participant.
5.4 Employment After Normal Retirement Date
Subject to the provisions of Section 5.6, payment of the Pension of a
Participant who either (a) becomes reemployed after his annuity starting date or
(b) remains in employment after his Normal Retirement Date shall be suspended
during each calendar month of the Participant's reemployment or continued
employment during which the Participant is credited with at least 40 Hours of
Service. In the case of a Participant who becomes reemployed after his annuity
starting date, upon his ceasing to be employed on the basis described in the
previous sentence he shall be entitled to resume receiving distribution of his
Pension in accordance with the following rules: (a) payments shall resume no
later than the third calendar month after the calendar month in which the
Participant ceases to be so employed provided the Participant has notified the
Employer of the cessation, (b) payment shall be retroactive to the day the
Participant ceased such employment, (c) payment shall be in the same form as
before the suspension, and (d) the pension payable upon his subsequent
retirement shall be reduced by the Actuarial Equivalent of previous pension
payments received prior to Normal Retirement Date. The Plan Administrator shall
notify any Participant who is affected by this Section 5.4 in accordance with
the notification requirements of Department of Labor Regulations Section
2530.203-3(b)(4).
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<PAGE>
5.5 Payment of Death Benefits
(a) Preretirement Death Benefit.
(1) In the event of the death of a Participant on or after the date
he has attained the age of thirty (30) years and completed five
(5) Years of Vesting Service or completed ten (10) Years of
Vesting Service (regardless of age), his beneficiary shall be
eligible to receive a death benefit as described in paragraph
(2).
(2) If the Participant would have accrued at least twenty (20)
Years of Vesting Service had he remained in the service of the
Employer until his Normal. Retirement Date, the amount of such
death benefit shall be equivalent to a single sure equal to the
excess of:
(A) 36 times the Participant's monthly Earnings (as defined
at Section 1.1(l)) as of October 1 of the calendar year
immediately preceding the calendar year of death less
$7,500, over
(B) the Actuarial Equivalent of the Qualified Preretirement
Survivor Annuity that is payable under subsection (3),
below.
If the Participant would have accrued less than twenty (20)
Years of Vesting Service had he remained in the service of the
Employer to his Normal Retirement Date, the amount of such
death benefit shall be computed as provided in (1) above,
reduced by 5% per year (five-twelfths of one percent for each
full month) by which the Vesting Service which he would have
accrued if he had remained in the service of the Employer to
his Normal Retirement Date, is less than twenty (20) years and
shall then be reduced in the manner provided in (2) above.
(3) Upon the death of a Participant who (A) is entitled to a
Deferred Vested Pension, (B) has not yet had an annuity
starting date and (C) is survived by a spouse to whom the
Participant is married for at least one year at the time of the
Participant's death, the Participant's spouse shall be entitled
to receive as a Preretirement Death Benefit, a Qualified
Preretirement Survivor Annuity.
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<PAGE>
(b) Form of Preretirement Death Benefit. The Preretirement Death Benefit
in paragraph (a)(2) shall be paid in a single sum distribution.
Subject to the following sentence, the Participant's Qualified
Preretirement Survivor Annuity shall be paid to the Participant's
spouse in the form of an annuity for the spouse's life. If the
Actuarial Equivalent present value of a Participant's Qualified
Preretirement Survivor Annuity as of the annuity starting date does
not exceed $3,500 (or, effective January 1, 1998, $5,000), the method
of distribution to the Participant's spouse of the Qualified
Preretirement Survivor Annuity shall be as a single cash distribution
which is the Actuarial Equivalent of the full amount payable.
(c) Timing of Distribution: Annuity Starting Date. Distribution of a
Participant's Qualified Preretirement Survivor Annuity shall commence
as of the annuity starting date of the Participant's spouse. The
annuity starting date of the Participant's spouse shall be the
earliest of:
(1) the first day of the month coincident with or next following
the Participant's death if the Participant's death occurs after
his Normal Retirement Date,
(2) the first day of the month coincident with or next following
the Participant's Normal Retirement Date if the Participant's
death occurs prior to that time unless the spouse elects under
subsection (d) to commence to receive distribution before that
date, or
(3) in the case of a Participant who dies before his Normal
Retirement Date and the Actuarial Equivalent present value of
his Preretirement Death Benefit does not exceed $3,500 (or,
effective January 1, 1998, $5,000), the first day of the month
coincident with or next following the Participant's death.
Notwithstanding the previous sentence and subject to Section
5.6, distribution of a spouse's Qualified Preretirement
Survivor Annuity shall not commence before he files a claim for
benefits with the Plan Administrator.
(d) Election to Receive Preretirement Death Benefit Before Normal
Retirement Date. In the case of a Participant who dies before his
Normal Retirement Date with a Qualified Preretirement Survivor
Annuity, his spouse may elect to have distribution of the Qualified
Preretirement Survivor Annuity commence before the Participant's
Normal Retirement Date had he lived. In that event, distribution shall
25
<PAGE>
commence as of the first day of any month coincident with or following
the date the Participant satisfied (or would have satisfied, had he
lived) the requirements for an Early Retirement Pension.
5.6 Time of Distributions
Notwithstanding any provision of the Plan to the contrary, the payment of
benefits under this Plan shall be made in accordance with Section 401(a) (9) of
the Code and regulations thereunder. In accordance with those provisions, in no
event may the distribution of a Participant's benefits commence later than the
April 1 of the calendar year following the year in which--
(a) the Participant reaches age 70 1/2; or
(b) the Participant retires, if later;
provided, however, that paragraph (2) shall not apply in the case of a
Participant who is a 5% owner (as defined in Code Section 416) with respect to
the period preceding the calendar year in which the Participant attains age
70 1/2.
The amount of the benefit payable under this Section to a Participant who has
not yet terminated employment with the Employer shall be determined in
accordance with Section 4.1 or 15.4, whichever is applicable, as if the
Participant had terminated employment immediately before such payments commence.
The Participant's Years of Benefit Service after payments commence will be taken
into account in determining the amount of benefit to which the Participant is
entitled in subsequent years, and any increase in the benefit payable to such
Participant shall be offset by the Actuarial Equivalent of the total amount of
pension payments made to such Participant during the Plan Year.
However, in no event, unless a Participant elects otherwise, shall the
distribution of his Accrued Benefit begin later than the 60th day after the
latest of the close of the Plan Year in which the Participant (a) attains Normal
Retirement Age, (b) reaches the tenth (10th) anniversary of the year in which he
commenced participation in the Plan, or (c) terminates his service with the
Employer.
26
<PAGE>
5.7 Lump Sum Payment of Small Pensions
If a Participant terminates employment prior to his Normal Retirement Date and
is entitled to a Deferred Vested Pension, and if the Actuarial Equivalent
present value of his vested Accrued Benefit exceeds $3,500 (effective January 1,
1998, $5,000), but is less than $10,000 as of his termination date, such
Participant may elect within 90 days of his termination of employment to have
his Accrued Benefit distributed in a lump sum. Such distribution shall be made
as of the first day of the month following the election. The Participant's
election shall be subject to the spousal consent requirements of Section 5.3.
If, prior to the annuity starting date, the Actuarial Equivalent present value
of a Qualified Joint and 50% Survivor Annuity or a Qualified Preretirement
Survivor Annuity does not exceed $3,500 (effective January 1, 1998, $5,000) (or
such higher amount as may be permitted by law), the Plan Administrator shall
direct that such amount be distributed as a single sum payment within a
reasonable period of time following the Participant's termination of employment.
If a Participant who receives such a lump sum payment is thereafter reemployed
by the Employer, he shall not receive credit for any Years of Benefit Service
earned prior to the date of his reemployment.
Upon termination of employment, a nonvested Participant shall be deemed to have
received a lump sum payment of $0 and the nonvested portion of such a
Participant's benefit shall be treated as an immediate forfeiture. This deemed
distribution shall represent the entire benefit to which such Participant was
entitled under the Plan, in lieu of all other benefits under the Plan.
5.8 Eligible Rollover Distributions
(a) Direct Rollovers.
(1) In General. In the case of a distribution (or a withdrawal)
that would be an eligible rollover distribution within the
meaning of Code Section 402 if made to the Participant or
Beneficiary ("distributee"), the distributee may elect
(subject to spousal consent
27
<PAGE>
requirements if applicable) to the extent required by law and
regulation and in the manner prescribed by the Committee, to
have such distribution paid directly to an eligible retirement
plan (as defined in Code Section 401(a)(31)). The amount of
such direct rollover shall be limited to the amount of the
eligible rollover distribution which would otherwise be
includible in the distributee's gross income in the absence of
a direct transfer and without regard to the rollover rules of
Code Sections 402 and 403. No election may be made by a
distributee pursuant to this Section unless the distributee
has received the notice prescribed by paragraph (2).
(2) Notice. The Committee shall furnish to a distributee a written
notice at the time prescribed in paragraph (3) which
describes--
(A) the rules under which the distributee may elect to
have an eligible rollover distribution paid in a
direct rollover to an eligible retirement plan;
(B) the rules that require withholding of tax on the
eligible rollover distribution if it is not paid in a
direct rollover;
(C) the rules under which the distributee will not be
subject to tax if the distribution is contributed to
an eligible retirement plan within 60 days of the
distribution; and
(D) if applicable, special rules regarding the taxation
of the distribution as specified in Code Sections
402(d) and (e) (relating to income averaging and
other tax rules).
(3) Notification Period. The notice required by paragraph (2)
shall be furnished to the distributee not more than 90 days
and not less than 30 days before the Benefit Starting Date.
The Plan shall make no payment for 30 days following the date
the Participant has been furnished with the notice unless the
distribution is subject to Section 5.7 and the Participant,
after receipt of the notice, has affirmatively elected to make
or not to make a direct rollover, but in no event shall the
Plan make a distribution before the date benefits are
otherwise payable under the rules of the Committee.
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<PAGE>
(b) Withholding. In the case of an eligible rollover distribution which is
not directly transferred to an eligible retirement plan pursuant to
subsection (a), the Plan shall reduce the amount of the distribution by
the amount of the tax required to be withheld by law and regulations.
29
<PAGE>
Article 6. Year of Benefit Service; Year of Vesting Service
6.1 Year of Benefit Service
(a) A Participant will be credited with Years of Benefit Service, for
Service prior to January 1, 1997, in accordance with the terms of the
Predecessor Plan.
(b) For Service after December 31, 1996, a Participant will be credited
with a Year of Benefit Service for each Plan Year in which the
Participant is credited with at least 1,720 Hours of Service of the
Employer except that the following Years of Benefit Service shall be
disregarded:
(1) Years of Benefit Service preceding Breaks in Service if the
Participant is not entitled to a Deferred Vested Pension and
has a number of consecutive One Year Breaks in Service equal to
(or greater than) the greater of five or the number of the
Participant's Years of Benefit Service (excluding Years of
Benefit Service);
(2) Years of Benefit Service preceding a One Year Break In Service
until the Participant is credited with at least a Year of
Service after that Break in Service; and
(3) Years of Benefit Service earned after completing 30 Years of
Vesting Service.
(c) For purposes of determining Benefit Service, a Participant shall be
credited with any hours remaining in his accumulated bank sick days
under the former sick pay program (which were used for sick leave and
were frozen as of June 30, 1994) as of his date of retirement, as
follows:
(1) the Participant shall be credited with such hours only in the
Plan Year of his retirement;
(2) the total number of hours credited from the Accumulated Bank
Sick Days under the former sick pay program plus the Hours of
Service credited to the Participant pursuant to Section 1.1(q)
shall not exceed 1,720 in such Plan Year; and
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<PAGE>
(3) a Participant who terminates employment before becoming
eligible for retirement under the Plan shall not receive any
credit for any hours remaining in the Accumulated Bank Sick
Days under the former sick pay program at the time of his
termination of employment.
(d) If a Participant is credited with at least 1,000 Hours of Service from
the Employer but less than 1,720 Hours of Service for any Plan Year,
the Participant shall be given credit for a partial Year of Benefit
Service for that Plan Year per the following schedule:
<TABLE>
<CAPTION>
Monthly Benefit
Retirements Retirements
Hours of Service On & After 7/1/94 Before 7/1/94
<S> <C> <C>
1,720 or more $23.00 $21.00
1,560 to 1,720 $20.00 $18.00
1,050 to 1,560 $19.00 $17.00
1,000 to 1,050 $17.50 $16.00
Under 1,000 $ 0 $ 0
</TABLE>
(e) A Participant shall not receive more than one Year of Benefit Service
credit for any Plan Year irrespective of the number of Employers a
Participant is employed by during such Plan Year.
(f) If a Participant is employed during a Plan Year by both a
participating Employer and a nonparticipating Employer, and is
credited with less than 1,000 Hours of Service for any Plan Year, the
Participant shall be given credit for a partial Year of Benefit
Service determined by multiplying (1) the monthly benefit the
Participant would have been entitled to had he completed 1,000 hours
of Service for the Plan Year by (2) a fraction, the numerator of which
is the Participant's actual hours of Service for the Plan Year and the
denominator of which is 1,000.
(g) A leave of absence due to service in the Armed Forces of the United
States shall be included as Benefit Service under the Plan, provided
that the Employee complies with all the requirements of federal
31
<PAGE>
law in order to be entitled to reemployment and provided further that
such Employee returns to employment with the Employer within the
period provided by such law.
6.2 Year of Vesting Service
A Participant will be credited with a Year of Vesting Service for all Years of
Service credited to the Participant as an Employee (and any periods that are
required by law to be credited to the Participant for his period of military
service), except that the following Years of Service are disregarded:
(a) Years of Service preceding at least five consecutive One-Year Breaks
in Service, if the Participant is not entitled to a Deferred Vested
Pension and has a number of consecutive One Year Breaks in Service
equal to (or greater than) the number of his Years of Service
(excluding Years of Service previously disregarded under this clause
(a) preceding the Breaks in Service; and,
(b) Years of Service preceding a One-Year Break in Service unless the
Participant has been credited with a Year of Service after that Break
in Service.
(c) A Participant shall not receive more than one Year of Vesting Service
credit for any Plan Year irrespective of the number of Employers a
Participant is employed by during such Plan Year.
(d) A leave of absence due to service in the Armed Forces of the United
States shall be included as Vesting Service under the Plan, provided
that the Employee complies with all the requirements of federal law in
order to be entitled to reemployment and provided further that such
Employee returns to employment with the Employer within the period
provided by such law.
Notwithstanding the preceding, in no event shall a Participant's Years of
Vesting Service be less than his Years of Vesting Service as of December 31,
1989.
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<PAGE>
Article 7. Plan Financing
7.1 Contributions
All contributions will be made by the Employer and in such amounts as will be
determined based on periodic actuarial valuations and recommendations as to the
amount or amounts required to fund retirement benefits and other benefits
payable in accordance with this Plan. All contributions shall be conditioned on
deductibility under Section 404 of the Code. Forfeitures arising under this Plan
because of severance of employment, before a Participant becomes eligible for a
Deferred Vested Pension, or for any other reason, shall be applied to reduce the
Employer contributions to the Plan, not to increase the benefits otherwise
payable to Participants. A return of Employer Contributions (or the assets
thereof, if less) shall be made within one year after:
(a) the contribution is made by the Employer by a mistake of fact, or
(b) the contribution is disallowed as a deduction under Section 404 of the Code.
7.2 Trust Fund
All contributions made by the Employer under the Plan shall be paid to the
Trustee and deposited in the Trust Fund. Except as otherwise provided in Section
13.2, all assets of the Trust Fund, including investment income, shall be
retained for the exclusive benefit of Participants and their beneficiaries,
shall be used to pay benefits to such persons or to pay administrative expenses
to the extent not paid by the Employer, and shall not revert or inure to the
benefit of the Employer.
33
<PAGE>
Article 8. Administration of the Plan
8.1 Plan Administrator
"The Plan Administrator," within the meaning of ERISA, is the Company. The
Company shall have complete charge of the administration of the Plan. The
Company is the "named fiduciary" within the meaning of ERISA. In general, the
Company shall have the responsibility to appoint and remove the Trustee and any
investment manager which may be provided for under the Trust Agreement.
The Plan Administrator shall have the authority to direct the Trustee to invest
all or a portion of the Trust Fund through any common or collective trust fund
or pooled investment fund, or any other legally permissible investment under the
Code or ERISA.
8.2 The Administrative Committee
The day-to-day administration of the Plan shall be the responsibility of the
Company's Employee Benefits Committee--herein called the "Committee." Each
member of the Committee shall serve without remuneration, but shall be
reimbursed for expenses incurred in the performance of his duties.
The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, day-to-day administrative functions within the framework of policies,
interpretations, rules, practices, and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Participant to the Committee in accordance with the
claims review procedures provided in Section 8.17. Any decisions which call for
interpretations of Plan provisions not previously made by the Committee shall be
made only by the Committee. The Administrative Delegate shall not be considered
a fiduciary with respect to the services it provides.
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<PAGE>
8.3 Employment of Services by the Committee
The Committee may appoint a Secretary who may, but need not be, a member of the
Committee. The Committee may employ such agents and such clerical and other
services, and such legal counsel, other consultants, and accountants as may, in
the opinion of the Committee, be required for the purposes of properly
administering the Plan.
8.4 Expenses of Administration
The Employer is not required, but may, at its discretion, pay the expenses of
administration of the Plan, including the fees and expenses of the Trustee. If
such expenses of administration are not so paid by the Employer, they shall be
paid by the Trustee from the Trust Fund. The Trustee, investment advisors,
advisors, Actuary, and recordkeeper, and auditors of the Plan (collectively
referred to as "Service Providers") will receive reasonable compensation as may
be agreed upon from time to time between the Company or the Committee and such
Service Providers. To the extent permitted by law, such compensation shall be
paid from the Trust Fund unless paid by the Company.
8.5 Acts of the Committee
The Committee shall give to the Trustee any order, direction, consent or advice
required under the terms of the Plan or the Trust Agreement, and the Trustee
shall be entitled fully to rely on any instrument delivered to it evidencing the
action of the Committee as hereinabove described.
8.6 Interpretations
The Committee shall have the exclusive right to make any finding of fact
necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of the eligibility for and the amount of any
benefit payable under the Plan. The Committee shall have the exclusive right to
interpret the terms and provisions of the Plan and to determine any and all
questions arising under the Plan or in connection with the administration
thereof, including, without limitation, the right to remedy or resolve possible
ambiguities, inconsistencies, or omissions, by general rule or particular
decision, with such interpretations or determinations to be finally conclusive
and binding on all parties affected thereby. The Committee shall make, or cause
to be made, all reports or other filings necessary to meet the reporting and
disclosure requirements of ERISA which are the responsibility of "plan
administrator"
35
<PAGE>
under ERISA. To the extent permitted by law, all findings of fact,
determinations, interpretations, and decisions of the Committee shall be
conclusive and binding upon all persons having or claiming to have any interest
or right under the Plan.
8.7 Liability of the Committee
The members of the Committee, and each of them, shall be free from liability for
their acts and conduct in the administration of the Plan, and the Employer shall
indemnify them and hold them, and each of them, harmless from the effects and
consequences of their acts and conduct in their official capacity, except to the
extent that such effects and consequences result from their failure to exercise
ordinary care and reasonable diligence. In any event, the Committee shall be
deemed to have exercised ordinary care and reasonable diligence if it shall have
relied in good faith upon any written information furnished to it by an Employee
or Participant, the Employer, the investment advisor, the Trustee, or by any
Actuary, employee benefit plan consultant, counsel, accountant or other person
employed, with or without remuneration, by the Employer for purposes of the
Plan.
8.8 Applicable Law
The Plan will be construed and enforced in accordance with the laws of the State
of Wisconsin and all provisions of the Plan will be administered in accordance
with the laws of the said State, to the extent not superseded by ERISA.
8.9 Plan Fiduciaries: Allocation of Responsibilities Among Them
Under ERISA and Regulations pursuant to ERISA, the Employer, the Trustee, the
Committee, the Plan Administrator and the Investment Adviser are "Plan
Fiduciaries." All Plan Fiduciaries shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to them
under the Plan document and the Trust Agreement. In general, the Employer,
acting through a majority of its Board of Directors or its designated
committee, shall have the sole responsibility to terminate the Plan, in whole
or in part, in accordance with Article 13 hereof and sole responsibility to
appoint and remove the Trustee. The Plan Administrator shall have ultimate
responsibility for the administration of the Plan. The Committee shall
determine an allocation of Plan assets in consideration of Plan liabilities,
establish investment guidelines, select and
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evaluate money managers and investment alternatives and review and approve
investment transactions and strategy. The Committee shall also have such other
duties and responsibilities as are described in the applicable provisions of
this Article 13 together with such other duties and responsibilities as may be
delegated to them by a majority of the Board of Directors of the Employer or its
designated committee or the Plan Administrator from time to time. The Trustee
shall have the responsibility of the administration of the Trust and for the
custody and management of the assets held in the Trust Fund to the extent
provided in the Trust Agreement and any contracts or agreements entered into by
and between the Trustee and the Investment Adviser.
8.10 Reliance on Cofiduciaries
Each Fiduciary may rely upon any direction, information or action of another
Fiduciary as being proper under the Plan, and shall not, under normal
circumstances, be required to inquire into the propriety of any such direction,
information or action. Each Fiduciary shall be responsible for the proper
exercise of his own powers, duties, responsibilities and obligations under this
Plan and shall not be responsible for any breach of fiduciary by another
Fiduciary ("other Fiduciary") unless he participates knowingly in, or knowingly
undertakes to conceal an act or omission of such other Fiduciary, knowing such
act or omission is a breach; or by his failure to comply with Article 8 hereof
in the administration of his specific responsibilities hereunder he has enabled
such other Fiduciary to commit a breach; or by his failure to comply with
Article 8 hereof in the administration of his specific responsibilities
hereunder he has enabled such other Fiduciary to commit a breach; or he has
knowledge of a breach by such other Fiduciary and fails to make reasonable
efforts under the circumstances to remedy the breach. No Fiduciary guarantees
the Trust Fund in any manner against investment loss or depreciation in asset
value.
8.11 Fiduciary Duties
All fiduciaries shall discharge their duties solely and exclusively in the
interest of the Participants and Beneficiaries and for the exclusive purposes of
providing benefits to Participants and their Beneficiaries and defraying the
reasonable expenses of administering the Plan and Trust. They shall discharge
their duties with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man, acting in a like capacity and
familiar with such matters, would use in the conduct of an enterprise of a like
character and with like aims.
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8.12 Prohibited Transaction to be Avoided
The Fiduciaries shall not do any action prohibited under or in violation of Part
4 of Title I of ERISA or which would subject any person or the Employer to
imposition of a tax under Section 4975 of the Code.
8.13 Records and Reports of the Plan Administrator
The Plan Administrator shall prepare, or cause to be prepared, and shall
furnish, or cause to be furnished, to Participants and Beneficiaries, and to the
Secretary of Labor or his delegate, and to the Secretary of the Treasury or his
delegate, such plan descriptions, summaries, annual and other reports,
registration statements, notifications and other documents as may be required by
ERISA and the Code and regulations thereunder. The Plan Administrator shall
exercise such authority and responsibility as it deems appropriate in order to
comply with ERISA and the Code and regulations thereunder relating to records of
the Service of all Participants and the percentage of their Accrued Benefit
which is nonforfeitable under the Plan.
8.14 Data Supplied by Employer
The Employer shall advise the Committee, in writing, of all data which may be
reasonably necessary in order to administer the Plan and to determine the amount
of respective Employer contributions; or to determine the eligibility, Earnings,
Service, and other matters required to be determined relating to Employees of
the Employer. The Plan Administrator or Committee shall be fully protected in
acting upon any such data.
8.15 Partial Exculpation
The Committee or the Plan Administrator (as appropriate) shall incur no personal
liability of any nature in connection with any failure to act or in respect of
any act taken in good faith in the management and administration of the Plan and
in carrying out the directions of the Employer, except as may otherwise be
provided by ERISA. The Committee or the Plan Administrator shall be indemnified
and held harmless by the Employer from and against any such personal liability,
including all expenses reasonably incurred in its defense.
8.16 Information Required of Participants
Each Participant, and, if applicable, each Beneficiary of a deceased
Participant, shall furnish the Committee (or the Plan Administrator) with such
information as
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the Committee (or the Plan Administrator) shall deem necessary and desirable for
purposes of administering the Plan, and the provisions of the Plan relating to
any payments hereunder to or on account of any Participant, former or deceased
Participant are conditional upon such person's furnishing promptly such true,
full and complete information as the Committee (or the Plan Administrator) may
request.
8.17 Claims Procedure
(a) Applications for Benefits Not Required: A formal request for a
distribution under the Plan is not required of any Participant or
Beneficiary entitled thereto.
(b) Claims for Benefits Not Received: Any claim for benefits not received
shall be made in writing to the Committee (or the Plan Administrator).
The Committee (or the Plan Administrator) shall consider such claim
and shall, within sixty (60) days next following receipt of same
either approve it or deny it. If the Committee (or the Plan
Administrator) shall deny such claim, it shall, by written notice
directed to the claimant at the address shown on the claim (or in the
absence thereof, the last known address of the claimant, as shown on
the records of the Employer) inform the claimant of such denial,
including such written notice, as a minimum, the following:
(1) The specific reason or reasons for the denial;
(2) Reference to the specific provisions of the Plan, on which such
denial is based;
(3) A description of any additional material or information
necessary for the claimant to perfect his claim and a brief
description of why such additional information is necessary;
and
(4) A brief explanation of the appeals procedure which is available
to him, which, in essence, is described in paragraph (c) below.
(c) Appeals Procedure Following Initial Denial of Claim: Each claimant
whose claim for a benefit under the Plan has been denied shall have
the right to appeal the decision to the Committee (or the Plan
Administrator) in accordance with the following procedures:
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(1) Such appeal must be in writing, over the signature of the
claimant whose claim was so denied, and filed with the
Committee (or the Plan Administrator), addressed and delivered
within the 60-day period next following the initial denial of
same, either by hand or by the United States Postal Service,
postage fully prepaid.
(2) The claimant, or his duly authorized representative (such as,
but not by way of limitation, legal counsel) shall have the
right at all reasonable times to examine Plan documents related
to his claim and to submit to the Committee (or the Plan
Administrator), issues, comments and responses, provided that
they shall be in writing and delivered to the Committee (or the
Plan Administrator) as described in subparagraph (1) above.
(3) The Committee (or the Plan Administrator) shall render its
decision as promptly as practicable, but not later than sixty
(60) days after receipt of the claimant's appeal from the
initial denial by the Committee (or the Plan Administrator).
(d) Nature of Content of Written Notices to Claimants: Notwithstanding any
provision hereof to the contrary, all written notices to claimants
regarding their claims for benefits under the Plan, shall be expressed
in terms calculated to be understood by the average claimant and shall
include specific reasons for the decision--whether for or against the
claimant--and specific references to the pertinent provisions of the
Plan on which the decision was based.
8.18 Beneficiary Designations
Each Participant may name a Beneficiary to receive any death benefit (other than
any income payable to a Contingent Annuitant) which may arise out of his
participation in the Plan. If there is no contingent Beneficiary, or if the
contingent Beneficiary dies before receiving all death benefit payments to which
he is entitled, the balance of such payments shall be paid to the estate of the
last to die of such Beneficiaries. A designation or change of Beneficiary shall
be made in writing on such form or forms as the Committee may require.
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Notwithstanding the above, if a married Participant designates someone other
than his or her spouse as the primary Beneficiary, the spouse must consent to
such designation. Any non-spouse Beneficiary designation made before the
Participant's death must be made by the Participant in writing and shall require
the spouse's irrevocable consent in the same manner provided for in Section 5.4
or 15.5(d), whichever is applicable. Further, the spouse's consent must
acknowledge the specific non-spouse Beneficiary.
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Article 9. Miscellaneous
9.1 Nonguarantee of Employment
Nothing contained in this Plan shall be construed as a contract of employment
between the Employer and any Employee, or as a right of any Employee to be
continued in the employment of the Employer, or as a limitation of the right of
the Employer to discharge any of its Employees, with or without cause.
9.2 Rights to Trust Fund Assets
No Participant shall have any right to, or interest in, any assets of the Trust
Fund upon termination of his employment or otherwise, except as provided from
time to time under this Plan, and then only to the extent of the benefits
payable under the Plan to such Participant out of the assets of the Trust Fund.
Except as otherwise may be provided under Title IV of ERISA, all payments of
benefits as provided for in this Plan shall be made solely out of the assets of
the Trust Fund and none of the Fiduciaries shall be liable therefor in any
manner.
9.3 Nonalienation of Benefits
Except as provided below, no benefits payable under this Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to so anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be null and void;
nor shall the Trust Fund be liable for, or subject to, the debts, contracts,
liabilities, engagement, or torts of the person entitled to benefits hereunder.
The sole exception to the prohibition against alienation of an Employee's
benefits under the Plan shall be a distribution thereof made pursuant to a
Qualified Domestic Relations Order (called "QDRO" for convenience of reference).
For all purposes of the Plan, a QDRO is a judgment, decree or order (including
approval of a property settlement agreement) issued by a court of competent
jurisdiction which: (a) relates to the provisions of child support,
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alimony payments, or marital-property rights, to a Spouse, former spouse, child,
or other dependent or a Participant; and (b) is made pursuant to a State
domestic relations law (including community property law). A domestic relations
order is a "Qualified Domestic Relations Order" if it creates or recognizes the
existence of an alternate payee's right to, or assigns to an alternate payee the
right to, receive all or a portion of the benefits which would otherwise be
payable to a participant under the plan, and which complies with the
requirements of Section 414(p) of the Code.
9.4 Governing Law
The provisions of this Plan shall be governed by and construed and administered
in accordance with ERISA, the Code, and, where not inconsistent, the laws of the
State of Wisconsin.
9.5 Participant Information
Each Participant shall notify the Plan Administrator of (a) his mailing address
and each change of mailing address, (b) the Participant's, the Participant's
Beneficiary's and, if applicable, the Participant's spouse's date of birth, (c)
the Participant's marital status and any change of his marital status, and (d)
any other information required by the Plan Administrator. The information
provided by the Participant under this Section 9.5 shall be binding upon the
Participant's Beneficiary for all purposes of the Plan.
9.6 Payments Pursuant to a Qualified Domestic Relations Order
Notwithstanding the provisions of Section 9.3, the Plan will recognize a
"qualified domestic relations order" which shall be a judgment, decree or order
(including approval of a property settlement agreement) that meets the
requirements of (a), (b), and (c) below:
(a) the contribution is disallowed as a deduction under Section 404 of the
Code;
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(b) the order must relate to child support, alimony, property rights to a
spouse, former spouse, child or dependent of a Participant, and must
be issued pursuant to a state domestic relations law;
(c) the order must include (1) the name and address of the Participant and
alternate payee, (2) the amount or percentage of benefits payable to
the alternate payee (or the manner in which the amount or percentage
is to be determined), (3) the period or number of payments involved,
and (4) the exact name of the plan to which the order applies; and
(d) the order cannot require a type or form of benefit or option not
otherwise offered under the Plan, cannot require the Plan to provide
increased benefits (determined on an actuarial basis), and cannot
affect benefits already the subject of a previous qualified domestic
relations order.
A qualified domestic relations order can order the Plan to commence payments to
an alternate payee an of or following the earliest date the Participant could
elect to receive benefits under the Plan even though the Participant is still
employed by an Employer. If the Participant dies before the above-mentioned
date, benefits are payable to the alternate payee only if the order specifically
provides for such benefits. Notwithstanding the foregoing, the Plan may make a
distribution to an alternate payee prior to the date the Participant attains
earliest retirement age if the qualified domestic relations order provides that
the Plan and alternate payee may agree in writing to an earlier distribution of
an immediate lump sum payment and the distribution is made pursuant to such a
written agreement.
If the Participant is still employed by an Employer, the benefit payable to the
alternate payee is to be based on the Participant's Accrued Benefit payable at
his Normal Retirement Date. The Accrued Benefit shall be reduced to an Actuarial
Equivalent (based on the Participant's age, not the alternate payee's age at the
alternate payee's payment date). If payment is made pursuant to a qualified
domestic relations order before the Participant has separated from service and
the benefit is determined as of or after an early commencement date under
Section 3.2, 3.4, 15.3(a), or 15.3(b), whichever is applicable, the benefit
payable pursuant to Section 3.2, 3.4, 15.3(a), or 15.3(b), whichever is
applicable,
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will be reduced for early commencement based on the applicable definition of
actuarial equivalence contained in Schedule A or Section 15.2(a), whichever is
applicable.
An alternate payee may elect any form of payment to which the Participant would
be entitled at the time of the alternate payee's benefit commencement; provided,
however, an alternate payee cannot elect to cover such payee's spouse under any
joint and survivor form of payment.
The Committee shall notify any Participant and alternate payee of the receipt of
any order by the Plan and shall inform such Participant and alternate payee of
the Elan's procedures for determining whether the order meets the requirements
described above in this Section 9.6. Such procedures shall comply with the
requirements set forth in Code Section 414(p) and Section 206(d) of ERISA, and
the Plan's Procedures Upon Receipt of a Domestic Relations Order.
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Article 10. Amendments and Actions by the Employer
10.1 Amendments
The Company does hereby expressly and specifically reserve the sole and
exclusive right at any time by action of the Committee or its designee to amend,
modify, or terminate the Plan. The Company's right of amendment, modification,
or termination as aforesaid shall not require the assent, concurrence, or any
other action by any Employer notwithstanding that such action by the Company may
relate in whole or in part to persons in the employ of an Employer.
10.2 Limitation on Amendments
The provisions of this Article are subject to and limited by the following
restrictions:
(a) Except to the extent necessary to produce conformity to the laws and
regulations described in Section 10.1 or to the extent permitted by
any applicable law or regulation, no such amendment shall operate
either directly or indirectly to reduce either the nonforfeitable
percentage of any Participant's Accrued Benefit or the Accrued Benefit
of any Participant as they are constituted at the time of the
amendment. For purposes of this subsection (a), an amendment which has
the effect of (1) eliminating or reducing any early retirement benefit
or a retirement-type subsidy, or (2) eliminating an optional form of
benefit, with respect to benefits attributable to Service before the
amendment, shall be treated as reducing Accrued Benefit.
(b) No such amendment shall change any vesting schedule unless each
Participant who has completed three or more Years of Service is
permitted to elect to have his nonforfeitable Accrued Benefit computed
under the Plan without regard to such amendment. Such election shall
be made within such reasonable period as the Employer may designate
after adoption of the amendment; but in no event earlier than 60 days
after the
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later of: (1) the date the amendment is adopted, or (2) the date the
amendment becomes effective; or (3) the date the Participant receives
written notice of the amendment from the Committee.
(c) No amendment shall operate either directly or indirectly to give any
Employer any interest whatsoever in any funds or property held by the
Trustee under the terms hereof, or to permit the corpus or income of
the True to be used for or diverted to purposes other than the
exclusive benefit of Participants or their Beneficiaries.
10.3 Action by Employer
Any action by the Employer under this Plan may be by resolution of its
Committee, or by any person or persons duly authorized by resolution of said
Board to take such action.
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Article 11. Successor Employer and Merger or Consolidation of
Plans
11.1 Successor Employer
In the event of the dissolutions merger, consolidation or reorganization of the
Employer, provision may be made by which the Plan will be continued by the
successor; and, in that event, such successor shall be substituted for the
Employer under the Plan. The substitution of the successor shall constitute an
assumption of Plan liabilities by the successor and the successor shall have all
the powers, duties and responsibilities of the Employer under the Plan.
11.2 Plan Assets
In the event of any merger or consolidation of the Plan with, or transfer, in
whole or in part, of the assets and liabilities of the Trust Fund to another
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants in this Plan, the
assets of the Trust fund applicable to such Participants shall be transferred to
the other fund only if:
(a) Each Participant would (if either this Plan or the other plan then
terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the
merger, consolidation or transfer (if this Plan had then terminated).
(b) Resolutions of the Committee of the Employer, and of any new or
successor employer of the affected Participants, shall authorize such
transfer of assets; and, in the case of the new or successor employer
of the affected Participants, its resolutions shall include an
assumption of liabilities with respect to such Participant's inclusion
in the new employer's plan.
(c) Such other plan and fund are qualified under Sections 401(a) and
501(a) of the Code.
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Article 12. Temporary Restrictions on Benefits
12.1 Temporary Limitation on Benefits of Restricted Participants
(a) Restriction. Notwithstanding any Plan provision to the contrary, the
retirement benefits provided under the Plan from Employer
contributions for Participants described in subsection (b) below will
be restricted to an amount equal to the payments that would be made on
the Participant's behalf under a straight life annuity that is the
Actuarial Equivalent of the sum of the Participant's Accrued Benefit
and the Participant's other benefits (if any) under the Plan.
(b) Restricted Participants. The Participants subject to the restrictions
set forth in subsection (a) are those Participants who are the 25
Highly Compensated Employees (within the meaning of Code Section
414(q)) and former Highly Compensated Employees with the greatest
compensation (as defined in Code Section 414(s)).
(c) Nonapplicability. The restrictions in this Section 12.1 will not
apply, however, if--
(1) After payment to such a Participant of all benefits described
in proposed Treasury regulations Section
1.401(a)(4)-5(c)(3)(iii), the value of Plan assets equals or
exceeds 110% of the value of current liabilities as defined in
Code Section 412(l)(7);
(2) The value of the benefits described in proposed Treasury
regulations Section 1.401(a)(4)-5(c)(3)(iii) for such a
Participant is less than 1% of the value of current
liabilities; or
(3) The Commissioner of Internal Revenue determines that such
restrictions are not necessary to prevent the prohibited
discrimination that may occur in the event of an early
termination of the Plan.
(d) Plan Termination. In the event of the termination of the Plan, the
benefit of any Highly Compensated Employee (and any former Highly
Compensated Employee) is limited to a benefit that is
nondiscriminatory under Code Section 401(a)(4).
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Article 13. Plan Termination
13.1 Termination
While each Employer contemplates carrying out the provisions of the Plan
indefinitely with respect to its Employees, no Employer shall be under any
obligation or liability whatsoever to maintain the Plan for any minimum or other
period of time.
The Plan may be terminated in whole or in part at any time by appropriate action
of the Board of Directors of the Company or its designee. Upon any termination
of the Plan in its entirety, or with respect to any Employer, the Company shall
give written notice thereof to the Plan Administrator, the Trustee, and any
Employer involved. Upon termination or partial termination of the Plan, each
Participant will become fully vested in his Accrued Benefit, no further
Employees will become Participants.
Except as provided by law or contract, upon any termination of the Plan, no
Employer with respect to whom the Plan is terminated (including the Company)
shall thereafter by under any obligation, liability, or responsibility
whatsoever to make any contribution or payment to the Trust Fund, the Plan, any
Participant, any Beneficiary, or any other person, trust, or fund whatsoever,
for any purpose whatsoever under or in connections with the Plan.
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13.2 Distribution on Termination and Partial Termination
On termination of the Plan, the Trustee will liquidate the Trust Fund. After
payment of all expenses of liquidation, the Administrator shall allocate the
remainder of the Trust Fund assets and cause them to be distributed by the
Trustee in the manner and order set forth in Section 4044 of ERISA to the extent
of the sufficiency of such assets. On partial termination of the Plan by
operation of law, the Trustee shall segregate and liquidate the portion of the
Trust Fund assets allocable to affected Participants and beneficiaries. After
payment of all expenses of liquidation, the Administrator shall allocate the
remainder of the portion of the Trust Fund assets and cause them to be
distributed to affected Participants by the Trustee in the manner and order set
forth in Section 4044 of ERISA to the extent of the sufficiency of such assets.
13.3 Manner of Distribution
Subject to the foregoing provisions of this Article 13, any distribution after
termination of the Plan may be made, in whole or in part, to the extent that no
discrimination in value results, in cash, in securities or other assets in kind,
or in nontransferable annuity contracts, as the Administrator, in its
discretion, shall determine.
13.4 Residual Amounts
In no event shall the Employer receive any amounts from the Trust Fund upon
termination of the Plan; except that, and notwithstanding any other provision of
the Plan, the Employer shall receive such amounts, if any, as may remain after
the satisfaction of all liabilities of the Plan and arising out of any
variations between actual requirements and expected actuarial requirements.
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13.5 Effect of Bankruptcy and Other Contingencies Affecting an Employer
In the event an Employer terminates its connection with the Plan, or in the
event an Employer is dissolved, liquidated, or shall by appropriate legal
proceedings be adjudged bankrupt or declared insolvent, or in the event judicial
proceedings of any kind result in the involuntary dissolution of an Employer,
the Plan shall be terminated with respect to such Employer. The merger,
consolidation, or reorganization of an Employer, or the sale by it of all or
substantially all of its assets, shall not terminate the Plan if there is
delivery to such Employer by the Employer's successor or by the purchaser of all
or substantially all of the Employer's assets, of a written instrument
requesting that the successor or purchaser be substituted for the Employer and
agreeing to perform all the provisions hereof which such Employer is required to
perform. Upon the receipt of said instrument, with the approval of the Company,
the successor, or the purchaser shall be substituted for such Employer herein,
and such Employer shall be relieved and released from any obligations of any
kind, character, or description herein or in any trust agreement imposed upon
it.
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Article 14. Top-Heavy Provisions
14.1 Top-Heavy Provisions
In order to comply with the requirements of Code Section 416, the following
provisions of this Section shall be applicable to the Plan in the event it
should ever become a "Top Heavy Plan", as contemplated by the said Code
provisions.
14.2 Top-Heavy Plan Definitions
Definitions relating to Top Heavy Plan provisions are as follows:
(a) Top-Heavy. This Plan shall be considered "Top-Heavy" if, as of the
Determination Date, the Top-Heavy Ratio exceeds 60%. The Top-Heavy
Ratio is a fraction, the numerator of which is the sum of the present
value of Accrued Benefit of all Key Employees as of the Determination
Date (including distributions made within the 5 Plan Year period
ending on the Determination Date) determined as if the Participant
terminated service as of such Determination Date, and the denominator
of which is a similar sum determined for all Participants. This ratio
shall be calculated without regard to any Non-Key Employee who was
formerly a Key Employee. The Top-Heavy Ratio, including the extent to
which it must take into account distribu tions, rollovers and
transfers, shall be calculated in accordance with Section 416 of the
Code and regulations thereunder.
Notwithstanding the foregoing, if the Employer maintains other
qualified plans, this Plan is Top-Heavy only if it is part of the
Required Aggregation Group (as defined in Section 14.2(e) of the
Plan), and the Top-Heavy Ratio for both the Required Aggregation Group
and the Permissive Aggregation Group (as defined in Section 14.2(f) of
the Plan) exceeds 60%. The Top-Heavy Ratio will be calculated in the
same manner as required by the preceding paragraph, taking into
account all plans within either the Required or Permissive Aggregation
Group, as applicable. The present value of Accrued Benefit and the
other amounts that must be taken into account under defined
contribution plans included within either the Required or Permissive
Aggregation Group, as
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applicable, shall be calculated in accordance with the terms of those
plans, Code Section 416 and the regulations thereunder. The Top-Heavy
Ratio shall be calculated with reference to the Determination Date and
fall within the same calendar year. In order to determine the present
value under this paragraph, an interest rate assumption of 5% and the
Mortality Table specified in Schedule A shall be used to compute the
present value of benefits.
The Accrued Benefit of any Participant who has not performed any
services for the Employer at any time during the 5 year period ending
on the Determination Date will be disregarded for purposes of
calculating the Top Heavy Ratio.
(b) Determination Date. For purposes of determining whether the Plan is
Top-Heavy for a particular Plan Year, the "Determination Date" shall
be the last day of the preceding Plan Year.
(c) Key Employee. A "Key Employee" is any Employee (or former Employee),
including a Beneficiary of such Employee, who at any time during the
Plan Year or any four (4) preceding Plan Years is one of the
following:
(1) An officer of the Employer (but in no event shall more than 50
Employees, or if less, the greater of 3 or 10% of all
Employees, be taken into account under this paragraph (3) as
Key Employees). Notwithstanding, an officer of the Employer
will not be considered a "Key Employee" under this paragraph
(3) unless he earned more than 50% of the amount in effect
under Code Section 415(b)(1)(A) adjusted each Plan Year to take
into account any applicable cost of living adjustments
promulgated by the Secretary of the Treasury or his dele gate,
under Section 415(d) of the Code; or
(2) One of the 10 Employees whose annual Compensation is in excess
of the $30,000 dollar limit (adjusted for cost-of-living), as
set forth in Subparagraph (3)(A) above, and owning (or
considered as owning within the meaning of Code Section 318)
both more than a 1/2% interest and the largest interests in the
Employer. If two (2)
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Employees have the same interest in the Employer, the Employee
having greater annual Compensation from the Employer shall be
treated as having a larger interest; or
(3) A person owning (or considered as owning within the meaning of
Code Section 318) more than 5% of the total combined voting
power of all stock of the Employer; or
(4) A person who has an annual Compensation from the Employer of
more than $150,000 and would be described in subparagraph (C)
hereof if 1% were substituted for 5%.
Notwithstanding, for purposes of applying Code Section 318 to the
provisions of this paragraph (3), subparagraph (C) of Code Section
318(a)(2) shall be applied by substituting 5% for 50%. In addition,
the rules of subsection (b), (d) and (m) of Code Section 414 shall not
apply for purposes of determining ownership in the Employer under this
paragraph (3).
The constructive ownership rules of Code Section 318 shall apply to
this paragraph (3) in order to determine ownership in the Employer.
The Committee shall make the determination of who is a Key Employee in
accordance with Code Section 416(i)(1) and the regulations thereunder.
(d) Non-Key Employee. A "Non-Key Employee" is any Employee who does not
meet the definition of a Key Employee.
(e) Required Aggregation Group. "Required Aggregation Group" is (i) each
qualified plan of the Employer in which at least one Key Employee
partici pates, plus (ii) any other qualified plan of the Employer
which enables a plan described in (i) above, to meet the requirements
of Section 401(a)(4) or 410 of the Code.
(f) Permissive Aggregation Group. "Permissive Aggregation Group" is the
Required Aggregation Group plus any qualified plans maintained by the
Employer, but only if such Group would satisfy, in the aggregate, the
requirement of Sections 401(a)(4) and 410 of the Code. The Committee
shall determine which plan(s) to take into account in determining the
Permissive Aggregation Group.
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(g) Average Top-Heavy Compensation. "Average Top-Heavy Compensation" is
the Participant's average Compensation (with Compensation defined in
accordance with Code regulation 1.415-2(d)) for a period of 5
consecutive years during which the Participant had the greatest
aggregate Compensation in the testing period. Years ending in a Plan
Year beginning before January 1, 1984 and years beginning after the
close of the last Plan Year in which the Plan was Top-Heavy shall not
be taken into account.
(h) Valuation Date. "Valuation Date" shall mean the date on which the
Plan's assets and liabilities are valued for purposes of calculating
the Top-Heavy Ratio. The Valuation Date shall be the same date as the
Determination Date.
14.3 Minimum Vesting Requirements
Notwithstanding the Vesting Schedule as set forth in Section 3.4 or 15.3(b) of
this Plan, if the Plan is a "Top-Heavy Plan" as determined pursuant to Code
Section 416 for any Plan Year beginning after December 31, 1983, vesting of the
Participant's Accrued Benefit shall be determined in accordance with the
following schedule (for the Plan Year in which the Plan is "Top Heavy" only):
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
Less than 2 Years 0%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years or More 100%
</TABLE>
14.4 Minimum Benefits
If the Plan is Top-Heavy in any Plan Year beginning after December 31, 1983, the
Plan shall provide a minimum benefit for each Participant who is a Non-Key
Employee. The minimum normal retirement benefit (in the form of a Life Only
Benefit) shall be equal to the applicable percentage of the Non-Key Employee's
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<PAGE>
Average Top-Heavy Compensation. The applicable percentage is the lesser of 2%
multiplied by the number of Years of Service that the Non-Key Employee completes
in Top Heavy Plan Years, or 20%.
The Plan satisfies the minimum benefit for a Non-Key Employee if the Non-Key
Employee's Accrued Benefit at the end of the Top-Heavy Plan Year is at least
equal to the minimum normal retirement benefit.
Notwithstanding the above minimum benefit requirements, if a Non-Key Employee
participates in both this plan and another Top-Heavy tax qualified defined
contribution plan maintained by the Employer, no minimum contribution will be
required under the defined contribution Plan on behalf of the Non-Key Employee,
for any Plan Year, if the Employer provides a minimum benefit under this Plan on
behalf of the Non-Key Employee, for such Plan Year, in accordance with Code
Section 416(c).
14.5 Additional Accruals
If, at the end of any Top-Heavy Plan Year, a Non-Key Employee Participant's
Accrued Benefit is not at least equal to his minimum normal retirement benefit,
the Non-Key Employee Participant shall earn an additional accrual. Such Non-Key
Employee Participant's Accrued Benefit shall be increased by the lesser of:
(a) 2% of the Non-Key Employee's Average Top Heavy Compensation minus the
benefit the Non-Key Employee would otherwise accrue under the Plan for
the Plan Year; or
(b) The minimum normal retirement benefit to which the Non-Key Employee
should be entitled under subsection (c) minus the Non-Key Employee's
Accrued Benefit under the Plan at the end of the Plan Year (without
regard to any additional accrual which this subsection (d) may require
for the Plan Year).
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A Non-Key Employee Participant shall receive an additional accrual if he
completes a Year of Service during the Plan Year. The Employer shall not impute
Social Security benefits to determine whether it has satisfied its obligation to
provide the minimum normal retirement benefit.
14.6 Adjustment to Overall IRC Section 415 Limitations
If, during any Limitation Year, the Plan is Top Heavy, the Committee shall apply
the limitations of Section 4.4 to the Participant by substituting 1.0 for 1.25
each place it appears in the fractions described in Code Sections 415(e)(2) and
(e)(3). This Section 14.6 shall not apply if:
(a) The Plan could satisfy subsection (c) of this Section 14.6 if 3% were
substituted for 2%; and
(b) The Top Heavy Ratio does not exceed 90%.
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Article 15. Cash Balance Provisions Relating to Nonunion
Hourly Employees
15.1 Introduction
This Article 15 describes the cash balance provisions of the Plan in connection
with the determination of service, eligibility for benefits, and amount of
benefits for those Nonunion Hourly Employees. This Article is effective January
1, 1997.
15.2 Definitions
Where the following words and phrases appear in this Article, they shall have
the respective meanings set forth below, unless the context clearly indicates to
the contrary:
(a) Actuarial (or Actuarially) Equivalent. A benefit or amount that
replaces another and has the same value as the benefit or amount it
replaces, based on the following actuarial assumptions:
(1) Except as provided in subsections (2)-(3), actuarial
equivalence shall be based on the 1983 GAM Table with annuity
values weighted 50% male and 50% female, and an interest rate
equal to the annual average rate of interest on 30-year U.S.
Treasury securities for November of the Plan Year immediately
preceding the Plan Year of distribution.
(2) For purposes of reducing the age 65 minimum benefit to an
immediate annuity payable to a Participant prior to his
Early Retirement Age (as defined in Section 3.2 of the
Plan), the actuarial assumptions specified in subsection (1)
shall be used. However, for purposes of reducing the age 65
minimum benefit to an immediate annuity payable to a
Participant who has attained his Early Retirement Age (as
defined in Section 3.2 of the Plan), the early retirement
reduction factors defined in Section 4.2 of the Plan shall
be used.
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(3) In cases where specific assumptions or factors are identified
by the Plan as being applicable to a particular benefit or
situation (for example, in Section 15.4), the specified
assumptions or factors shall be used.
(b) Annual Credit. For any calendar year commencing on or after January 1,
1997, 4% of Earnings for the calendar year.
(c) Annual Interest Crediting Rate. The rate of interest used in
determining the amount of the Interest Credit to be added to
Participant's Cash Balance Account each Plan Year. The Annual Interest
Crediting Rate shall be determined for each Plan Year based on the
simple average of the annual rate of interest on 10-year U.S. Treasury
Securities for the close of each business day in the month of October
of the prior calendar year. In no event shall the Annual Interest
Crediting Rate be less than 3%.
(d) Annual Transition Credit. For any calendar year commencing on or after
January 1, 1997, an amount equal to 4% of a Participant's Earnings for
the calendar year, as further described in Section 15.4(h) of this
Plan.
(e) Cash Balance Account. The notional account deemed to have been
established for each Participant for the amount determined pursuant to
Section 15.4.
(f) Cash Balance Benefit. That part of the Participant's Accrued Benefit
which accrues in accordance with the provisions of Section 15.4.
(g) Early Retirement Date. The first day of the month coincident with or
next following the date on which the Participant has completed 5 Years
of Vesting Service, provided he has terminated employment.
(h) Interest Credit. The credit specified in Section 15.4(i).
(i) Minimum Benefit. The portion of the Participant's Accrued Benefit
which accrues in accordance with the provisions of Section 15.4(b).
(j) One-Year Break in Service. For participation, a One-Year Break in
Service means a Plan Year in which an Employee (or former Employee) is
not credited with more than 500 Hours of Service. For purposes of
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<PAGE>
determining whether there has been a One-Year Break in Service, an
Employee shall be credited with Hours of Service for the period during
which he or she is on Parental Leave as follows:
(1) the Employee shall be credited with the number of Hours of
Service with which he or she would normally be credited but for
the absence (or if the Employee's normal Hours of Service
cannot be determined, eight Hours of Service for each day of
the absence),
(2) the total number of Hours of Service credited for the absence
shall not exceed 501, and
(3) the Hours of Service credited for the absence shall be credited
to the Plan Year in which the absence begins if the Employee
would be prevented from incurring a One-Year Break in Service
in that Plan Year solely because of the crediting of Hours of
Service in accordance with clauses (1) and (2) of this
definition, or in any other case, the immediately following
Plan Year.
For vesting purposes, a One-Year Break in Service is a Period of
Severance of at least 12 consecutive months.
(k) Period of Severance. A Period of Severance is a continuous period of
time during which the Participant is not employed by the Employer.
Such period begins on the date the Participant retires, quits or is
discharged, or if earlier, the 12-month anniversary of the date on
which the Participant was otherwise first absent from service.
(l) Prior Plan Benefit. The Participant's "Accrued Benefit" within the
meaning of that term under the Plan as it existed on December 31, 1996
and as documented in the prior amendment and restatement of the Plan
(effective January 1, 1990) and any amendments thereto.
(m) Reemployment Commencement Date. The first day an Employee is
credited with an Hour of Service for performing duties following his
Severance from Service.
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(n) Severance from Service. The earlier of the date on which an Employee
quits, retires, is discharged, or dies, or the first anniversary of
the date on which the Employee ceases active employment for any other
reason.
(o) Year of Service. For purposes of determining participation, a Plan
Year for which an Employee has been credited with at least 1,000 Hours
of Service.
15.3 Requirements for Retirement Benefits
(a) Early Retirement. A Participant shall be eligible for an Early
Retirement Pension in accordance with the provisions of Section 15.5
if his employment is terminated after he has completed 5 or more Years
of Vesting Service. Payment of an Early Retirement Pension shall
commence as of the first day of the calendar month coincident with or
next following the Participant's Normal Retirement Date. However, a
retired Participant who is eligible for an Early Retirement Pension
may request the commencement of the Participant's Early Retirement
Pension as of the first day of any calendar month following the
Participant's early retirement but before the Participant's Normal
Retirement Date.
(b) Deferred Vested Pension.
(1) A Participant shall be eligible for a Deferred Vested Pension
in accordance with the provisions of Section 15.5 if his
employment is terminated with the Employer before death or
Retirement after he has completed at least 5 Years of Vesting
Service (as set forth in Section 15.6). A Participant whose
employment is terminated with the Employer before death or
Retirement and before he has completed 5 Years of Vesting
Service (as set forth in Section 15.6) shall not be eligible
for a Deferred Vested Pension in accordance with the
provisions of Section 15.5.
(2) Payment of a Deferred Vested Pension shall commence as of the
first day of the calendar month coincident with or next
following the Participant's Normal Retirement Date. However, a
retired Participant who is eligible for Deferred Vested
Pension may request the commencement of the Participant's
deferred vested pension as of the
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<PAGE>
first day of any calendar month following the Participant's
termination of employment, but before the Participant's Normal
Retirement Date.
(3) Notwithstanding the above, a Participant's right to his Accrued
Benefit will be nonforfeitable upon his attainment of Normal
Retirement Age.
(4) If a Participant has terminated employment with the Employer,
any portion of his Accrued Benefit in which the Participant is
not vested shall be forfeited and canceled as of the
Participant's termination of employment, subject to
reinstatement as provided in Section 15.6(b). Forfeitures of an
Employer's Participants arising under the Plan for any reason
shall be used as soon as possible to reduce the Employer's
contributions under the Plan.
15.4 Normal Retirement Pension
(a) Normal Form. In the case of--
(1) any Participant on January 1, 1997 who was a Participant in
the Plan on December 31, 1996 and who is actively employed as
a Nonunion Hourly Employee on or after January 1, 1997, and
(2) any Nonunion Hourly Employee who becomes a Participant in the
Plan on or after January 1, 1997,
such Participant's Accrued Benefit as of any date shall be a monthly
amount, payable to the Participant on the Participant's Normal
Retirement Date and continuing through the first day of the calendar
month which includes the date of the Participant's death, equal to the
greater of--
(A) the Participant's Minimum Benefit; or
(B) the Participant's Cash Balance Benefit.
(b) Minimum Benefit. The Minimum Benefit shall be equal to the
Participant's accrued benefit as of December 31, 1996 as determined
under the terms of the Plan in effect on December 31, 1996.
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<PAGE>
(c) Cash Balance Benefit. Effective January 1, 1997, the monthly amount of
the Participant's Cash Balance Benefit shall equal the Actuarial
Equivalent of the Participant's Cash Balance Account at such
Participant's Normal Retirement Date.
(d) Cash Balance Account. The Cash Balance Account shall be equal to the
sum of the Participant's:
(1) initial Cash Balance Account, if any, as described in
Section 15.4(e);
(2) Annual Credits, if any, as described in Section 15.4(g);
(3) Transition Credits, if any, as described in Section 15.4(h); and
(4) Interest Credits as described in Section 15.4(i).
(e) Initial Cash Balance Account.
(1) The initial Cash Balance Account as of January 1, 1997, for any
Nonunion Hourly Employee who was a Participant on December 31,
1996, shall be equal to the single sum value of such
Participant's accrued benefit as of December 31, 1996
determined under Section 4.1 of the Plan in effect as of
December 31, 1996, using the Employee's actual Benefit Service
as of December 31, 1996 and an interest rate of 6.5% and
mortality based upon the 1983 Group Annuity Mortality Table,
with annuity values weighted 50% male and 50% female, and
assuming commencement of the retirement benefit at age 65 (or
later, if applicable).
(2) The initial Cash Balance Account for any Participant whose
participation begins on or after January 1, 1997, will be equal
to the Annual Credit for the calendar year the Employee becomes
a Participant and for the calendar year immediately preceding
such year. Such Annual Credit shall be credited as of the end
of the calendar year in which participation begins.
(f) Annual Accrual. A Participant's initial Cash Balance Account shall
then--
(1) increase pursuant to Section 15.4(g), each calendar year the
Participant is still a Participant until benefit payments
commence,
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(2) further increase pursuant to Section 15.4(h) each calendar year
if such Participant is entitled to receive a Transition Credit,
and
(3) further increase automatically each calendar year pursuant to
Section 15.4(i), regardless of whether the Participant is a
Participant, an inactive Participant, or a former Participant,
until benefit payments commence.
(g) Annual Credit. For calendar years beginning on or after January 1,
1997, the Participant's Cash Balance Account described in Section
15.4(d) shall increase by an amount equal to the Participant's Annual
Credit for that calendar year. This amount shall be credited as of the
last day of the calendar year (December 31), or on the date benefit
payments commence, if earlier.
(h) Transition Credit. In addition, in the case of any Participant who was
an Employee on December 31, 1996, such Participant will receive an
annual Transition Credit, in addition to his Annual Credit. The amount
of the Transition Credit will be credited as of the last day of the
calendar year (December 31), or on the date benefit payments commence,
if earlier. This Transition Credit will be credited each year until
the number of years the Participant's Cash Balance Account receives a
Transition Credit equals the number of years of Benefit Service such
Participant had as of December 31, 1996 (as defined in Section 6.1 of
the Plan as in effect on December 31, 1996; any partial year of
Benefit Service will be rounded to a full year of Benefit Service), up
to a maximum of 15 years. In no event shall any Transition Credit be
credited for years beginning on or after January 1, 2012. If such
Participant has a Severance from Service on or after January 1, 1997,
his eligibility for a Transition Credit will end, and upon rehire, he
will not be eligible to receive a Transition Credit. If such
Participant is on a leave of absence from an Employer for a year and
receives no Earnings during that year he will not receive a Transition
Credit for that year. Notwithstanding the foregoing, Transition Credit
may also be given to a Participant who was not an Employee on December
31, 1996, if deemed appropriate by the Plan Administrator and set
forth in Special Benefit Schedules which may be adopted and made a
part of the Plan from time to time.
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(i) Interest Credit. Beginning January 1, 1997, the amount by which each
Participant's Cash Balance Account described in Section 15.4(d) shall
be increased until benefits commence. At the end of each calendar
year, the Interest Credit shall be determined by multiplying each
Participant's Cash Balance Account balance at the beginning of the
calendar year by the Annual Interest Crediting Rate. The resulting
Interest Credit amount shall be added to the Participant's Cash
Balance Account. If benefits commence before the last day of a
calendar year, the Interest Crediting Rate will be applied as a
monthly nominal rate of interest to reflect the portion of the
calendar year preceding the date such benefits commence.
(j) Military Leave. The Cash Balance Account of a Participant who is on a
leave of absence due to service in the Armed Forces of the United
States shall be credited as described in Section 15.4(f) for the
period of such absence, provided that such Participant complies with
all the requirements of federal law in order to be entitled to
reemployment and provided further that such Participant returns to
employment with an Employer within the period provided by such law.
(k) Impact of Reemployment on Cash Balance Account.
(1) If a Participant is reemployed and he is treated as a new
Employee pursuant to Section 15.6(b) (rule of parity), his
prior Cash Balance Account shall not be restored upon
reemployment.
(2) If a Participant has received a distribution of his entire Cash
Balance Account, his prior Cash Balance Account shall not be
restored upon reemployment.
(3) If paragraphs (1) and (2) are not applicable and the
Participant did not receive any distribution, upon
reemployment, his entire Cash Balance Account shall be
restored, including any amounts that may have been forfeited
upon a Break in Service, including interest thereon equal to
the amount of the Interest Credit in effect from the date of
the forfeiture to the date of the restoration of the
forfeiture.
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(l) Coordination With Long-Term Disability. If a Participant is receiving
benefits under a long-term disability program maintained by an
Employer, the Participant shall continue to be treated as an active
Participant and shall be deemed to be receiving Earnings at the rate
in effect at the time he ceased to be an active Employee.
(m) Reserved.
15.5 Amount and Manner of Payment; Optional Benefits
(a) Amount of Retirement Benefits. Subject to the provisions of Section
4.6, a Participant's monthly retirement benefit on his Early
Retirement Date or Normal Retirement Date, or the retirement benefit
of a Participant who is eligible for a Deferred Vested Pension in
accordance with the provisions of Section 15.3(b) shall be equal to
his Cash Balance Account, which is deemed to be the lump sum Actuarial
Equivalent value of the Cash Balance Benefit, payable at the
Participant's Normal Retirement Date.
(b) Payment of Retirement Benefits. Subject to the provisions of Section
4.6, a Participant's monthly retirement benefit on his Early
Retirement Date or Normal Retirement Date, or the retirement benefit
of a Participant who is eligible for a Deferred Vested Pension in
accordance with the provisions of Section 15.3(b) shall be equal to
his Cash Balance Account, which is deemed to be the lump sum Actuarial
Equivalent value of the Cash Balance Benefit, payable at the
Participant's Normal Retirement Date.
If a Participant does not have a spouse at the time of the commencement
of payment of a Normal, Early, or Deferred Vested Pension, he will
receive the value of his vested Accrued Benefit in the form of a Life
Annuity, as described in Section 15.5(c)(1) below, unless he elects an
optional form of benefits under Section 15.5(c).
If a Participant is married as of the date his benefits commence, he
shall receive the value of his vested Accrued Benefit in the form of a
Joint and
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50% Survivor Annuity, as described in Section 15.5(c)(4) below, unless
he elects an optional form of benefits under Section 15.5(c), in
accordance with the provisions of Section 15.5(d).
(c) Optional Forms of Retirement Benefit Payments. Subject to the written
election procedures described below, a Participant may receive his
Normal, Early, or Deferred Vested Pension under any of the following
optional methods (all optional methods are the Actuarial Equivalent of
a Life Only Annuity):
(1) Life Only Annuity. This optional form provides a monthly
annuity for the Participant's lifetime, with no further
benefits being paid upon his death.
(2) Life With 10 Years Certain Annuity. This form provides a
monthly annuity for the lifetime of the Participant, and if the
Participant's death occurs within a period of 10 years after
the commencement date of his benefits, payment of the benefits
will be continued in an amount equal to 70% of the original
amount to the Beneficiary or Beneficiaries designated by the
Participant for the balance of the 10-year period.
(3) Joint And 66-2/3% Survivor Annuity. This form provides a
reduced monthly annuity for the life of a Participant, with a
survivor annuity for the life of the Participant's spouse,
where the survivor annuity is 66-2/3% of the amount of the
annuity payable during the joint lives of the Participant and
the Participant's spouse.
(4) Joint and 50% Survivor Annuity. This optional form of payment
is a reduced monthly annuity for the life of a Participant,
with a survivor annuity for the life of the Participant's
spouse, where the survivor annuity is 50% of the amount of the
annuity payable during the joint lives of the Participant and
the Participant's spouse.
(5) Single Sum Option. This optional form of payment is an
immediate single sum payment equal to the Actuarial Equivalent
of the Participant's Accrued Benefit or the Participant's Cash
Balance Account, if greater.
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If the Participant elects to receive the value of the benefit in a
single sum payment, this payment shall be in lieu of all other
benefits under the Plan.
A Participant who retires pursuant to the provisions of Sections
15.3(a) or 15.3(b), may elect an immediately payable annuity in the
Normal Form.
(d) Election Procedures for Optional Retirement Benefits. In lieu of
receiving benefits in the form of a Life Annuity or a Joint and 50%
Survivor Annuity, the Participant may make an election to receive
benefits in an optional form described in Section 15.5(c). However,
such an election must be made in writing by the Participant during the
election period. If he is married, the election must be consented to
by the Participant's spouse and must meet the following requirements:
(1) The spouse's consent must acknowledge the effect of such
election and be witnessed by a Plan representative or a notary
public. Such consent will not be required if it is established
to the Committee that the required consent cannot be obtained
because there is no spouse, the spouse cannot be located, or
other circumstances that may be prescribed by Treasury
regulations. The election may be revoked by the Participant in
writing without the consent of the spouse at any time during
the election period described in subparagraph (b) below. Any
new election must comply with the requirements of this
subparagraph (a). A former spouse's waiver shall not be binding
on a new spouse.
(2) The election period to waive the Joint and 50% Survivor Annuity
shall be the 90-day period, the last day of which is the
"annuity starting date". For purposes of this Section, "annuity
starting date" means the first day of the first period for
which an amount is received as an annuity. Any elections may
not be changed after the Participant's annuity starting date.
(3) A Participant's failure to waive the Joint and 50% Survivor
Annuity will not result in a decrease in any Plan accrued
benefit with respect to such Participant.
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(e) Employment After Normal Retirement Date. Subject to the provisions of
Section 5.6, payment of the Pension of a Participant who either (a)
becomes reemployed after his annuity starting date or (b) remains in
employment after his Normal Retirement Date shall be suspended during
each calendar month of the Participant's reemployment or continued
employment during which the Participant is credited with at least 40
Hours of Service. In the case of a Participant who becomes reemployed
after his annuity starting date, upon his ceasing to be employed on
the basis described in the previous sentence he shall be entitled to
resume receiving distribution of his Pension in accordance with the
following rules: (a) payments shall resume no later than the third
calendar month after the calendar month in which the Participant
ceases to be so employed provided the Participant has notified the
Employer of the cessation, (b) payment shall be retroactive to the day
the Participant ceased such employment, (c) payment shall be in the
same form as before the suspension, and (d) the pension payable upon
his subsequent retirement shall be reduced by the Actuarial Equivalent
of previous pension payments received prior to Normal Retirement Date.
The Committee shall notify any Participant who is affected by this
Section 15.5(e) in accordance with the notification requirements of
Department of Labor Regulations Section 2530.203-3(b)(4).
(f) Payment of Death Benefits.
(1) Prior to Termination of Employment.
(A) In the event of the death of a Participant while
employed by the Employer as a salaried employee but
after the date he completes 5 years of Vesting Service,
his Beneficiary shall be eligible to receive a death
benefit payable in the manner described below.
(B) If the Participant would have accrued at least 20 years
of Vesting Service had he remained in the service of
his Employer until his Normal Retirement Date, the
amount of such death benefit shall be paid as a single
sum equal to the greater of (i) and (ii):
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(i) 36 times the Participant's monthly regular
compensation (defined as base pay, excluding any
bonuses, overtime, and incentive pay) for the
calendar month immediately preceding the calendar
month of death, and
(ii) the greater of:
(I) the Participant's Cash Balance Account, or
(II) the single sum Actuarial Equivalent of the
Qualified Pre-retirement Survivor Annuity
that is payable under this Section
15.5(f).
If the Participant would have accrued less than twenty
years of Vesting Service had he remained in the service
of his Employer to his Normal Retirement Date, the
amount of such death benefit shall be computed as
provided in (A) above, reduced by 5% per year (5/12 of
1% for each full month) by which the Vesting Service
which he would have accrued if he had remained in the
service of his Employer to his Normal Retirement Date,
is less than 20 years and shall then be reduced in the
manner provided in (B) above. The amount of the death
benefit, determined in this Section 15.5(f)(1)(B), shall
be reduced to the extent that said death benefit, when
added to the Actuarial Equivalent of the Qualified
Pre-retirement Survivor Annuity, exceeds an amount equal
to 100 times the projected monthly Normal Retirement
Pension to which the Participant would have been
entitled had he continued in his employment, at his most
recent rate of Earnings, until he attained his Normal
Retirement Age.
(C) If a Participant described in (B) above had completed at
least 5 years of Vesting Service and is survived by a
spouse, such spouse shall be entitled to a Qualified
Pre-retirement Survivor Annuity in an amount equal to
the Actuarial Equivalent of the benefit which would have
been payable to such spouse if the Participant had
terminated employment with the Employer immediately
prior to his death but survived to his Earliest
Retirement Age, retired with an immediate Joint and
66-2/3% Survivor Annuity form described in Section
15.5(f) on his
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Earliest Retirement Age, and died on the date after the
day on which such Participant would have attained his
Earliest Retirement Age.
(D) Unless the Participant has elected another form of
payment pursuant to Section 15.5(c), the Qualified
Pre-retirement Survivor Annuity determined under (C)
above shall be payable as a monthly benefit commencing
on the date selected by the surviving spouse, which
shall be the first day of a calendar month. In the case
of a surviving spouse not electing an immediate benefit,
such date shall occur no earlier than the date on which
the deceased Participant would have attained his
Earliest Retirement Age applicable, or the date of the
Participant's death, and no later than the first day of
the month next following the later of the Par ticipant's
death or the date the Participant would have attained
Normal Retirement Age.
(E) The surviving spouse may elect to receive the Qualified
Pre-retirement Survivor Annuity in the form of a single
sum payment. Such immediate single sum payment equal to
the greater of--
(i) the Participant's Cash Balance Account as of the
first day of the calendar month preceding the
date of distribution; or
(ii) the single sum Actuarial Equivalent of the
Participant's Accrued Benefit.
(2) Death Benefit After Termination of Employment.
(A) If a married Participant who has a deferred vested
pension dies while not employed by the Employer and
before his benefit com menced payment under Section 4.1,
4.2, 4.4, 15.4, or 15.5(a), his surviving spouse shall
be eligible to receive a Qualified Pre-retirement
Survivor Annuity in an amount equal to the greater of:
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<PAGE>
(i) the Participant's Cash Balance Account; or
(ii) the single sum Actuarial Equivalent of the
Qualified Pre-retirement Survivor Annuity that is
payable under this Section 15.5(f).
(B) If an unmarried Participant who has a deferred vested
pension dies while not employed by the Employer and
before his benefit commenced payment under Section 15.4
or 15.5(a), his Beneficiary shall be eligible to
receive a benefit, equal to the Actuarial Equivalent of
the Participant's Cash Balance Account.
(3) The death benefit payable under this Section shall be payable
as a monthly benefit commencing on the date selected by the
surviving spouse or the designated Beneficiary which shall be
the first day of a calendar month. In the case of a surviving
spouse not electing an immediate benefit, such date shall occur
no earlier than the date on which the deceased Participant
would have attained his Earliest Retirement Age, or the date of
the Participant's death, and no later than the first day of the
month next following the later of the Participant's death or
the date the Participant would have attained Normal Retirement
Age.
The surviving spouse or the designated Beneficiary may elect
to receive the death benefit in the form of a immediate single
sum payment. Such immediate single sum payment equal to the
greater of--
(i) the Participant's Cash Balance Account as of the
first day of the calendar month preceding the
date of distribution; or
(ii) the single sum Actuarial Equivalent of the
Participant's Accrued Benefit.
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15.6 Year of Vesting Service
(a) A Participant will be credited with Years of Vesting Service for
Service prior to January 1, 1997, in accordance with Section 6.2 of
the Plan. For Service after December 31, 1996, a Participant will
receive credit for the aggregate of all time periods commencing with
the Participant's Employment Com mencement Date or Reemployment
Commencement Date, and ending on the date his Period of Severance
begins, subject to the limitations below:
(1) A Participant shall not receive more than one Year of Vesting
Service credit for any Plan Year irrespective of the number of
Employers a Participant is employed by during such Plan Year.
(2) An Employee may also receive Vesting Service for employment
with any related entity. The Committee may determine that
Service may be credited for such employment if it is credited
on a uniform and nondiscriminatory basis.
(3) A leave of absence due to service in the Armed Forces of the
United States shall be included as Vesting Service under the
Plan, provided that the Employee complies with all the
requirements of federal law in order to be entitled to
reemployment and provided further that such Employee returns
to employment with the Employer within the period provided by
such law.
(b) Cancellation and Reinstatement of Service.
(1) If a Participant terminates employment with the Employer prior
to the earlier of:
(A) the Participant's death, or
(B) the date the Participant is credited with 5 years of
Vesting Service, all his Vesting Service shall be
cancelled. Notwithstanding the foregoing, a
Participant's right to his Accrued Benefit will be
nonforfeitable upon his attainment of Normal Retirement
Age.
(2) If an Employee incurs a Severance from Service and is
subsequently reemployed as an Employee, and--
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<PAGE>
(A) if he received a lump sum distribution of the present value
of his Accrued Benefit at his Severance from Service, the
Years of Vesting Service he had at such date will be
reinstated upon the date of his rehire, unless he is
reemployed after a One-Year Break in Service, in which case
his prior Years of Vesting Service will not be reinstated
unless he is an Employee on the first anniversary of the
date of his rehire;
(B) if he was entitled to receive a benefit under Section 15.4
at his Severance from Service but has not received
distribution of the present value of his Accrued Benefit at
the date of his rehire, his benefits will be suspended in
accordance with the provisions of Section 5.4 and adjusted
in accordance with the provisions of Section 5.4, and the
Years of Vesting Service he had at his Severance from
Service will be reinstated upon the date of his rehire,
unless he is reemployed after a One-Year Break in Service,
in which case his prior Years of Vesting Service will not be
reinstated unless he is an Employee on the first anni
versary of the date of his rehire;
(C) if he was not entitled to receive a benefit under Section
15.4 at his Severance from Service and he is rehired after a
5-Year Period of Severance, the Years of Vesting Service he
had at his Severance from Service will not be reinstated;
(D) if he was not entitled to receive a benefit under Section
15.4 at his Severance from Service and he is reemployed
before a 5-Year Period of Severance, the Years of Vesting
Service he had at his Severance from Service will be
reinstated upon the date of his rehire, unless he is rehired
after a One-Year Break in Service, in which case his prior
Years of Vesting Service will not be reinstated unless he is
an Employee on the first anniversary of the date of his
rehire; or
(E) if he is reemployed before a One-Year Break in Service and
his Severance from Service resulted from resignation,
discharge, or retirement, he shall receive credit (but not
in excess of 12 months) for Years of Vesting Service for the
period between his Severance from Service and the date of
his rehire.
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In Witness Whereof, United Wisconsin Services, Inc., and Blue Cross & Blue
Shield United of Wisconsin, by their duly authorized officers, have caused these
presents to be signed on this 27 day of February, 1998.
UNITED WISCONSIN SERVICES, INC.
[ILLEGIBLE]
---------------------------------------------
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
[ILLEGIBLE]
---------------------------------------------
CORPORATE SEAL
ATTEST:
[ILLEGIBLE]
- ------------------------------
Secretary
76
<PAGE>
Schedule A--Actuarial Assumptions
Single Sum Cash Distributions
(a) Mortality--The Unisex Pension 1984 Mortality Table, with the ages in
said table set back four years.
(b) Interest--Subject to paragraph (c) of this Schedule A. The interest
rates on January 1, immediately preceding the date of payment that is
used by the Pension Benefit Guaranty Corporation to determine the
present value of benefits for terminating plans.
(c) Minimum Actuarial Equivalent Present Value--In no event shall the
Actuarial Equivalent present value of a Participant's vested Accrued
Benefit be less than the greater of:
(1) such present value determined based on the interest assumption
set forth in paragraph (b) of this Schedule A, and
(2) such present value determined based on the Applicable Interest
Rate (as defined below).
For purposes of this Schedule A, the Applicable Interest Rate shall be
(A) if such present value does not exceed $25,000, the interest rates
which would be used as of the first day of the Plan Year in which the
Participant's annuity starting date occurs, by the Pension Benefit
Guaranty Corporation for a trusteed single employer plan or (B) if that
present value exceeds $25,000, 120% of the rate described in paragraph
(A). In no event shall the present value determined by using the rate
in paragraph (B) be less than $25,000.
Other Than Single Sum Cash Distributions
(a) Mortality--The Unisex Pension 1984 Mortality Table with the ages in
said table set back four years.
(b) Interest-- 9%.
77
<PAGE>
Schedule B--Participating Employers
(As of January 1, 1993)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Take Control, Inc.
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
(As of January 1, 1995)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
(Including West Allis Dental Group)
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
78
<PAGE>
Schedule B--Participating Employers (cont'd.)
(As of January 1, 1997)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
United Heartland, Inc.
79
<PAGE>
Schedule C--Excluded Employee Groups
(As of January 1, 1993)
West Allis Dental Group (a division of Compcare Health Services
Insurance Corporation)
(As of January 1, 1995)
HMO of Wisconsin Insurance Corporation
HMO-W, Inc.
United Heartland, Inc.
(As of January 1, 1997)
Accountable Health Plans, Inc.
Accountable Health Plan of the Carolinas, Inc.
Advance Medical Security, Inc.
American Medical Security Holdings, Inc.
American Medical Security, Inc.
AMS HMO Holdings, Inc.
AMS Provider Partnerships, Inc.
American Medical Security Health Plans, Inc.
American Medical Security Insurance Company
American Medical Security Health Plan, Inc. (DBA American Medical
Healthcare)
Atlantic Health Plans, Inc.
CNR Health, Inc.
Community Health Plan, Inc.
Continental Plan Services, Inc.
Crescent Medical Partnerships, Inc.
HMO-W, Inc.
Nurse Healthline, Inc.
Personal Physician Care, Inc.
U&C Real Estate Partnership
United Wisconsin Life Insurance Company
Unity Health Plans Insurance Corporation (formerly HMO of
Wisconsin Insurance Corporation)
Unity HMO of Illinois, Inc
80
<PAGE>
Special Benefit Schedule No. 1
Participants Terminating Employment between March 1, 1996 and December 31, 1996.
Any Participant who was a Nonunion Hourly Employee, who terminated employment on
or after March 1, 1996 and before January 1, 1997, and who did not receive a
distribution of his vested prior Plan Benefit during 1996 shall receive his
retirement benefit in accordance with Section 15.4 of this Plan as if he had
been actively employed as of January 1, 1997. In the event any of the
Participants described above are reemployed, they shall not be eligible to
receive a Transition Credit.
81
<PAGE>
Special Benefit Schedule No. 2
Hometown Insurance Services Employees
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of January 1, 1995 and supersedes any provisions of the Plan
which are not consistent with this Special Benefit Schedule. The Participants
covered by this Special Benefit Schedule are the Participants listed below
("Hometown Employees") who were employed by the Employer (doing business as
Hometown Insurance Services) on December 31, 1994.
Lisa Tranberg
1. Eligibility. A Hometown Employee shall participate in the Plan as of
the later of (a) January 1, 1995 or (b) the first day of the month
coincident or next following the first anniversary of his date of hire
with HMO of Wisconsin Insurance Corporation, HMO-W, Inc., University
Health Care, Inc., U-Care HMO, Inc., or Unity Health Plans Insurance
Corporation (a "Hometown Related Employer").
2. Vesting. For purposes of determining the Years of Vesting Service
pursuant to Section 15.6, the Plan shall recognize, in addition to his
Service with an Employer on and after January 1, 1995, all periods of a
Participant's employment with a Hometown Related Employer prior to
January 1, 1995.
82
<PAGE>
Special Benefit Schedule No. 3
Certain United Heartland, Inc. Employees
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of participation and vesting service for certain
Employees of United Heartland, Inc. ("UH"). The Participants covered by
this Special Benefit Schedule are the Participants who immediately
prior to the Effective Date were actively employed by UH and were
active participants in the United Heartland, Inc. Pension Plan ("UH
Pension").
2. Effective Date. January 1, 1997.
3. Eligibility. A participant in the UH Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee of UH shall become eligible to participate in
the Plan on the later of the Effective Date or the date such employee
would otherwise become eligible to participate in accordance with the
provisions of Article 2 of the Plan, taking into account such
employee's service with UH prior to the Effective Date.
4. Initial Cash Balance Account. A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 15.4(e)(2).
5. No Transition Credits. A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 15.4(h) of this Plan.
6. Vesting. For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with UH,
as computed under the elapsed time method used by the UH Plan.
83
<PAGE>
Special Benefit Schedule No. 4
Former EDS Employees in the Medicaid Claims Processing Unit
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of participation and vesting service for certain former
EDS employees. The Participants covered by this Special Benefit
Schedule are the Participants who immediately prior to the Effective
Date were actively employed by EDS in the Medicaid Claims Processing
Unit and became Employees of the Company on the Effective Date.
2. Effective Date. January 1, 1997.
3. Eligibility. A Participant covered by this Special Benefit Schedule who
was a Participant in the EDS Retirement Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee in the Medicaid Claims Processing Unit shall
become eligible to participate in the Plan on the later of the
Effective Date or the date such employee would otherwise become
eligible to participate in accordance with the provisions of Article 2
of the Plan, taking into account such employee's service with EDS prior
to the Effective Date.
4. Initial Cash Balance Account. A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 15.4(e)(2).
5. No Transition Credits. A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive Transition
Credits as described in Section 15.4(h) of this Plan.
84
<PAGE>
6. Vesting. For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with
EDS, as computed under the method used by EDS Plan.
85
<PAGE>
Special Benefit Schedule No. 5
Former EDS Employees in the Print Center
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of participation and vesting service for certain former
EDS employees. The Participants covered by this Special Benefit
Schedule are the Participants who immediately prior to the Effective
Date were actively employed by EDS in the Print Center who became
Employees of the Company on the Effective Date.
2. Effective Date. August 1, 1997.
3. Eligibility. A Participant covered by this Special Benefit Schedule who
was a participant in the EDS Retirement Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee in the Print Center shall become eligible to
participate in the Plan on the later of the Effective Date or the date
such employee would otherwise become eligible to participate in
accordance with the provisions of Article 2 of the Plan, taking into
account such employee's service with EDS prior to the Effective Date.
4. Initial Cash Balance Account. A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. Annual Credits. A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 4% of Earnings. Annual
Credits shall be determined and credited to such Participants' Cash
Balance Accounts as described in Section 15.4(g) of the Plan, except as
described in Section 6 of this Special Benefit Schedule.
86
<PAGE>
6. 1997 Annual Credit. A Participant covered by this Special Benefit
Schedule shall receive an Annual Credit for the calendar year ended
December 31, 1997 in an amount equal to 4% of Earnings for the period
from August 1, 1997 to December 31, 1997.
7. No Transition Credits. A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 15.4(h) of this Plan.
8. Vesting. For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with
EDS, as computed under the method used by EDS Plan.
87
<PAGE>
Special Benefit Schedule No. 6
Unity Health Plans Insurance Corporation Employees
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of benefit accrual, participation and vesting service for
Employees of Unity Health Plans Insurance Corporation ("Unity").
2. Effective Date. October 1, 1997.
3. Eligibility. A participant in the Unity Health Plans Insurance
Corporation Retirement Plan ("Unity Plan") who was actively employed by
Unity immediately prior to the Effective Date shall become a
Participant in the Plan on the Effective Date. Any other Employee of
Unity shall become eligible to participate in the Plan on the later of
the Effective Date or the date such employee would otherwise become
eligible to participate in accordance with the provisions of Article 2
of the Plan, taking into account such employee's service with Unity
prior to the Effective Date.
4. Initial Cash Balance Account. A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
October 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. Annual Credits. A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 3% of Earnings. Annual
Credits shall be determined and credited to such Participants' Cash
Balance Accounts as described in Section 15.4(g) of the Plan, except as
described in Section 6 of this Special Benefit Schedule.
88
<PAGE>
6. 1997 Annual Credit. A Participant covered by this Special Benefit
Schedule shall receive an Annual Credit for the calendar year ended
December 31, 1997 in an amount equal to 3% of Earnings for the period
from October 1, 1997 to December 31, 1997.
7. No Transition Credits. A participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 15.4(h) of this Plan.
8. Vesting. For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with
Unity, as computed under the elapsed time method used by the Unity
Plan.
89
<PAGE>
Exhibit 10.42
UWSI/BCBSUW SALARIED PENSION PLAN
(As Amended and Restated Effective January 1, 1997)
<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS 2
1.2 CONSTRUCTION 12
Article II
PARTICIPATION
2.1 ELIGIBILITY 14
2.2 CESSATION OF PARTICIPATION 14
2.3 PARTICIPATION UPON REEMPLOYMENT 15
2.4 TRANSFERS 16
Article III
REQUIREMENTS FOR RETIREMENT BENEFITS
3.1 NORMAL RETIREMENT 17
3.2 EARLY RETIREMENT 17
3.3 DISABILITY RETIREMENT 17
3.4 DEFERRED VESTED PENSION 19
Article IV
AMOUNT OF RETIREMENT BENEFIT
4.1 NORMAL RETIREMENT PENSION 20
4.2 DISABILITY RETIREMENT PENSION 24
4.3 RESERVED 26
4.4 MAXIMUM PENSION 26
4.5 NO DUPLICATION OF BENEFITS 27
Article V
MANNER OF PAYMENT AND OPTIONAL BENEFITS
5.1 AMOUNT OF RETIREMENT BENEFITS 28
5.2 PAYMENT OF RETIREMENT BENEFITS 28
5.3 OPTIONAL FORMS OF RETIREMENT BENEFIT PAYMENTS 28
5.4 ELECTION PROCEDURES FOR OPTIONAL RETIREMENT
BENEFITS 29
5.5 EMPLOYMENT AFTER NORMAL RETIREMENT DATE 30
5.6 PAYMENT OF DEATH BENEFITS 31
5.7 TIME OF DISTRIBUTIONS 35
</TABLE>
-i-
<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C> <C>
5.8 LUMP SUM PAYMENT OF SMALL PENSIONS 36
5.9 EFFECT OF REEMPLOYMENT 36
5.10 DIRECT ROLLOVERS; WITHHOLDING 37
Article VI
YEAR OF BENEFIT SERVICE; YEAR OF VESTING SERVICE
6.1 YEAR OF VESTING SERVICE 39
6.2 CANCELLATION AND REINSTATEMENT OF SERVICE 39
Article VII
PLAN FINANCING
7.1 CONTRIBUTIONS 42
7.2 TRUST FUND 42
Article VIII
ADMINISTRATION OF THE PLAN
8.1 PLAN ADMINISTRATOR 43
8.2 THE ADMINISTRATIVE COMMITTEE 43
8.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE 44
8.4 EXPENSES OF ADMINISTRATION 44
8.5 ACTS OF THE COMMITTEE 44
8.6 INTERPRETATIONS 44
8.7 LIABILITY OF THE COMMITTEE 45
8.8 APPLICABLE LAW 45
8.9 PLAN FIDUCIARIES: ALLOCATION OF
RESPONSIBILITIES AMONG THEM 46
8.10 RELIANCE ON CO-FIDUCIARIES 46
8.11 FIDUCIARY DUTIES 47
8.12 PROHIBITED TRANSACTIONS TO BE AVOIDED 47
8.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR 48
8.14 DATA SUPPLIED BY EMPLOYER 48
8.15 PARTIAL EXCULPATION 48
8.16 INFORMATION REQUIRED OF PARTICIPANTS 48
8.17 CLAIMS PROCEDURE 49
8.18 BENEFICIARY DESIGNATIONS 51
Article IX
MISCELLANEOUS
9.1 NONGUARANTEE OF EMPLOYMENT 52
9.2 RIGHTS TO TRUST FUND ASSETS 52
9.3 NONALIENATION OF BENEFITS 52
</TABLE>
-ii-
<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C> <C>
9.4 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC
RELATIONS ORDER 52
9.5 GOVERNING LAW 54
9.6 PARTICIPANT INFORMATION 54
Article X
AMENDMENTS AND ACTIONS BY THE EMPLOYER
10.1 AMENDMENTS 56
10.2 LIMITATION ON AMENDMENTS 56
10.3 ACTION BY EMPLOYER 57
Article XI
SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION
OF PLANS
11.1 SUCCESSOR EMPLOYER 58
11.2 PLAN ASSETS 58
Article XII
TEMPORARY RESTRICTIONS ON BENEFITS
12.1 TEMPORARY LIMITATION ON BENEFITS OF RESTRICTED
MEMBERS 59
Article XIII
PLAN TERMINATION
13.1 TERMINATION OF THE PLAN 61
13.2 DISTRIBUTION ON TERMINATION AND PARTIAL
TERMINATION 61
13.3 MANNER OF DISTRIBUTION 62
13.4 RESIDUAL AMOUNTS 62
13.5 EFFECT OF BANKRUPTCY AND OTHER CONTINGENCIES
AFFECTING AN EMPLOYER 62
Article XIV
TOP HEAVY PROVISIONS
14.1 TOP HEAVY PROVISIONS 64
14.2 TOP HEAVY PLAN DEFINITIONS 64
14.3 MINIMUM VESTING REQUIREMENTS 67
14.4 MINIMUM BENEFITS 68
14.5 ADDITIONAL ACCRUALS 68
14.6 ADJUSTMENT TO OVERALL IRC SECTION 415
LIMITATIONS 69
</TABLE>
-iii-
<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C>
SCHEDULE A - PARTICIPATING EMPLOYERS 71
SCHEDULE B - EXCLUDED EMPLOYEE GROUPS 72
SPECIAL BENEFIT SCHEDULE NO. 1 73
SPECIAL BENEFIT SCHEDULE NO. 2 74
SPECIAL BENEFIT SCHEDULE NO. 3 75
SPECIAL BENEFIT SCHEDULE NO. 4 76
SPECIAL BENEFIT SCHEDULE NO. 5 77
SPECIAL BENEFIT SCHEDULE NO. 6 79
</TABLE>
-iv-
<PAGE>
INTRODUCTION
The UWSI/BCBSUW Salaried Pension Plan (formerly called the Blue Cross &
Blue Shield United of Wisconsin Salaried Employees Retirement Plan) (the "Plan")
is hereby amended and restated effective January 1, 1997 (unless stated to the
contrary) in order to adopt a cash balance formula.
It is intended that the Plan, as herein amended and restated, will
continue to comply with the requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA") and will continue to qualify under the Code of
1986 ("Code") and any later amendments to either ERISA or the Code.
Notwithstanding any provisions in this Plan to the contrary, the rights
and benefits, if any, provided to Participants whose termination of employment
occurred prior to January 1, 1997 (except as specifically provided herein) shall
be paid pursuant to the terms of the Plan in effect prior to that date.
-1-
<PAGE>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS:
Where the following words and phrases appear in this Plan, they shall
have the respective meanings set forth below, unless the context clearly
indicates to the contrary:
(a) Accrued Benefit: The amount determined in accordance
with Section 4.1 for Retirement at the Normal Retirement Date.
(b) Actuarial (or Actuarially) Equivalent: A benefit or amount
that replaces another and has the same value as the benefit or amount
it replaces, based on the following actuarial assumptions:
(i) Except as provided in subsection (ii)-(iv),
actuarial equivalence shall be based on the 1983 GAM Table
with annuity values weighted 50% male and 50% female, and an
interest rate equal to the annual average rate of interest on
30-year U.S. Treasury securities for November of the Plan Year
immediately preceding the Plan Year of distribution.
(ii) For purposes of determining the lump sum value
of the accrued benefit as of December 31, 1992, the interest
rate specified in the preceding subsection will be reduced by
2-1/2% to reflect cost-of-living adjustments.
(iii) For purposes of reducing the age 65 minimum
benefit to an immediate annuity payable to a Participant
prior to his Early Retirement Age (as defined in the Plan as
in effect on December 31, 1996), the actuarial assumptions
specified in subsection (i) shall be used. However, for
purposes of reducing the age 65 minimum benefit to an
immediate annuity payable to a Participant who has attained
his Early Retirement Age (as defined in the Plan as in effect
on December 31,
-2-
<PAGE>
1996), the early retirement reduction factors defined in
Section 4.2 of the Plan as in effect on December 31, 1996
shall be used.
(iv) In cases where specific assumptions or factors
are identified by the Plan as being applicable to a particular
benefit or situation (for example, in Section 4.1), the
specified assumptions or factors shall be used.
(c) Actuary: The individual actuary who is an enrolled actuary
under ERISA or firm of actuaries employing an enrolled actuary selected
by the Employer and approved by the Committee, to provide actuarial
services in connection with the administration of the Plan.
(d) Administrative Committee or Committee: The Committee
as described in Article VIII.
(e) Administrative Delegate: One or more persons or
institutions to whom the Administrative Committee has delegated
certain administrative functions pursuant to a written agreement.
(f) Annual Credit: For any calendar year commencing on or
after January 1, 1997, 4% of Earnings for the calendar year, unless
otherwise specified in a Special Benefit Schedule.
(g) Annual Transition Credit: For any calendar year commencing
on or after January 1, 1997, an amount equal to 4% of a Participant's
Earnings for the calendar year, as further described in Section 4.1(h)
of this Plan.
(h) Annual Interest Crediting Rate: The rate of interest used
in determining the amount of the Interest Credit to be added to
Participant's Cash Balance Account each Plan Year. The Annual Interest
Crediting Rate shall be determined for each Plan Year based on the
simple average of the annual rate of interest on 10-year U.S. Treasury
Securities for the close of each business day in the month of October
of the prior calendar year. In no event shall the Annual Interest
Crediting Rate be less than 3%.
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(i) Beneficiary: A person or persons (natural or otherwise)
designated by a Participant to receive any death benefits which shall
be payable under this Plan.
(j) Cash Balance Account: The notional account deemed to have
been established for each Participant for the amount determined
pursuant to Section 4.1.
(k) Cash Balance Benefit: That part of the Member's Accrued
Benefit which accrues in accordance with the provisions of Section
4.1.
(l) Claimant: Any individual who has made a claim as provided
in Section 8.17.
(m) Code: The Internal Revenue Code of 1986, as amended.
(n) Company: United Wisconsin Services, Inc. and Blue Cross &
Blue Shield United of Wisconsin.
(o) Contingent Annuitant: The surviving spouse of a
Participant who is eligible for either a Joint and 50% Survivor
Annuity, a Joint and 66-2/3% Survivor Annuity, or the Qualified
Pre-retirement Survivor Annuity.
(p) Earliest Retirement Age: means the earliest date on which,
under the Plan, a Participant could elect retirement benefits in the
form of an annuity.
(q) Early Retirement Date: The first day of the month
coincident with or next following the date on which the Participant has
completed 5 Years of Vesting Service, provided he has terminated
employment.
(r) Earnings: For purposes of Section 4.1, annual Earnings
shall be defined as the sum total of items (1) through (9):
(1) a Participant's regular compensation paid by the
Employer for the calendar year (including holiday, vacation,
and personal days paid),
(2) any shift differential paid by the Employer for
the calendar year,
(3) any overtime paid by the Employer for the
calendar year,
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(4) any cash distributions from the Employer's profit
sharing plan that are paid during the calendar year,
(5) any management incentive bonuses that are paid
during the calendar year,
(6) any other performance-related bonuses (exclusive
of any management incentive bonuses under Section 1.1(r)(5) or
any entitlement under any Employer approved sales incentive
compensation program under Section 1.1(r)(8)) that are paid
during the calendar year,
(7) any short-term disability payments from the
Employer's disability plan that are made to the Participant
for the calendar year,
(8) any Employer approved sales incentive
compensation program awards that are paid during the
calendar year,
(9) any salary reduction contributions to a qualified
retirement plan maintained by the Company pursuant to Section
401(k) of the Code or to a cafeteria plan maintained by the
Company pursuant to Section 125 of the Code during the
calendar year.
Any compensation received under the Employer's long term
incentive program, any lump sum vacation pay paid for reasons of
termination of employment or retirement, any severance pay, and any
unused personal days paid in cash shall not be included in the
definition of Earnings.
Earnings in excess of $150,000 (or such other amount as
may be determined by the Secretary of the Treasury in
accordance with Section 401(a)(17) of the Code to reflect increases in
cost-of-living) for any calendar year shall not be taken into account.
(s) Effective Date: The Effective Date of this amended and
restated Plan is January 1, 1997.
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(t) Employee: A person who, on or after the Effective Date, is
actively employed as a salaried employee by an Employer which
participates in this Plan (as set forth in Schedule A to this Plan), is
not in a group of employees specifically excluded from participating in
the Plan (as set forth on Schedule B to this Plan), and is receiving
such remuneration for personal services rendered to such Employers (or
would be receiving such remuneration except for an Authorized Leave of
Absence). The term "Employee" shall not include a "Leased Employee" as
defined in Section 414(n) of the Code, except to the extent required by
law. Notwithstanding anything in this Plan to the contrary, persons
who are classified by an Employer as independent contractors shall not
be considered Employees eligible to participate in the Plan.
(u) Employer: Employers which are participating in this Plan
as set forth on Schedule A to this Plan. Any Employers not included on
Schedule A to this Plan shall be deemed nonparticipating Employers in
this Plan.
For purposes of calculating the maximum benefit payable under
Section 4.4, determining when a One-Year Break in Service has occurred
under Section 1.1(dd), determining a Participant's rights upon an
employment transfer under Sections 2.4 and 4.3, determining whether an
Employee has completed the service eligibility requirement under
Section 2.1, and determining Years of Vesting Service under Section
6.1, the term "Employer" shall, to the extent required by applicable
law, include--
(1) any corporation other than the Company or an
Employer, i.e., either a subsidiary corporation of an
affiliated or associated corporation of the Company or an
Employer, which together with the Company or an Employer is a
member of a "controlled group" of corporations (as defined in
Code Section 414(b));
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(2) any organization which together with the Company
or an Employer is under "common control" (as defined in Code
Section 414(c));
(3) any organization which together with the Company
or an Employer is an "affiliated service group" (as defined in
Code Section 414(m)); or
(4) any other entity required to be aggregated with
the Company or an Employer pursuant to regulations under Code
Section 414(o).
Notwithstanding the foregoing, the term Employer may, in the
discretion of the Committee, be defined to include an entity described
in paragraphs (1) through (4) above for any purpose under the Plan.
(v) Employment Commencement Date: The date an Employee first
performs an Hour of Service.
(w) ERISA: Public Law No. 93-406, the Employee Retirement
Income Security Act of 1974, as amended from time to time.
(x) Hours of Service:
(1) (A) An Hour of Service is each hour for
which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer during
the applicable computation period; and
(B) An Hour of Service is each hour
for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of
time during which no duties are performed
(irrespective of whether the employment relationship
has terminated) due to vacation, holiday, personal
day, illness, incapacity (including disability), lay
off, jury duty, military duty, or leave of absence.
Notwithstanding the preceding sentence:
(i) An hour for which an
Employee is directly or indirectly
paid, or entitled to payment, on
account of a period during which no
duties are performed
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shall not be credited to the
Employee if such payment is made or
due under a plan maintained solely
for the purpose of complying with
applicable worker's compensation or
unemployment compensation or
disability insurance laws; and
(ii) Hours of Service shall
not be credited for a payment which
solely reimburses an Employee for
medical or medically-related
expenses incurred by the Employee;
and
For purposes of this subsection
(1)(B), a payment shall be deemed to be made by or
due from the Employer regardless of whether such
payment is made by or due from the Employer
directly, or indirectly, through, among others, a
trust fund or insurer, to which the Employer
contributes or pays premiums and regardless of
whether contributions made or due to the trust fund,
insurer or other entity are for the benefit of
particular Employees or on behalf of a group of
Employees in the aggregate; and
(C) Each hour for which back pay,
irrespective of mitigation of damages, is either
awarded or agreed to by the Employer. The same Hours
of Service shall not be credited both under
subparagraph (A) or (B) of this subsection, as the
case may be, and under this subparagraph (C). These
hours shall be credited to the Employee for the
computation period or periods to which the
award or agreement pertains rather than the
computation period in which the award, agreement or
payment is made.
(2) Hours of Service for reasons other than
performance of duties shall be determined and
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Hours of Service shall be credited to computation
periods in accordance with Department of Labor
Regulations Section 2530.200b-2(b) and (c).
When no time records are available, the
Employee shall be given credit for 10 Hours of
Service for each day, 45 Hours of Service for each
week, or 190 Hours of Service for each month that he
is credited with at least one Hour of Service or,
pursuant to Committee rules, given credit for such
number of Hours of Service for a period of employment
under an equivalency method prescribed by the
Department of Labor regulation 2530.200b-3.
(y) Interest Credit: The credit specified in Section 4.1(i).
(z) Minimum Benefit: The portion of the Participant's Accrued
Benefit which accrues in accordance with the provisions of Section
4.1(b).
(aa) Normal Form: The Normal Form of benefit at retirement
under this Plan is a Life Annuity (as described in Article V).
(bb) Normal Retirement Age: A Participant's Normal Retirement
Age under this Plan is age 65.
(cc) Normal Retirement Date: The first day of the calendar
month coincident with or immediately following the Participant's 65th
birthday.
(dd) One-Year Break in Service: For participation, a One-Year
Break in Service means a Plan Year in which an Employee (or former
Employee) is not credited with more than 500 Hours of Service. For
purposes of determining whether there has been a One-Year Break in
Service, an Employee shall be credited with Hours of Service for the
period during which he or she is on Parental Leave as follows:
(1) the Employee shall be credited with the number of
Hours of Service with which he or she would
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normally be credited but for the absence (or if the Employee's
normal Hours of Service cannot be determined, eight Hours of
Service for each day of the absence),
(2) the total number of Hours of Service credited for
the absence shall not exceed 501, and
(3) the Hours of Service credited for the absence
shall be credited to the Plan Year in which the absence begins
if the Employee would be prevented from incurring a One-Year
Break in Service in that Plan Year solely because of the
crediting of Hours of Service in accordance with clauses (1)
and (2) of this definition, or in any other case, the
immediately following Plan Year.
For vesting purposes, a One-Year Break in Service is a Period
of Severance of at least 12 consecutive months.
(ee) Parental Leave: An Employee's leave of absence from
employment with the Employer because of pregnancy, birth of the
Employee's child, placement of a child with the Employee in connection
with adoption of the child or caring for a child immediately following
birth or adoption. The Employer shall determine the first and last day
of any Parental Leave.
(ff) Participant: An Employee participating in the Plan in
accordance with the provisions in Section 2.1.
(gg) Pension: A series of monthly amounts which are payable to
a person who is entitled to receive benefits under the Plan.
(hh) Period of Severance: A Period of Severance is a
continuous period of time during which the Participant is not employed
by the Employer. Such period begins on the date the Participant
retires, quits or is discharged, or if earlier, the 12-month
anniversary of the date on which the Participant was otherwise first
absent from service.
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(ii) Plan: UWSI/BCBSUW Salaried Pension Plan, the Plan as set
forth herein, as amended from time to time.
(jj) Plan Administrator: The Company, within the meaning of
ERISA. The Plan Administrator shall have duties and responsibilities
under the Plan as described in Article VIII.
(kk) Plan Year: The term "Plan Year" means the 12-month period
commencing January 1 and ending on December 31.
(ll) Predecessor Plan: The retirement plan of the Employer
before the Effective Date, as explained in the Introduction.
(mm) Prior Plan Benefit: The Participant's "Accrued Benefit"
within the meaning of that term under the Plan as it existed on
December 31, 1996 and as documented in the prior amendment and
restatement of the Plan (effective January 1, 1989) and any amendments
thereto.
(nn) Reemployment Commencement Date: The first day an Employee
is credited with an Hour of Service for performing duties following his
Severance from Service.
(oo) Retirement: Termination of employment with the Employer
for any reason other than death after a Participant has fulfilled all
requirements for a Normal, Early or Disability Retirement Pension.
(pp) Service: The period of a Participant's employment
considered in the determination of his eligibility to participate in
the Plan, eligibility for benefits and amount of benefits payable under
the Plan in accordance with Article VI.
(qq) Severance from Service: The earlier of the date on which
an Employee quits, retires, is discharged, or dies, or the first
anniversary of the date on which the Employee ceases active employment
for any other reason.
(rr) Special Benefit Schedule: A set of supplementary Plan
provisions adopted by the Administrative Committee setting forth any
special Plan provisions in effect for a specific Employer or group of
Employees covered by the Plan.
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If any provisions contained in a Special Benefit Schedule conflict with
the remaining provisions of the Plan, the Special Benefit Schedule
shall govern. The existence of Special Benefit Schedules shall not be
construed as the creation of different plans for purposes of the Code
or ERISA.
(ss) Trust: The Blue Cross & Blue Shield United of Wisconsin
Master Trust maintained in accordance with the terms of the Trust
Agreement as from time to time amended, which constitutes part of this
Plan. The term "Trust" shall also refer to any custodial account
established pursuant to a custodial agreement entered into between the
Company and an authorized custodian.
(tt) Trust Agreement: The agreement which provides for the
continuation of the Trust, as that agreement may from time to time be
amended or supplemented.
(uu) Trust Fund: All cash, securities and other property
arising from contributions under this Plan and the Predecessor Plan
received by the Trustee, all increments thereto, and receipts from any
other sources whatsoever.
(vv) Trustee: The trustee from time to time acting under the
Trust Agreement.
(ww) Year of Service: For purposes of determining
participation, a Plan Year for which an Employee has been credited with
at least 1,000 Hours of Service.
1.2 CONSTRUCTION:
The masculine gender, where appearing in the Plan, shall be deemed to
include the feminine gender, and the singular may include the plural, unless the
context clearly indicates to the contrary. The words "hereof", "herein",
"hereunder" and other similar compounds of the word "here" shall mean and refer
to the entire Plan, not to any particular provision or Section. The words
"terminate," "terminated," "termination of employment," "retire," "retired," or
"retirement" shall be interpreted to mean
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the termination of employment or retirement of the Participant from employment
with all Employers and nonparticipating Employers.
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ARTICLE II
PARTICIPATION
2.1 ELIGIBILITY:
(a) Each Employee on December 31, 1996, who was a Participant
in the Plan on December 31, 1996 shall continue to participate under
this Plan on January 1, 1997.
(b) Any other Employee who was not a Participant in the Plan
as of December 31, 1996 shall participate in this Plan on the first day
of the month coincident with or next following the first anniversary of
his date of hire, provided the Employee has been credited with at
least 1,000 Hours of Service. If an Employee does not complete 1,000
Hours of Service in the 12-month period commencing with the Employee's
first Hour of Service, he shall become a Participant on the first day
of the Plan Year following the Plan Year in which he has been credited
with at least 1,000 Hours of Service.
(c) An Employee on leave for service in the Armed Forces of
the United States will be considered an Employee on leave of absence
for purposes of Plan participation and will continue to participate in
the Plan during such leave.
2.2 CESSATION OF PARTICIPATION:
An Employee will cease to be a Participant on the earlier of the
following:
(a) the date of his death,
(b) the date he receives a single sum distribution which is in
lieu of all his benefits under the Plan if his Accrued Benefit were
100% vested,
(c) the earlier of the date an Employee incurs a One-Year
Break in Service or the date he is deemed to receive a lump sum
distribution of his Accrued Benefit, if such Accrued Benefit were 0%
vested, or
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(d) the date on which he is transferred from a position with
the Employer in which he was eligible to participate in the Plan to a
position in which he is excluded from participation.
2.3 PARTICIPATION UPON REEMPLOYMENT:
(a) Subject to Section 2.3(b), if an Employee is reemployed by
an Employer within one year of his Severance from Service, the rehired
Employee shall again become a Participant as of his Reemployment
Commencement Date.
(b) If the rehired Employee incurred a One-Year Break in
Service before his reemployment, the rehired Employee shall not become
a Participant as provided in Section 2.3(a) until (i) the first day of
the month following the anniversary of his Reemployment Commencement
Date, provided he is credited with at least 1,000 Hours of Service for
the 12-month period commencing with his first Hour of Service after
reemployment or (ii) the first day of the Plan Year after which he has
been credited with at least 1,000 Hours of Service for any Plan Year
commencing after that first Hour of Service after reemployment.
(c) In determining whether a rehired Employee has satisfied
the requirements of Section 2.1 as of the Reemployment Commencement
Date, if the rehired Employee has no vested Accrued Benefit under the
Plan and has a number of consecutive One-Year Breaks in Service equal
to (or greater than) 5 (excluding Years of Service previously
disregarded under this Section 2.3(c)), the rehired Employee's previous
service as an Employee shall be disregarded for purposes of determining
when he again becomes a Participant. For purposes of determining Years
of Service under this Section 2.3(c), any Employee who is credited with
at least 1,000 Hours of Service in both the 12-month period commencing
with his Reemployment Commencement Date and the first Plan Year
beginning after his Reemployment Commencement Date shall be credited
with two Years of Service.
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2.4 TRANSFERS:
If an Employee is transferred from a position with the Employer in
which he was excluded from participation in the Plan to a position in which he
is not so excluded, he shall be eligible to participate under the Plan as of
the first day of the month coincident with or next following such transfer,
provided he has first met the requirements of Section 2.1.
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ARTICLE III
REQUIREMENTS FOR RETIREMENT BENEFITS
3.1 NORMAL RETIREMENT:
A Participant shall be eligible for a Normal Retirement Pension if his
employment is terminated on or after his 65th birthday. Payment of a Normal
Retirement Pension shall commence as of the first day of the calendar month
coincident with or next following the date of Retirement.
3.2 EARLY RETIREMENT:
A Participant shall be eligible for an Early Retirement Pension in
accordance with the provisions of Section 5.1 if his employment is terminated
after he has completed 5 or more Years of Vesting Service. Payment of an Early
Retirement Pension shall commence as of the first day of the calendar month
coincident with or next following the Participant's Normal Retirement Date.
However, a retired Participant who is eligible for an Early Retirement Pension
may request the commencement of the Participant's Early Retirement Pension as
of the first day of any calendar month following the Participant's early
retirement but before the Participant's Normal Retirement Date.
3.3 DISABILITY RETIREMENT:
An Employee shall be eligible for a Disability Retirement Pension if,
after completing the requirements for participation, outlined in Article II,
such Employee's employment is terminated by disability which causes his complete
inability, due to injury and/or illness, and based upon objective medical
documentation, to perform with reasonable continuity any of the material and
substantial duties of his regular occupation during the elimination period of
one hundred and fifty (150) days and the first 24 months of each benefit period;
and thereafter, such duties of any occupation for which the Employee may be or
become qualified by reason of education and/or training and/or experience.
Payment
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of the monthly Disability Retirement Pension shall commence as of the end of the
elimination period, provided the Employee is under the regular care and
treatment of a physician.
Such payments shall continue until the earliest to occur of the
following:
(a) the date the Employee ceases to be totally disabled; or
(b) the date the Employee is no longer under the regular care
and treatment of a physician for the disabling condition; or
(c) the date the Employee returns to active work, unless such
active work is part of an approved program of rehabilitation; or
(d) the date the Employee dies; or
(e) the date the maximum benefit period has been paid
according to the Employer's insurance policy schedule; or
(f) the date the Employee fails to provide adequate proof of
total disability or fails to agree to an independent medical exam; or
(g) the date the Employee is determined not to be totally
disabled based on the objective medical findings of an independent
medical exam; or
(h) the date the Employee is determined not to be totally
disabled based on the review of the objective medical findings by a
medical case examiner; or
(i) the date the Employee fails to cooperate in
rehabilitation; or
(j) the Employee's attainment of age 65, if the Employee
became disabled prior to attainment of age 60; or
(k) the date on which the Employee has received disability
retirement benefits for a period of 5 years, if the Employee became
disabled after the attainment of age 60, but before the attainment of
age 69; or
(l) the date on which the Employee has received disability
retirement benefits for a period of one year, if the Employee became
disabled after attainment of age 69.
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3.4 DEFERRED VESTED PENSION:
(a) A Participant shall be eligible for a Deferred Vested
Pension in accordance with the provisions of Section 5.1 if his
employment is terminated with the Employer before death or Retirement
after he has completed at least 5 Years of Vesting Service (as set
forth in Section 6.1). A Participant whose employment is terminated
with the Employer before death or Retirement and before he has
completed 5 Years of Vesting Service (as set forth in Section 6.1)
shall not be eligible for a Deferred Vested Pension in accordance with
the provisions of Section 5.1.
(b) Payment of a Deferred Vested Pension shall commence as of
the first day of the calendar month coincident with or next following
the Participant's Normal Retirement Date. However, a retired
Participant who is eligible for a Deferred Vested Pension may request
the commencement of the Participant's deferred vested pension as of the
first day of any calendar month following the Participant's termination
of employment, but before the Participant's Normal Retirement Date.
(c) Notwithstanding the above, a Participant's right to his
Accrued Benefit will be nonforfeitable upon his attainment of Normal
Retirement Age.
(d) If a Participant has terminated employment with the
Employer, any portion of his Accrued Benefit in which the Participant
is not vested shall be forfeited and canceled as of the Participant's
termination of employment, subject to reinstatement as provided in
Section 6.2. Forfeitures of an Employer's Participants arising under
the Plan for any reason shall be used as soon as possible to reduce the
Employer's contributions under the Plan.
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ARTICLE IV
AMOUNT OF RETIREMENT BENEFIT
4.1 NORMAL RETIREMENT PENSION:
(a) Normal Form. In the case of--
(1) any Participant on January 1, 1997 who was a
Participant in the Plan on December 31, 1996 and who is
actively employed on or after January 1, 1997, and
(2) any Employee who becomes a Participant in the
Plan on or after January 1, 1997,
such Participant's Accrued Benefit as of any date shall be a
monthly amount, payable to the Participant on the Participant's Normal
Retirement Date and continuing through the first day of the calendar
month which includes the date of the Participant's death, equal to the
greater of--
(A) the Participant's Minimum Benefit; or
(B) the Participant's Cash Balance Benefit.
(b) Minimum Benefit. The Minimum Benefit shall be equal to the
Participant's accrued benefit as determined under the terms of the Plan
in effect on December 31, 1996 (including any cost-of-living increases
on benefits accrued as of December 31, 1992 under the terms of the Plan
in effect on December 31, 1996).
(c) Cash Balance Benefit. Effective January 1, 1997, the
monthly amount of the Participant's Cash Balance Benefit shall equal
the Actuarial Equivalent of the Participant's Cash Balance Account at
such Participant's Normal Retirement Date.
(d) Cash Balance Account. The Cash Balance Account shall be
equal to the sum of the Participant's:
(1) initial Cash Balance Account, if any, as
described in Section 4.1(e);
(2) Annual Credits, if any, as described in Section
4.1(g);
(3) Transition Credits, if any, as described in
Section 4.1(h); and
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(4) Interest Credits as described in Section 4.1(i).
(e) Initial Cash Balance Account.
(1) The initial Cash Balance Account as of January 1,
1997, for any Employee who was a Participant on December 31,
1996, shall be equal to the single sum value of such
Participant's accrued benefit as of December 31, 1996
determined under Section 4.1(b)(1) of the Plan in effect as of
December 31, 1996, using the Employee's actual Benefit Service
as of December 31, 1996 and an interest rate of 6.5% and
mortality based upon the 1983 Group Annuity Mortality Table,
with annuity values weighted 50% male and 50% female, and
assuming commencement of the retirement benefit at age 62 (or
later, if applicable). Final Average Earnings will be equal to
the greater of--
(A) Final Average Earnings (as defined in the Plan in
effect as of December 31, 1996) through December 31, 1995, or
(B) Final Average Earnings (as defined in the Plan in
effect as of December 31, 1996) through December 31, 1996,
using a Participant's highest Final Average Earnings
for any five consecutive calendar years during the period from
January 1, 1988 until December 31, 1995 or December 31, 1996,
whichever is applicable.
(2) The initial Cash Balance Account for any
Participant whose participation begins on or after January 1,
1997 will be equal to the Annual Credit for the calendar year
the Employee becomes a Participant and for the calendar year
immediately preceding such year. Such Annual Credit shall be
credited as of the end of the calendar year in which
participation begins.
(f) Annual Accrual. A Participant's initial Cash Balance
Account shall then--
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(1) increase pursuant to Section 4.1(g), each
calendar year the Participant is still a Participant until
benefit payments commence,
(2) further increase pursuant to Section 4.1(h) each
calendar year if such Participant is entitled to receive a
Transition Credit, and
(3) further increase automatically each calendar year
pursuant to Section 4.1(i), regardless of whether the
Participant is a Participant, an inactive Participant, or a
former Participant, until benefit payments commence.
(g) Annual Credit. For calendar years beginning on or after
January 1, 1997, the Participant's Cash Balance Account described in
Section 4.1(d) shall increase by an amount equal to the Participant's
Annual Credit for that calendar year. This amount shall be credited as
of the last day of the calendar year (December 31), or on the date
benefit payments commence, if earlier.
(h) Transition Credit. In addition, in the case of any
Participant who was an Employee on December 31, 1996, such Participant
will receive an annual Transition Credit, in addition to his Annual
Credit. The amount of the Transition Credit will be credited as of the
last day of the calendar year (December 31), or on the date benefit
payments commence, if earlier. This Transition Credit will be credited
each year until the number of years the Participant's Cash Balance
Account receives a Transition Credit equals the number of years of
Benefit Service such Participant had as of December 31, 1996 (as
defined in Plan as in effect on December 31, 1996; any partial year of
Benefit Service will be rounded to a full year of Benefit Service), up
to a maximum of 15 years. In no event shall any Transition Credit be
credited for years beginning on or after January 1, 2012. If such
Participant has a Severance from Service on or after January 1, 1997,
his eligibility for a Transition Credit will end, and upon rehire, he
will not be eligible to receive a Transition Credit. If such
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Participant is on a leave of absence from an Employer for a year and
receives no Earnings during that year he will not receive a Transition
Credit for that year. Notwithstanding the foregoing, Transition Credit
may also be given to a Participant who was not an Employee on December
31, 1996, if deemed appropriate by the Plan Administrator and set forth
in Special Benefit Schedules which may be adopted and made a part of
the Plan from time to time.
(i) Interest Credit. Beginning January 1, 1997, the amount by
which each Participant's Cash Balance Account described in Section
4.1(d) shall be increased until benefits commence. At the end of each
calendar year, the Interest Credit shall be determined by multiplying
each Participant's Cash Balance Account balance at the beginning of the
calendar year by the Annual Interest Crediting Rate. The resulting
Interest Credit amount shall be added to the Participant's Cash Balance
Account. If benefits commence before the last day of a calendar year,
the Interest Crediting Rate will be applied as a monthly nominal rate
of interest to reflect the portion of the calendar year preceding the
date such benefits commence.
(j) Military Leave. The Cash Balance Account of a Participant
who is on a leave of absence due to service in the Armed Forces of the
United States shall be credited as described in Section 4.1(f) for the
period of such absence, provided that such Participant complies with
all the requirements of federal law in order to be entitled to
reemployment and provided further that such Participant returns to
employment with an Employer within the period provided by such law.
(k) Earnings Limitation. In addition to other applicable
limitations which may be set forth in the Plan and notwithstanding any
other contrary provisions of the Plan, Earnings taken into account
under the Plan shall not exceed $150,000, adjusted for changes in the
cost of living as provided in Code Sections 415(d) and 401(a)(17), for
the
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purpose of calculating a Participant's Accrued Benefit (including the
right to any optional benefit provided under the Plan) for any Plan
Year commencing after December 31, 1993.
(l) Impact of Reemployment on Cash Balance Account.
(1) If a Participant is reemployed and he is treated
as a new Employee pursuant to Section 6.2(b) (rule of parity),
his prior Cash Balance Account shall not be restored upon
reemployment.
(2) If a Participant has received a distribution of
his entire Cash Balance Account, his prior Cash Balance
Account shall not be restored upon reemployment.
(3) If paragraphs (1) and (2) are not applicable and
the Participant did not receive any distribution, upon
reemployment, his entire Cash Balance Account shall be
restored, including any amounts that may have been forfeited
upon a Break in Service, including interest thereon equal to
the amount of the Interest Credit in effect from the date of
the forfeiture to the date of the restoration of the
forfeiture. (m) Coordination With Long-Term Disability. If a
Participant is receiving benefits under a long-term disability program
maintained by an Employer, the Participant shall continue to be
treated as an active Participant and shall be deemed to be receiving
Earnings at the rate in effect at the time he ceased to be an active
Employee.
4.2 DISABILITY RETIREMENT PENSION:
Subject to the provisions of Section 4.4, the amount of the monthly
disability retirement pension shall be equal to 60% of the Employee's average
monthly salary, but not less than $50 per month. For purposes of this Section
4.2, the term "average monthly salary" shall mean the Employee's monthly rate of
compensation in effect at the date of the Employee's disability, including the
Participant's entitlement under any Employer approved sales incentive
compensation program accrued in the
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immediately preceding calendar year, up to a maximum of 100% of the midpoint of
the Participant's highest salary range. Amounts received under any Employer
approved sales incentive compensation program will be averaged for the 12-month
period of employment immediately preceding the date of the disability, or the
Employee's period of employment, if less. Overtime pay, commissions, bonuses
and other extra compensation shall be excluded from the Employee's compensation
for purposes of this Section 4.2. In determining an Employee's average monthly
salary, such Employee's monthly rate of compensation in excess of 1/12 of
$150,000 (or such other amount as may be determined by the Secretary of the
Treasury in accordance with Code Section 401(a)(17) to reflect increases in the
cost of living) shall not be taken into account. Notwithstanding the preceding,
in no event shall an Employee's benefit under this Section exceed the benefit he
would be entitled to receive under Section 4.1 if he terminated employment as of
his Normal Retirement Date.
The monthly benefit amount for which an Employee is eligible will be
reduced equally by the amount of any payment the Employee may either be entitled
to, whether applied for or not, or receive from any of the sources listed below:
(a) primary Social Security benefits under the Federal Social
Security Act or similar statute of any state or country; or
(b) family Social Security benefits under the Federal Social
Security Act or similar statute of any state or country; or
(c) any workers' compensation act; or
(d) any Employer liability law; or
(e) any occupational disease law; or
(f) any state or federally sponsored disability or retirement
plan; or
(g) any Employer or policyholder sponsored salary continuation
plan or sick leave pay plan; or
(h) any Employer or policyholder sponsored disability plan
under a group master policy, other than the Employer
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sponsored plan designed to provide disability benefits that would be
payable by this Plan except for the limitations of Section 411(a)(9) of
the Code; or
(i) any retirement benefits payable under Sections 4.1 or 5.1;
or
(j) any Veteran's Administration disability plan; or
(k) any disability benefit payable under any no fault
insurance plan provided, however, that the payment received from any
such source, exclusive of retirement benefits, are payable as a result
of the total disability for which a benefit is payable under this Plan.
4.3 RESERVED:
4.4 MAXIMUM PENSION:
Notwithstanding any provisions of the Plan to the contrary, in no event
shall the amount of a benefit payable to a Participant (or the spouse of a
deceased Participant) each year together with any and all other benefits which
are paid to him under any other qualified plan exceed the maximum benefits that
are payable pursuant to Sections 415(b) and (e) of the Code and regulations
thereunder.
If a Participant is also a participant in a defined contribution plan
maintained by the Employer, then the benefits under this Plan shall be reduced
to the extent required to satisfy the limitation contained in Section 415(e) of
the Code.
4.5 NO DUPLICATION OF BENEFITS:
(a) Application by a Participant, spouse or Beneficiary for a
Plan benefit for which he is eligible will prevent such person from
becoming simultaneously eligible for any other Plan benefit.
(b) Any retirement benefit payable to a person under the Plan
shall be reduced by any other retirement benefit payable to such person
under any other qualified defined benefit retirement plan (except
Social Security to which
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contributions have been made on behalf of the Participant) to the
extent that such other retirement plan benefit is based on Benefit
Service used in computing such retirement benefit payable under the
Plan.
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ARTICLE V
AMOUNT AND MANNER OF PAYMENT; OPTIONAL BENEFITS
5.1 AMOUNT OF RETIREMENT BENEFITS:
Subject to the provisions of Section 4.4, a Participant's monthly
retirement benefit on his Early Retirement Date or Normal Retirement Date, or
the retirement benefit of a Participant who is eligible for a Deferred Vested
Pension in accordance with the provisions of Section 3.4 shall be equal to his
Cash Balance Account, which is deemed to be the lump sum Actuarial Equivalent
value of the Cash Balance Benefit, payable at the Participant's Normal
Retirement Date.
5.2 PAYMENT OF RETIREMENT BENEFITS:
If a Participant does not have a spouse at the time of the commencement
of payment of a Normal, Early, or Deferred Vested Pension, he will receive the
value of his vested Accrued Benefit in the form of a Life Annuity, as described
in Section 5.3 below, unless he elects an optional form of benefits under
Section 5.3.
If a Participant is married as of the date his benefits commence, he
shall receive the value of his vested Accrued Benefit in the form of a Joint and
50% Survivor Annuity, as described in Section 5.3(e) below, unless he elects an
optional form of benefits under Section 5.3, in accordance with the provisions
of Section 5.4.
5.3 OPTIONAL FORMS OF RETIREMENT BENEFIT PAYMENTS:
Subject to the written election procedures described below, a
Participant may receive his Normal, Early, or Deferred Vested Pension under any
of the following optional methods (all optional methods are the Actuarial
Equivalent of a Life Only Annuity):
(a) Life Only Annuity: This optional form provides a monthly
annuity for the Participant's lifetime, with no further benefits being
paid upon his death.
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(b) Life With 10 Years Certain Annuity: This form provides a
monthly annuity for the lifetime of the Participant, and if the
Participant's death occurs within a period of 10 years after the
commencement date of his benefits, payment of the benefits will be
continued in an amount equal to 70% of the original amount to the
Beneficiary or Beneficiaries designated by the Participant for the
balance of the 10-year period.
(c) Joint And 66-2/3% Survivor Annuity: This form provides a
reduced monthly annuity for the life of a Participant, with a survivor
annuity for the life of the Participant's spouse, where the survivor
annuity is 66-2/3% of the amount of the annuity payable during the
joint lives of the Participant and the Participant's spouse.
(d) Joint and 50% Survivor Annuity: This optional form of
payment is a reduced monthly annuity for the life of a Participant,
with a survivor annuity for the life of the Participant's spouse, where
the survivor annuity is 50% of the amount of the annuity payable during
the joint lives of the Participant and the Participant's spouse.
(e) Single Sum Option: This optional form of payment is an
immediate single sum payment equal to the Actuarial Equivalent of the
Participant's Accrued Benefit or the Participant's Cash Balance
Account, if greater.
If the Participant elects to receive the value of the benefit
in a single sum payment, this payment shall be in lieu of all other
benefits under the Plan.
A Participant who retires pursuant to the provisions of
Sections 3.2 or 3.4, may elect an immediately payable annuity in the
Normal Form.
5.4 ELECTION PROCEDURES FOR OPTIONAL RETIREMENT BENEFITS:
In lieu of receiving benefits in the form of a Life Annuity or a Joint
and 50% Survivor Annuity, the Participant may make an election to receive
benefits in an optional form described in
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Section 5.3. However, such an election must be made in writing by the
Participant during the election period. If he is married, the election must be
consented to by the Participant's spouse and must meet the following
requirements:
(a) The spouse's consent must acknowledge the effect of such
election and be witnessed by a Plan representative or a notary public.
Such consent will not be required if it is established to the Committee
that the required consent cannot be obtained because there is no
spouse, the spouse cannot be located, or other circumstances that may
be prescribed by Treasury regulations. The election may be revoked by
the Participant in writing without the consent of the spouse at any
time during the election period described in subparagraph (b) below.
Any new election must comply with the requirements of this subparagraph
(a). A former spouse's waiver shall not be binding on a new spouse.
(b) The election period to waive the Joint and 50% Survivor
Annuity shall be the 90-day period, the last day of which is the
"annuity starting date". For purposes of this Section, "annuity
starting date" means the first day of the first period for which an
amount is received as an annuity. Any elections may not be changed
after the Participant's annuity starting date.
(c) A Participant's failure to waive the Joint and 50%
Survivor Annuity will not result in a decrease in any Plan accrued
benefit with respect to such Participant.
5.5 EMPLOYMENT AFTER NORMAL RETIREMENT DATE:
Subject to the provisions of Section 5.7, payment of the Pension of a
Participant who either (a) becomes reemployed after his annuity starting date or
(b) remains in employment after his Normal Retirement Date shall be suspended
during each calendar month of the Participant's reemployment or continued
employment during which the Participant is credited with at least 40 Hours of
Service. In the case of a Participant who becomes reemployed after his annuity
starting date, upon his ceasing to be employed on the basis described in the
previous sentence he shall be
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entitled to resume receiving distribution of his Pension in accordance with the
following rules: (a) payments shall resume no later than the third calendar
month after the calendar month in which the Participant ceases to be so employed
provided the Participant has notified the Employer of the cessation, (b) payment
shall be retroactive to the day the Participant ceased such employment, (c)
payment shall be in the same form as before the suspension, and (d) the pension
payable upon his subsequent retirement shall be reduced by the Actuarial
Equivalent of previous pension payments received prior to Normal Retirement
Date. The Committee shall notify any Participant who is affected by this Section
5.5 in accordance with the notification requirements of Department of Labor
Regulations Section 2530.203-3(b)(4).
5.6 PAYMENT OF DEATH BENEFITS:
(a) Prior to Termination of Employment
(1) In the event of the death of a Participant while
employed by the Employer as a salaried employee but after the
date he completes 5 years of Vesting Service, his Beneficiary
shall be eligible to receive a death benefit payable in the
manner described below.
(2) If the Participant would have accrued at least 20
years of Vesting Service had he remained in the service of his
Employer until his Normal Retirement Date, the amount of such
death benefit shall be paid as a single sum equal to the
greater of (A) and (B):
(A) 36 times the Participant's monthly
regular compensation (defined as base pay, excluding
any bonuses, overtime, and incentive pay) for the
calendar month immediately preceding the calendar
month of death, and
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(B) the greater of:
(i) the Participant's Cash Balance
Account, or
(ii) the single sum Actuarial
Equivalent of the Qualified Pre-retirement
Survivor Annuity that is payable under this
Section 5.6.
If the Participant would have accrued less than
twenty years of Vesting Service had he remained in the service
of his Employer to his Normal Retirement Date, the amount of
such death benefit shall be computed as provided in (A) above,
reduced by 5% per year (5/12 of 1% for each full month) by
which the Vesting Service which he would have accrued if he
had remained in the service of his Employer to his Normal
Retirement Date, is less than 20 years and shall then be
reduced in the manner provided in (B) above. The amount of the
death benefit, determined in this Section 5.6(a)(2), shall be
reduced to the extent that said death benefit, when added to
the Actuarial Equivalent of the Qualified Pre-retirement
Survivor Annuity, exceeds an amount equal to 100 times the
projected monthly Normal Retirement Pension to which the
Participant would have been entitled had he continued in his
employment, at his most recent rate of Earnings, until he
attained his Normal Retirement Age.
(3) If a Participant described in (1) above had
completed at least 5 years of Vesting Service and is survived
by a spouse, such spouse shall be entitled to a Qualified
Pre-retirement Survivor Annuity in an amount equal to the
Actuarial Equivalent of the benefit which would have been
payable to such spouse if the Participant had terminated
employment with the Employer immediately prior to his death
but survived to his Earliest Retirement Age, retired with an
immediate Joint and 66-2/3% Survivor Annuity form described in
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Section 5.3(c) on his Earliest Retirement Age, and died on the
date after the day on which such Participant would have
attained his Earliest Retirement Age.
(4) Unless the Participant has elected another form
of payment pursuant to Section 5.3, the Qualified
Pre-retirement Survivor Annuity determined under (3) above
shall be payable as a monthly benefit commencing on the date
selected by the surviving spouse, which shall be the first day
of a calendar month. In the case of a surviving spouse not
electing an immediate benefit, such date shall occur no
earlier than the date on which the deceased Participant would
have attained his Earliest Retirement Age applicable, or the
date of the Participant's death, and no later than the first
day of the month next following the later of the
Participant's death or the date the Participant would have
attained Normal Retirement Age.
(5) The surviving spouse may elect to receive the
Qualified Pre-retirement Survivor Annuity in the form of a
single sum payment. Such immediate single sum payment equal to
the greater of--
(i) the Participant's Cash Balance Account
as of the first day of the calendar month preceding
the date of distribution; or
(ii) the single sum Actuarial Equivalent of
the Participant's Accrued Benefit.
(b) Death Benefit After Termination of Employment.
(1) If a married Participant who has a deferred
vested pension dies while not employed by the Employer and
before his benefit commenced payment under Section 4.1, 4.2,
or 4.4, his surviving spouse shall be eligible to receive a
Qualified Pre-retirement Survivor Annuity in an amount equal
to the greater of:
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(i) the Participant's Cash Balance Account;
or
(ii) the single sum Actuarial Equivalent of
the Qualified Pre-retirement Survivor Annuity that is
payable under this Section 5.6.
(2) If an unmarried Participant who has a deferred
vested pension dies while not employed by the Employer and
before his benefit commenced payment under Section 4.1 or 5.1,
his Beneficiary shall be eligible to receive a benefit, equal
to the Actuarial Equivalent of the Participant's Cash Balance
Account.
(c) The death benefit payable under this Section shall be
payable as a monthly benefit commencing on the date selected by the
surviving spouse or the designated Beneficiary which shall be the
first day of a calendar month. In the case of a surviving spouse not
electing an immediate benefit, such date shall occur no earlier than
the date on which the deceased Participant would have attained his
Earliest Retirement Age, or the date of the Participant's death, and no
later than the first day of the month next following the later of the
Participant's death or the date the Participant would have attained
Normal Retirement Age.
The surviving spouse or the designated Beneficiary may elect
to receive the death benefit in the form of a immediate single sum
payment. Such immediate single sum payment equal to the greater of--
(i) the Participant's Cash Balance Account as of the
first day of the calendar month preceding the date of
distribution; or
(ii) the single sum Actuarial Equivalent of the
Participant's Accrued Benefit.
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5.7 TIME OF DISTRIBUTIONS:
Notwithstanding any provision of the Plan to the contrary, the payment
of benefits under this Plan shall be made in accordance with Section 401(a)(9)
of the Code and regulations thereunder. In accordance with those provisions, in
no event may the distribution of a Participant's benefits commence later than
the April 1 of the calendar year following the year in which--
(a) the Participant reaches age 70 1/2; or
(b) the Participant retires, if later;
provided, however, that paragraph (2) shall not apply in the
case of a Participant who is a 5% owner (as defined in Code Section
416) with respect to the period preceding the calendar year in which
the Participant attains age 70 1/2.
The amount of the benefit payable under this Section to a Participant
who has not yet terminated employment with the Employer shall be determined in
accordance with Section 4.1 as if the Participant had terminated employment
immediately before such payments commence. The Participant's Earnings after
payments commence will be taken into account in determining the amount of
benefit to which the Participant is entitled in subsequent years, and any
increase in the benefit payable to such Participant shall be offset by the
Actuarial Equivalent of the total amount of pension payments made to such
Participant during the Plan Year.
However, in no event, unless a Participant elects otherwise, shall the
distribution of his Accrued Benefit begin later than the 60th day after the
latest of the close of the Plan Year in which the Participant (a) attains Normal
Retirement Age, (b) reaches the 10th anniversary of the year in which he
commenced participation in the Plan, or (c) terminates his service with the
Employer.
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5.8 LUMP SUM PAYMENT OF SMALL PENSIONS:
Any other provision of the Plan notwithstanding, the Participant's
vested benefit under the Plan (or Qualified Pre-retirement survivor annuity)
shall be paid in a single sum if, prior to the commencement of distributions,
its single sum value does not exceed $3,500 (effective January 1, 1998, $5,000)
(or such higher amount as may be permitted by law). The single sum value shall
equal the Actuarial Equivalent of the Participant's vested Accrued Benefit (or
the Qualified Pre-retirement survivor annuity).
Upon termination of employment, a nonvested Participant shall be deemed
to have received a lump sum payment of $0 and the nonvested portion of such an
Participant's benefit shall be treated as an immediate forfeiture. This deemed
distribution shall represent the entire benefit to which such Participant was
entitled under the Plan, in lieu of all other benefits under the Plan.
5.9 EFFECT OF REEMPLOYMENT:
(a) A Participant who is reemployed after having received a
lump sum distribution of the present value of his Accrued Benefit shall
have his Years of Vesting Service restored or continued in accordance
with the provisions of Section 6.2. Any benefit to which he is entitled
at his subsequent Severance from Service will be determined on the
basis of his Years of Vesting Service he accrued from the date of his
reemployment to the date of his subsequent Severance from Service.
(b) A reemployed Participant who has not received the present
value of his Accrued Benefit shall have his benefits suspended in
accordance with the provisions of Section 5.5 and his Years of Vesting
Service and Years of Benefit Service restored or continued in
accordance with the provisions of Section 6.3 and any optional form of
payment he had chosen at his Severance from Service shall be revoked.
Upon his subsequent Severance from Service, his eligibility for a
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benefit and the amount of the benefit shall be determined on the basis
of his Years of Vesting Service, and Years of Benefit Service as of
such date, reduced by the Actuarial Equivalent of any benefits he
previously received. In no event will a Participant's retirement
benefit at his subsequent retirement be less than his benefit at his
prior retirement.
5.10 DIRECT ROLLOVERS; WITHHOLDING:
(a) Direct Rollovers.
(1) In General. In the case of a distribution (or a
withdrawal) that would be an eligible rollover distribution
within the meaning of Code Section 402 if made to the
Participant or Beneficiary ("distributee"), the distributee
may elect (subject to spousal consent requirements if
applicable) to the extent required by law and regulation and
in the manner prescribed by the Committee, to have such
distribution paid directly to an eligible retirement plan (as
defined in Code Section 401(a)(31)). The amount of such direct
rollover shall be limited to the amount of the eligible
rollover distribution which would otherwise be includible in
the distributee's gross income in the absence of a direct
transfer and without regard to the rollover rules of Code
Sections 402 and 403. No election may be made by a distributee
pursuant to this Section unless the distributee has received
the notice prescribed by paragraph (2).
(2) Notice. The Committee shall furnish to a
distributee a written notice at the time prescribed in
paragraph (3) which describes--
(A) the rules under which the distributee
may elect to have an eligible rollover distribution
paid in a direct rollover to an eligible retirement
plan;
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(B) the rules that require withholding of
tax on the eligible rollover distribution if it is
not paid in a direct rollover;
(C) the rules under which the distributee
will not be subject to tax if the distribution is
contributed to an eligible retirement plan within 60
days of the distribution; and
(D) if applicable, special rules regarding
the taxation of the distribution as specified in Code
Sections 402(d) and (e) (relating to income averaging
and other tax rules).
(3) Notification Period. The notice required by
paragraph (2) shall be furnished to the distributee not more
than 90 days and not less than 30 days before the Benefit
Starting Date. The Plan shall make no payment for 30 days
following the date the Participant has been furnished with the
notice unless the distribution is subject to Section 5.8 and
the Participant, after receipt of the notice, has
affirmatively elected to make or not to make a direct
rollover, but in no event shall the Plan make a distribution
before the date benefits are otherwise payable under the rules
of the Committee.
(b) Withholding. In the case of an eligible rollover
distribution which is not directly transferred to an eligible
retirement plan pursuant to subsection (a), the Plan shall reduce the
amount of the distribution by the amount of the tax required to be
withheld by law and regulations.
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ARTICLE VI
YEAR OF VESTING SERVICE
6.1 YEAR OF VESTING SERVICE:
A Participant will be credited with Years of Vesting Service for
Service prior to January 1, 1997, in accordance with the terms of the
Predecessor Plan. For Service after December 31, 1996, a Participant will
receive credit for the aggregate of all time periods commencing with the
Participant's Employment Commencement Date or Reemployment Commencement Date,
and ending on the date his Period of Severance begins, subject to the
limitations below:
(a) A Participant shall not receive more than one Year of
Vesting Service credit for any Plan Year irrespective of the number of
Employers a Participant is employed by during such Plan Year.
(b) An Employee may also receive Vesting Service for
employment with any related entity. The Committee may determine that
Service may be credited for such employment if it is credited on a
uniform and nondiscriminatory basis.
(c) A leave of absence due to service in the Armed Forces of
the United States shall be included as Vesting Service under the Plan,
provided that the Employee complies with all the requirements of
federal law in order to be entitled to reemployment and provided
further that such Employee returns to employment with the Employer
within the period provided by such law.
6.2 CANCELLATION AND REINSTATEMENT OF SERVICE:
(a) If a Participant terminates employment with the Employer
prior to the earlier of:
(1) the Participant's death, or
(2) the date the Participant is credited with 5 years
of Vesting Service, all his Vesting Service shall be
cancelled. Notwithstanding the foregoing, a Participant's
right to his Accrued Benefit will be nonforfeitable upon his
attainment of Normal Retirement Age.
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(b) If an Employee incurs a Severance from Service and is
subsequently reemployed as an Employee, and--
(1) if he received a lump sum distribution of the
present value of his Accrued Benefit at his Severance from
Service, the Years of Vesting Service he had at such date will
be reinstated upon the date of his rehire, unless he is
reemployed after a One-Year Break in Service, in which case
his prior Years of Vesting Service will not be reinstated
unless he is an Employee on the first anniversary of the date
of his rehire;
(2) if he was entitled to receive a benefit under
Section 4 at his Severance from Service but has not received
distribution of the present value of his Accrued Benefit at
the date of his rehire, his benefits will be suspended in
accordance with the provisions of Section 5.5 and adjusted in
accordance with the provisions of Section 5.9, and the Years
of Vesting Service he had at his Severance from Service will
be reinstated upon the date of his rehire, unless he is
reemployed after a One-Year Break in Service, in which case
his prior Years of Vesting Service will not be reinstated
unless he is an Employee on the first anniversary of the date
of his rehire;
(3) if he was not entitled to receive a benefit under
Section 4 at his Severance from Service and he is rehired
after 5 consecutive One-Year Breaks in Service, the Years of
Vesting Service he had at his Severance from Service will not
be reinstated;
(4) if he was not entitled to receive a benefit under
Section 4 at his Severance from Service and he is reemployed
before a 5-Year Period of Severance, the Years of Vesting
Service he had at his Severance from Service will be
reinstated upon the date of his rehire, unless he is rehired
after a One-Year Break in Service, in which case his prior
Years of Vesting Service will not be reinstated unless he is
an Employee on the first anniversary of the date of his
rehire; or
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(5) if he is reemployed before a One-Year Break in
Service and his Severance from Service resulted from
resignation, discharge, or retirement, he shall receive credit
(but not in excess of 12 months) for Years of Vesting Service
for the period between his Severance from Service and the date
of his rehire.
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ARTICLE VII
PLAN FINANCING
7.1 CONTRIBUTIONS:
All contributions will be made by the Employer and in such amounts as
will be determined based on periodic actuarial valuations and recommendations
as to the amount or amounts required to fund retirement benefits and other
benefits payable in accordance with this Plan. All contributions shall be
conditioned on deductibility under Section 404 of the Code. Forfeitures arising
under this Plan because of severance of employment, before a Participant becomes
eligible for a Deferred Vested Pension, or for any other reason, shall be
applied to reduce the Employer contributions to the Plan, not to increase the
benefits otherwise payable to Participants. A return of Employer Contributions
(or the assets thereof, if less) shall be made within one year after:
(a) the contribution is made by the Employer by a mistake of
fact, or
(b) the contribution is disallowed as a deduction under
Section 404 of the Code.
7.2 TRUST FUND:
All contributions made by the Employer under the Plan shall be paid to
the Trustee and deposited in the Trust Fund. Except as otherwise provided in
Section 13.2, all assets of the Trust Fund, including investment income, shall
be retained for the exclusive benefit of Participants and their Beneficiaries,
shall be used to pay benefits to such persons or to pay administrative expenses
to the extent not paid by the Employer, and shall not revert or inure to the
benefit of the Employer.
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ARTICLE VIII
ADMINISTRATION OF THE PLAN
8.1 PLAN ADMINISTRATOR:
"The Plan Administrator," within the meaning of ERISA, is the Company.
The Company shall have complete charge of the administration of the Plan. The
Company is the "named fiduciary" within the meaning of ERISA. In general, the
Company shall have the responsibility to appoint and remove the Trustee and any
investment manager which may be provided for under the Trust Agreement.
The Plan Administrator shall have the authority to direct the Trustee
to invest all or a portion of the Trust Fund through any common or collective
trust fund or pooled investment fund or any other legally permissible investment
under the Code or ERISA.
8.2 THE ADMINISTRATIVE COMMITTEE:
The day-to-day administration of the Plan shall be the responsibility
of the Company's Employee Benefits Committee--herein called the "Committee."
Each member of the Committee shall serve without remuneration, but shall be
reimbursed for expenses incurred in the performance of his duties.
The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, day-to-day administrative functions within the framework of policies,
interpretations, rules, practices, and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Participant to the Committee in accordance with the
claims review procedures provided in Section 8.17. Any decisions which call for
interpretations of Plan provisions not previously made by the Committee shall be
made only by the Committee. The Administrative Delegate shall not be considered
a fiduciary with respect to the services it provides.
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8.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE:
The Committee may appoint a Secretary who may, but need not be, a
member of the Committee. The Committee may employ such agents and such clerical
and other services, and such legal counsel, other consultants, and accountants
as may, in the opinion of the Committee, be required for the purposes of
properly administering the Plan.
8.4 EXPENSES OF ADMINISTRATION:
The Employer is not required, but may, at its discretion, pay the
expenses of administration of the Plan, including the fees and expenses of the
Trustee. If such expenses of administration are not so paid by the Employer,
they shall be paid by the Trustee from the Trust Fund. The Trustee, investment
advisors, Actuary, recordkeeper, advisors and auditors of the Plan (collectively
referred to as "Service Providers") will receive reasonable compensation as may
be agreed upon from time to time between the Company or the Committee and such
Service Providers. To the extent permitted by law, such compensation shall be
paid from the Trust Fund unless paid by the Company.
8.5 ACTS OF THE COMMITTEE:
The Committee shall give to the Trustee any order, direction, consent
or advice required under the terms of the Plan or the Trust Agreement, and the
Trustee shall be entitled fully to rely on any instrument delivered to it
evidencing the action of the Committee as hereinabove described.
8.6 INTERPRETATIONS:
The Committee shall have the exclusive right to make any finding of
fact necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of the eligibility for and the amount of any
benefit payable under the Plan. The Committee shall have the exclusive right to
interpret the terms and provisions of the Plan and to determine any and all
questions arising under the Plan or in connection with the administration
thereof, including, without limitation, the right
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to remedy or resolve possible ambiguities, inconsistences, or omissions, by
general rule or particular decision, with such interpretations or determinations
to be finally conclusive and binding on all parties affected thereby. The
Committee shall make, or cause to be made, all reports or other filings
necessary to meet the reporting and disclosure requirements of ERISA which are
the responsibility of "plan administrator" under ERISA. TO the extent permitted
by law, all findings of fact, determinations, interpretations, and decisions of
the Committee shall be conclusive and binding upon all persons having or
claiming to have any interest or right under the Plan.
8.7 LIABILITY OF THE COMMITTEE:
The members of the Committee, and each of them, shall be free from
liability for their acts and conduct in the administration of the Plan, and the
Employer shall indemnify them and hold them, and each of them, harmless from the
effects and consequences of their acts and conduct in their official capacity,
except to the extent that such effects and consequences result from their
failure to exercise ordinary care and reasonable diligence. In any event, the
Committee shall be deemed to have exercised ordinary care and reasonable
diligence if it shall have relied in good faith upon any written information
furnished to it by an Employee or Participant, the Employer, the investment
advisor, the Trustee, or by any Actuary, employee benefit plan consultant,
counsel, accountant or other person employed, with or without remuneration, by
the Employer for purposes of the Plan.
8.8 APPLICABLE LAW:
The Plan will be construed and enforced in accordance with the laws of
the State of Wisconsin and all provisions of the Plan will be administered in
accordance with the laws of the said State, to the extent not superseded by
ERISA.
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8.9 PLAN FIDUCIARIES: ALLOCATION OF RESPONSIBILITIES AMONG THEM:
Under ERISA and Regulations pursuant to ERISA, the Employer, the
Trustee, the Committee, the Plan Administrator and the Investment Adviser are
"Plan Fiduciaries." All Plan Fiduciaries shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to them under
the Plan document and the Trust Agreement. In general, the Employer, acting
through a majority of its Board of Directors or its designated committee, shall
have the sole responsibility to terminate the Plan, in whole or in part, in
accordance with Article XIII hereof and sole responsibility to appoint and
remove the Trustee. The Plan Administrator shall have ultimate responsibility
for the administration of the Plan. The Committee shall determine an allocation
of Plan assets in consideration of Plan liabilities, establish investment
guidelines, select and evaluate money managers and investment alternatives and
review and approve investment transactions and strategy. The Committee shall
also have such other duties and responsibilities as are described in the
applicable provisions of this Article VIII together with such other duties and
responsibilities as may be delegated to them by a majority of the Board of
Directors of the Employer or its designated committee or the Plan Administrator
from time to time. The Trustee shall have the responsibility of the
administration of the Trust and for the custody and management of the assets
held in the Trust Fund to the extent provided in the Trust Agreement and any
contracts or agreements entered into by and between the Trustee and the
Investment Adviser.
8.10 RELIANCE ON CO-FIDUCIARIES:
Each Fiduciary may rely upon any direction, information or
action of another Fiduciary as being proper under the Plan, and shall not, under
normal circumstances, be required to inquire into the propriety of any such
direction, information or action. Each Fiduciary shall be responsible for the
proper exercise of
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his own powers, duties, responsibilities and obligations under this Plan and
shall not be responsible for any breach of fiduciary by another Fiduciary
("other Fiduciary") unless he participates knowingly in, or knowingly
undertakes to conceal an act or omission of such other Fiduciary, knowing such
act or omission is a breach; or by his failure to comply with Article VIII
hereof in the administration of his specific responsibilities hereunder he has
enabled such other Fiduciary to commit a breach; or by his failure to comply
with Article VIII hereof in the administration of his specific responsibilities
hereunder he has enabled such other Fiduciary to commit a breach; or he has
knowledge of a breach by such other Fiduciary and fails to make reasonable
efforts under the circumstances to remedy the breach. No Fiduciary guarantees
the Trust Fund in any manner against investment loss or depreciation in asset
value.
8.11 FIDUCIARY DUTIES:
All fiduciaries shall discharge their duties solely and exclusively in
the interest of the Participants and Beneficiaries and for the exclusive
purposes of providing benefits to Participants and their Beneficiaries and
defraying the reasonable expenses of administering the Plan and Trust. They
shall discharge their duties with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent man, acting in a like capacity
and familiar with such matters, would use in the conduct of an enterprise of a
like character and with like aims.
8.12 PROHIBITED TRANSACTIONS TO BE AVOIDED:
The Fiduciaries shall not do any action prohibited under or in
violation of Part 4 of Title I of ERISA or which would subject any person or the
Employer to imposition of a tax under Section 4975 of the Code.
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8.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR:
The Plan Administrator shall prepare, or cause to be prepared, and
shall furnish, or cause to be furnished, to Participants and Beneficiaries, and
to the Secretary of Labor or his delegate, and to the Secretary of the Treasury
or his delegate, such plan descriptions, summaries, annual and other reports,
registration statements, notifications and other documents as may be required by
ERISA and the Code and regulations thereunder. The Plan Administrator shall
exercise such authority and responsibility as it deems appropriate in order to
comply with ERISA and the Code and regulations thereunder relating to records of
the Service of all Participants and the percentage of their Accrued Benefit
which is nonforfeitable under the Plan.
8.14 DATA SUPPLIED BY EMPLOYER:
The Employer shall advise the Committee, in writing, of all data which
may be reasonably necessary in order to administer the Plan and to determine the
amount of respective Employer contributions; or to determine the eligibility,
Earnings, Service, and other matters required to be determined relating to
Employees of the Employer. The Plan Administrator or Committee shall be fully
protected in acting upon any such data.
8.15 PARTIAL EXCULPATION:
The Committee or the Plan Administrator (as appropriate) shall incur no
personal liability of any nature in connection with any failure to act or in
respect of any act taken in good faith in the management and administration of
the Plan and in carrying out the directions of the Employer, except as may
otherwise be provided by ERISA. The Committee or the Plan Administrator shall be
indemnified and held harmless by the Employer from and against any such personal
liability, including all expenses reasonably incurred in its defense.
8.16 INFORMATION REQUIRED OF PARTICIPANTS:
Each Participant, and, if applicable, each Beneficiary of a deceased
Participant, shall furnish the Committee (or the Plan
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Administrator) with such information as the Committee (or the Plan
Administrator) shall deem necessary and desirable for purposes of administering
the Plan, and the provisions of the Plan relating to any payments hereunder to
or on account of any Participant, former or deceased Participant are conditional
upon such person's furnishing promptly such true, full and complete information
as the Committee (or the Plan Administrator) may request.
8.17 CLAIMS PROCEDURE:
(a) Applications for Benefits Not Required: A formal request
for a distribution under the Plan is not required of any Participant or
Beneficiary entitled thereto.
(b) Claims for Benefits Not Received: Any claim for benefits
not received shall be made in writing to the Committee (or the Plan
Administrator). The Committee (or the Plan Administrator) shall
consider such claim and shall, within sixty (60) days next following
receipt of same either approve it or deny it. If the Committee (or the
Plan Administrator) shall deny such claim, it shall, by written notice
directed to the claimant at the address shown on the claim (or in the
absence thereof, the last known address of the claimant, as shown on
the records of the Employer) inform the claimant of such denial,
including such written notice, as a minimum, the following:
(1) The specific reason or reasons for the denial;
(2) Reference to the specific provisions of the Plan,
on which such denial is based;
(3) A description of any additional material or
information necessary for the claimant to perfect his claim
and a brief description of why such additional information is
necessary; and
(4) A brief explanation of the appeals procedure
which is available to him, which, in essence, is described in
paragraph (c) below.
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(c) Appeals Procedure Following Initial Denial of Claim: Each
claimant whose claim for a benefit under the Plan has been denied shall
have the right to appeal the decision to the Committee (or the Plan
Administrator) in accordance with the following procedures:
(1) Such appeal must be in writing, over the
signature of the claimant whose claim was so denied, and filed
with the Committee (or the Plan Administrator), addressed and
delivered within the 60-day period next following the initial
denial of same, either by hand or by the United States Postal
Service, postage fully prepaid.
(2) The claimant, or his duly authorized
representative (such as, but not by way of limitation, legal
counsel) shall have the right at all reasonable times to
examine Plan documents related to his claim and to submit to
the Committee (or the Plan Administrator), issues, comments
and responses, provided that they shall be in writing and
delivered to the Committee (or the Plan Administrator) as
described in subparagraph (1) above.
(3) The Committee (or the Plan Administrator) shall
render its decision as promptly as practicable, but not later
than sixty (60) days after receipt of the claimant's appeal
from the initial denial by the Committee (or the Plan
Administrator).
(d) Nature of Content of Written Notices to Claimants:
Notwithstanding any provision hereof to the contrary, all written
notices to claimants regarding their claims for benefits under the
Plan, shall be expressed in terms calculated to be understood by the
average claimant and shall include specific reasons for the
decision--whether for or against the claimant--and specific references
to the pertinent provisions of the Plan on which the decision was
based.
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8.18 BENEFICIARY DESIGNATIONS:
Each Participant may name a Beneficiary to receive any death benefit
(other than any income payable to a Contingent Annuitant) which may arise out of
his participation in the Plan. If there is no contingent Beneficiary, or if the
contingent Beneficiary dies before receiving all death benefit payments to which
he is entitled, the balance of such payments shall be paid to the estate of the
last to die of such Beneficiaries. A designation or change of Beneficiary shall
be made in writing on such form or forms as the Committee may require.
Notwithstanding the above, if a married Participant designates someone
other than his or her spouse as the primary Beneficiary, the spouse must
consent to such designation. Any non-spouse Beneficiary designation made before
the Participant's death must be made by the Participant in writing and shall
require the spouse's irrevocable consent in the same manner provided for in
Section 5.4. Further, the spouse's consent must acknowledge the specific
non-spouse Beneficiary.
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ARTICLE IX
MISCELLANEOUS
9.1 NONGUARANTEE OF EMPLOYMENT:
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
9.2 RIGHTS TO TRUST FUND ASSETS:
No Participant shall have any right to, or interest in, any assets of
the Trust Fund upon termination of his employment or otherwise, except as
provided from time to time under this Plan, and then only to the extent of the
benefits payable under the Plan to such Participant out of the assets of the
Trust Fund. Except as otherwise may be provided under Title IV of ERISA, all
payments of benefits as provided for in this Plan shall be made solely out of
the assets of the Trust Fund and none of the Fiduciaries shall be liable
therefor in any manner.
9.3 NONALIENATION OF BENEFITS:
Except as provided in Code Section 401(a)(13), no benefits payable
under this Plan shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to
so anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be null and void; nor shall the Trust Fund be liable for, or subject
to, the debts, contracts, liabilities, engagement, or torts of the person
entitled to benefits hereunder.
9.4 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER:
Notwithstanding the provisions of Section 9.3, the Plan will recognize
a "qualified domestic relations order" which shall be a judgment, decree or
order (including approval of a property settlement agreement) that meets the
requirements of (a), (b), and (c) below:
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(a) the order must relate to child support, alimony, property
rights of a spouse, former spouse, child or dependent of a Participant,
and must be issued pursuant to a state domestic relations law;
(b) the order must include (1) the name and address of the
Participant and alternate payee, (2) the amount or percentage of
benefits payable to the alternate payee (or the manner in which the
amount or percentage is to be determined), (3) the period or number of
payments involved, and (4) the exact name of the plan to which the
order applies; and
(c) the order cannot require a type or form of benefit or
option not otherwise offered under the Plan, cannot require the Plan to
provide increased benefits (determined on an actuarial basis), and
cannot affect benefits already the subject of a previous qualified
domestic relations order.
A qualified domestic relations order can order the Plan to commence
payments to an alternate payee as of or following the earliest date the
Participant could elect to receive benefits under the Plan even though the
Participant is still employed by an Employer. If the Participant dies before the
above-mentioned date, benefits are payable to the alternate payee only if the
order specifically provides for such benefits. Notwithstanding the foregoing,
the Plan may make a distribution to an alternate payee prior to the date the
Participant attains earliest retirement age if the qualified domestic relations
order provides that the Plan and alternate payee may agree in writing to an
earlier distribution of an immediate lump sum payment and the distribution is
made pursuant to such a written agreement.
If the Participant is still employed by an Employer, the benefit
payable to the alternate payee is to be based on the Participant's Accrued
Benefit payable at his Normal Retirement Date. The Accrued Benefit shall be
reduced to an Actuarial Equivalent (based on the Participant's age, not the
alternate
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payee's age) at the alternate payee's payment date. If payment is made pursuant
to a qualified domestic relations order before the Participant has separated
from service and the benefit is determined as of or after an early commencement
date under Section 3.2 or 3.4, the benefit payable pursuant to Section 3.2 or
3.4 will be reduced for early commencement based on the applicable definition of
actuarial equivalence contained in Section 1.1(b).
An alternate payee may elect any form of payment to which the
Participant would be entitled at the time of the alternate payee's benefit
commencement; provided, however, an alternate payee cannot elect to cover such
payee's spouse under any joint and survivor form of payment.
The Committee shall notify any Participant and alternate payee of the
receipt of any order by the Plan and shall inform such Participant and alternate
payee of the Plan's procedures for determining whether the order meets the
requirements described above in this Section 9.4. Such procedures shall comply
with the requirements set forth in Code Section 414(p) and Section 206(d) of
ERISA, and the Plan's Procedures Upon Receipt of a Domestic Relations Order.
9.5 GOVERNING LAW:
The provisions of this Plan shall be governed by and construed and
administered in accordance with ERISA, the Code, and, where not inconsistent,
the laws of the State of Wisconsin.
9.6 PARTICIPANT INFORMATION:
Each Participant shall notify the Committee of (a) his mailing address
and each change of mailing address, (b) the Participant's, the Participant's
Beneficiary's and, if applicable, the Participant's spouse's date of birth, (c)
the Participant's marital status and any change of his marital status, and (d)
any other information required by the Committee.
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The information provided by the Participant under this Section 9.5 shall be
binding upon the Participant's Beneficiary for all purposes of the Plan.
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ARTICLE X
AMENDMENTS AND ACTIONS BY THE EMPLOYER
10.1 AMENDMENTS:
The Company does hereby expressly and specifically reserve the sole and
exclusive right at any time by action of the Committee or its designee to
amend, modify, or terminate the Plan. The Company's right of amendment,
modification, or termination as aforesaid shall not require the assent,
concurrence, or any other action by any Employer notwithstanding that such
action by the Company may relate in whole or in part to persons in the employ of
an Employer.
10.2 LIMITATION ON AMENDMENTS:
The provisions of this Article are subject to and limited by the
following restrictions:
(a) Except to the extent necessary to produce conformity to
the laws and regulations described in Section 10.1 or to the extent
permitted by any applicable law or regulation, no such amendment shall
operate either directly or indirectly to reduce either the
non-forfeitable percentage of any Participant's Accrued Benefit or the
Accrued Benefit of any Participant as they are constituted at the time
of the amendment. For purposes of this subsection (a), an amendment
which has the effect of (1) eliminating or reducing any early
retirement benefit or a retirement-type subsidy, or (2) eliminating an
optional form of benefit, with respect to benefits attributable to
Service before the amendment, shall be treated as reducing accrued
benefits.
(b) No such amendment shall change any vesting schedule unless
each Participant who has completed three or more Years of Service is
permitted to elect to have his non-forfeitable Accrued Benefit computed
under the Plan without regard to such amendment. Such election shall be
made within such reasonable period as the Employer may designate after
adoption of the amendment but in no event earlier than 60 days after
the later of: (1) the date the
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amendment is adopted, or (2) the date the amendment becomes effective,
or (3) the date the Participant receives written notice of the
amendment from the Committee.
(c) No amendment shall operate either directly or indirectly
to give any Employer any interest whatsoever in any funds or property
held by the Trustee under the terms hereof, or to permit the corpus or
income of the Trust to be used for or diverted to purposes other than
the exclusive benefit of Participants or their Beneficiaries.
10.3 ACTION BY EMPLOYER:
Any action by the Employer under this Plan may be by resolution of its
Committee, or by any person or persons duly authorized by resolution of said
Board to take such action.
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ARTICLE XI
SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS
11.1 SUCCESSOR EMPLOYER:
In the event of the dissolution, merger, consolidation or
reorganization of the Employer, provision may be made by which the Plan will be
continued by the successor; and, in that event, such successor shall be
substituted for the Employer under the Plan. The substitution of the successor
shall constitute an assumption of Plan liabilities by the successor and the
successor shall have all the powers, duties and responsibilities of the Employer
under the Plan.
11.2 PLAN ASSETS:
In the event of any merger or consolidation of the Plan with, or
transfer, in whole or in part, of the assets and liabilities of the Trust Fund
to another fund held under any other plan of deferred compensation maintained or
to be established for the benefit of all or some of the Participants in this
Plan, the assets of the Trust Fund applicable to such Participants shall be
transferred to the other fund only if:
(a) Each Participant would (if either this Plan or the other
plan then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit
he would have been entitled to receive immediately before the merger,
consolidation or transfer (if this Plan had then terminated).
(b) Resolutions of the Committee of the Employer, and of any
new or successor employer of the affected Participants, shall
authorize such transfer of assets; and, in the case of the new or
successor employer of the affected Participants, its resolutions shall
include an assumption of liabilities with respect to such Participant's
inclusion in the new employer's plan.
(c) Such other plan and fund are qualified under Sections
401(a) and 501(a) of the Code.
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6256LRS./01 011998
ARTICLE XII
TEMPORARY RESTRICTIONS ON BENEFITS
12.1 TEMPORARY LIMITATION ON BENEFITS OF RESTRICTED PARTICIPANT:
(a) Restriction. Notwithstanding any Plan provision to the
contrary, the retirement benefits provided under the Plan from Employer
contributions for Participants described in subsection (b) below will
be restricted to an amount equal to the payments that would be made on
the Participant's behalf under a straight life annuity that is the
Actuarial Equivalent of the sum of the Participant's Accrued Benefit
and the Participant's other benefits (if any) under the Plan.
(b) Restricted Participants. The Participants subject to the
restrictions set forth in subsection (a) are those Participants who are
the 25 Highly Compensated Employees (within the meaning of Code Section
414(q)) and former Highly Compensated Employees with the greatest
compensation (as defined in Code Section 414(s)).
(c) Nonapplicability. The restrictions in this Section 12.1
will not apply, however, if--
(1) After payment to such a Participant of all
benefits described in proposed Treasury regulations Section
1.401(a)(4)-5(c)(3)(iii), the value of Plan assets equals or
exceeds 110% of the value of current liabilities as defined in
Code Section 412(l)(7);
(2) The value of the benefits described in proposed
Treasury regulations Section 1.401(a)(4)- 5(c)(3)(iii) for
such a Participant is less than 1% of the value of current
liabilities; or
(3) the Commissioner of Internal Revenue determines
that such restrictions are not necessary to prevent the
prohibited discrimination that may occur in the event of an
early termination of the Plan.
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(d) Plan Termination. In the event of the termination of the
Plan, the benefit of any Highly Compensated Employee (and any former
Highly Compensated Employee) is limited to a benefit that is
nondiscriminatory under Code Section 401(a)(4).
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ARTICLE XIII
PLAN TERMINATION
13.1 TERMINATION OF THE PLAN:
While each Employer contemplates carrying out the provisions of the
Plan indefinitely with respect to its Employees, no Employer shall be under any
obligation or liability whatsoever to maintain the Plan for any minimum or other
period of time.
The Plan may be terminated in whole or in part at any time by
appropriate action of the Board of Directors of the Company or its designee.
Upon any termination of the Plan in its entirety, or with respect to any
Employer, the Company shall give written notice thereof to the Plan
Administrator, the Trustee, and any Employer involved. Upon termination or
partial termination of the Plan, each Participant will become fully vested in
his Accrued Benefit, no further Employees will become Participants.
Except as provided by law, upon any termination of the Plan, no
Employer with respect to whom the Plan is terminated (including the Company)
shall thereafter by under any obligation, liability, or responsibility
whatsoever to make any contribution or payment to the Trust Fund, the Plan, any
Participant, any Beneficiary, or any other person, trust, or fund whatsoever,
for any purpose whatsoever under or in connections with the Plan.
13.2 DISTRIBUTION ON TERMINATION AND PARTIAL TERMINATION:
On termination of the Plan, the Trustee will liquidate the Trust Fund.
After payment of all expenses of liquidation, the Committee shall allocate the
remainder of the Trust Fund assets and cause them to be distributed by the
Trustee in the manner and order set forth in Section 4044 of ERISA to the extent
of the sufficiency of such assets. On partial termination of the Plan by
operation of law, the Trustee shall segregate and liquidate the portion of the
Trust Fund assets allocable to affected Participants and Beneficiaries. After
payment of all expenses of liquidation, the Committee shall allocate the
remainder of the
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portion of the Trust Fund assets and cause them to be distributed to affected
Participants by the Trustee in the manner and order set forth in Section 4044 of
ERISA to the extent of the sufficiency of such assets.
13.3 MANNER OF DISTRIBUTION:
Subject to the foregoing provisions of this Article XIII, any
distribution after termination of the Plan may be made, in whole or in part, to
the extent that no discrimination in value results, in cash, in securities or
other assets in kind, or in nontransferable annuity contracts, as the Committee,
in its discretion, shall determine.
13.4 RESIDUAL AMOUNTS:
In no event shall the Employer receive any amounts from the Trust Fund
upon termination of the Plan; except that, and notwithstanding any other
provision of the Plan, the Employer shall receive such amounts, if any, as may
remain after the satisfaction of all liabilities of the Plan and arising out of
any variations between actual requirements and expected actuarial requirements.
13.5 EFFECT OF BANKRUPTCY AND OTHER CONTINGENCIES AFFECTING AN EMPLOYER:
In the event an Employer terminates its connection with the Plan, or in
the event an Employer is dissolved, liquidated, or shall by appropriate legal
proceedings be adjudged bankrupt or declared insolvent, or in the event judicial
proceedings of any kind result in the involuntary dissolution of an Employer,
the Plan shall be terminated with respect to such Employer. The merger,
consolidation, or reorganization of an Employer, or the sale by it of all or
substantially all of its assets, shall not terminate the Plan if there is
delivery to such Employer by the Employer's successor or by the purchaser of all
or substantially all of the Employer's assets, of a written instrument
requesting that the successor or purchaser be substituted for the Employer and
agreeing to perform all the provisions hereof which such
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Employer is required to perform. Upon the receipt of said instrument, with the
approval of the Company, the successor, or the purchaser shall be substituted
for such Employer herein, and such Employer shall be relieved and released from
any obligations of any kind, character, or description herein or in any trust
agreement imposed upon it.
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ARTICLE XIV
TOP HEAVY PROVISIONS
14.1 TOP HEAVY PROVISIONS:
In order to comply with the requirements of Code Section 416, the
following provisions of this Section shall be applicable to the Plan in the
event it should ever become a "Top Heavy Plan", as contemplated by the said Code
provisions.
14.2 TOP HEAVY PLAN DEFINITIONS: Definitions relating to Top
Heavy Plan provisions are as follows:
(a) Top Heavy: This Plan shall be considered "Top Heavy" if,
as of the Determination Date, the Top Heavy Ratio exceeds 60%. The Top
Heavy Ratio is a fraction, the numerator of which is the sum of the
present value of Accrued Benefit of all Key Employees as of the
Determination Date (including distributions made within the 5 Plan Year
period ending on the Determination Date) determined as if the
Participant terminated service as of such Determination Date, and the
denominator of which is a similar sum determined for all Participants.
This ratio shall be calculated without regard to any Non-Key Employee
who was formerly a Key Employee. The Top Heavy Ratio, including the
extent to which it must take into account distributions, rollovers and
transfers, shall be calculated in accordance with Section 416 of the
Code and regulations thereunder.
Notwithstanding the foregoing, if the Employer maintains
other qualified plans, this Plan is Top Heavy only if it is part of the
Required Aggregation Group (as defined in Section 14.2(e) of the Plan),
and the Top Heavy Ratio for both the Required Aggregation Group and the
Permissive Aggregation Group (as defined in Section 14.2(f) of the
Plan) exceeds 60%. The Top Heavy Ratio will be calculated in the same
manner as required by the preceding paragraph, taking into account all
plans within either the Required or
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Permissive Aggregation Group, as applicable. The present value of
Accrued Benefit and the other amounts that must be taken into account
under defined contribution plans included within either the Required or
Permissive Aggregation Group, as applicable, shall be calculated in
accordance with the terms of those plans, Code Section 416 and the
regulations thereunder. The Top Heavy Ratio shall be calculated with
reference to the Determination Date and fall within the same calendar
year. In order to determine the present value under this paragraph, an
interest rate assumption of 5% and the Mortality Table specified in
Schedule A shall be used to compute the present value of benefits.
The Accrued Benefit of any Participant who has not performed
any services for the Employer at any time during the 5 year period
ending on the Determination Date will be disregarded for purposes of
calculating the Top Heavy Ratio.
(b) Determination Date: For purposes of determining whether
the Plan is Top Heavy for a particular Plan Year, the "Determination
Date" shall be the last day of the preceding Plan Year.
(c) Key Employee: A "Key Employee" is any Employee (or former
Employee), including a Beneficiary of such Employee, who at any time
during the Plan Year or any four (4) preceding Plan Years is one of the
following:
(1) An officer of the Employer (but in no event shall
more than 50 Employees, or if less, the greater of 3 or 10% of
all Employees, be taken into account under this paragraph (3)
as Key Employees). Notwithstanding, an officer of the
Employer will not be considered a "Key Employee" under this
paragraph (3) unless he earned more than 50% of the amount in
effect under Code Section 415(b)(1)(A) adjusted each Plan Year
to take into account any applicable cost of living adjustments
promulgated by the Secretary of the Treasury or his delegate,
under Section 415(d) of the Code; or
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<PAGE>
(2) One of the 10 Employees whose annual
Compensation is in excess of the $30,000 dollar limit
(adjusted for cost-of-living), as set forth in
Subparagraph (3)(A) above, and owning (or considered as
owning within the meaning of Code Section 318) both more
than a 1/2% interest and the largest interests in the
Employer. If two (2) Employees have the same interest in the
Employer, the Employee having greater annual Compensation
from the Employer shall be treated as having a larger
interest; or
(3) A person owning (or considered as owning within
the meaning of Code Section 318) more than 5% of the total
combined voting power of all stock of the Employer; or
(4) A person who has an annual Compensation from the
Employer of more than $150,000 and would be described in
subparagraph (C) hereof if 1% were substituted for 5%.
Notwithstanding, for purposes of applying Code Section 318 to
the provisions of this paragraph (3), subparagraph (C) of Code Section
318(a)(2) shall be applied by substituting 5% for 50%. In addition,
the rules of subsection (b), (d) and (m) of Code Section 414 shall not
apply for purposes of determining ownership in the Employer under this
paragraph (3).
The constructive ownership rules of Code Section 318 shall
apply to this paragraph (3) in order to determine ownership in the
Employer. The Committee shall make the determination of who is a Key
Employee in accordance with Code Section 416(i)(1) and the regulations
thereunder.
(d) Non-Key Employee: A "Non-Key Employee" is any Employee who
does not meet the definition of a Key Employee.
(e) Required Aggregation Group: "Required Aggregation Group"
is (i) each qualified plan of the Employer in
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<PAGE>
which at least one Key Employee participates, plus (ii) any other
qualified plan of the Employer which enables a plan described in (i)
above, to meet the requirements of Section 401(a)(4) or 410 of the
Code.
(f) Permissive Aggregation Group: "Permissive Aggregation
Group" is the Required Aggregation Group plus any qualified plans
maintained by the Employer, but only if such Group would satisfy, in
the aggregate, the requirement of Sections 401(a)(4) and 410 of the
Code. The Committee shall determine which plan(s) to take into account
in determining the Permissive Aggregation Group.
(g) Average Top Heavy Compensation: "Average Top Heavy
Compensation" is the Participant's average Compensation (with
Compensation defined in accordance with Code regulation 1.415-2(d)) for
a period of 5 consecutive years during which the Participant had the
greatest aggregate Compensation in the testing period. Years ending in
a Plan Year beginning before January 1, 1984 and years beginning after
the close of the last Plan Year in which the Plan was Top Heavy shall
not be taken into account.
(h) Valuation Date: "Valuation Date" shall mean the date on
which the Plan's assets and liabilities are valued for purposes of
calculating the Top Heavy Ratio. The Valuation Date shall be the same
date as the Determination Date.
14.3 Minimum Vesting Requirements: Notwithstanding the Vesting Schedule as set
forth in Section 3.4 of this Plan, if the Plan is a "Top Heavy Plan" as
determined pursuant to Code Section 416 for any Plan Year beginning after
December 31, 1983, vesting of the Participant's Accrued Benefit shall be
determined in accordance with the following schedule (for the Plan Year in which
the Plan is "Top Heavy" only):
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<PAGE>
<TABLE>
<CAPTION>
Vested
Years of Service Percentage
<S> <C>
Less than 2 Years 0%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years or More 100%
</TABLE>
14.4 Minimum Benefits: If the Plan is Top Heavy in any Plan Year beginning after
December 31, 1983, the Plan shall provide a minimum benefit for each Participant
who is a Non-Key Employee. The minimum normal retirement benefit (in the form of
a Life Only Benefit) shall be equal to the applicable percentage of the Non-Key
Employee's Average Top Heavy Compensation. The applicable percentage is the
lesser of 2% multiplied by the number of Years of Service that the Non-Key
Employee completes in Top Heavy Plan Years, or 20%.
The Plan satisfies the minimum benefit for a Non-Key Employee if the
Non-Key Employee's Accrued Benefit at the end of the Top Heavy Plan Year is at
least equal to the minimum normal retirement benefit.
Notwithstanding the above minimum benefit requirements, if a Non-Key
Employee participates in both this plan and another Top Heavy tax qualified
defined contribution plan maintained by the Employer, no minimum contribution
will be required under the defined contribution Plan on behalf of the Non-Key
Employee, for any Plan Year, if the Employer provides a minimum benefit under
this Plan on behalf of the Non-Key Employee, for such Plan Year, in accordance
with Code Section 416(c).
14.5 Additional Accruals: If, at the end of any Top Heavy Plan Year, a Non-Key
Employee Participant's Accrued Benefit is not at least equal to his minimum
normal retirement benefit, the Non-Key Employee Participant shall earn an
additional accrual. Such Non-Key Employee Participant's Accrued Benefit shall be
increased by the lesser of:
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(a) 2% of the Non-Key Employee's Average Top Heavy
Compensation minus the benefit the Non-Key Employee would otherwise
accrue under the Plan for the Plan Year; or
(b) The minimum normal retirement benefit to which the Non-Key
Employee should be entitled under subsection (c) minus the Non-Key
Employee's Accrued Benefit under the Plan at the end of the Plan Year
(without regard to any additional accrual which this subsection (d)
may require for the Plan Year).
A Non-Key Employee Participant shall receive an additional accrual if
he completes a Year of Service during the Plan Year. The Employer shall not
impute Social Security benefits to determine whether it has satisfied its
obligation to provide the minimum normal retirement benefit.
14.6 Adjustment to Overall IRC Section 415 Limitations: If, during any
Limitation Year, the Plan is Top Heavy, the Committee shall apply the
limitations of Section 4.4 to the Participant by substituting 1.0 for 1.25 each
place it appears in the fractions described in Code Sections 415(e)(2) and
(e)(3). This Section 14.6 shall not apply if:
(1) The Plan could satisfy subsection (c) of this
Section 14.6 if 3% were substituted for 2%; and
(2) The Top Heavy Ratio does not exceed 90%.
* * * * * * * * * *
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IN WITNESS WHEREOF, United Wisconsin Services, Inc., and Blue Cross &
Blue Shield United of Wisconsin, by their duly authorized officers, have caused
these presents to be signed on this 22nd day of January, 1998.
UNITED WISCONSIN SERVICES, INC.
[ILLEGIBLE]
--------------------------------------------
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
[ILLEGIBLE]
--------------------------------------------
CORPORATE SEAL
ATTEST:
[ILLEGIBLE]
- ------------------------------
Secretary
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<PAGE>
SCHEDULE A - PARTICIPATING EMPLOYERS
(As of January 1, 1993)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Take Control, Inc.
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
(As of January 1, 1995)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
(Including West Allis Dental Group)
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
(As of January 1, 1997)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
United Heartland, Inc.
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<PAGE>
SCHEDULE B - EXCLUDED EMPLOYEE GROUPS
(As of January 1, 1993)
West Allis Dental Group (a division of Compcare Health Services
Insurance Corporation)
(As of January 1, 1995)
HMO of Wisconsin Insurance Corporation
HMO-W, Inc.
United Heartland, Inc.
(As of January 1, 1997)
Accountable Health Plans, Inc.
Accountable Health Plan of the Carolinas, Inc.
Advance Medical Security, Inc.
American Medical Security Holdings, Inc.
American Medical Security, Inc.
AMS HMO Holdings, Inc.
AMS Provider Partnerships, Inc.
American Medical Security Health Plans, Inc.
American Medical Security Insurance Company
American Medical Security Health Plan, Inc. (DBA American Medical
Healthcare)
Atlantic Health Plans, Inc.
CNR Health, Inc.
Community Health Plan, Inc.
Continental Plan Services, Inc.
Crescent Medical Partnerships, Inc.
HMO-W, Inc.
Nurse Healthline, Inc.
Personal Physician Care, Inc.
U&C Real Estate Partnership
United Wisconsin Life Insurance Company
Unity Health Plans Insurance Corporation (formerly HMO of
Wisconsin Insurance Corporation)
Unity HMO of Illinois, Inc.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 1
Participants Terminating Employment between March 1, 1996 and December 31, 1996.
Any Participant who terminated employment on or after March 1, 1996 and before
January 1, 1997 and who did not receive a distribution of his vested prior Plan
Benefit during 1996 shall receive his retirement benefit in accordance with
Section 4.1 of this Plan as if he had been actively employed as of January 1,
1997. In the event any of the Participants described above are reemployed, they
shall not be eligible to receive a Transition Credit.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 2
Hometown Insurance Services Employees
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of January 1, 1995 and supersedes any provisions of the Plan
which are not consistent with this Special Benefit Schedule. The Participants
covered by this Special Benefit Schedule are the Participants listed below
("Hometown Employees") who were employed by the Employer (doing business as
Hometown Insurance Services) on December 31, 1994.
Chris Bruni Cindy Olson
Tom Burns Bruce Ohlsen
Bev Comer George Tervalon
Debrah Gunderson Christine Walder
Richard Laufenberg
Jim Malicki
1. Eligibility. A Hometown Employee shall participate in the Plan as of
the later of (a) January 1, 1995 or (b) the first day of the month
coincident or next following the first anniversary of his date of hire
with HMO of Wisconsin Insurance Corporation, HMO-W, Inc., University
Health Care, Inc., U-Care HMO, Inc., or Unity Health Plans Insurance
Corporation (a "Hometown Related Employer").
2. Vesting. For purposes of determining pursuant to Section 6.1 the Years
of Vesting Service, the Plan shall recognize, in addition to his
Service with an Employer on and after January 1, 1995, all periods of a
Participant's employment with a Hometown Related Employer prior to
January 1, 1995.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 3
Certain United Heartland, Inc. Employees
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of participation and vesting service for certain
Employees of United Heartland, Inc. ("UH"). The Participants covered by
this Special Benefit Schedule are the Participants who immediately
prior to the Effective Date were actively employed by UH and were
active participants in the United Heartland, Inc. Pension Plan ("UH
Pension").
2. Effective Date: January 1, 1997.
3. Eligibility: A participant in the UH Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee of UH shall become eligible to participate in
the Plan on the later of the Effective Date or the date such employee
would otherwise become eligible to participate in accordance with the
provisions of Article II of the Plan, taking into account such
employee's service with UH prior to the Effective Date.
4. Initial Cash Balance Account: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. No Transition Credits: A participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 4.1(h) of this Plan.
6. Vesting: For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with UH,
as computed under the elapsed time method used by the UH Plan.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 4
Former EDS Employees in the Medicaid Claims Processing Unit
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of participation and vesting service for certain former
EDS employees. The Participants covered by this Special Benefit
Schedule are the Participants who immediately prior to the Effective
Date were actively employed by EDS in the Medicaid Claims Processing
Unit and became Employees of the Company on the Effective Date.
2. Effective Date: January 1, 1997.
3. Eligibility: A Participant covered by this Special Benefit Schedule who
was a participant in the EDS Retirement Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee in the Medicaid Claims Processing Unit shall
become eligible to participate in the Plan on the later of the
Effective Date or the date such employee would otherwise become
eligible to participate in accordance with the provisions of Article
II of the Plan, taking into account such employee's service with EDS
prior to the Effective Date.
4. Initial Cash Balance Account: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. No Transition Credits: A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive Transition
Credits as described in Section 4.1(h) of this Plan.
6. Vesting: For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with
EDS, as computed under the method used by EDS Plan.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 5
Former EDS Employees in the Print Center
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of participation and vesting service for certain former
EDS employees. The Participants covered by this Special Benefit
Schedule are the Participants who immediately prior to the Effective
Date were actively employed by EDS in the Print Center who became
Employees of the Company on the Effective Date.
2. Effective Date: August 1, 1997.
3. Eligibility: A Participant covered by this Special Benefit Schedule who
was a participant in the EDS Retirement Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee in the Print Center shall become eligible to
participate in the Plan on the later of the Effective Date or the date
such employee would otherwise become eligible to participate in
accordance with the provisions of Article II of the Plan, taking into
account such employee's service with EDS prior to the Effective Date.
4. Initial Cash Balance Account: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. Annual Credits: A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 4% of Earnings. Annual
Credits shall be determined and credited to such Participants' Cash
Balance Accounts as described in Section 4.1(g) of the Plan, except as
described in Section 6 of this Special Benefit Schedule.
6. 1997 Annual Credit: A Participant covered by this Special Benefit
Schedule shall receive an Annual Credit for the calendar year ended
December 31, 1997 in an amount equal to 4% of Earnings for the period
from August 1, 1997 to December 31, 1997.
7. No Transition Credits: A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 4.1(h) of this Plan.
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<PAGE>
8. Vesting: For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with
EDS, as computed under the method used by EDS Plan.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 6
Unity Health Plans Insurance Corporation Employees
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. Participants Covered: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the
determination of benefit accrual, participation and vesting service
for Employees of Unity Health Plans Insurance Corporation ("Unity").
2. Effective Date: October 1, 1997.
3. Eligibility: A participant in the Unity Health Plans Insurance
Corporation Retirement Plan ("Unity Plan") who was actively employed by
Unity immediately prior to the Effective Date shall become a
Participant in the Plan on the Effective Date. Any other Employee of
Unity shall become eligible to participate in the Plan on the later of
the Effective Date or the date such employee would otherwise become
eligible to participate in accordance with the provisions of Article
II of the Plan, taking into account such employee's service with Unity
prior to the Effective Date.
4. Initial Cash Balance Account: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
October 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. Annual Credits: A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 3% of Earnings. Annual
Credits shall be determined and credited to such Participants' Cash
Balance Accounts as described in Section 4.1(g) of the Plan, except as
described in Section 6 of this Special Benefit Schedule.
6. 1997 Annual Credit: A Participant covered by this Special Benefit
Schedule shall receive an Annual Credit for the calendar year ended
December 31, 1997 in an amount equal to 3% of Earnings for the period
from October 1, 1997 to December 31, 1997.
7. No Transition Credits: A participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 4.1(h) of this Plan.
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<PAGE>
8. Vesting: For vesting purposes hereunder, service of a Participant
covered by this Special Benefit Schedule shall include service with
Unity, as computed under the elapsed time method used by the Unity
Plan.
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<PAGE>
Exhibit 10.43
UWSI/BCBSUW Supplemental
Executive Retirement Plan
(Amended and Restated Effective
January 1, 1997)
<PAGE>
Contents
<TABLE>
<S> <C>
Article 1. The Plan 1
1.1 The Plan 1
1.2 Purpose of the Plan 1
1.3 Applicability of the Plan 1
1.4 Applicability of the Prior Plan 1
Article 2. Definitions 2
2.1 Definitions 2
2.2 Gender and Number 4
Article 3. Participation 5
3.1 Participation 5
3.2 Duration 5
Article 4. Benefits 6
4.1 Retirement Benefits 6
4.2 Form of Payment 7
4.3 Disability Benefits 7
Article 5. Death Benefits 9
5.1 Eligibility 9
5.2 Amount 9
5.3 Payment 9
Article 6. Financing 10
6.1 Financing 10
6.2 No Trust Created 10
6.3 Unsecured Interest 10
6.4 "Rabbi" Trust 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Article 7. Administration 11
7.1 Administration 11
7.2 Appeals from Denial of Claims 11
7.3 Tax Withholding 12
7.4 Expenses 12
Article 8. Adoption of the Plan by Affiliate;
Amendment and Termination
of the Plan 13
8.1 Adoption of the Plan by Affiliate 13
8.2 Amendment and Termination 13
Article 9. Miscellaneous Provisions 14
9.1 No Contract of Employment 14
9.2 Severability 14
9.3 Applicable Law 14
Supplement A. Adopting Employers (As of January 1, 1997) 16
</TABLE>
ii
<PAGE>
Article 1. The Plan
1.1 The Plan
United Wisconsin Services, Inc. and Blue Cross & Blue Shield United of Wisconsin
heretofore maintained a supplemental retirement plan known as the Supplemental
Benefit Restoration Plan (the "Prior Plan"). The Prior Plan is hereby amended
and restated to hereafter be known as the UWSI/BCBSUW Supplemental Executive
Retirement Plan (the "Plan").
1.2 Purpose of the Plan
This Plan is intended to supplement benefits that are provided by the
UWSI/BCBSUW Salaried Pension Plan and the UWSI/BCBSUW Hourly Pension Plan (the
"Pension Plans").
The Plan is intended to be a plan maintained for the purpose of providing
deferred compensation to a "select group of management or highly compensated
employees" within the meaning of ERISA section 201(2).
Benefits provided under this Plan shall be paid solely from the general assets
of the Company and participating Affiliates. The Plan is intended to be exempt
from the participation, vesting, funding, and fiduciary requirements of Title I
of ERISA.
1.3 Applicability of the Plan
This Plan applies only to eligible Employees who are in the active employ of the
Company or a participating Affiliate on or after January 1, 1997.
1.4 Applicability of the Prior Plan
The Prior Plan applies only to those individuals who are Participants in the
Prior Plan as of December 31, 1996, and applies only for purposes of determining
the minimum benefit under section 4.1(b)(3) of this Plan. There shall be no new
Participants in the Prior Plan after December 31, 1996.
1
<PAGE>
Article 2.
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings set forth
below unless otherwise expressly provided. When the defined meaning is intended,
the term is capitalized. The definition of any term in the singular shall also
include the plural and any masculine terminology shall be deemed to refer to
either a male or female.
(a) "Actuarial Equivalent" means a benefit having the same value as the
benefit which it replaces, computed on the bases of the actuarial
equivalence assumptions in effect under section 1.1(b)(i) of the
UWSI/BCBSUW Salaried Pension Plan.
(b) "Affiliate" means--
(1) any corporation while it is a member of the same "controlled
group" of corporations (within the meaning of Code section
414(b)) as the Company;
(2) any other trade or business (whether or not incorporated) while
it is under "common control" (within the meaning of Code
section 414(c)) with the Company;
(3) any organization during any period in which it (along with the
Company) is a member of an "affiliated service group" (within
the meaning of Code section 414(m)); or
(4) any other entity during any period in which it is required to
be aggregated with the Company under Code section 414(o).
Notwithstanding the foregoing, the term Employer may, in the discretion
of the Administrator, be defined to include an entity described in
paragraphs (1) through (4) above for any purpose under the Plan.
(c) "Beneficiary" means the individual designated by a Participant to
receive any death benefits payable on the Participant's behalf under
the Pension Plans.
(d) "Benefit Commencement Date" means the date on which a Participant's
benefits shall commence under Article IV and shall be the date the
Participant's benefits commence under the Pension Plans.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended, or as it
may be amended from time to time. A reference to a particular section
of the Code shall also be deemed to refer to the regulations under
that Code section.
2
<PAGE>
(g) "Company" means both United Wisconsin Services, Inc. and Blue Cross &
Blue Shield United of Wisconsin, and any successors thereto that agree
to adopt and continue this Plan.
(h) "Employee" means any person who is employed by an Employer.
(i) "Employer" means the Company and each Affiliate which has adopted this
Plan for the benefit of its eligible Employees as set forth in
Schedule A to this Plan.
(j) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or as it may be amended from time to time. A reference to a
particular section of ERISA shall also be deemed to refer to the
regulations under that section.
(k) "Final Average Earnings" means one-twelfth of the Participant's
average annual Earnings for the highest five consecutive calendar
years of Earnings during the last ten calendar years of Earnings. For
this purpose, Earnings shall be as determined under the UWSI/BCBSUW
Salaried Pension Plan except that the Code section 401(a)(17) limit
shall not apply and any deferrals under a voluntary deferred
compensation plan shall be included in the year of the deferral and
not included in the year of payment.
(l) "Normal Retirement Date" means the first day of the month coincident
with or next following the Participant's sixty-fifth birthday.
(m) "Participant" means an Employee who has met, and continues to meet,
the eligibility requirements of section 3.1.
(n) "Plan" means this UWSI/BCBSUW Supplemental Executive Retirement Plan,
as amended from time to time.
(o) "Plan Administrator" means the Company's Employee Benefits Committee.
(p) "Plan Year" means the calendar year.
(q) "Primary Social Security Benefit" means the estimated monthly primary
insurance amount that a Participant is or would be entitled to receive
commencing at age 62 under the Social Security Act, whether or not he
applies for or actually receives such benefit. For purposes of the
Plan, such estimated amount shall be determined as of any date on the
following bases:
(1) the Social Security Act as in effect on the January 1 of the
Plan Year with respect to which a calculation is made
(regardless of any retroactive changes made by legislation
enacted after said January 1);
(2) the rate of the Participant's past wage increases equaled a
level percentage per year of 5 percent;
3
<PAGE>
(3) in the case of a Participant who terminates from employment of
the Employer and all Affiliates prior to his sixty-second
birthday, such Participant has annual wages for the period from
his termination to the attainment of age 62 equal to his wages
for the last full year of employment with the Employer or
Affiliate;
(4) in the case of a Participant who terminates employment from the
Employer and all Affiliates after his sixty-second birthday,
such Participant has no wages for the period following his
termination of employment; and
(5) no change (by amendment to the Social Security Act or by
application of the provisions of the Act) in the primary
insurance amount occurs after the earlier of termination of
employment or a Participant's sixty-second birthday.
(r) "Service" means the sum of--
(1) with respect to Plan Years of the Pension Plans beginning
before January 1, 1997, the Participant's Years of Benefit
Service under the Pension Plans; and
(2) with respect to Plan Years of the Pension Plans beginning on
and after January 1, 1997, any calendar years with respect to
which the Participant receives an Annual Credit.
(s) "Termination of Service" means an Employee's death or resignation,
discharge, or retirement from the Company and its Affiliates.
2.2 Gender and Number
Except when otherwise indicated by the context, any masculine terminology shall
also include the feminine, and the definition of any term in the singular shall
also include the plural.
4
<PAGE>
Article 3.
Participation
3.1 Participation
An Employee shall become a Participant on--
(a) January 1, 1997, if he is employed by the Employer as a vice president
or officer on a full-time basis and is designated as a Participant by
the Plan Administrator; or
(b) on such date the Employee becomes employed by the Employer as a vice
president or officer on a full-time basis and is designated as a
Participant by the Plan Administrator, but not before January 1, 1997.
3.2 Duration
An Employee who becomes a Participant under section 3.1 shall remain an active
Participant until the earlier of--
(a) his Termination of Service; or
(b) his ceasing to be employed by the Employer as a vice president or
officer on a full-time basis.
An individual whose active participation is terminated under this section 3.2
shall continue to be an inactive Participant until all benefits to which he is
entitled to under this Plan have been paid.
5
<PAGE>
Article 4.
Benefits
4.1 Retirement Benefits
(a) Eligibility. A Participant who has five years of Service shall be
eligible for a retirement benefit under this section 4.1. Except as
otherwise provided in section 4.4, this normal retirement benefit
shall be calculated as a life with ten years certain at 70 percent
annuity commencing on the Participant's Normal Retirement Date.
However, if the Participant's Benefit Commencement Date precedes his
Normal Retirement Date, the benefit determined under this section 4.1
shall be reduced in accordance with subsection (b)(2).
(b) Amount.
(1) In General. Subject to paragraphs (2), (3), and (4) below, a
Participant who is eligible for a retirement benefit under
subsection (a) shall be entitled to a monthly benefit equal to
(A) minus (B) where--
(A) is 60 percent of the Participant's Final Average
Earnings multiplied by a fraction, not greater than
one, the numerator of which is the Participant's months
of Service under the Pension Plans and the denominator
of which is 360; and
(B) is the Participant's Primary Social Security Benefit
multiplied by a fraction, not greater than one, the
numerator of which is the Participant's months of
Service under the Pension Plans and the denominator of
which is 360.
(2) Early Commencement. In the case of a Participant whose Benefit
Commencement Date precedes his or her Normal Retirement Date,
the monthly benefit determined under paragraph (1) shall be
reduced one-fourth of 1 percent for each month the Benefit
Commencement Date precedes the Participant's sixty-second
birthday (up to a maximum of 6 percent reduction) and one-half
of 1 percent for each month the Benefit Commencement Date
precedes the Participant's sixtieth birthday (up to a maximum
of 30 percent reduction) and Actuarial Equivalent reductions
for each month the Benefit Commencement Date precedes the
Participant's fifty-fifth birthday.
(3) Pension Plans Offset. The monthly benefit determined under
paragraphs (1) and (2) shall be offset by the life with ten
years certain at 70 percent annuity, payable as of the
Participant's Benefit Commencement Date, which is the Actuarial
Equivalent of the Participant's Cash Balance Account under the
6
<PAGE>
Pension Plans as of the Participant's Benefit Commencement
Date.
(4) Minimum Benefit. The monthly benefit determined above shall in
no event be less for any given month than the monthly benefit
determined under the provisions of the Prior Plan as of
December 31, 1996. This minimum benefit shall only apply to
those that were Participants in the Prior Plan.
(5) Adjustments. The Plan Administrator may adjust (A) the Service
included in determining a Participant's benefits pursuant to
section 4.1(b)(1)(A) and (B), and (B) the qualified retirement
plan benefits to be offset against the Participant's benefits
pursuant to section 4.1(b)(3), to take into account service
with Affiliates which is not considered Service under this Plan
and to make appropriate offsets for qualified retirement plan
benefits earned during such service.
4.2 Form of Payment
(a) Unmarried Participant. The form of payment for a Participant who is
not married on his or her Benefit Commencement Date shall be a life
with ten years certain at 70 percent annuity.
(b) Married Participant. The form of payment for a Participant who is
married on his or her Benefit Commencement Date shall be a joint and
50 percent surviving spouse annuity. A joint and 50 percent surviving
spouse annuity provides--
(1) a reduced monthly benefit to the Participant for life; and
(2) upon the Participant's death, a monthly benefit to the
Participant's surviving spouse for life equal to 50 percent of
the amount payable during the Participant's lifetime.
This joint and 50 percent surviving spouse annuity shall be the
Actuarial Equivalent of the life with ten years certain at 70 percent
annuity described in subsection (a). The reduced benefit payable to
the Participant shall be 93 percent of the benefit otherwise payable.
(c) Optional Payment Forms. At the election of the Participant, payment
may be made either in the form of a single life annuity or a lump sum.
In that event, the benefit payable under the optional payment form
shall be the Actuarial Equivalent of the life with ten years certain
at 70 percent annuity described in subsection (a). One full calendar
year must elapse between the date of the election and the beginning
date of the optional payment form. Upon the request of a Participant,
the Plan Administrator may, in its sole discretion, make an exception
to the required time lapse by accelerating the beginning date of the
optional payment form, but not to a date earlier than the
Participant's Benefit Commencement Date.
7
<PAGE>
4.3 Disability Benefits
(a) Eligibility. A Participant who is receiving a disability retirement
benefit under the Pension Plans shall be eligible for a disability
benefit under this section 4.3.
(b) Amount. A Participant who is eligible for a disability benefit under
subsection (a) shall be entitled to a monthly disability benefit equal
to (1) minus (2) where--
(1) is the disability benefit that would be payable under the
Pension Plans but for the limitations of Code sections
401(a)(17) and 415; and
(2) is the disability benefit that in fact is payable under the
Pension Plans.
(c) Payment. A Participant's disability benefit shall be paid in the same
form and for the same period of time as the disability benefit is paid
to the Participant under the Pension Plans.
8
<PAGE>
Article 5.
Death Benefits
5.1 Eligibility
The Beneficiary of a Participant under the Pension Plans who is eligible for a
death benefit under the Pension Plans shall be eligible for a death benefit
under this Article 5.
5.2 Amount
A Beneficiary who is eligible for a death benefit under section 5.1 shall be
entitled to a death benefit equal to (a) minus (b) where--
(a) is the death benefit that would be payable under the Pension Plans but
for the limitations of Code sections 401(a)(17) and 415; and
(b) is the death benefit that in fact is payable under the Pension Plans.
5.3 Payment
Payment shall be in the same form and for the same period of time as the death
benefit payable to the Beneficiary under the Pension Plans.
9
<PAGE>
Article 6.
Financing
6.1 Financing
The benefits under this Plan shall be paid out of the general assets of the
Employers. The benefits shall not be funded in advance of payment in any way.
6.2 No Trust Created
Nothing contained in this Plan, and no action taken pursuant to the provisions
of this Plan, shall create a trust of any kind or a fiduciary relationship
between an Employer and any Participant, Participant's spouse, or Beneficiary.
6.3 Unsecured Interest
No Participant shall have any interest whatsoever in any specific asset of the
Company or an Affiliate. To the extent that any person acquires a right to
receive payments under this Plan, such right shall be no greater than the right
of any unsecured general creditor of an Employer.
6.4 "Rabbi" Trust
The Company may utilize one or more "rabbi" trusts provided they are not
inconsistent with any of the above sections of this Article 6.
10
<PAGE>
Article 7.
Administration
7.1 Administration
The Plan shall be administered by the Plan Administrator.
The Plan Administrator shall have all powers necessary or appropriate to carry
out the provisions of the Plan. It may, from time to time, establish rules for
the administration of the Plan and the transaction of the Plan's business.
The Plan Administrator shall have the exclusive right to make any finding of
fact necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of eligibility for and amount of any benefit.
The Plan Administrator shall have the exclusive right to interpret the terms and
provisions of the Plan and to determine any and all questions arising under the
Plan or in connection with its administration, including, without limitation,
the right to remedy or resolve possible ambiguities, inconsistencies, or
omissions by general rule or particular decision, all in its sole and absolute
discretion.
To the extent permitted by law, all findings of fact, determinations,
interpretations, and decisions of the Plan Administrator shall be conclusive and
binding upon all persons having or claiming to have any interest or right under
the Plan.
7.2 Appeals from Denial of Claims
If any claim for benefits under the Plan is wholly or partially denied, the
claimant shall be given notice of the denial. This notice shall be in writing,
within a reasonable period of time after receipt of the claim by the Plan
Administrator. This period shall not exceed 90 days after receipt of the claim,
except that if special circumstances require an extension of time, written
notice of the extension shall be furnished to the claimant, and an additional 90
days will be considered reasonable.
This notice shall be written in a manner calculated to be understood by the
claimant and shall set forth the following information:
(a) the specific reasons for the denial;
(b) specific reference to the Plan provisions on which the denial is
based;
(c) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why this
material or information is necessary;
(d) an explanation that a full and fair review by the Plan Administrator
of the decision denying the claim may be requested by the claimant or
an authorized representative
11
<PAGE>
by filing with the Plan Administrator, within 60 days after the notice
has been received, a written request for the review; and
(e) if this request is so filed, an explanation that the claimant or an
authorized representative may review pertinent documents and submit
issues and comments in writing within the same 60-day period specified
in subsection (d).
The decision of the Plan Administrator upon review shall be made promptly, and
not later than 60 days after the Plan Administrator's receipt of the request for
review, unless special circumstances require an extension of time for
processing. In this case the claimant shall be so notified, and a decision shall
be rendered as soon as possible, but not later than 120 days after receipt of
the request for review. If the claim is denied, wholly or in part, the claimant
shall be given a copy of the decision promptly. The decision shall be in
writing, shall include specific reasons for the denial, shall include specific
references to the pertinent Plan provisions on which the denial is based, and
shall be written in a manner calculated to be understood by the claimant.
7.3 Tax Withholding
The Employer may withhold from wages or any payment under this Plan any federal,
state, or local taxes required by law to be withheld with respect to the payment
and any sum the Employer may reasonably estimate as necessary to cover any taxes
for which it may be liable and that may be assessed with regard to the payment.
7.4 Expenses
All expenses incurred in the administration of the Plan shall be paid by the
Employer.
12
<PAGE>
Article 8.
Adoption of the Plan by Affiliate; Amendment and Termination
of the Plan
8.1 Adoption of the Plan by Affiliate
An Affiliate may adopt the Plan by appropriate action of its board of directors
or authorized officers or representatives, subject to the approval of the
Employee Benefits Committee.
8.2 Amendment and Termination
The Company hereby reserves the right to amend, modify, or terminate the Plan
with respect to its Employees at any time, and for any reason, by action of the
Employee Benefits Committee. However, no amendment or termination shall have the
effect of reducing the benefits accrued by a Participant prior to the date of
the amendment or termination.
13
<PAGE>
Article 9.
Miscellaneous Provisions
9.1 No Contract of Employment
Nothing contained in the Plan shall be construed to give any Participant the
right to be retained in the service of the Company or its Affiliates or to
interfere with the right of the Company or its Affiliates to discharge a
Participant at any time.
9.2 Severability
If any provision of this Plan shall be held illegal or invalid, the illegality
or invalidity shall not affect its remaining parts. The Plan shall be construed
and enforced as if it did not contain the illegal or invalid provision.
9.3 Applicable Law
Except to the extent preempted by applicable federal law, this Plan shall be
governed by and construed in accordance with the laws of the state of Wisconsin.
* * * * * * * * * *
14
<PAGE>
In Witness Whereof, the Company has caused this instrument to be executed by its
duly authorized officers, effective as of the date specified above.
United Wisconsin Services, Inc.
Attest:
By [ILLEGIBLE]
_____________________________
Title President & CEO
By [ILLEGIBLE]
________________________________
Title Secretary
Blue Cross & Blue Shield United of
Wisconsin
Attest:
By [ILLEGIBLE]
_____________________________
Title President & CEO
By [ILLEGIBLE]
_____________________________
Title Secretary
15
<PAGE>
Supplement A.
Adopting Employers
(As of January 1, 1997)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
United Heartland, Inc.
16
<PAGE>
Exhibit 10.44
UNITED WISCONSIN SERVICES, INC.
1992 STOCK APPRECIATION RIGHTS PLAN
(Adopted July 1, 1998)
1. Purpose. The purpose of the United Wisconsin Services, Inc. 1992 Stock
Appreciation Rights Plan (the "Plan") is to attract and retain
outstanding individuals as officers and key employees of United
Wisconsin Services, Inc. (the "Corporation") (until the Effective Date,
known as Newco/UWS, Inc.) and its subsidiaries, and to furnish
incentives to such individuals through rewards upon the performance of
the common stock of the Corporation. To this end, the Management Review
Committee of the Corporation, or such other committee as determined by
the Board of Directors (the "Committee") may grant stock appreciation
rights ("SARs") to officers and other key employees of the Corporation
and its subsidiaries, on the terms and subject to the conditions set
forth in this Plan.
This Plan is being created in connection with the distribution (the
"Distribution"), by the corporation formerly known as United Wisconsin
Services, Inc., of shares in connection with the spin-off of the
managed care and specialty products business to the Corporation and the
assumption by the Corporation of the United Wisconsin Services, Inc.
name. In connection with the Distribution, SARs will be issued under
the Plan in substitution for SARs issued under the 1992 Stock
Appreciation Rights Plan maintained by the corporation formerly known
as United Wisconsin Services, Inc., (the "Prior Plan") effective as of
the date of the Distribution (the "Distribution Date").
2. Participants. Participants in the Plan shall consist of such officers
and employees of the Corporation and its subsidiaries as the Committee
in its sole discretion may select from time to time to receive stock
appreciation rights. In determining the officers and employees to whom
stock appreciation rights will be granted, the Committee shall take
into account the duties of the respective officers and employees, their
past, present and potential contributions to the success of the
Corporation, their level of responsibility for the growth, development
and financial success of the Corporation, and such other factors as the
Committee deems relevant in connection with accomplishing the purposes
of the Plan.
3. Administration of the Plan. The Plan shall be administered by the
Committee. The Committee shall consist of not less than two members of
the Board of Directors. All members of the Committee shall be
"Non-Employee Directors". Non-Employee Director, as defined in rule
16b-3 promulgated by the Securities and Exchange Commission ("SEC")
under the Exchange Act, means a director who (i) is not currently an
officer or otherwise employed by the Company or any Affiliate, (ii)
does not receive compensation for consulting services or in any
<PAGE>
other capacity from the Company in excess of $60,000 in an one year,
(iii) does not possess an interest in and is not engaged in business
relationships required to be reported under Items 404(a) or 404(b) of
Regulation S-K promulgated under the Exchange Act and (iv) is an
Outside Director as defined in Treas. Reg. 1.162-27. Subject to the
provisions of the Plan, the Committee shall have sole discretion and
authority (i) to determine which officers and employees of the
Corporation and its subsidiaries shall be eligible for participation in
the Plan; (ii) to select officers and employees to receive grants under
the Plan; (iii) to determine the number of stock appreciation rights
subject to the grant, the conditions of exercise, the fair market value
of the common stock of the Corporation for purposes of the Plan, and
all other terms and conditions of any grant; and (iv) to prescribe the
form of agreement, certificate or other instrument evidencing the
grant. The Committee shall also have authority to interpret the Plan
and to establish, amend and rescind rules and regulations for the
administration of the Plan, and all such interpretations, rules and
regulations shall be conclusive and binding on all persons, provided,
however, that the Committee shall not exercise such authority in a
manner adversely and significantly affecting stock appreciation rights
previously granted unless the action taken is required to comply with
any applicable law or regulation.
4. Effective Date and Term of Plan. The Plan shall be effective as of the
Distribution Date. The Plan shall terminate only by action of the Board
of Directors. No further grants may be made under the Plan after its
termination, but the termination of the Plan shall not adversely and
significantly affect the rights of any participant under, or the
authority of the Committee with respect to, any grants made prior to
termination unless the action taken is required to comply with any
applicable law or regulations.
5. Number of Stock Appreciation Rights Subject to the Plan. Subject to
adjustment as provided in paragraph 7 hereof, the aggregate number of
stock appreciation rights which may be granted under the Plan shall not
exceed 150,000, multiplied by a fraction (the "Adjustment Factor") the
numerator of which is the Market Price of the common stock of the
corporation formerly known as United Wisconsin Services, Inc. on the
Distribution Date and the denominator of which is the Market Price of
Corporation common stock on the day after the Distribution Date. The
"Market Price" of a security is defined to be the closing sales price
of such security as reported on the NYSE Composite Tape. Each stock
appreciation right evidences the right upon exercise to receive payment
from the Corporation of the amount set forth in Section 6(d) hereof.
Whenever stock appreciation rights granted under the Plan can no longer
under any circumstances be exercised, these
2
<PAGE>
stock appreciation rights shall be available for additional grants
under the Plan. Stock appreciation rights which are exercised shall
thereafter be canceled and retired.
6. Stock Appreciation Rights.
(a) Grants. Stock appreciation rights entitling the grantee to
receive cash equal to the sum of (i) the appreciation in value
and (ii) the value of dividends paid on a stated number of
shares of common stock of the Corporation between the date of
grant and the date of exercise may be granted without
consideration from time to time to such officers and employees
of the Corporation and its subsidiaries as may be selected by
the Committee.
(b) Terms of Grant and Exercise: General. The grantee's rights
with respect to stock appreciation rights granted shall vest
three years after the date of grant as to 50% of the stock
appreciation rights; the remaining 50% of the stock
appreciation rights granted shall vest six years after the
date of grant. Notwithstanding the above, the Committee has
the sole discretion to alter the time in which previously
granted SARs vest in the event a grantee becomes disabled,
retires or dies; provided, however, that no previously granted
SARs vest prior to six months from the date of grant. Stock
appreciation rights are exercisable in whole or in part
provided all of the following conditions are met at the time
of exercise: (i) the stock appreciation rights to be exercised
are vested; (ii) the stock appreciation rights are exercised
only during the period beginning on the third business day
following the date of release of the Corporation's quarterly
or annual summary statements of revenues and earnings and
ending on the thirtieth day following such date (the "Exercise
Date"); (iii) the stock appreciation rights are exercised
prior to the expiration of twelve years from the date of
grant; and (iv) the grantee is employed by the Corporation or
any present or future parent or subsidiary of the Corporation
at the time of exercise. Stock appreciation rights not
exercised on or before the close of business twelve years from
the date of grant shall automatically expire and the stock
3
<PAGE>
appreciation rights shall become void. The Committee may at
the time of grant or at any time thereafter impose such
additional terms and conditions on the exercise of stock
appreciation rights as it deems necessary or desirable for
compliance with Section 16. SARs may be granted under this
Plan in substitution for SARs issued under the Prior Plan. For
purposes of this Plan, the date of grant shall mean, with
respect to such substituted SARs, the date such SARs were
originally granted under the Prior Plan. The number of
substituted SARs issued under this Plan to any Participant
shall be determined by multiplying the number of outstanding
SARs on the Distribution Date by the Adjustment Factor. The
grant price of such substituted SARs shall be determined by
dividing the grant price on the Distribution Date by the
Adjustment Factor.
(c) Terms of Grant and Exercise: Termination of Employment or
Death. If a grantee ceases to be employed by the Corporation
or any of its subsidiaries for any reason other than death,
any stock appreciation right held by such grantee may be
exercised only on the Exercise Date immediately following the
date of such cessation of employment, but only with respect to
that number of stock appreciation rights which were
exercisable immediately prior to the date of cessation of
employment.
If a grantee ceases to be employed by the Corporation or any
of its subsidiaries by reason of death, or dies after
termination of his employment by the Corporation or any of its
subsidiaries but prior to the Exercise Date immediately
following thereto, any stock appreciation right held by such
grantee which was exercisable by the grantee immediately prior
to his or her death, may be exercised by the grantee's
personal representative or executor of his or her estate on an
Exercise Date so long as such Exercise Date is during the
period ending on the earlier of the first anniversary of the
date of such grantee's death or the date of expiration of such
stock appreciation rights.
The Committee has the sole discretion to alter the time in
which previously granted SARs vest
4
<PAGE>
in the event a grantee becomes disabled, retires or dies;
provided, however, that no previously granted SARs vest prior
to six months from the date of grant.
(d) Payment on Exercise. Upon exercise of a stock appreciation
right, the grantee shall be paid within five business days an
amount in cash equal to the sum of (i) the amount by which the
fair market value of one share of the Corporation's common
stock on the date of exercise exceeds the date of grant value
thereof multiplied by the number of stock appreciation rights
being exercised and (ii) the value of the cash dividends
associated therewith. The value of the cash dividends
associated with exercised stock appreciation rights shall be
equal to the actual cash dividend paid on a share of common
stock between the date of grant and the date of exercise, plus
annual interest earned on the dividend paid between the date
the cash dividend is paid and the date of exercise, multiplied
by the number of stock appreciation rights being exercised.
Annual interest shall be reset annually and shall be at the
rate of the one year Treasury Bill as of September 30th of the
prior year plus 150 basis points; provided, however, the
annual interest rate shall in no event be less than 7.00% or
greater than 10.00% per annum.
For purposes of this paragraph, the fair market value of a
share of common stock of the Corporation shall be determined
using the first of the following rules which apply:
(A) During such time as the Corporation's common stock is
traded on the New York Stock Exchange (the
"Exchange"), the closing price of the Corporation's
common stock on the Exchange; or
(B) If the Corporation's common stock is not then traded
on the Exchange, the mean between the published bid
and asked prices of the common stock of the
Corporation if the common stock of the Corporation
was then traded on a bona fide over-the-counter
market; or
5
<PAGE>
(C) If the common stock of the Corporation was not traded
on the Exchange or on a bona fide over-the-counter
market, a value determined by an appraiser selected
by the Committee.
In the event that the date of exercise of a stock appreciation
right is a date for which there were no sales of the
Corporation's common stork if the stock is traded on the
Exchange, such fair market value shall be determined by taking
an average of the closing prices on the nearest day before and
the nearest day after the exercise date. In the event that the
date of exercise of a stock appreciation right is a date for
which there is no published bid and asked prices if the stock
is traded on the over-the-counter market, such fair market
value shall be determined by referring to the next preceding
business day on which trading occurs or on which published
prices are available.
(e) Additional Terms and Conditions. The agreement or instrument
evidencing the grant of stock appreciation rights may contain
such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Committee in its
sole discretion.
7. Adjustments for Changes in Capitalization, Etc. The terms and
conditions of stock appreciation rights shall be subject to adjustment
by the Committee in its sole discretion as to the number, kind and date
of grant value in the event of changes in the outstanding common stock
of the Corporation by reason of stock dividends, stock splits,
recapitalization, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in corporate
structure or capitalization occurring after the date of the grant of
any stock appreciation right, provided that if the Corporation shall
change its common stock into a greater or lesser number of shares
through a stock dividend, stock split up, or combination of shares,
outstanding rights shall be adjusted proportionately, consistent with
existing law and regulation, to prevent inequitable results.
8. Effect of Liquidation, Merger, Consolidation or Other Events. Nothing
contained in the Plan or in the terms of any stock appreciation rights
granted under the Plan shall in any way prohibit the Corporation from
merging with or consolidating
6
<PAGE>
into another corporation, or from selling or transferring all or
substantially all of its assets, or from distributing all of its assets
to its shareholders in liquidation, or from dissolving and terminating
its corporate existence; and in any such event, all outstanding stock
appreciation rights granted under the Plan which have vested shall be
deemed to have been exercised at the time of any such merger,
consolidation, sale or transfer of assets, liquidation, or dissolution,
except to the extent that any agreement or undertaking of any party to
such merger, consolidation, or sale or transfer of assets, or any plan
pursuant to which such liquidation or dissolution is effected, shall
make specific provision to continue such stock appreciation rights and
the rights of such person or persons entitled to exercise such stock
appreciation rights.
9. Amendment and Termination of Plan. The Plan may be amended or
terminated by the Board of Directors of the Corporation in any respect;
provided, however, the Board shall not exercise such authority in a
manner adversely and significantly affecting stock appreciation rights
previously granted unless the action taken is required to comply with
any applicable law or regulation.
10. Miscellaneous.
(a) No Right to a Grant. Neither the adoption of the Plan nor any
action of the Board of Directors or of the Committee shall be
deemed to give any officer or employee any right to be
selected as a participant or to be granted a stock
appreciation right.
(b) No Rights as Shareholder. No officer or employee shall have
any rights of any kind as a shareholder of the Corporation
with respect to stock appreciation rights.
(c) Employment. Nothing contained in this Plan shall be deemed to
confer upon any officer or employee any right of continued
employment with the Corporation or any of its subsidiaries or
to limit or diminish in any way the right of the Corporation
or any such subsidiary to terminate his or her employment at
any time with or without cause.
(d) Taxes. The Corporation shall be entitled to deduct from any
payment under the Plan the amount of any tax required by law
to be withheld with respect to such payment or may require any
participant to pay such amount to
7
<PAGE>
the Corporation prior to and as a condition of making such
payment.
(e) Nontransferability. No stock appreciation right shall be
transferable except by will or the laws of descent and
distribution. During the grantee's lifetime, stock
appreciation rights shall be exercisable only by such grantee.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEETS AND THE COMBINED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 17,033
<SECURITIES> 159,546
<RECEIVABLES> 54,460
<ALLOWANCES> 394
<INVENTORY> 0
<CURRENT-ASSETS> 230,056
<PP&E> 14,748
<DEPRECIATION> 7,770
<TOTAL-ASSETS> 266,256
<CURRENT-LIABILITIES> 117,322
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 123,616
<TOTAL-LIABILITY-AND-EQUITY> 266,256
<SALES> 586,871
<TOTAL-REVENUES> 609,109
<CGS> 485,735
<TOTAL-COSTS> 485,735
<OTHER-EXPENSES> 98,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 25,217
<INCOME-TAX> 9,433
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,748
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.95
</TABLE>
<PAGE>
EXHIBIT 99
[UWS NAME AND LOGO]
September 11, 1998
Dear Future Shareholder:
I am pleased to inform you that the Board of Directors of United Wisconsin
Services, Inc. ("UWS") has approved the distribution ("DISTRIBUTION") to UWS
shareholders of all of the outstanding shares of common stock of Newco/UWS, Inc.
("NEWCO"), a newly formed corporation of which you will soon become a
shareholder. Upon completion of the Distribution, Newco will be known as "United
Wisconsin Services, Inc.," and will be an independent public company owning and
operating the managed care and specialty products businesses and management
business currently owned and operated by UWS. The shares of Newco's common stock
have been approved for listing on the New York Stock Exchange under the symbol
"UWZ." After the Distribution, UWS will continue to own and operate its small
group business, and will be known as "American Medical Security Group, Inc."
The enclosed Information Statement explains the Distribution in detail and
provides important financial and other information regarding Newco. The
Distribution will give you a direct investment and ownership interest in two
separate companies. We believe that as separate companies, each one will have
additional and increased marketing, joint venture and acquisition opportunities.
The Distribution and certain intended related transactions will allow Newco,
which will operate under the name "United Wisconsin Services, Inc." following
the Distribution, to fully develop our managed care and specialty products
business, and utilize the Blue Cross and Blue Shield trademarks and tradenames
with our products. For UWS, which will operate under the name "American Medical
Security Group, Inc." after the Distribution, this move will allow them to
concentrate their efforts on continuing to develop, market and administer small
group insurance products, small group specialty group insurance products and
administrative services for small groups.
We are excited about Newco's prospects as an independent company. Newco,
through our wholly owned subsidiaries and joint venture arrangements, will be a
leading managed care company with the oldest and, in terms of membership,
largest health maintenance organization in Wisconsin and substantial operations
in specialty managed care and other products, including a large dental HMO, as
well as life, workers' compensation, mental health and other businesses. Newco
will possess a strong and highly motivated management team, outstanding
employees and a leading managed care and employee benefits business offering a
broad range of group medical and related benefit products. Operating as an
independent company, we believe Newco will be well positioned to serve its
customers, capitalize on exciting growth opportunities, utilize the Blue Cross
and Blue Shield trademarks and tradenames with our products and provide new
opportunities for our employees. We look forward to your participation in our
future.
Sincerely yours,
Thomas R. Hefty
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
[AMSG NAME AND LOGO]
September 11, 1998
Dear Shareholder:
As you know, the Board of Directors of United Wisconsin Services, Inc.
("UWS") has approved the distribution ("DISTRIBUTION") to UWS shareholders of
all of the outstanding shares of common stock of Newco/UWS, Inc. ("NEWCO"), a
newly formed corporation. Newco will own and operate the managed care companies
and the management business of UWS, and after the Distribution, will be known as
"United Wisconsin Services, Inc." UWS will continue to own and operate its small
group business, and after the Distribution, will be known as "American Medical
Security Group, Inc." ("AMSG"). In the Distribution, you will receive one share
of Newco common stock for every share of UWS common stock held as of the close
of business on August 31, 1998. The Distribution will not change the number of
shares of UWS common stock you hold. UWS has received a private letter ruling
from the Internal Revenue Service for a ruling as to the tax-free status of the
Distribution.
THE ENCLOSED INFORMATION STATEMENT EXPLAINS THE DISTRIBUTION IN DETAIL AND
PROVIDES IMPORTANT FINANCIAL AND OTHER INFORMATION REGARDING NEWCO. A
SHAREHOLDER VOTE IS NOT REQUIRED TO APPROVE THE DISTRIBUTION, AND, ACCORDINGLY,
YOUR PROXY IS NOT BEING SOUGHT. HOLDERS OF SHARES OF UWS COMMON STOCK ARE NOT
REQUIRED TO TAKE ANY ACTION TO PARTICIPATE IN THE DISTRIBUTION; HOWEVER, YOU
WILL BE ASKED TO DELIVER YOUR EXISTING STOCK CERTIFICATES REPRESENTING SHARES OF
UWS COMMON STOCK TO AMSG'S TRANSFER AGENT SO THAT YOU CAN BE RE-ISSUED STOCK
CERTIFICATES IN THE NAME OF AMSG. INSTRUCTIONS ON EXCHANGING YOUR STOCK
CERTIFICATES WILL BE SENT TO YOU SHORTLY BEFORE THE DISTRIBUTION.
After the Distribution, UWS will operate under the name "American Medical
Security Group, Inc." and will trade on the New York Stock Exchange under the
symbol "AMZ." We intend to concentrate our efforts on continuing to develop,
market and administer small group medical and specialty insurance products and
administrative services for small groups. We look forward to continuing AMSG's
growth and achieving the full potential of our small group products business.
Sincerely yours,
Samuel V. Miller
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
[NOTE: INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM 10 RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS INFORMATION
STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY THESE SECURITIES.]
INFORMATION STATEMENT
NEWCO/UWS, INC.
(TO BE RENAMED "UNITED WISCONSIN SERVICES, INC.")
COMMON STOCK
This Information Statement is being furnished in connection with the
distribution (the "DISTRIBUTION") by United Wisconsin Services, Inc. ("UWS"), a
Wisconsin corporation, of shares of common stock, no par value per share (the
"DISTRIBUTED SHARES" or the "NEWCO COMMON STOCK"), of its wholly owned
subsidiary, Newco/ UWS, Inc. ("NEWCO"), a Wisconsin corporation, to UWS
shareholders. The distribution ratio will be one share of Newco Common Stock for
every one share of common stock of UWS ("UWS COMMON STOCK") owned at the close
of business on August 31, 1998 (the "RECORD DATE"). The Distribution will result
in all of the issued and outstanding shares of Newco Common Stock being
distributed to holders of shares of UWS Common Stock on a pro rata basis. The
Distribution is expected to occur at the close of business on September 25, 1998
(the "DISTRIBUTION DATE"). Certificates evidencing shares of Newco Common Stock
will be mailed to holders of shares of UWS Common Stock on or about the
Distribution Date. UWS has received a ruling from the Internal Revenue Service
("IRS") to the effect that the Distribution will qualify as a tax-free
distribution to UWS, Newco and the UWS shareholders for federal income tax
purposes. No consideration will be required of holders of shares of UWS Common
Stock in return for the shares of Newco Common Stock issued pursuant to the
Distribution.
On the effective date of the Distribution, UWS will be renamed "American
Medical Security Group, Inc." ("AMSG"), and Newco will be renamed "United
Wisconsin Services, Inc." Newco is a newly formed corporation which, as a result
of the transactions entered into in connection with the Distribution, will own
the businesses and assets of, and be responsible for the liabilities associated
with, UWS's managed care and specialty products businesses and management
business. AMSG will continue to own the businesses and assets of, and be
responsible for the liabilities associated with, its small group business.
Following the Distribution, AMSG will not own any shares of Newco Common
Stock, nor will Newco own any shares of AMSG Common Stock. There is currently no
public market for the shares of Newco Common Stock, although a "when-issued"
trading market is expected to develop prior to the Distribution Date. The shares
of Newco Common Stock have been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange ("NYSE") under the symbol "UWZ." The
shares of UWS Common Stock will continue to be listed on the NYSE but on and
after the Distribution Date, will be listed under the symbol "AMZ."
NO VOTE OF SHAREHOLDERS IS REQUIRED TO APPROVE THE DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND
US A PROXY. IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD
CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE
CAPTION "RISK FACTORS" ON PAGE 20.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is September 11, 1998.
<PAGE>
Graphic chart illustrating VWS's subsidiaries and joint ventures grouped
according to products and services offered.
1. HMO and POS Products
- Compcare Health Services Insurance Corporation--Wisconsin's most
experienced HMO having Southeastern Wisconsin's largest provider network
with HMO and POS plans.
- Valley Health Plan, Inc.--A joint venture with Midelfort Clinic, Ltd, a
Mayo Regional Health System, providing HMO and POS plans and consistently
achieves high marks for service.
- Northwoods Health Plans--A joint venture with Howard Young Health Care,
Inc., offering an integrated health care system serving HMO and POS plans.
- Unity Health Plans Insurance Corporation--One of the nation's first
rural-based HMOs providing HMO and POS plans with services through
community physicians and the University of Wisconsin Hospital and Clinics.
- Compcare Northwest--A provider association with local physicians and
clinics providing HMO and POS plans.
2. Specialty Managed Care Products and Services
- Meridian Resource Corporation--Provides managed care consulting, cost
containment subrogation and EAP.
- United Wisconsin Proservices, Inc.--Provides electronic claims processing
and software.
- CNR Health, Inc.--Provides managed mental health care.
- United Wisconsin Group (comprised of United Wisconsin Insurance Company
and United Heartland Life Insurance Company)--Provides life, disability
and dental products.
- RxCel--Provides prescription drug and pharmacy management.
- Heartland Dental Plan, Inc.--Wisconsin's largest dental HMO.
- United Heartland, Inc.--Provides managed care workers' compensation.
3. Small Group Managed Care Products
- American Medical Security (comprised of American Medical Security
Holdings, Inc. and subsidiaries including United Wisconsin Insurance
Company)--Managed care products marketed nationally. Has experienced
management team and creative product design with sophisticated
underwriting.
ii
<PAGE>
ADDITIONAL INFORMATION
UWS is (and following the Distribution, Newco will be) subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
("EXCHANGE ACT"), and in accordance therewith files (and Newco will file)
reports, proxy statements and other information with the Securities and Exchange
Commission ("SEC"). The reports, proxy statements and other information filed by
UWS (and to be filed by Newco) with the SEC may be inspected and copied at the
public reference facilities maintained by the SEC at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as the Regional Offices
of the SEC at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The SEC also maintains an Internet site on the World Wide Web
at http://www.sec.gov that contains reports, proxy statements and other
information regarding public companies. Shares of UWS Common Stock are listed,
and shares of Newco Common Stock have been approved for listing upon official
notice of issuance, on the NYSE and reports, proxy statements and other
information regarding UWS and Newco also can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
Newco has filed with the SEC a Registration Statement on Form 10 (the
"REGISTRATION STATEMENT") under the Exchange Act with respect to the shares of
Newco Common Stock received by UWS shareholders in the Distribution. This
Information Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Information Statement as to
the contents of any contract, agreement or other document referred to herein are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the related exhibits filed by Newco may be inspected
at the public reference facilities of the SEC listed above.
Questions concerning the Distribution should be directed to Thomas L.
Luljak, Director of Corporate Communications, United Wisconsin Services, Inc.,
401 West Michigan Street, Milwaukee, Wisconsin 53203, (414) 226-6900. After the
Distribution, holders of shares of Newco Common Stock having inquiries related
to their investment in Newco should contact Thomas L. Luljak, Director of
Corporate Communications, 401 West Michigan Street, Milwaukee, Wisconsin 53203,
(414) 226-6900, and holders of shares of AMSG Common Stock having inquiries
related to their investment in AMSG should contact Cliff A. Bowers, Vice
President of Corporate Communications, 3100 AMS Boulevard, Green Bay, Wisconsin
54313, (920) 661-2440.
No person is authorized by UWS, AMSG or Newco to give any information or to
make any representations other than those contained in this Information
Statement, and if given or made, such information or representations must not be
relied upon as having been authorized.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION............................................................... 1
SUMMARY.................................................................................................... 5
SUMMARY COMBINED FINANCIAL DATA FOR NEWCO.................................................................. 11
FORWARD-LOOKING STATEMENTS................................................................................. 12
INTRODUCTION............................................................................................... 12
THE DISTRIBUTION........................................................................................... 12
Background and Reasons for the Distribution.............................................................. 12
Restructuring Prior to the Distribution.................................................................. 13
Manner of Effecting the Distribution..................................................................... 14
Results of the Distribution.............................................................................. 14
Certain Federal Income Tax Consequences of the Distribution.............................................. 15
Future Management of Newco............................................................................... 15
Listing and Trading of Shares of UWS Common Stock........................................................ 16
Listing and Trading of Shares of Newco Common Stock...................................................... 16
Accounting Treatment..................................................................................... 17
Financial Advisor........................................................................................ 17
Dividend Reinvestment Plans.............................................................................. 18
UWS and Newco Benefit Plans.............................................................................. 18
Treatment of Options in the Distribution................................................................. 18
Interests of Certain Persons in the Distribution......................................................... 19
Bank Credit Facilities and Assumption of Certain Indebtedness............................................ 19
Conditions; Termination.................................................................................. 19
Reasons for Furnishing the Information Statement......................................................... 19
RISK FACTORS............................................................................................... 20
Operating History and Future Prospects................................................................... 20
Limited Relevance of Historical Combined Financial Information of Newco.................................. 20
Health Care Costs and Health Care Industry............................................................... 20
Dependence Upon Health Care Providers and Employer Groups................................................ 21
Joint Venture Arrangements............................................................................... 21
Pharmaceutical Costs..................................................................................... 22
Government Programs and Regulation....................................................................... 22
Health Care Reform Laws.................................................................................. 23
Competition.............................................................................................. 23
Administration and Management............................................................................ 24
Control by Shareholders; Effects of BCBSUW Intended Purchases;
Defensive Measures; Potential Conflicts of Interest.................................................... 24
Newco Conflicts with AMSG After the Distribution......................................................... 25
Certain Federal Income Tax Considerations................................................................ 25
No Prior Trading Market for Newco Common Stock;
Likely Volatile Newco Common Stock Price............................................................... 26
The Year 2000 Issue...................................................................................... 27
REGULATORY APPROVALS....................................................................................... 27
Tax Matters.............................................................................................. 27
Insurance Regulatory Matters............................................................................. 27
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
PRO FORMA CAPITALIZATION................................................................................... 28
DIVIDEND POLICY............................................................................................ 28
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF NEWCO................................................ 29
SELECTED COMBINED FINANCIAL INFORMATION OF NEWCO........................................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMBINED FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 34
BUSINESS OF NEWCO.......................................................................................... 42
General.................................................................................................. 42
Newco's Strategy......................................................................................... 43
HMO Products............................................................................................. 43
Specialty Managed Care Products and Services............................................................. 47
Competition.............................................................................................. 50
Reinsurance.............................................................................................. 50
Service Agreements....................................................................................... 50
Investments.............................................................................................. 51
Regulation............................................................................................... 52
Employees................................................................................................ 55
Trademarks............................................................................................... 55
Properties............................................................................................... 55
Legal Proceedings........................................................................................ 55
MANAGEMENT OF NEWCO........................................................................................ 56
Directors of Newco....................................................................................... 56
Executive Officers of Newco.............................................................................. 59
EXECUTIVE COMPENSATION..................................................................................... 61
Historical Compensation.................................................................................. 61
Summary Compensation Table............................................................................... 61
Option/SAR Grants in Last Fiscal Year.................................................................... 62
Aggregated Option/SAR Exercises in the Last Fiscal Year and FY-End Option/SAR Values..................... 62
Long-Term Incentive Plans-Awards in Last Fiscal Year..................................................... 63
Pension Plan Table....................................................................................... 64
Chief Executive Officer Supplemental Compensation Agreement.............................................. 64
Treatment of UWS Options and SARs as a Result of the Distribution........................................ 64
NEWCO BENEFIT PLANS FOLLOWING THE DISTRIBUTION............................................................. 65
Newco Equity Incentive Plan.............................................................................. 65
Nonqualified Compensation Plans.......................................................................... 68
Retirement Plans......................................................................................... 69
Supplemental Retirement Plan............................................................................. 69
Deferred Compensation Plans.............................................................................. 70
Other Benefit Plans...................................................................................... 70
AGREEMENTS BETWEEN AMSG AND NEWCO.......................................................................... 70
Distribution Agreement................................................................................... 70
Employee Benefits Agreement.............................................................................. 72
Tax Allocation Agreement................................................................................. 73
AMSG Service Agreement................................................................................... 74
Reinsurance Agreements................................................................................... 74
Intellectual Property Agreement.......................................................................... 74
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS....................................................... 75
BCBSUW Service Agreements................................................................................ 75
AMSG Service Agreement................................................................................... 75
Supplemental Compensation Agreement...................................................................... 75
BCBSUW Loan.............................................................................................. 75
BCBSUW Intended Purchase of Additional Shares of Newco Common Stock...................................... 75
Settlement Agreement; Certain Registration Rights and Voting Agreements Relating to Newco Common Stock... 76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 78
DESCRIPTION OF CAPITAL STOCK OF NEWCO...................................................................... 79
Common Stock............................................................................................. 79
Preferred Stock.......................................................................................... 79
Certain Articles of Incorporation and By-Laws Provisions of Newco........................................ 79
Certain WBCL Provisions.................................................................................. 80
Transfer Agent and Registrar............................................................................. 81
Number of Directors; Filling Vacancies; Removal.......................................................... 81
Shareholder Action by Written Consent.................................................................... 81
Special Meetings......................................................................................... 81
Advance Notice Provisions For Shareholder Nominations and Shareholder Proposals.......................... 81
No Preemptive Rights..................................................................................... 83
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF NEWCO........................................... 83
SHAREHOLDER PROPOSALS...................................................................................... 84
INDEPENDENT AUDITORS....................................................................................... 84
NEWCO/UWS, INC. INDEX TO COMBINED FINANCIAL STATEMENTS..................................................... F-1
</TABLE>
vi
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
<TABLE>
<S> <C>
Q. What is the Distribution and when will it occur?
A. The Distribution is the series of transactions whereby UWS will transfer the stock,
assets and liabilities relating to its managed care companies and management business
to its wholly owned subsidiary, Newco, in exchange for shares of Newco Common
Stock. UWS then will distribute all of the shares of Newco Common Stock to its Record
Date shareholders who continue to hold their shares of UWS Common Stock through the
Distribution Date. The Record Date is August 31, 1998, and the Distribution will occur
at the close of business on September 25, 1998.
Q. What will I receive in the Distribution?
A. For every share of UWS Common Stock owned by you on the Distribution Date, you will
receive one share of Newco Common Stock.
Q. How will I benefit from the Distribution?
A. The Distribution will give you a direct investment and ownership interest in two
separate companies. The Distribution will allow each company to be managed and operated
more effectively as independent publicly owned companies. UWS believes that as separate
companies, each one will have additional and increased marketing, joint venture and
acquisition opportunities. The Distribution and certain intended related transactions
should allow Newco to concentrate on developing its managed care and specialty products
business and management business and utilize the Blue Cross and Blue Shield trademarks
and tradenames with its products. Furthermore, separate incentive compensation plans
for key employees will provide incentives more directly related to the performance of
the individual companies. The Distribution also will give each company direct access to
capital markets and the ability to issue stock to finance expansion and growth
opportunities. At the present time, two of the licensing requirements of the Blue Cross
and Blue Shield Association, the owners of the Blue Cross and Blue Shield trademarks
and tradenames, are not met, because a Blue Cross and Blue Shield Plan must "control"
the company licensing the trademark and tradename, and at least 80% of the total
licensable combined dollar volume of health insurance sold by a Blue Plan and its
controlled affiliates actually is licensed.
Q. What do I have to do to participate in the Distribution?
A. Nothing. No proxy or vote is necessary to approve the Distribution. However, UWS
shareholders did approve an amendment to its Articles of Incorporation to change its
name to "American Medical Security Group, Inc.," in July 1998, with the name change to
be effective on the Effective Date of the Distribution. The UWS entity after the
Distribution will be referred to herein as "AMSG."
If you own shares of UWS Common Stock on the Record Date, and you continue to hold such
shares of UWS Common Stock on the Distribution Date, shares of Newco Common Stock will
be credited to your brokerage account or certificates representing shares of Newco
Common Stock will be mailed to you. You do not need to mail in UWS Common Stock
certificates to receive Newco Common Stock certificates, and the Distribution will not
change the number of shares of UWS Common Stock that you own. However, you will be
asked to deliver your stock certificates representing shares of UWS Common Stock after
the Distribution to Firstar Trust Company, AMSG's transfer agent, so that you can be
re-issued stock certificates in the name of "American Medical Security Group, Inc.,"
the new name of UWS after the Distribution. Shortly before the Distribution Date,
Firstar Trust Company will mail to all AMSG shareholders a notice to this effect, along
with letters of instruction to effectuate this exchange.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Q. Will shares of Newco Common Stock be listed on any exchange?
A. Yes. The shares of Newco Common Stock have been approved for listing on the NYSE and
will trade under the symbol "UWZ." The shares of UWS Common Stock will continue to be
listed on the NYSE, but on and after the Distribution Date, will be listed under the
symbol "AMZ."
Q. What will happen to the trading of shares of Newco Common Stock and UWS Common Stock?
A. A regular public market for the shares of Newco Common Stock will not exist prior to
the Distribution Date. We expect, however, that "when-issued" trading for shares of
Newco Common Stock will develop prior to the Distribution Date. "When-issued" trading
means that shares can be traded prior to the time certificates are actually available
or issued and reflects the assumed value of a security as if it had already been
issued. When-issued trading would occur to develop an orderly market and trading price
for the shares of Newco Common Stock after the Distribution.
If when-issued trading develops, you may buy and sell shares of Newco Common Stock
before the Distribution Date. None of these trades, however, would settle until after
the Distribution Date, after regular trading in shares of Newco Common Stock has begun.
If the Distribution does not occur, all when-issued trading would be null and void. If
and as long as when-issued trading in shares of Newco Common Stock occurs, the symbol
on the NYSE will be "UWZwi."
We expect that the shares of UWS Common Stock will continue to trade on a regular basis
through the Distribution Date, but beginning on or about September 1, 1998, and
continuing through September 25, 1998, your shares of UWS Common Stock will have a due
bill attached for shares of Newco Common Stock. This means that you will give up your
right to receive shares of Newco Common Stock if you sell your shares of UWS Common
Stock during this time. In addition, shares of UWS Common Stock may trade on an
ex-distribution when-issued basis before the Distribution Date, reflecting an assumed
value for the shares of UWS Common Stock as if the Distribution had already occurred.
If and as long as when-issued trading in the shares of UWS Common Stock occurs, the
symbol on the NYSE will be "AMZwi."
You should consult your broker if you intend to sell your shares of UWS Common Stock
before you receive shares of Newco Common Stock in the Distribution and make sure that
your broker understands your intentions with respect to such sales.
Q. How will the Distribution affect the trading price of the shares of UWS Common Stock?
A. Prior to the Distribution, the trading price of the shares of UWS Common Stock will
reflect the operations and performance of both Newco and AMSG as a combined entity.
After the Distribution, the trading price of the shares of AMSG Common Stock will
likely be lower than the trading price of UWS Common Stock prior to the Distribution,
because it will only reflect the operations and performance of AMSG, without the
operations and performance of Newco. Furthermore, the combined trading prices of the
shares of AMSG Common Stock and Newco Common Stock after the Distribution may not equal
the trading price of the shares of UWS Common Stock prior to the Distribution.
</TABLE>
2
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<TABLE>
<S> <C>
Q. What will happen to existing options to purchase shares of UWS Common Stock?
A. In general, outstanding options to purchase shares of UWS Common Stock will be
converted as follows: (a) options held by individuals who will be executive officers,
directors or employees of Newco following the Distribution will be converted into
options to purchase shares of Newco Common Stock; (b) options held by individuals who
will be executive officers, directors or employees of AMSG following the Distribution
will be converted into options to purchase shares of AMSG Common Stock; and (c) options
held by Messrs. Wallace J. Hilliard, Ronald A. Weyers, Thomas R. Hefty and C. Edward
Mordy and Ms. Gail L. Hanson and certain options held by Mr. Samuel V. Miller will be
converted into options to purchase an equal number of shares of Newco Common Stock and
AMSG Common Stock. The UWS Board of Directors determined that Messrs. Hefty, Mordy and
Miller and Ms. Hanson will receive options relating to Newco and AMSG due to such
individuals' significant contributions relating to the acquisition of American Medical
Security Group, Inc. by UWS in 1996 and the structuring and implementation of the
Distribution. Messrs. Hilliard and Weyers will receive options relating to Newco and
AMSG as a result of a settlement agreement entered into with UWS and Newco in April
1998.
Based on the market value of shares of Newco Common Stock and AMSG Common Stock at the
close of business on the day immediately following the Distribution Date and on the
market value of shares of UWS Common Stock at the close of business on the Distribution
Date, the options will be adjusted to provide equivalent value to each option holder by
increasing the number of shares of Newco Common Stock or AMSG Common Stock, as the case
may be, subject to each option and decreasing the exercise price per share for each
option; however, options converted into options to purchase an equal number of shares
of Newco Common Stock and AMSG Common Stock will be adjusted to provide equivalent
value by only decreasing the exercise price per share for each option.
Q. What will happen to shares of UWS Common Stock owned through the UWS Dividend Reinvest-
ment and Direct Stock Purchase Plan?
A. They will be treated the same as all other shares of UWS Common Stock. You will
continue to own the shares of UWS Common Stock that you owned through the UWS Dividend
Reinvestment and Direct Stock Purchase Plan prior to the Distribution. In the
Distribution, you will receive one share of Newco Common Stock for every share of UWS
Common Stock that you owned on the Distribution Date through the UWS Dividend
Reinvestment and Direct Stock Purchase Plan. A comparable service will be established
for Newco which will provide for reinvestment of dividends on the shares of Newco
Common Stock and the direct purchase of shares of Newco Common Stock, under which
accounts will be established for participants in the UWS Dividend Reinvestment and
Direct Stock Purchase Plan. Shares of Newco Common Stock credited as a result of the
Distribution to participants in the UWS Dividend Reinvestment and Direct Stock Purchase
Plan will be transferred to the participants' accounts in the new service.
Q. Is the Distribution taxable for federal income tax purposes?
A. No. UWS has received a private letter ruling from the IRS that the Distribution will be
tax-free to UWS, Newco and UWS shareholders for federal income tax purposes. Shortly
after the Distribution, AMSG will send a letter to its Record Date shareholders that
will explain how they should allocate tax basis between the shares of AMSG Common Stock
and Newco Common Stock.
</TABLE>
3
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<TABLE>
<S> <C>
Q. Will AMSG and Newco be related in any way after the Distribution?
A. AMSG will no longer own any shares of Newco Common Stock after the Distribution.
However, AMSG and Newco will have four common Board members, and each will have Blue
Cross & Blue Shield United of Wisconsin as a significant shareholder. AMSG and Newco
also have entered into various agreements to define their continuing business
relationship, consisting principally of certain reinsurance arrangements between the
companies, and certain investment management and other ancillary services to be
provided by Newco to AMSG after the Distribution.
Q. Will Newco pay dividends?
A. The Board of Directors of Newco expects initially to pay an annual cash dividend of
$0.05 per share on the Newco Common Stock following the Distribution.
Q. Who can assist me if I have questions?
A. Before the Distribution, UWS shareholders with inquiries relating to the Distribution
may contact:
Thomas L. Luljak, Director of Corporate Communications
United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, Wisconsin 53203
(414) 226-6900
After the Distribution, shareholders of Newco with inquiries relating to Newco or their
investment in shares of Newco Common Stock may contact:
Thomas L. Luljak, Director of Corporate Communications
United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, Wisconsin 53203
(414) 226-6900
The Distribution Agent responsible for the distribution of shares of Newco Common Stock
in the Distribution and acting as transfer agent and registrar for the shares of Newco
Common Stock after the Distribution is:
Firstar Trust Company
Corporate Trust Department
1555 North RiverCenter Drive, Suite 301
Milwaukee, Wisconsin 53212
(414) 905-5000
After the Distribution, shareholders of AMSG with inquiries relating to AMSG or their
investment in shares of AMSG Common Stock may contact:
Cliff A. Bowers, Vice President of Corporate Communications
American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, Wisconsin 54313
(920) 661-2440
</TABLE>
4
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. IT MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO BETTER UNDERSTAND
THE DISTRIBUTION AND FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE
DISTRIBUTION, YOU SHOULD READ CAREFULLY THIS ENTIRE INFORMATION STATEMENT AND
THE OTHER DOCUMENTS REFERRED TO IN THIS INFORMATION STATEMENT. EXCEPT AS THE
CONTEXT OTHERWISE REQUIRES, THE TERM "NEWCO" MEANS NEWCO/UWS, INC. AND ITS
WHOLLY OWNED SUBSIDIARIES, THE TERM "UWS" MEANS UNITED WISCONSIN SERVICES, INC.
AND ITS WHOLLY OWNED SUBSIDIARIES PRIOR TO THE EFFECTIVE DATE OF THE
DISTRIBUTION, THE TERM "AMSG" MEANS UWS AFTER THE EFFECTIVE DATE OF THE
DISTRIBUTION AND THE TERM "AMSG COMMON STOCK" MEANS THE UWS COMMON STOCK AFTER
THE EFFECTIVE DATE OF THE DISTRIBUTION.
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Corporation..... United Wisconsin Services, Inc. On and after the Effective
Date, UWS will be renamed, and will be known as American
Medical Security Group, Inc. ("AMSG").
Distributed Corporation...... Newco/UWS, Inc. On and after the Effective Date, Newco will
be renamed, and will be known as United Wisconsin Services,
Inc.
Shares to Be Distributed..... UWS will distribute shares of Newco Common
Stock, representing 100% of the issued and outstanding
shares of Newco Common Stock.
Distribution Ratio........... One share of Newco Common Stock for each share of UWS Common
Stock.
Record Date.................. The Record Date is August 31, 1998 (close of business).
Effective Date............... The Effective Date is September 11, 1998.
Distribution Date............ The Distribution Date is expected to be on the close of
business on September 25, 1998.
Mailing Date................. On the Distribution Date, the Distribution Agent will
commence mailing certificates representing shares of Newco
Common Stock to holders of shares of UWS Common Stock.
Eligibility for Receipt of
Distributed Shares......... UWS shareholders of record on the Record Date who continue
to own shares of UWS Common Stock on the Distribution Date
will receive Distributed Shares. UWS shareholders of record
on the Record Date who sell their shares of UWS Common Stock
after the Record Date but before the close of business on
the Distribution Date will receive Distributed Shares, but
will be required to forward such Distributed Shares to the
due bill holder relating to their shares of UWS Common
Stock. Persons who purchase shares of UWS Common Stock
between two business days before the Record Date and the
Distribution Date and who continue to hold the shares of UWS
Common Stock on the Distribution Date will receive
Distributed Shares.
Distribution Agent........... Firstar Trust Company.
Trading Market............... There is currently no public market for the shares of Newco
Common Stock, although a "when-issued" trading market is
expected to develop prior to the Distribution Date. The
shares of Newco Common Stock have been approved for listing,
subject to official notice of
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
issuance, on the NYSE under the symbol "UWZ." On and after
the Distribution Date, AMSG will continue to be listed on
the NYSE, but under the symbol "AMZ."
Transfer Agent and
Registrar.................. Firstar Trust Company will be the transfer agent and
registrar for both Newco and AMSG after the Distribution
Date.
Distribution-Related
Inquiries.................. If you have questions about UWS before the Distribution
Date, please contact Thomas L. Luljak, Director of Corporate
Communications, at (414) 226-6900. If you have questions
about Newco, also contact Thomas L. Luljak, Director of
Corporate Communications, at (414) 226-6900.
If you have questions about UWS, to be renamed "American
Medical Security Group, Inc." and to be known as AMSG after
the Distribution Date, please contact Cliff A. Bowers, Vice
President of Corporate Communications, at (920) 661-2440.
Principal Business
of Newco................... After the Effective Date, Newco, through its wholly owned
subsidiaries and joint venture arrangements, will be a
leading managed care company, primarily in Wisconsin, with
the largest health maintenance organization ("HMO")
membership in Wisconsin and substantial operations in
specialty managed care and other products, including a large
dental HMO, as well as life, workers' compensation, mental
health and other businesses (collectively, the "MANAGED CARE
COMPANIES"), and will perform management and operational
services for companies engaged in managed care and related
services (the "MANAGEMENT BUSINESS"). The principal
corporate offices of Newco after the Distribution will be
401 West Michigan Street, Milwaukee, Wisconsin 53203, and
its telephone number will be (414) 226-6900.
Management of Newco.......... After the Effective Date, all of the executive officers of
Newco are expected to be persons who currently serve as
executive officers or other key employees of UWS. All such
persons will resign from their positions as executives of
UWS, so that Newco and AMSG will have no executive officers
in common and none of the executive officers of Newco will
be employees of AMSG. The Board of Directors of Newco will
consist of nine individuals, all of whom currently serve on
the Board of Directors of UWS. Four persons who will be
directors of Newco will continue as directors of AMSG.
Principal Business to be
Retained by AMSG........... After the Effective Date, AMSG's principal business will be
to continue to develop, market and administer small group
insurance products, small group specialty insurance products
and administrative services for small groups ("SMALL GROUP
BUSINESS"). The principal corporate offices of AMSG after
the Distribution will be 3100 AMS Boulevard, Green Bay,
Wisconsin 54313, and its telephone number will be (920)
661-2440.
Management of AMSG........... After the Effective Date, AMSG will be managed by
substantially the same senior management that currently
manages American Medical Security Holdings, Inc., a wholly
owned subsidiary of UWS. After the Distribution Date, the
AMSG Board of Directors will consist of four
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
individuals who currently serve on the Board of Directors of
UWS and five additional individuals.
Reasons For the
Distribution............... The Board of Directors of UWS believes that the distribution
of shares of Newco Common Stock will allow Newco's business
and AMSG's business each to be managed and operated more
effectively as independent publicly owned companies. After
the Distribution, the Managed Care Companies should be able
to license Blue Cross and Blue Shield trademarks and
tradenames (after Blue Cross & Blue Shield United of
Wisconsin ("BCBSUW") purchases additional shares of Newco
Common Stock to bring its direct or indirect ownership level
of Newco to approximately 51%), and the Managed Care Com-
panies will be better able to participate in potentially
significant joint ventures and acquisitions. In addition,
each of Newco and AMSG will be able to compensate its
management with Newco-based awards, or AMSG-based awards, as
the case may be, the value of which will depend upon the
operating results of Newco alone, or AMSG alone, as the case
may be. The Board of Directors and management of UWS also
believe that the separation into two public companies will
provide each company with better access to the equity
capital markets and improve each company's capital-raising
efficiency since investors will be better able to assess the
different risk profiles and operating characteristics of
both companies.
Federal Income Tax
Consequences............... UWS has received a private letter ruling from the IRS ("TAX
RULING") to the effect that, for federal income tax
purposes, no gain or loss will be recognized by (i) UWS upon
distribution of the Distributed Shares, and (ii) holders of
shares of UWS Common Stock upon receipt of Distributed
Shares in the Distribution. Nevertheless, if UWS engages in
the Distribution and the Distribution is held to be taxable,
both UWS and UWS shareholders could recognize income or gain
and thus become liable for the payment of a material amount
of income tax.
Conditions to the
Distribution............... The Distribution is subject to the satisfaction or waiver of
certain conditions, including receipt of all necessary
regulatory approvals and all material consents required to
consummate the Distribution. Regardless of whether the
conditions are satisfied, the Distribution may be abandoned
by the Board of Directors of UWS, in its sole discretion,
without the approval of the UWS shareholders, at any time
prior to the Distribution Date.
Restructuring Prior to
the Distribution........... On the Effective Date, UWS will contribute to Newco all of
the stock of the Managed Care Companies, the Management
Business and working capital to support the Management
Business, in exchange for shares of Newco Common
Stock and the assumption by Newco of approximately $3.1
million of unfunded employee post-retirement health benefit
liabilities, certain accrued expenses, a $70.0 million loan
from BCBSUW and all other liabilities relating to the
Managed Care Companies and the Management Business. Imme-
diately thereafter, UWS will own 100% of the issued and
outstanding shares of Newco Common Stock. UWS then will
distribute all of the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
issued and outstanding shares of Newco Common Stock to its
shareholders on a one-for-one basis.
Relationship with AMSG after
the Distribution........... AMSG will not own any shares of Newco Common Stock after the
Distribution, nor will Newco own any shares of AMSG Common
Stock after the Distribution. Newco and UWS have entered
into a Distribution and Indemnity Agreement dated September
11, 1998 (the "DISTRIBUTION AGREEMENT"), a Tax Allocation
Agreement dated September 11, 1998 (the "TAX ALLOCATION
AGREEMENT") and an Employee Benefits Agreement dated
September 11, 1998 (the "EMPLOYEE BENEFITS AGREEMENT"), and
various other agreements with respect to employee benefits,
management and corporate and administrative services,
reinsurance arrangements and intellectual property
transfers, for the purpose of giving effect to the
Distribution and related matters. The Distribution Agreement
provides for, among other things, (i) the separation of
Newco's business from UWS's other business; (ii) the terms
of mutual non-solicitation covenants between Newco and AMSG;
(iii) indemnification, subject to certain exceptions, by UWS
of Newco against liabilities arising out of all UWS opera-
tions, other than the operations of Newco; and (iv)
indemnification, subject to certain exceptions, by Newco of
UWS against liabilities arising out of the operations of
Newco. The Tax Allocation Agreement reflects each of Newco's
and UWS's rights and obligations with respect to
deficiencies and refunds of Federal, state or other income
taxes relating to the business of UWS that are attributable
to periods ending prior to or on the Effective Date, and
provides for indemnification of each other with respect to
any tax liability resulting from their respective failure to
comply with any provisions in the Tax Allocation Agreement.
The Employee Benefits Agreement provides that, among other
things, (i) Newco will offer employment to each employee of
UWS (parent company only), and all employees of UWS's
subsidiaries will remain employed by such subsidiaries; (ii)
Newco will assume liability for all employment-related
claims applicable to its employees after the Effective Date;
(iii) Newco will assume sponsorship of, and all liabilities
under, the UWS benefit plans and all benefit plans at the
UWS subsidiary level will remain at that subsidiary; and
(iv) depending on the status of each option holder,
outstanding options to purchase shares of UWS Common Stock
will be converted into options to purchase (a) shares of
Newco Common Stock adjusted to provide equivalent value, (b)
an equal number of shares of Newco Common Stock and AMSG
Common Stock adjusted to provide equivalent value, or (c)
shares of AMSG Common Stock adjusted to provide equivalent
value. In addition, Newco and AMSG will enter into various
agreements to define their continuing business relationship,
consisting principally of certain reinsurance arrangements
between the companies and certain investment management and
other ancillary services to be provided by Newco to AMSG
after the Distribution.
Certain Relationships and
Related Transactions....... Upon completion of the Distribution, BCBSUW will own 38.1%
of
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
the issued and outstanding shares of UWS Common Stock and
38.1% of the issued and outstanding shares of Newco Common
Stock. BCBSUW intends to purchase additional shares of Newco
Common Stock to bring its overall direct and indirect
ownership of Newco to approximately 51% within one year
after the Distribution Date. The purchase price for the
shares of Newco Common Stock which are purchased directly
from Newco will be based on the market price of the shares
of Newco Common Stock and an independent third party
appraisal, and may be paid through the cancellation of a
portion or all of the $70.0 million Newco indebtedness to
BCBSUW or in cash. To the extent BCBSUW purchases shares of
Newco Common Stock from Newco, these purchases may have an
adverse effect on Newco's shareholders, including potential
dilution of earnings per share.
BCBSUW and Newco have entered into Service Agreements
covering sales and marketing services, rental of office
space, and computerized data processing, claims processing,
legal, investment, actuarial and other management services.
The company receiving a service is obligated to pay the
provider an amount which varies depending upon the
particular service rendered, determined on either an
allocated cost basis or based upon direct costs.
Furthermore, Newco and AMSG will enter into various
agreements to define their continuing business relationship,
consisting principally of certain reinsurance arrangements
between the companies and certain investment management and
other ancillary services to be provided by Newco to AMSG
after the Distribution.
Newco has agreed to grant registration rights with respect
to shares of Newco Common Stock to Messrs. Hilliard and
Weyers. These rights are identical to registration rights
they have with respect to their shares of UWS Common Stock
which were granted pursuant to UWS's acquisition of American
Medical Security Group, Inc. in 1996. Messrs. Hilliard and
Weyers also have agreed to voting and standstill provisions
with respect to shares of Newco Common Stock identical to
their existing provisions with respect to shares of UWS
Common Stock.
Post-Distribution
Dividend Policy............ The Board of Directors of Newco expects initially to pay an
annual cash dividend of $0.05 per share on the Newco Common
Stock following the Distribution. However, the payment and
level of cash dividends by Newco after the Distribution will
be subject to the discretion of its Board of Directors.
Dividend decisions will be based upon a number of factors,
including the operating results and financial requirements
of Newco.
Anti-Takeover Effects........ Certain provisions of Newco's Articles of Incorporation and
By-Laws, as well as certain provisions of the Wisconsin
Business Corporation Law ("WBCL"), may have the effect of
making more difficult an acquisition of control of Newco in
a transaction not approved by Newco's Board of Directors.
Furthermore, within one year after the Distribution Date,
BCBSUW intends to purchase additional shares of
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Newco Common Stock to bring its overall direct and indirect
ownership of Newco to approximately 51%, and therefore an
acquisition of control of Newco in a transaction not
approved by BCBSUW would be difficult.
Risk Factors................. Newco shareholders should carefully consider the matters
discussed under the section entitled "Risk Factors" in this
Information Statement.
</TABLE>
10
<PAGE>
SUMMARY COMBINED FINANCIAL DATA FOR NEWCO
The following summary combined pro forma and historical financial data of
Newco highlights certain pro forma and historical combined financial data which
should be read in conjunction with the Combined Financial Statements and the pro
forma financial statements included elsewhere in this document. The historical
combined financial information presents information for Newco for the periods in
which it would have operated the Managed Care Companies and the Management
Business of UWS. The historical and pro forma combined financial information
presented below is not necessarily indicative of the results of operations or
financial position that Newco would have reported if it had operated as an
independent company during the periods presented, nor is it indicative of
Newco's future performance as an independent company.
<TABLE>
<CAPTION>
AS OF AND FOR THE
PRO FORMA SIX MONTHS ENDED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------------------------------------- ------------- --------------------
1993 1994(5) 1995(5) 1996 1997 1997 1997 1998
--------- --------- --------- --------- --------- ------------- --------- ---------
(IN THOUSANDS, EXCEPT OPERATING STATISTICS)
STATEMENT OF INCOME DATA: (UNAUDITED) (UNAUDITED)
-------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Premium revenue............ $ 310,503 $ 355,025 $ 466,929 $ 493,092 $ 560,825 $ 560,825 $ 273,760 $ 298,602
Other revenue.............. 7,515 15,997 24,222 27,632 26,046 26,046 13,351 14,378
Investment results......... 10,697 12,050 9,665 19,040 22,238 22,238 10,672 9,960
--------- --------- --------- --------- --------- ------------- --------- ---------
Total revenues......... 328,715 383,072 500,816 539,764 609,109 609,109 297,783 322,940
--------- --------- --------- --------- --------- ------------- --------- ---------
Expenses:
Medical and other
benefits................. 265,446 306,056 416,167 425,258 485,735 485,735 235,763 253,708
Selling, general and
administrative
expenses................. 43,578 58,026 72,576 83,839 93,959 93,959 47,203 50,674
Interest expense........... -- -- -- -- -- 4,892(2) -- --
Other expenses............. 1,040 1,711 3,412 3,709 4,198 4,198 2,069 1,628
--------- --------- --------- --------- --------- ------------- --------- ---------
Total expenses......... 310,064 365,793 492,155 512,806 583,892 588,784 285,035 306,010
--------- --------- --------- --------- --------- ------------- --------- ---------
Income tax expense......... 5,900 5,072 3,277 10,617 9,433 7,603(3) 4,861 6,515
--------- --------- --------- --------- --------- ------------- --------- ---------
Net income................... $ 12,751 $ 12,207 $ 5,384 $ 16,341 $ 15,784 $ 12,722 $ 7,887 $ 10,415
--------- --------- --------- --------- --------- ------------- --------- ---------
--------- --------- --------- --------- --------- ------------- --------- ---------
BALANCE SHEET DATA:
Cash and investments....... $ 162,421 $ 154,201 $ 178,926 $ 182,431 $ 176,579 $ 190,435 $ 176,971
Total assets............... 197,294 216,954 261,523 269,478 266,256 275,430 267,514
Long-term debt............. -- -- -- -- -- -- --
Total shareholders'
equity................... 124,536 101,465 120,277 123,882 123,616 125,791 126,194
OPERATING STATISTICS:
Medical loss ratio(1)...... 85.8% 86.2% 89.1% 86.2% 86.6% 86.6% 86.1% 85.0%
Selling, general and
administrative expense
ratio(1)................. 10.9% 11.8% 11.0% 11.1% 11.2% 11.2% 11.6% 12.2%
<CAPTION>
PRO FORMA
JUNE 30,
-----------
1998
-----------
STATEMENT OF INCOME DATA:
<S> <C>
Revenues:
Premium revenue............ $ 298,602
Other revenue.............. 14,378
Investment results......... 9,960
-----------
Total revenues......... 322,940
-----------
Expenses:
Medical and other
benefits................. 253,708
Selling, general and
administrative
expenses................. 50,674
Interest expense........... 2,433(2)
Other expenses............. 1,628
-----------
Total expenses......... 308,443
-----------
Income tax expense......... 6,107(3)
-----------
Net income................... $ 8,390
-----------
-----------
BALANCE SHEET DATA:
Cash and investments....... $ 176,971
Total assets............... 267,514
Long-term debt............. 70,000(4)
Total shareholders'
equity................... 56,194(4)
OPERATING STATISTICS:
Medical loss ratio(1)...... 85.0%
Selling, general and
administrative expense
ratio(1)................. 12.2%
</TABLE>
- ------------------------------
(1) Ratios are based on premium revenues and premium revenue-related selling,
general and administrative expenses of $33,996,000, $42,022,000 $51,133,000,
$54,861,000, $62,808,000, $31,874,000 and $36,332,000 for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the six months ended June
30, 1997 and 1998, respectively.
(2) Reflects pro forma adjustments for interest expense on assumed debt. See
"Pro Forma Combined Condensed Financial Information of Newco."
(3) Reflects pro forma adjustments for the tax effect of the adjustments
described in (2), above. See "Pro Forma Combined Condensed Financial
Information of Newco."
(4) Reflects pro forma adjustments for assumed debt. See "Pro Forma Combined
Condensed Financial Information of Newco."
(5) Commencing October 1, 1994, Newco's results of operations include the
results of operations of Unity. For the years ended December 31, 1994 and
1995, Unity accounted for $23,994,000 and $100,342,000 of Newco's total
premium revenue and $112,000 and $1,062,000 of Newco's net income,
respectively.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this Information
Statement are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements may be
significantly impacted by risks and uncertainties and are made pursuant to the
safe harbor provisions of such Act; provided, however, the safe harbor for
forward-looking statements does not apply to statements made in an initial
public offering. There can be no assurance that either UWS or Newco can
duplicate each of its respective past performance or that expected future
results will be achieved. Readers are cautioned that a number of factors could
adversely affect Newco's and/or AMSG's ability to achieve results, including the
effects of health care reform, the continuation and renewal of joint ventures,
and the effects of other general business conditions, including competition,
medical cost trends, changes in reserve estimates, terms of provider contracts,
premium rate changes, government regulation, capital requirements,
administrative costs, general economic conditions and the retention of key
employees.
INTRODUCTION
In August 1998, the Board of Directors of UWS declared a dividend, payable
to holders of record of UWS Common Stock at the close of business on August 31,
1998 (the "RECORD DATE"), of one share of Newco Common Stock for each share of
UWS Common Stock. The Distribution will occur at the close of business on
September 25, 1998 (the "DISTRIBUTION DATE"). It is expected that certificates
representing shares of Newco Common Stock will be mailed to holders of shares of
UWS Common Stock on or about the Distribution Date. As a result of the
Distribution, all of the shares of Newco Common Stock owned by UWS will be
distributed by UWS to holders of shares of UWS Common Stock. UWS will be renamed
"American Medical Security Group, Inc.," on the Effective Date, and will be
traded on the NYSE under the symbol "AMZ" after the Distribution Date, and Newco
will be renamed "United Wisconsin Services, Inc." on the Effective Date and will
be traded on the NYSE under the symbol "UWZ" after the Distribution Date.
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
The Board of Directors of UWS has determined that it is in the best interest
of UWS, Newco and the holders of UWS Common Stock to undertake the Distribution,
thereby separating Newco's business from UWS's other businesses. The
Distribution and certain intended subsequent transactions should allow the
Managed Care Companies to license the Blue Cross and Blue Shield trademarks and
tradenames ("BLUE SERVICE MARKS"), which are owned by BlueCross and BlueShield
Association. None of the Managed Care Companies currently are eligible to
license the Blue Service Marks, because two of the licensing requirements are
not met under the current UWS structure. The applicable BlueCross and BlueShield
Association rules provide that a company can license the Blue Service Marks only
if (i) a Blue Cross and Blue Shield Plan ("BLUE PLAN") "controls" the company
(meaning that a Blue Plan must directly or indirectly own more than 50% of the
stock of the company and must have operational control over the company), and
(ii) 80% of the total licensable combined dollar volume of health insurance sold
by a Blue Plan and its controlled affiliates in a defined geographic area
actually is licensed. Under the current ownership structure, the 50% control
requirement is not met because BCBSUW only owns 38.1% of the shares of UWS
Common Stock (and thus, indirectly, 38.1% of the Managed Care Companies). After
the Distribution, the 50% test will be met because BCBSUW intends to purchase
additional shares of Newco Common Stock so that BCBSUW directly or indirectly
owns approximately 51% of Newco. Furthermore, since BCBSUW will continue to own
less than 50% of AMSG, the Small Group Business will not have to be considered
in applying the 80% test. Accordingly, the 80% test will be met after the
Distribution and after the Compcare Health Services Insurance Corporation
("COMPCARE") products are licensed because the combined licensed products of
BCBSUW and the Managed Care Companies will exceed 80% of the total volume of
medical business of BCBSUW and all of its controlled affiliates.
12
<PAGE>
The Distribution also should enhance the ability of the Managed Care
Companies to participate in joint ventures and acquisitions currently
unavailable to them. The presence of the Small Group Business within the UWS
group has had a material adverse effect on the ability of the Managed Care
Companies to pursue joint ventures with third parties, primarily due to
competitive concerns of the proposed joint venture partners and acquisition
targets. The Distribution, by separating the Managed Care Companies from the
Small Group Business, would eliminate many of these concerns.
UWS also believes the Distribution will achieve a more favorable valuation
of the businesses of AMSG and Newco for the current holders of shares of UWS
Common Stock and the future holders of shares of Newco Common Stock. The
Distribution will permit the financial community to evaluate better the separate
strengths of each company and to compare the performance of each company with
comparable companies in similar lines of business, which is expected to increase
each company's access to equity and debt markets. In addition, the Distribution
will allow current holders of shares of UWS Common Stock and potential investors
to direct their investment decisions to each of the two separate lines of
business.
The Board of Directors of UWS also believes that Newco's growth and AMSG's
growth will be better facilitated in several ways as separate public companies.
Among the anticipated benefits is the expectation that, as separate public
companies, each of Newco and AMSG will be able to obtain needed financing on
more favorable terms than its businesses now together. In addition, UWS believes
that it will be better able to attract and motivate existing and new key
employees by providing stock-based incentive compensation tied directly to the
results of their efforts as reflected in the market price of the shares of Newco
Common Stock or the AMSG Common Stock, as the case may be. The establishment of
the shares of Newco Common Stock as a separate, publicly traded equity security
should provide both Newco and AMSG enhanced acquisition opportunities by using
shares of Newco Common Stock or AMSG Common Stock, as the case may be, as
consideration. Finally, the Board of Directors of UWS expects that the
Distribution will enable capital markets to better recognize and evaluate the
merits of each of Newco and AMSG as separate public companies, enhancing the
likelihood that each will achieve appropriate market recognition of its
performance and prospects.
In October 1988, UWS entered into a joint venture agreement ("JOINT VENTURE
AGREEMENT") with American Medical Security Group, Inc. ("AMS") for the purpose
of offering small group products primarily to employers with 100 or fewer
employees. Pursuant to the Joint Venture Agreement, UWS obtained a 10.3% equity
interest in AMS and subsequent purchases eventually increased this percentage
ownership to 12%. The Joint Venture Agreement was to terminate on December 31,
1996, subject to one-year extensions agreed to by both parties, and included a
buyout provision exercisable on December 31, 1996, whereby UWS could acquire the
remaining 88% of the equity interest in AMS that it did not already own.
Throughout the term of the Joint Venture Agreement, AMS's operations had a
significant impact on UWS's overall operations. After exploring other ways to
enhance shareholder value with respect to AMS, and not being able to work out
any of these other arrangements with respect to AMS, in July 1996 (and
consummated in December 1996) UWS negotiated an early exercise of its buyout
option for the remaining equity interest in the AMS. In making this decision,
UWS believed that the possibility of losing all of AMS-related business
outweighed the potentially negative factors associated with exercising the
buyout option, including the respective businesses' strategic direction and
future opportunities. Throughout 1997 and 1998 to date, UWS has become
increasingly aware of the drawbacks associated with keeping its Managed Care
Companies and Small Group Business together in the same company, as outlined
above. For these reasons and the reasons stated above, the UWS Board of
Directors believes that the Distribution is in the best interests of UWS and its
shareholders.
RESTRUCTURING PRIOR TO THE DISTRIBUTION
In order to effect the Distribution, pursuant to the Distribution Agreement
and subject to the terms and conditions thereof, on the Effective Date (i) UWS
will contribute all of the outstanding capital stock of the Managed Care
Companies to Newco; (ii) UWS will contribute certain other assets utilized by
UWS
13
<PAGE>
and its subsidiaries in the Management Business to Newco; (iii) UWS will
contribute working capital to Newco to support the Management Business; (iv)
Newco will issue shares of Newco Common Stock to UWS; (v) Newco will
assume certain employee benefit plan liabilities associated with the operation
of such contributed businesses; (vi) Newco will assume a $70.0 million note
obligation of UWS to BCBSUW; and (vii) Newco will assume certain accrued
liabilities of UWS. The "MANAGED CARE COMPANIES" means the following companies
and their subsidiaries: Compcare; Valley Health Plan, Inc. ("VALLEY"); HMO-W,
Inc.; Hometown Insurance Services, Inc.; United Wisconsin Insurance Company;
United Heartland Life Insurance Company; Meridian Resource Corporation; Meridian
Managed Care, Inc.; Meridian Marketing Services, Inc.; United Wisconsin
Proservices, Inc.; United Heartland, Inc.; CNR Health, Inc.; Unity Health Plans
Insurance Corporation ("UNITY"); and Heartland Dental Plan, Inc. The "MANAGEMENT
BUSINESS" means the management and operational services performed by UWS for
companies engaged in managed care and related services, including product
development, actuarial, legal, marketing, finance, accounting, tax, public
relations, executive management and human resources services.
MANNER OF EFFECTING THE DISTRIBUTION
UWS will effect the Distribution by delivering all of the shares of Newco
Common Stock it owns (approximately shares) to the Distribution
Agent, Firstar Trust Company, on the Distribution Date for distribution to the
holders of UWS Common Stock as of the close of business on the Record Date. The
Distribution will be made on the basis of one share of Newco Common Stock for
each share of UWS Common Stock held as of the close of business on the Record
Date. The shares of Newco Common Stock will be fully paid and nonassessable
(except for certain statutory liabilities which may be imposed by Section
180.0622 of the WBCL for unpaid employee wages) and the holders thereof will not
be entitled to preemptive rights. Upon completion of the Distribution, there
will be approximately shares of Newco Common Stock outstanding. No
portion of the shares that will be issued and outstanding upon completion of the
Distribution is being, or has been proposed to be, publicly offered by Newco.
All of the shares of Newco Common Stock will be immediately eligible for sale in
the public market without restriction under the Securities Act, except that any
shares owned by affiliates of Newco generally may only be sold in compliance
with the applicable provisions of Rule 144 promulgated under the Securities Act
of 1933, as amended ("SECURITIES ACT").
It is expected that certificates representing shares of Newco Common Stock
will be mailed to holders of shares of UWS Common Stock beginning on or about
September 28, 1998, or if appropriate, the Distribution Agent will credit the
brokerage accounts of UWS shareholders on or about the close of business on
September 25, 1998. UWS shareholders will not be required to pay for shares of
Newco Common Stock received in the Distribution or to surrender shares of UWS
Common Stock to receive shares of Newco Common Stock. However, UWS shareholders
will be asked to deliver their stock certificates representing shares of AMSG
Common Stock after the Distribution to Firstar Trust Company, so that the AMSG
shareholders can be re-issued stock certificates in the name of "American
Medical Security Group, Inc.," the new name of AMSG after the Distribution.
Shortly before the Distribution Date, Firstar Trust Company will mail to all
AMSG shareholders a notice to this effect, along with letters of instruction to
effectuate this exchange. No vote of UWS shareholders is required to approve the
Distribution, and UWS shareholders have no dissenters' rights in connection with
the Distribution; however, the UWS shareholders did approve an amendment to its
Articles of Incorporation to change its name to "American Medical Security
Group, Inc.," effective on the Effective Date.
RESULTS OF THE DISTRIBUTION
After the Distribution, Newco and AMSG will be separate public companies.
Immediately after the Distribution, shareholders of UWS will own all of the
outstanding shares of Newco Common Stock, and Newco expects to have
approximately holders of record of shares of Newco Common Stock and
shares of Newco Common Stock outstanding. The Distribution will not
affect the number of outstanding shares of AMSG Common Stock or any rights of
holders of shares of AMSG Common Stock.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution is intended to qualify as a tax-free distribution under
Section 355 of the Internal Revenue Code of 1986, as amended (the "CODE"). UWS
has received the Tax Ruling generally to the effect that, among other things:
1. No gain or loss will be recognized by (and no amount will otherwise be
included in the income of) UWS, Newco or UWS shareholders on their
receipt of Distributed Shares.
2. The holding period of the Distributed Shares received by UWS
shareholders will include the holding period of the shares of UWS Common
Stock with respect to which the Distribution will be made, provided that
such shares of UWS Common Stock are held as a capital asset on the
Distribution Date.
3. The basis of the shares of AMSG Common Stock and the Distributed Shares
in the hands of AMSG shareholders after the Distribution will be the same
as the aggregate basis of the shares of UWS Common Stock in the hands of
UWS shareholders immediately before the Distribution. Such basis will be
allocated among the shares of AMSG Common Stock and the Distributed
Shares in proportion to the fair market value of each at the close of
trading on the day after the Distribution Date.
Treasury regulations under Section 355 of the Code require that each UWS
shareholder who receives Distributed Shares pursuant to the Distribution attach
a statement to such shareholder's federal income tax return for the taxable year
in which such stock is received, which statement shows the applicability of
Section 355 of the Code to the Distribution. UWS will provide its shareholders
with the information necessary to comply with this requirement.
The Tax Ruling is based on certain factual representations and assumptions
by UWS and Newco, and the continued validity of the Tax Ruling is subject to the
continued validity of these representations and assumptions. Neither UWS nor
Newco is aware of any present facts or circumstances which should cause such
representations and assumptions to be untrue. Furthermore, certain extraordinary
purchases of shares of AMSG Common Stock and/or shares of Newco Common Stock
(events which are not within the control of UWS or Newco) could cause the
Distribution not to qualify as tax-free. Under the Tax Allocation Agreement, if
as a result of the acquisition of all or a portion of the capital stock or
assets of either company the Distribution fails to qualify as a tax-free
distribution under Section 355 of the Code, then UWS or Newco, as the case may
be, will be liable for any and all increases in Tax (as defined in the Tax
Allocation Agreement) attributable thereto. See "Agreements Between UWS and
Newco." The Tax Ruling also is based on the accuracy of two covenants agreed to
by Newco: within one year after the Distribution, (i) licenses for use of the
Blue Service Marks shall be obtained by Compcare, and (ii) the Managed Care
Companies shall have entered into a joint venture with an unrelated third party.
If the Distribution fails to qualify as a tax-free distribution for federal
income tax purposes, a holder of shares of AMSG Common Stock who receives shares
of Newco Common Stock pursuant to the Distribution would be treated as having
received a distribution equal to the fair market value of the shares of Newco
Common Stock received on the Distribution Date. Such distribution would be
taxable to such shareholder as a dividend to the extent of UWS's current and
accumulated earnings and profits. Any excess first would be treated as a
non-taxable reduction in the tax basis in the shares of UWS Common Stock held by
the shareholder and thereafter as capital gain from the sale or exchange of such
shares of UWS Common Stock (assuming that the shares of UWS Common Stock are
held as a capital asset). The determination of a corporation's earnings and
profits requires complex factual and legal analyses; moreover, the amount of a
corporation's current earnings and profits cannot be determined until the close
of its taxable year. UWS believes, based upon present estimates of its current
and accumulated earnings and profits, that the entire distribution would be
treated as a dividend. In addition, a holder's tax basis in the shares of Newco
Common Stock received pursuant to such a taxable distribution would equal its
fair
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market value on the Distribution Date, and the holding period of such stock
would begin the day after the Distribution Date. A holder's tax basis and
holding period of shares of UWS Common Stock would be unaffected by the
Distribution. UWS would recognize a gain upon the Distribution equal to the
excess of the fair market value of the Distributed Shares over UWS's tax basis
in the Distributed Shares.
THE FOREGOING SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
DISTRIBUTION IS FOR GENERAL INFORMATION ONLY AND MAY NOT APPLY TO UWS
SHAREHOLDERS WHO ACQUIRED THEIR SHARES IN CONNECTION WITH THE GRANT OF
RESTRICTED STOCK OR OTHERWISE AS COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS
OF THE UNITED STATES, OR WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER
THE CODE. ALL UWS SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE
APPLICATION OF LOCAL, STATE AND FOREIGN TAX LAWS.
FUTURE MANAGEMENT OF NEWCO
Following the Effective Date, Newco intends to operate its businesses
substantially in the manner in which it has been operated by UWS in the past.
All of the executive officers of Newco are expected to be persons who currently
serve as officers or other key employees of UWS. See "Management of Newco."
LISTING AND TRADING OF SHARES OF UWS COMMON STOCK
Between the Effective Date and the Distribution Date, shares of UWS Common
Stock will continue to trade on a regular basis and shares of AMSG Common Stock
may trade on a when-issued basis before the Distribution Date, reflecting an
assumed value for the shares of AMSG Common Stock as if the Distribution had
already occurred. When-issued trading in the shares of AMSG Common Stock, if
available, could last from approximately the Effective Date through the
Distribution Date. If a shareholder trades in the when-issued market, he or she
will have no obligation to transfer to a purchaser of shares of UWS Common Stock
the shares of Newco Common Stock such shareholder receives in the Distribution.
If a shareholder trades in the regular market, the shares of UWS Common Stock
traded will be accompanied by due bills representing the shares of Newco Common
Stock to be distributed in the Distribution.
If a when-issued market for shares of AMSG Common Stock develops, an
additional listing for shares of AMSG Common Stock, identifiable by the trading
symbol "AMZwi," will appear on the NYSE. Differences may exist between the
combined value of when-issued shares of Newco Common Stock plus when-issued
shares of AMSG Common Stock and the price of the shares of UWS Common Stock
during this period. Until the market has fully analyzed the operations of UWS
without the operations of Newco, the prices at which the shares of UWS Common
Stock trade before the Distribution Date and the prices at which the shares of
AMSG Common Stock trade after the Distribution Date may fluctuate significantly.
LISTING AND TRADING OF SHARES OF NEWCO COMMON STOCK
There is not currently a public market for the shares of Newco Common Stock.
However, the shares of Newco Common Stock have been approved for listing on the
NYSE, upon official notice of issuance, under the symbol "UWZ." A when-issued
trading market for the shares of Newco Common Stock is expected to develop on or
about the Effective Date. In "when-issued" trading, contracts for the purchase
and sale of shares of stock are made prior to the issuance of such shares in the
same manner as currently issued shares, except that when-issued contracts are
settled by delivery of and payment for the shares on a date chosen by the
particular exchange on which such shares are to be listed. Ordinarily, in
connection with a distribution of stock such as described in this Information
Statement, the date fixed for settlement of when-issued contracts relating to
such stock is the third business day after distribution of such stock.
Shareholders who may wish to effect a when-issued trade in shares of Newco
Common Stock should consult their brokers for additional details. Prices at
which shares of Newco Common Stock may trade prior to the Distribution Date on a
"when-issued" basis or after the Distribution Date cannot be predicted.
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Until shares of Newco Common Stock are fully distributed and an orderly market
develops, the prices at which trading in such stock occurs may fluctuate
significantly. The prices at which shares of Newco Common Stock trade will be
determined by the marketplace and may be influenced by many factors, including,
among others, the depth and liquidity of the market for shares of Newco Common
Stock, investor perception of Newco and of the industries in which Newco
operates, Newco's dividend policy and general economic and market conditions.
During the period when the shares of Newco Common Stock is subject to
when-issued trading, its symbol on the NYSE will be "UWZwi." Even though
when-issued trading may develop, none of these trades would settle prior to the
Distribution Date, and if the Distribution does not occur, all when-issued
trading will be null and void.
Newco initially will have approximately shareholders of record
and an additional beneficial holders, based on the number of record
holders and the estimated number of beneficial holders of shares of UWS Common
Stock at September 11, 1998, and approximately shares of Newco
Common Stock will be outstanding. See "Management of Newco" and "Newco Benefit
Plans Following the Distribution."
It is anticipated that certain investment banking firms will make a market
in shares of Newco Common Stock following the Distribution. Any such market
making activity may be discontinued at any time, without notice. There can be no
assurance that an active trading market in shares of Newco Common Stock will
develop, or, if a market does develop, at what prices shares of Newco Common
Stock will trade.
Except for securities received by persons who may be deemed to be
"affiliates" of Newco under the Securities Act, the shares of Newco Common Stock
distributed to holders of shares of UWS Common Stock in the Distribution will be
freely transferable. Persons who may be deemed to be affiliates of Newco after
the Distribution generally include individuals or entities that control, are
controlled by, or are under common control with Newco and may include certain
officers and directors of Newco as well as principal shareholders of Newco.
Persons who are affiliates of Newco will be permitted to sell their shares of
Newco Common Stock only pursuant to an effective registration statement under
the Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Rule 144 promulgated under the
Securities Act. See also "Certain Relationships and Related Party Transactions"
for a description of certain registration rights which have been granted
relating to the shares of Newco Common Stock.
The Transfer Agent and Registrar for the shares of Newco Common Stock will
be Firstar Trust Company, Milwaukee, Wisconsin.
ACCOUNTING TREATMENT
Newco will account for the assets and liabilities contributed by UWS at the
historical values at which they were carried by UWS prior to the Distribution.
FINANCIAL ADVISOR
UWS has retained Smith Barney Inc. and Salomon Brothers Inc. (together,
"SALOMON SMITH BARNEY"), to act as its financial advisor in connection with the
Distribution. Pursuant to an engagement letter dated February 9, 1998, Salomon
Smith Barney will be paid a retainer fee of $100,000, and a fee of $2.0 million
upon consummation of the Distribution. UWS has agreed to reimburse Salomon Smith
Barney for its out-of-pocket expenses (including legal fees) incurred in
connection with its engagement, up to $75,000. UWS also has agreed to indemnify
Salomon Smith Barney, their affiliates and their directors, officers, employees,
agents and controlling persons against certain liabilities relating to or
arising out of its engagement, including liabilities under the federal
securities laws. Finally, UWS has agreed that Salomon Smith Barney shall have a
right of first refusal until February 9, 1999, to act as lead underwriter or
exclusive agent in connection with any underwritten public offering, private
placement or other financing after the Distribution involving AMSG.
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DIVIDEND REINVESTMENT PLANS
UWS has a dividend reinvestment and direct stock purchase plan ("UWS
DIVIDEND REINVESTMENT PLAN") pursuant to which shareholders may invest in shares
of UWS Common Stock by reinvesting quarterly cash dividends or by direct cash
investments. Shareholder accounts in the UWS Dividend Reinvestment Plan also
include fractional interests in shares of UWS Common Stock. Shares of Newco
Common Stock will be distributed to participants in the UWS Dividend
Reinvestment Plan on the same basis as other beneficial owners. Fractional
interests in Distributed Shares will be issued in respect of fractional
interests in shares of UWS Common Stock held under the UWS Dividend Reinvestment
Plan. A comparable service will be established for Newco which will provide for
reinvestment of dividends on the shares of Newco Common Stock and the direct
purchase of shares of Newco Common Stock, under which accounts will be
established for participants in the UWS Dividend Reinvestment Plan. Shares of
Newco Common Stock credited as a result of the Distribution to participants in
the UWS Dividend Reinvestment Plan will be transferred to the participants'
accounts in the new service.
UWS AND NEWCO BENEFIT PLANS
On the Effective Date, Newco generally will assume sponsorship of, and all
liabilities under, all nonqualified compensation plans, retirement plans,
supplemental retirement plans, deferred compensation plans (except for
liabilities relating to Mr. Samuel V. Miller), welfare plans, benefit plans and
all other plans, programs, policies and arrangements sponsored by UWS (or
jointly sponsored by UWS and BCBSUW) and in effect prior to the Effective Date,
and UWS will cease to have any liability or obligation to individuals who are or
become employees of Newco or one of its subsidiaries under any UWS benefit
plans, programs or practices. All benefit plans sponsored by UWS subsidiaries
before the Effective Date will remain sponsored by such subsidiaries after the
Effective Date. Outstanding options to purchase shares of UWS Common Stock will
be converted as set forth under "--Treatment of Options in the Distribution,"
below. Converted options to purchase shares of Newco Common Stock held by
persons who will be executive officers, directors or employees of Newco will be
assumed by Newco under a newly established equity incentive plan which will be
similar to UWS's Equity Incentive Plan. See "Executive Compensation," "Newco
Benefit Plans Following the Distribution" and "Agreements Between AMSG and
Newco."
TREATMENT OF OPTIONS IN THE DISTRIBUTION
Holders of vested stock options to purchase UWS Common Stock ("VESTED
OPTIONS") will be entitled to exercise such Vested Options prior to the Record
Date and thereafter to receive shares of Newco Common Stock as part of the
Distribution. Holders of Vested Options who do not exercise such options prior
to the Record Date, together with holders of unvested stock options to purchase
shares of UWS Common Stock ("UNVESTED OPTIONS"), and who will be executive
officers, directors or employees of Newco following the Distribution, generally
will have such unexercised Vested Options and such Unvested Options converted to
equivalent vested and unvested stock options to purchase shares of Newco Common
Stock issued under the Newco/UWS, Inc. Equity Incentive Plan. As a result of the
conversion to vested and unvested stock options to purchase shares of Newco
Common Stock, the Vested Options and Unvested Options to purchase shares of UWS
Common Stock will be cancelled. The Newco stock options will have the same ratio
of exercise price per option to the market value per share, the same aggregate
difference between market value and exercise price and the same vesting
provisions, option periods and other terms and conditions as the UWS options
they replace. Only the number of options and the exercise price will be
adjusted. Holders of Vested and Unvested Options held by persons who will be
employees of AMSG following the Distribution will have such options converted to
equivalent vested and unvested stock options to purchase shares of AMSG Common
Stock.
Vested Options and Unvested Options held by certain individuals will be
treated differently than set forth above. Each option held by Messrs. Hilliard,
Weyers, Hefty and Mordy and Ms. Hanson to purchase
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one share of UWS Common Stock will be converted into an option to purchase one
share of AMSG Common Stock and an option to purchase one share of Newco Common
Stock, with adjustments to the exercise prices of each to provide equivalent
value. Options held by Mr. Miller granted in December 1995 will be converted
into options to purchase shares of AMSG Common Stock and Newco Common Stock,
with the exercise prices for the converted options adjusted in the same manner
as noted above to provide equivalent value. All remaining options held by Mr.
Miller will be converted into equivalent options to purchase shares of AMSG
Common Stock and adjusted by increasing the number of shares of AMSG Common
Stock subject to the option and decreasing the exercise price per share of the
option to provide equivalent value. See "Executive Compensation--Treatment of
UWS Options and SARs as a Result of the Distribution."
INTERESTS OF CERTAIN PERSONS IN THE DISTRIBUTION
Individuals who are directors or executive officers of UWS, directors or
executive officers of AMSG after the Distribution and directors or executive
officers of Newco who currently own shares of UWS Common Stock will receive
shares of Newco Common Stock in connection with the Distribution on the same
terms and conditions as all of the other shareholders of UWS. In addition, such
individuals who hold options to purchase shares of UWS Common Stock will receive
options to purchase shares of Newco Common Stock, shares of AMSG Common Stock,
or shares of Newco Common Stock and AMSG Common Stock, as the case may be. For
certain information concerning the management and executive compensation
arrangements of Newco after the Distribution, see "Management of Newco" and
"Newco Benefit Plans Following the Distribution."
BANK CREDIT FACILITIES AND ASSUMPTION OF CERTAIN INDEBTEDNESS
After the Distribution, Newco and several of its subsidiaries will
participate with BCBSUW in a bank line of credit which permits aggregate
borrowings of up to $30.0 million. Interest on borrowings under the line of
credit will be based upon the London Interbank Offered Rate ("LIBOR") of M&I
Marshall & Ilsley Bank.
In connection with the Distribution, Newco will assume a debt obligation of
UWS to BCBSUW in the principal amount of $70.0 million. On October 30, 1996, UWS
borrowed $70.0 million from BCBSUW to fund the cash portion of the merger
consideration in connection with the merger of American Medical Security Group,
Inc. into UWS. UWS pledged the common stock of certain of its subsidiaries as
collateral for the loan. Interest is payable quarterly at a rate equal to LIBOR
plus 125 basis points, adjusted quarterly. The entire principal balance is due
October 30, 1999.
CONDITIONS; TERMINATION
The Distribution is subject to the satisfaction or waiver of certain
conditions as set forth in the Distribution Agreement. Regardless of whether the
conditions are satisfied, the UWS Board of Directors, in its sole discretion,
without approval of the UWS shareholders, may abandon the Distribution at any
time prior to the Effective Date of the Distribution. See "Agreements Between
UWS and Newco."
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by UWS solely to provide
information to holders of shares of UWS Common Stock who will receive shares of
Newco Common Stock in the Distribution. It is not, and is not to be construed
as, an inducement or encouragement to buy or sell any securities of UWS or
Newco. The information contained in this Information Statement is believed by
UWS to be accurate as of the date set forth on its cover. Changes may occur
after that date, and neither UWS nor Newco will update the information except in
the normal course of its respective public disclosure practices.
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RISK FACTORS
Shareholders should carefully consider and evaluate all of the information
set forth in this Information Statement, including the risk factors listed below
relating to Newco and its operations. This section does not discuss risk factors
which may be applicable to AMSG or its business or operations after the
Distribution, or to an investment in shares of AMSG Common Stock.
OPERATING HISTORY AND FUTURE PROSPECTS
Newco was formed for the purpose of effecting the Distribution. Newco does
not have an operating history as an independent public company, but will own and
conduct the operations of the Managed Care Companies and the Management Business
of UWS. On an historical basis, in each of the three years ended December 31,
1997, Newco's businesses were profitable. There can be no assurance, however,
that Newco's operations will be profitable in 1998 or future years. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED RELEVANCE OF HISTORICAL COMBINED FINANCIAL INFORMATION OF NEWCO
The historical combined financial information may not necessarily reflect
the results of operations, financial position and cash flows of Newco in the
future or the results of operations, financial position and cash flows had Newco
operated as an independent company during the periods presented. The combined
financial information included herein does not reflect any changes that may
occur in the operations of Newco as a result of the Distribution.
HEALTH CARE COSTS AND HEALTH CARE INDUSTRY
Newco's profitability will depend in part on accurately predicting health
care costs and controlling future health care costs through underwriting
criteria, utilization management, product design and negotiation of favorable
provider and hospital contracts. Changes in utilization rates, demographic
characteristics, health care practices, inflation, new technologies, clusters of
high-cost cases, continued consolidation of physician, hospital and other
provider groups, the regulatory environment and numerous other factors affecting
health care costs may adversely affect Newco's ability to predict and control
health care costs as well as Newco's financial condition and/or results of
operations. Periodic renegotiation of hospital contracts and continued
consolidation of physician, hospital and other provider groups may result in
increased health care costs or limit Newco's ability to control such costs.
A large portion of the revenue received by Newco is, in turn, expended by
Newco to pay the costs of health care services delivered to its members. The
total health care costs incurred by Newco are affected by the number and scope
of individual services rendered and the cost of each service. Much of Newco's
premium revenue is set in advance of the actual delivery of services and the
related incurring of the cost, usually on a prospective annual basis. While
Newco attempts to base the premiums it charges at least in part on its estimate
of expected health care costs over the fixed premium period, competition,
regulation and other circumstances may limit Newco's ability to fully base
premiums on estimated costs. In addition, many factors may and often do cause
actual health care costs to exceed those costs estimated and reflected in
premiums. These factors may include increased utilization of services, increased
cost of individual services, catastrophes, epidemics, seasonality, new mandated
benefits or other regulatory changes and insured population characteristics.
In addition to the challenge of controlling health care costs, Newco faces
competitive pressure to contain premium prices. While managed health care plans
compete on the basis of many factors, including service and the quality and
depth of provider networks, Newco expects that price will continue to be a
significant basis of competition. Fiscal concerns regarding the continued
viability of programs such as Medicare and Medicaid may cause decreasing
reimbursement rates for government-sponsored programs. Newco's financial
condition and/or results of operations would be adversely affected by
significant
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premium decreases by any of its major competitors or by any limitation on
Newco's ability to increase or maintain its premium levels.
Newco, like HMOs and health insurers generally, excludes certain health care
services from coverage under its managed care benefit plans. In the ordinary
course of business, Newco is subject to the claims of its members from decisions
to restrict reimbursement for certain treatments. The loss of even one such
claim, if it were to result in a significant punitive damage award, could have a
material adverse effect on Newco's financial condition or results of operations.
In addition, the risk of potential liability under punitive damage theories may
significantly increase the difficulty of obtaining reasonable settlements of
coverage claims. The financial and operational impact that such evolving
theories of recovery may have on the managed care industry generally, or Newco
in particular, is presently unknown.
The managed care industry is labor intensive and its profit margin is low.
Hence, it is particularly sensitive to inflation. Health care industry costs
have been rising annually at rates higher than the Consumer Price Index.
Increases in medical expenses without corresponding increases in premiums could
have a material adverse effect on Newco's financial condition and/or results of
operations.
Competitive price pressures in the group health insurance industry, which
generally result from the entry and exit of health care companies in the
marketplace, historically have resulted in pricing and profitability cycles. The
extent to which recent structural changes in the managed health care and health
insurance industry have altered cyclical patterns is uncertain. There can be no
assurance that cyclical patterns will not adversely affect Newco in the future.
DEPENDENCE UPON HEALTH CARE PROVIDERS AND EMPLOYER GROUPS
One of the significant techniques Newco uses to manage health care costs and
utilization and monitor the quality of care being delivered to its customers and
members is contracting with physicians, hospitals and other providers. In any
particular market, providers could refuse to contract with Newco, demand higher
payments or take other actions which could result in higher health care costs or
less desirable products for customers and members.
In some markets, certain providers, particularly hospitals,
physician/hospital organizations or multi-specialty physician groups, may have
significant market positions or even monopolies. Many of these providers may
compete directly with Newco. If such providers refuse to contract with Newco or
utilize their market position to negotiate favorable contracts or place Newco at
a competitive disadvantage, Newco's ability to market its products and services
or to be profitable in those markets could be adversely affected.
The Managed Care Companies' contracts with its health care providers and
employer groups are renewable periodically. There can be no assurance Newco will
be able to continue to renew these contracts on acceptable terms, nor can there
be any assurance Newco will not experience a decline in enrollment within its
employer groups. The Managed Care Companies' profitability and its ability to
expand will be dependent upon its ability to attract and retain qualified
physicians, hospitals and other health care providers at competitive rates. For
the year ended December 31, 1997, four medical groups and hospitals accounted
for 23.9% of Newco's claims and capitation expense.
The Managed Care Companies' business is dependent upon its ability to obtain
and maintain group benefit agreements with employer groups. As of December 31,
1997, the Managed Care Companies had contractual relationships with 3,574 groups
for medical coverage, seven of which accounted for approximately 40.6% of the
Managed Care Companies' total earned premiums.
JOINT VENTURE ARRANGEMENTS
Approximately 33.4% of Newco's total earned premiums in 1997 and 14.4% of
Newco's 1997 net income were attributable to the business sold through Newco's
joint venture arrangements relating to Valley and Unity. Newco's joint venture
agreement relating to Valley was renewed through January 1,
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2000, and can be renewed for up to an additional three-year term, and Newco's
joint venture agreements relating to Unity terminate on November 1, 2004. The
continued success of Newco's joint ventures will depend to a significant degree
on the mutuality of interest between Newco and its joint venture partners. The
termination or a material modification of Newco's current joint venture
relationships or changes in the business of its joint venture arrangements could
have a material adverse effect on Newco's profitability.
One of Newco's joint venture partners in Valley, Midelfort Clinic, Ltd.
("MIDELFORT"), has an option to purchase Valley on December 31, 1999 for
Valley's net equity plus $400,000. If Midelfort exercises this repurchase
option, Newco would thereafter have no ongoing interest in Valley, and would
lose all of the earned premiums associated therewith. One of Newco's joint
venture partners in Unity, Community Health Systems, LLC ("CHS"), has the right
to repurchase a portion of the Unity business and the Unity legal entity for the
book value of such business plus $500,000 on either November 1, 1999 or November
1, 2004. If CHS exercises this repurchase option, Newco would need to transfer
the remaining Unity business to one of its other managed care companies. The
other joint venture partner, University Health Care, Inc. ("UHC"), has the
option to repurchase the remainder of the Unity business for the book value of
such business plus $500,000 on either November 1, 1999 or November 1, 2004. Any
exercise of either or both of these repurchase options relating to Unity would
result in Newco losing the premium revenues attributable to that business. In
addition, the exercise of any of these repurchase options would be deemed a
taxable event to Newco.
PHARMACEUTICAL COSTS
The costs of pharmaceutical products and services are increasing faster than
the costs of other medical products and services. Thus, the Managed Care
Companies face ever higher pharmaceutical expenses. Though Newco's managed care
operations endeavor to keep pharmaceutical costs low for the Managed Care
Companies, there can be no assurance that Newco will be able to do so in the
face of rapidly rising prices. Also, statutory and regulatory changes may
significantly alter Newco's ability to manage pharmaceutical costs through
restricted formularies of products available to Newco's health plan members.
GOVERNMENT PROGRAMS AND REGULATION
Newco's business is subject to extensive federal and state laws and
regulations, including financial requirements, licensing requirements,
enrollment requirements and periodic examinations by governmental agencies. The
laws and rules governing Newco's business and interpretations of those laws and
rules are subject to frequent change. Existing or future laws and rules could
force Newco to change how it does business and may restrict Newco's revenue
and/or enrollment growth and/or increase its health care and administrative
costs. In particular, the Managed Care Companies are subject to regulations
relating to cash reserves, minimum net worth, premium rates, approval of policy
language and benefits, restrictions on the amount of dividends and other
distributions that can be paid by certain of Newco's subsidiaries without prior
approval or notification, the granting and revoking of licenses to transact
business, trade practices, premium rate regulation, underwriting standards,
policy forms, claims payment, licensing of agents and brokers, the amount and
type of investments that Newco may hold, minimum reserve and surplus
requirements, risk-based capital requirements and compelled participation in,
and assessments in connection with, risk-sharing pools and guaranty funds. Such
regulation is intended primarily to protect policyholders rather than investors.
Although such regulations have not significantly impeded the growth of Newco's
business to date, there can be no assurance that Newco will be able to continue
to obtain or maintain required governmental approvals or licenses or that
regulatory changes will not have a material adverse effect on Newco's business.
Delays in obtaining or failure to obtain or maintain such approvals could
adversely affect Newco's revenue or the number of its members or could increase
costs.
A portion of Newco's revenues relate to federal, state and local government
health care coverage programs, such as the Medicaid program. Such contracts
carry certain risks such as higher comparative medical costs, government
regulatory and reporting requirements, the possibility of reduced or
insufficient
22
<PAGE>
government reimbursement in the future, and higher marketing and advertising
costs per member as the result of marketing to individuals as opposed to groups.
Such risk contracts generally are subject to frequent change, including changes
which may reduce the number of persons enrolled or eligible, reduce the revenue
received by Newco or increase Newco's administrative or health care costs under
such programs. In the event government reimbursement were to decline from
projected amounts, Newco's failure to reduce the health care costs associated
with such programs could have a material adverse effect upon Newco's financial
condition and/or results of operations. Changes to such government programs in
the future also may affect Newco's willingness to participate in such programs.
Statutory capital and surplus requirements vary based upon the types of
risks underwritten and the nature of the provider contracts. The premiums
written by HMOs and insurance companies are limited by the amount of their
statutory capital and surplus. Statutory capital and surplus requirements for
workers' compensation coverage are greater than those for Newco's other
businesses. In addition, risk-based capital formulas, which are currently in
effect or may be adopted, affect Newco's statutory capital and surplus
requirements. In order to maintain growth in premium revenue, underwrite
workers' compensation coverage and continue to meet risk-based capital
requirements, Newco may have to obtain additional statutory capital or utilize
reinsurance agreements to cede a greater percentage of premium revenue. Should
additional resources be necessary, Newco may be required to obtain additional
financing. There can be no assurance such financing could be obtained upon terms
acceptable to Newco.
HEALTH CARE REFORM LAWS
In 1996, Congress enacted H.R. 3103, the Kennedy-Kassebaum bill, which
provides for guaranteed issue, group-to-individual portability and pre-existing
condition limitations for certain insurance coverages. It also requires states
to evaluate and potentially rewrite their laws to conform to new guidelines.
Legislation adopted during 1996 also included maternity mandates and mental
health parity. Continuing compliance with this legislation could have an adverse
effect on Newco's financial condition and/or results of operations.
Also in recent years, both the Clinton Administration and several members of
Congress and various state legislators and state regulators have proposed
numerous other health care reform measures. Newco is unable to predict when or
whether any federal or state proposals, or some combination thereof, will be
enacted or, if enacted, the likely impact on Newco. It is possible, however,
that enactment of such health care reform legislation could adversely affect
Newco's financial condition and/or results of operations.
COMPETITION
Newco competes with a number of other entities in the geographic and product
markets in which it operates. Some of these other entities may have certain
characteristics or capabilities which give them an advantage in competing with
Newco. Certain of Newco's customers may decide to perform for themselves
functions or services formerly provided by Newco, which could result in a
decrease in Newco's revenues. Certain of Newco's providers may decide to market
products and services to Newco's customers in competition with Newco. In
addition, significant merger and acquisition activity has occurred in the
industry in which Newco operates, as well as in industries which act as
suppliers to Newco, such as the hospital, physician, pharmaceutical and medical
device industries. This activity may create stronger competitors and/or result
in higher health care costs. Provider service organizations may be created by
health care providers to offer competing managed care products. To the extent
there is strong competition or competition intensifies in any market, Newco's
ability to retain or increase customers, revenue growth, pricing flexibility,
control over medical cost trends and marketing expenses could be adversely
affected.
Newco faces competition from other regional and national managed health care
companies, including Humana, Inc. and United HealthCare Corp., and Dean Health
Plan, Inc. in the Madison, Wisconsin area, many of which have significantly
greater financial and other resources than Newco. If competition were to
23
<PAGE>
further increase in any of its markets, Newco's financial condition and/or
results of operations could be materially adversely affected.
For the year ended December 31, 1997 and for the six months ended June 30,
1998, approximately 85.7% and 85.3%, respectively, of Newco's premium revenue
were attributable to its HMO products sold in Wisconsin. A concentration of
premium revenue in a defined geographic area presents the risk that any adverse
change in the local economic, market, competitive, or employment-related
conditions may result in a decrease in premium revenue, an increase in the
medical loss ratio or other adverse effects on Newco's profits. This high
concentration of revenues derived from HMO operations in Wisconsin subjects
Newco's operations to a higher degree of risk than a more geographically
diversified source of revenues would represent, primarily because any adverse
change in the health-related economic conditions in Wisconsin could result in a
material adverse effect on Newco's financial condition and/or results of
operations.
ADMINISTRATION AND MANAGEMENT
The level of administrative expenses is a partial determination of Newco's
profitability. While Newco attempts to effectively manage such expenses,
increases in staff-related and other administrative expenses may occur from time
to time due to business or product start-ups or expansions, growth or changes in
business, acquisition regulatory requirements or other reasons. Such expense
increases are not clearly predictable and could adversely affect Newco's
financial condition and/or results of operations.
The future success of Newco is dependent on a number of key management
employees. Competition for highly skilled people with extensive experience in
the health care industry is intense. Newco will be dependent on the continued
services and management experience of its executive officers. If such executive
officers were to leave, the operating results of Newco could be adversely
affected. The future success of Newco also will be dependent on its ability to
continue to attract key managerial and technical personnel. Newco does not have
key man life insurance covering any of its executive officers, nor does Newco
have employment agreements with any of its executive officers.
CONTROL BY CERTAIN SHAREHOLDERS; EFFECTS OF BCBSUW INTENDED PURCHASES;
DEFENSIVE MEASURES; POTENTIAL CONFLICTS OF INTEREST
Immediately following the Distribution, BCBSUW and executive officers and
directors of Newco will beneficially own approximately 39.4% of the outstanding
shares of Newco Common Stock and, thus, will have significant influence over all
matters requiring a shareholder vote. Furthermore, within a year after the
Distribution Date, BCBSUW intends to purchase additional shares of Newco Common
Stock to bring its direct and indirect ownership of Newco to approximately 51%.
At and after this time, BCBSUW will have the power to significantly affect the
outcome of shareholder votes on all corporate actions requiring majority
approval. This will limit the ability of a third party to acquire control of
Newco and could adversely affect the market price of the shares of Newco Common
Stock. Issuance of new shares of Newco Common Stock by Newco will require
approval by the Newco Board of Directors and the Office of the Commissioner of
Insurance for the State of Wisconsin ("OCI") and may require approval by Newco's
shareholders. To the extent BCBSUW purchases shares of Newco Common Stock from
Newco, these purchases may have an adverse effect on Newco's shareholders,
including potential dilution of earnings per share.
Newco's Articles of Incorporation ("ARTICLES OF INCORPORATION") and By-Laws
("BY-LAWS") and certain sections of the WBCL may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
the Newco Board of Directors (including takeovers which some shareholders may
deem to be in their best interest). These provisions could delay or frustrate
the removal of incumbent directors or the assumption of control by an acquiror,
even if such removal or assumption of control would be beneficial to
shareholders. These provisions also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such events would be beneficial,
in the short term, to the
24
<PAGE>
interest of shareholders. Such provisions include, among other things, a
classified Board of Directors serving staggered three-year terms and provisions
in the WBCL which may discourage certain types of transactions involving an
actual or potential change of control of Newco.
Newco and certain of its subsidiaries and BCBSUW have entered into service
agreements (the "SERVICE AGREEMENTS") with respect to the provision of certain
services, including sales and marketing, computerized data processing, legal,
investment, actuarial and other management services. Under the Service
Agreements, the company receiving a service pays the company providing the
service an amount which Newco and BCBSUW believe approximates cost. Newco and
certain of its subsidiaries also have entered into reinsurance agreements with
BCBSUW in the past, and may do so in the future, on terms that are believed to
be reasonable at the time but that may not in retrospect be beneficial to Newco.
Pursuant to Wisconsin statutory and regulatory requirements, such reinsurance
agreements and the Service Agreements are required to be filed with the OCI for
its review to determine whether the "transaction at the time it is entered into
is reasonable and fair to the interest of the insurer." In addition, BCBSUW's
sales force markets and sells some of Newco's products. Also, certain of Newco's
products may compete with managed health care products offered by BCBSUW in
Wisconsin. If BCBSUW were to discontinue providing or receiving services,
negotiate for material changes to the Service Agreements or stop marketing and
selling certain of Newco's products, Newco's business and operations could be
adversely affected. Several of Newco's executive officers devote portions of
their time to the operations of BCBSUW. Three of the nine directors of Newco
also are directors of BCBSUW.
NEWCO CONFLICTS OF INTEREST WITH AMSG AFTER THE DISTRIBUTION
After the Distribution, the interests of AMSG and Newco may conflict. Such
sources of conflict may include competition for each company's products and the
reinsurance and service agreements between the parties. After the Distribution,
several of AMSG's products may compete with health care insurance products
offered by Newco, particularly in Wisconsin. With respect to the reinsurance and
service agreements, the potential exists for disagreements as to the quality of
the services provided by the parties and contract compliance. However, UWS
believes that each of AMSG and Newco will benefit from a strategic relationship
with the other entity created by the reinsurance and service agreements. Despite
the anticipated mutuality of interest, each of AMSG and Newco will have unique
shareholder groups whose interests may differ from one another.
After the Distribution, AMSG and Newco will have four common directors,
Messrs. Hefty, Menden, Hickman and Johnson. Messrs. Hefty, Menden, Hickman and
Johnson, as well as certain other officers and directors of AMSG and Newco, also
will own shares in both companies following the Distribution. Appropriate
policies and procedures will be followed by the Board of Directors of each
company to limit the involvement of the overlapping directors (and if
appropriate, relevant officers of such companies) in conflict situations,
including requiring them to abstain from voting as directors of either AMSG or
Newco. Such procedures will include requiring Messrs. Hefty, Menden, Hickman and
Johnson (or other executive officers or directors having a significant ownership
interest in both companies) to abstain from voting as directors of either
company, with respect to matters that present a significant conflict of interest
between the companies. Whether or not a significant conflict of interest
situation exists will be determined on a case-by-case basis depending on such
factors as the dollar value of the matter, the degree of personal interest of
Messrs. Hefty, Menden, Hickman or Johnson (or other executive officers or
directors having a significant ownership interest in both companies) in the
matter, the respective interests of the shareholders of AMSG and Newco and the
likelihood that resolution of the matter will have significant strategic,
operational or financial implications for the business of the respective
companies.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
UWS has received the Tax Ruling from the IRS to the effect that, among other
things, for federal income tax purposes, the Distribution will qualify as a
tax-free distribution under Section 355 of the Code.
25
<PAGE>
The Tax Ruling is based on certain factual representations and assumptions, and
the continued validity of the Tax Ruling is subject to the continued validity of
these representations and assumptions. Neither UWS nor Newco is aware of any
facts or circumstances which should cause such representations and assumptions
to be untrue. However, certain extraordinary purchases of shares of AMSG Common
Stock and/or Newco Common Stock (events which are not within the control of UWS
or Newco) could cause the Distribution not to qualify as tax-free. Furthermore,
the Tax Ruling also is based on the accuracy of two covenants agreed to by
Newco: within one year after the Distribution, (i) licenses for use of the Blue
Service Marks shall be obtained by Compcare, and (ii) the Managed Care Companies
shall have entered into a joint venture with an unrelated third party. The Tax
Allocation Agreement provides that neither UWS nor Newco is to take any action
inconsistent with, or fail to take any action required by, the request for the
Tax Ruling or the Tax Ruling unless the other party has given its prior written
consent. UWS and Newco have agreed to indemnify each other with respect to any
tax liability resulting from their respective failure to comply with such
provisions. See "Agreements Between AMSG and Newco."
If the Distribution were taxable, then (i) corporate level income taxes
would be payable by the consolidated group of which UWS is the common parent,
based upon the amount by which the fair market value of the shares of Newco
Common Stock distributed in the Distribution exceeds UWS's basis therein, and
(ii) each holder of shares of UWS Common Stock who receives shares of Newco
Common Stock in the Distribution would be treated as if such shareholder
received a taxable distribution, taxed as a dividend to the extent of such
shareholder's pro rata share of UWS's current and accumulated earnings and
profits, and the holding period of such stock would begin the day after the
Distribution Date. Newco has agreed to indemnify AMSG for any losses which it
may incur if its actions or the actions of any of its affiliates result in such
tax liability. AMSG has agreed to indemnify Newco for any losses which it may
incur in the event that AMSG or any of its affiliates take any action which
adversely impacts the tax-free nature of the Distribution.
The potential corporate tax liability which could arise from an acquisition
of Newco for a period of time following the Distribution, together with the
foregoing indemnification arrangements, could have an anti-takeover effect on
the acquisition of control of either Newco or AMSG after the Distribution.
NO PRIOR TRADING MARKET FOR NEWCO COMMON STOCK; LIKELY VOLATILE NEWCO COMMON
STOCK PRICE
There is not currently a public market for the shares of Newco Common Stock,
and while a "when-issued" trading market is expected to develop prior to the
Distribution Date, there can be no assurance as to the prices at which the
shares of Newco Common Stock will trade after the Distribution Date. The shares
of Newco Common Stock have been approved for listing on the NYSE, subject to
official notice of issuance. Until the shares of Newco Common Stock are fully
distributed and an orderly trading market develops, the prices at which the
shares of Newco Common Stock trade may fluctuate significantly. Prices for
shares of Newco Common Stock will be determined in the marketplace and may be
influenced by many factors, including, among others, the depth and liquidity of
the market for shares of Newco Common Stock, investor perception of Newco and
its industry and general economic and market conditions.
Shares of Newco Common Stock distributed to shareholders of UWS Common Stock
in the Distribution will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of Newco under the Securities Act.
Persons who may be deemed to be affiliates of Newco after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with, Newco, and may include certain officers and
directors of Newco as well as principal shareholders of Newco. Persons who are
affiliates of Newco will be permitted to sell their shares of Newco Common Stock
only pursuant to an effective registration statement under the Securities Act or
an exemption from the registration requirements of the Securities Act, such as
the exemption afforded by Rule 144. Certain UWS shareholders have been granted
registration rights with respect to the shares of Newco Common Stock. See
"Certain Relationships and Related Party Transactions." Any sales of substantial
amounts of shares of Newco Common Stock in the public market, or the perception
that such
26
<PAGE>
sales might occur, whether as a result of the Distribution or otherwise, could
materially adversely affect the market price of the shares of Newco Common
Stock.
THE YEAR 2000 ISSUE
Newco has assessed and continues to assess the potential impact of the
situation commonly referred to as the "Year 2000 Issue." The Year 2000 Issue,
which affects most corporations, concerns the inability of information systems,
primarily computer software programs, to properly recognize and process date-
sensitive information relating to the Year 2000 and beyond. The Year 2000 Issue
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of Newco's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Newco has determined that it will be required to modify or replace portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Newco has estimated that it will incur
costs totalling approximately $2.5 million in 1998 and 1999 to make such
modifications or replacements. Based upon ongoing assessments of progress on
system upgrades and conversions, Newco believes that the Year 2000 Issue will
not pose significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed timely,
the Year 2000 Issue could have a material impact on the operations of Newco.
REGULATORY APPROVALS
TAX MATTERS
Consummation of the Distribution is conditioned upon receipt of the Tax
Ruling to the effect that the Distribution is a tax-free distribution under
Section 355 of the Code. UWS has received the Tax Ruling based on certain
factual representations and assumptions by UWS and Newco, and certain covenants
made by Newco. See "The Distribution--Certain Federal Income Tax Consequences of
the Distribution."
INSURANCE REGULATORY MATTERS
The Distribution is subject to the prior approval of OCI. OCI was contacted
concerning the Distribution and indicated that the Distribution constitutes an
acquisition of control within the meaning of Wis. Admin. Code Section INS Ch.
40. Accordingly, prior to effectuating the Distribution, BCBSUW filed a Form A
with OCI and received the approval of the Commissioner pursuant to Wis. Admin.
Code Section 40.02(1)(b)(2) on September , 1998.
In addition to the foregoing, certain transactions contemplated in
conjunction with the Distribution also may be subject to prior reporting to OCI.
Included in this would be amendments to and creation of inter-company agreements
and the transfer of the $70.0 million BCBSUW note from UWS to Newco. These
transactions and similar transactions were reported to OCI on a Form D and OCI
will have 30 days to review said transactions. OCI may disapprove the
transactions if the Commissioner finds that they would violate the law or be
contrary to the interest of insureds, shareholders or the public. OCI notified
Newco on September , 1998, that it would not disapprove these transactions.
27
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization of
Newco at June 30, 1998. The pro forma capitalization table has been derived from
Newco's Combined Financial Statements and reflects certain pro forma adjustments
as if the Distribution had been consummated as of June 30, 1998. This data
should be read in conjunction with the pro forma balance sheet, the introduction
to the pro forma financial statements appearing elsewhere in this Information
Statement, and Newco's Combined Financial Statements appearing elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................................ -- $ 70,000(1) $ 70,000
Shareholders' equity:
Preferred Stock, no par value per share;
1,000,000 shares authorized;
none issued or outstanding............................................ -- -- --
Common Stock, no par value per share;
50,000,000 shares authorized;
none issued and outstanding
(16,544,047 shares pro forma)......................................... -- 12,970(2) 12,970
Investments by and advances from UWS.................................... $ 124,947 (124,947) --
Unrealized gains on investments......................................... 1,247 -- 1,247
Retained earnings....................................................... -- 41,977(2) 41,977
---------- ----------- ----------
Total shareholders' equity.......................................... 126,194 (70,000) 56,194
---------- ----------- ----------
Total capitalization................................................ $ 126,194 $ 0 $ 126,194
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
- ------------------------
(1) Reflects the assumption of $70.0 million of affiliated debt UWS owed to
BCBSUW. The principal balance is due on October 30, 1999.
(2) Reflects issuances of shares of Newco Common Stock in connection with the
Distribution.
DIVIDEND POLICY
Newco has not paid any cash dividends to date, but plans to pay an annual
dividend beginning in December 1998. The initial annual dividend is expected to
be approximately $0.05 per share. However, the payment of dividends in the
future is subject to the discretion of the Newco Board of Directors and will
depend upon Newco's operating results, financial condition and capital
requirements, general business conditions, legal restrictions on the payment of
dividends and other factors the Newco Board of Directors deems relevant. There
can be no assurance that dividends will be paid in the future. As a holding
company, Newco depends on dividends from its subsidiaries to pay cash dividends
and to meet expenses. Applicable Wisconsin law limits the amount of dividends
that may be paid by certain of Newco's subsidiaries in any year.
28
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF NEWCO
The pro forma combined condensed statements of income for the year ended
December 31, 1997 and the six months ended June 30, 1998 reflect interest
expense of $4.9 million for the year ended December 31, 1997, and $2.4 million
for the six months ended June 30, 1998, associated with the $70.0 million of
affiliated debt UWS borrowed from BCBSUW on October 30, 1996, as if such debt
was recorded on the books of Newco. The pro forma combined condensed balance
sheet at June 30, 1998 gives effect to the $70.0 million of affiliated debt UWS
borrowed from BCBSUW on October 30, 1996, as if such debt was recorded on the
books of Newco. The pro forma combined condensed financial statements should be
read in conjunction with the financial data presented elsewhere in this
Information Statement. The pro forma financial data are presented for
informational purposes only and may not reflect the future results of operations
or financial position of Newco.
NEWCO/UWS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Premium revenue........................................................... $ 560,825 $ 560,825
Other revenue............................................................. 26,046 26,046
Investment results........................................................ 22,238 22,238
---------- -----------
Total revenues........................................................ 609,109 609,109
---------- -----------
EXPENSES:
Medical and other benefits................................................ 485,735 485,735
Selling, general and administrative expenses.............................. 93,959 93,959
Interest expense.......................................................... -- $ 4,892(a) 4,892
Profit sharing on joint ventures.......................................... 3,380 3,380
Amortization of goodwill and other intangibles............................ 818 818
---------- ----------- -----------
Total expenses........................................................ 583,892 4,892 588,784
---------- ----------- -----------
Income before income tax expense.......................................... 25,217 (4,892) 20,325
Income tax expense........................................................ 9,433 (1,830)(b) 7,603
---------- ----------- -----------
Net income.................................................................. $ 15,784 $ (3,062) $ 12,722
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(a) Reflects interest expense of $4.9 million for the year ended December 31,
1997 associated with the $70.0 million of affiliated debt UWS borrowed from
BCBSUW on October 30, 1996. Interest is payable quarterly at a rate equal to
LIBOR plus 1.25%, adjusted quarterly.
(b) Reflects the application of the Newco effective tax rate to adjustment made
pursuant to Note (a).
29
<PAGE>
NEWCO/UWS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Premium revenue........................................................... $ 298,602 -- $ 298,602
Other revenue............................................................. 14,378 -- 14,378
Investment results........................................................ 9,960 -- 9,960
---------- ----------- -----------
Total revenues........................................................ 322,940 -- 322,940
----------- -----------
EXPENSES:
Medical and other benefits................................................ 253,708 253,708
Selling, general and administrative expenses.............................. 50,674 50,674
Interest expense.......................................................... -- $ 2,433(a) 2,433
Profit sharing on joint ventures.......................................... 1,413 1,413
Amortization of goodwill and other intangibles............................ 215 215
---------- ----------- -----------
Total expenses........................................................ 306,010 2,433 308,443
---------- ----------- -----------
Income before income tax expense.......................................... 16,930 (2,433) 14,497
Income tax expense........................................................ 6,515 (408)(b) 6,107
---------- ----------- -----------
Net income.................................................................. $ 10,415 $ (2,025) $ 8,390
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(a) Reflects interest expense of $2.4 million for the six months ended June 30,
1998, associated with the $70.0 million of affiliated debt UWS borrowed from
BCBSUW on October 30, 1996. Interest is payable quarterly at a rate equal to
LIBOR plus 1.25%, adjusted quarterly.
(b) Reflects the application of the Newco effective tax rate to adjustment made
pursuant to Note (a).
30
<PAGE>
NEWCO/UWS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 14,750 $ 14,750
Investments-available for sale............................................ 154,365 154,365
Other current assets...................................................... 60,975 60,975
---------- -----------
Total current assets........................................................ 230,090 230,090
---------- -----------
Other non-current assets.................................................... 37,424 37,424
---------- -----------
Total assets................................................................ $ 267,514 $ 267,514
---------- -----------
---------- -----------
LIABILITIES
Current liabilities:
Medical and other benefits payable........................................ $ 55,537 $ 55,537
Other current liabilities................................................. 59,388 59,388
---------- -----------
Total current liabilities................................................... 114,925 114,925
---------- -----------
Other non-current liabilities............................................... 26,395 26,395
Notes payable............................................................... -- $ 70,000(a) 70,000
---------- ----------- -----------
Total liabilities........................................................... 141,320 70,000 211,320
Shareholder's equity:
Investments by and advances from UWS...................................... 124,947 (70,000)(a) 54,947
Unrealized gains on investments........................................... 1,247 1,247
---------- ----------- -----------
Total shareholder's equity.................................................. 126,194 (70,000) 56,194
---------- ----------- -----------
Total liabilities and shareholder's equity.................................. $ 267,514 $ 0 $ 267,514
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
NOTE TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) Reflects the assumption of $70.0 million of affiliated debt UWS borrowed
from BCBSUW on October 30, 1996. The principal balance is due on October 30,
1999.
31
<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION OF NEWCO
The following table presents selected combined financial information with
respect to Newco. The balance sheet data as of December 31, 1997 and 1996 and
the statement of income data for each of the three years in the period ended
December 31, 1997, have been derived from the audited combined financial
statements and notes thereto of Newco. The balance sheet data as of December 31,
1995, 1994 and 1993 and the statement of income data for the years ended
December 31, 1994 and 1993 and for the six months ended June 30, 1998 and 1997
have been derived from unaudited financial statements which, in the opinion of
Newco's management, include all adjustments necessary, consisting only of normal
recurring accruals, for a fair presentation of financial position and results of
operations at and for the periods presented. Operating results for interim
periods are not necessarily indicative of the results that may be expected for
the full fiscal year. The combined financial statements of Newco do not
necessarily reflect the results of operations or financial position that would
have resulted had Newco been a separate, independent company and are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year. The information set forth below should be read
in conjunction with Newco's combined financial statements, including the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
AS OF AND FOR THE
PRO FORMA SIX MONTHS ENDED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------------------------------------- ------------- --------------------
1993 1994 1995(5) 1996(5) 1997 1997 1997 1998
--------- --------- --------- --------- --------- ------------- --------- ---------
(IN THOUSANDS, EXCEPT OPERATING STATISTICS)
STATEMENT OF INCOME DATA: (UNAUDITED) (UNAUDITED)
-------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Premium revenue............ $ 310,503 $ 355,025 $ 466,929 $ 493,092 $ 560,825 $ 560,825 $ 273,760 $ 298,602
Other revenue.............. 7,515 15,997 24,222 27,632 26,046 26,046 13,351 14,378
Investment results......... 10,697 12,050 9,665 19,040 22,238 22,238 10,672 9,960
--------- --------- --------- --------- --------- ------------- --------- ---------
Total revenues......... 328,715 383,072 500,816 539,764 609,109 609,109 297,783 322,940
--------- --------- --------- --------- --------- ------------- --------- ---------
Expenses:
Medical and other
benefits................. 265,446 306,056 416,167 425,258 485,735 485,735 235,763 253,708
Selling, general and
administrative
expenses................. 43,578 58,026 72,576 83,839 93,959 93,959 47,203 50,674
Interest expense........... -- -- -- -- -- 4,892(2) -- --
Profit sharing on joint
ventures............... 960 1,516 2,734 2,868 3,380 3,380 1,188 1,413
Amortization of goodwill
and other
intangibles............ 80 195 678 841 818 818 881 215
--------- --------- --------- --------- --------- ------------- --------- ---------
Total expenses......... 310,064 365,793 492,155 512,806 583,892 588,784 285,035 306,010
--------- --------- --------- --------- --------- ------------- --------- ---------
Income before income tax
expense................ 18,651 17,279 8,661 26,958 25,217 20,325 12,748 16,930
Income tax expense......... 5,900 5,072 3,277 10,617 9,433 7,603(3) 4,861 6,515
--------- --------- --------- --------- --------- ------------- --------- ---------
Net income................... $ 12,751 $ 12,207 $ 5,384 $ 16,341 $ 15,784 $ 12,722 $ 7,887 $ 10,415
--------- --------- --------- --------- --------- ------------- --------- ---------
--------- --------- --------- --------- --------- ------------- --------- ---------
BALANCE SHEET DATA:
Cash and investments....... $ 162,421 $ 154,201 $ 178,926 $ 182,431 $ 176,579 $ 190,435 $ 176,971
Total assets............... 197,294 216,954 261,523 269,478 266,256 275,430 267,514
Long-term debt............. -- -- -- -- -- -- --
Total shareholders'
equity................... 124,536 101,465 120,277 123,882 123,616 125,791 126,194
OPERATING STATISTICS:
Medical loss ratio(1)...... 85.8% 86.2% 89.1% 86.2% 86.6% 86.6% 86.1% 85.0%
Selling, general and
administrative expense
ratio(1)................. 10.9% 11.8% 11.0% 11.1% 11.2% 11.2% 11.6% 12.2%
<CAPTION>
PRO FORMA
JUNE 30,
-----------
1998
-----------
STATEMENT OF INCOME DATA:
<S> <C>
Revenues:
Premium revenue............ $ 298,602
Other revenue.............. 14,378
Investment results......... 9,960
-----------
Total revenues......... 322,940
-----------
Expenses:
Medical and other
benefits................. 253,708
Selling, general and
administrative
expenses................. 50,674
Interest expense........... 2,433(2)
Profit sharing on joint
ventures............... 1,413
Amortization of goodwill
and other
intangibles............ 215
-----------
Total expenses......... 308,443
-----------
Income before income tax
expense................ 14,497
Income tax expense......... 6,107(3)
-----------
Net income................... $ 8,390
-----------
-----------
BALANCE SHEET DATA:
Cash and investments....... $ 176,971
Total assets............... 267,514
Long-term debt............. 70,000(4)
Total shareholders'
equity................... 56,194(4)
OPERATING STATISTICS:
Medical loss ratio(1)...... 85.0%
Selling, general and
administrative expense
ratio(1)................. 12.2%
</TABLE>
32
<PAGE>
- ------------------------------
(1) Ratios are based on premium revenues and premium revenue-related selling,
general and administrative expenses of $33,996,000, $42,022,000 $51,133,000,
$54,861,000, $62,808,000, $31,874,000 and $36,332,000 for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the six months ended June
30, 1997 and 1998, respectively.
(2) Reflects pro forma adjustments for interest expense on assumed debt. See
"Pro Forma Combined Condensed Financial Information of Newco."
(3) Reflects pro forma adjustments for the tax effect of the adjustments
described in (2), above. See "Pro Forma Combined Condensed Financial
Information of Newco."
(4) Reflects pro forma adjustments for assumed debt. See "Pro Forma Combined
Condensed Financial Information of Newco."
(5) Commencing October 1, 1994, Newco's results of operations include the
results of operations of Unity. For the years ended December 31, 1994 and
1995, Unity accounted for $23,994,000 and $100,342,000 of Newco's total
premium revenue and $112,000 and $1,062,000 of Newco's net income,
respectively.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Newco is a leading provider of managed health care services and employee
benefit products, primarily in Wisconsin. Newco's two primary product lines are
(i) Health Maintenance Organization ("HMO") products, including Compcare Health
Services Insurance Corporation ("COMPCARE"), Valley Health Plan, Inc.
("VALLEY"), Unity Health Plans Insurance Corporation ("UNITY") and certain
point-of-service ("POS") and other related products managed by Compcare, Valley
and Unity; and (ii) specialty managed care products and services, including
dental, life, disability and workers' compensation products, managed care
consulting, electronic claim submission, and managed behavioral health services.
Operating results and statistics for these product groups are presented below
for the periods indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Membership at end of period:
HMO products:
Compcare..................................... 161,372 149,636 173,241 169,908 172,825
Valley....................................... 27,476 33,434 37,906 37,476 40,203
Unity........................................ 66,623 79,147 85,117 80,471 84,880
---------- ---------- ---------- ---------- ----------
Total HMO products membership.............. 255,471 262,217 296,264 287,855 297,908
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Specialty managed care products and
services:
Life/AD&D.................................... 118,812 116,390 129,406 119,924 154,033
Dental HMO................................... 167,592 169,063 169,823 167,442 168,044
Behavioral health............................ 645,883 826,153 863,538 851,495 913,479
Workers' compensation........................ 55,845 53,574 54,928 55,109 53,509
Disability and other......................... 68,233 81,462 97,727 86,724 111,551
---------- ---------- ---------- ---------- ----------
Total specialty managed care products and
services membership...................... 1,056,315 1,246,642 1,315,422 1,280,694 1,400,616
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Premium revenue
(as a percentage of the total):
HMO products................................................. 86.2% 85.4% 85.7% 85.7% 85.3%
Specialty managed care products and services................. 14.4 15.0 14.7 14.7 15.1
Intercompany eliminations.................................... (0.6) (0.4) (0.4) (0.4) (0.4)
--------- --------- --------- --------- ---------
Total...................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Statistics:
HMO Products:
Medical loss ratio(1).......................................... 91.1% 89.8% 89.5% 89.5% 88.4%
Selling, general and administrative expense ratio(2)........... 9.2 9.3 9.2 9.4 9.4
Specialty managed care products and services:
Loss ratio(1).................................................. 77.1 69.8 74.1 71.3 70.4
Combined:
Loss ratio(1).................................................. 89.1 86.8 87.3 86.8 85.7
Net income margin(3)........................................... 1.1 3.0 2.6 2.7 3.2
</TABLE>
- ------------------------
(1) Medical and other benefits as a percentage of premium revenue prior to
intercompany eliminations.
(2) Premium revenue related selling, general and administrative expenses as a
percentage of premium revenue prior to intercompany eliminations.
(3) Net income as a percentage of total revenues.
Newco's revenues are derived primarily from premiums, while medical benefits
constitute the majority of expenses. Profitability is directly affected by many
factors including, among others, premium rate adequacy, estimates of medical
benefits, health care utilization, effective administration of benefit payments,
operating efficiency, investment returns and federal and state laws and
regulations.
RESULTS OF OPERATIONS
All financial data in the Results of Operations section are gross numbers
and, therefore, are not net of intercompany eliminations. For this reason, some
of the financial data does not precisely match the data in the financial tables.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
TOTAL REVENUES
Total revenues for the six months ended June 30, 1998 increased 8.4% to
$322.9 million from $297.8 million for the six months ended June 30, 1997. These
increases were due primarily to increases in HMO premium revenue partially
offset by lower investment results.
PREMIUM REVENUE--HMO premium revenue for the six months ended June 30, 1998
increased 8.5% to $254.7 million from $234.8 million for the six months ended
June 30, 1997, as a result of increased average HMO medical premium per member
and increased average number of medical members. Average HMO medical premium per
member for the six months ended June 30, 1998 increased 3.2% from the same
period in the prior year due to premium increases, partially offset by benefit
buy downs. The average number of HMO medical members for the six months ended
June 30, 1998 increased 4.8% to 294,409 from 280,815 for the six months ended
June 30, 1997.
Premium revenue for specialty managed care products and services for the six
months ended June 30, 1998 increased 12.5% to $45.0 million from $40.0 million
for the six months ended June 30, 1997. This increase was due primarily to new
sales in the life and disability lines of business.
OTHER REVENUE--Other revenue for the six months ended June 30, 1998
increased 4.6% to $21.1 million from $20.2 million for the six months ended June
30, 1997.
35
<PAGE>
INVESTMENT RESULTS--Investment results include investment income and
realized gains (losses) on investments. Investment results for the six months
ended June 30, 1998 decreased 6.5% to $10.0 million from $10.7 million for the
six months ended June 30, 1997. Average annual investment yields, excluding net
realized gains, were 5.58% and 5.50% for the six months ended June 30, 1998 and
1997, respectively. Net realized investment gains for the six months ended June
30, 1998 decreased to $5.0 million from $5.5 million for the six months ended
June 30, 1997. Average invested assets for the six months ended June 30, 1998
decreased $9.6 million to $176.8 million from $186.4 million for the six months
ended June 30, 1997. Investment gains are realized in the normal investment
process in response to market opportunities. In addition, during 1997 Newco
reduced its exposure to equity investments resulting in above average realized
gains.
EXPENSE RATIOS
LOSS RATIO--The combined loss ratio represents the ratio of medical and
other benefits to premium revenue for Newco on a combined basis, and is a
blended ratio for medical, life, dental, disability and other product lines. The
combined loss ratio was 85.7% for the first six months of 1998 and 86.8% for the
first six months of 1997. The combined loss ratio is influenced by the component
loss ratio for each of Newco's primary product lines, as discussed below.
The medical loss ratio for HMO products for the six months ended June 30,
1998 was 88.4%, compared with 89.5% for the six months ended June 30, 1997. The
decrease in the medical loss ratio in 1998 for HMO products is due primarily to
provider recontracting with a shift to additional capitation in the Southeastern
Wisconsin HMO market.
The loss ratio for specialty managed care products and services for the six
months ended June 30, 1998 was 70.4% compared with 71.3% for the six months
ended June 30, 1997. The decrease is primarily attributable to improved results
in the United Heartland worker's compensation block of business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO--The selling, general and
administrative ("SGA") expense ratio includes commissions, administrative
expenses, and premium taxes and other assessments. The SGA expense ratio for HMO
products for the first six months of 1998 was 9.4% which remained consistent
with the first six months of 1997.
Included in SGA expenses are assessments related to the Health Insurance
Risk Sharing Plan ("HIRSP"). HIRSP is a fund established by the State of
Wisconsin to provide major medical and Medicare supplemental insurance for
persons unable to obtain this insurance in the private market or who can only
obtain substandard or excessive costly insurance due to their health status.
HIRSP is funded by premiums paid by insureds, assessments to health insurers and
subsidies from the State of Wisconsin. Every insurer (foreign or domestic) doing
business in the State of Wisconsin is required to participate in the funding of
and administration of HIRSP. The assessments paid by Newco during the six months
ended June 30, 1998 were $493,000 compared to $811,000 for the same period in
1997.
SGA expenses related to specialty managed care products and services
increased 25.8% for the six months ended June 30, 1998 to $11.7 million from
$9.3 million for the same period in the prior year. This increase was due to an
increase in premium and other revenue, along with higher investments in improved
system capabilities and enhancements and related system conversion and training
costs, in addition to an increase in loss adjusting expenses recorded on the
workers' compensation TPA unit.
OTHER EXPENSES
Profit sharing on joint ventures was $1.4 million for the six months ended
June 30, 1998, compared with $1.2 million for the six months ended June 30,
1997. These balances represent payments to providers for profit sharing expenses
related to the Unity and Valley joint ventures.
36
<PAGE>
NET INCOME
Combined net income for the six months ended June 30, 1998 increased 23.4%
to $10.4 million from $7.9 million for the six months ended June 30, 1997. The
increase in net income was due primarily to increased premium revenues coupled
with a stable loss ratio and a decrease in the SGA expense ratio.
Newco's effective tax rate was 39.0% for the six months ended June 30, 1998
compared with 38.1% for the six months ended June 30, 1997. Newco's effective
tax rate fluctuates based upon the relative profitability of Newco's product
lines and the differing effective tax rates for each of those product lines.
1997 COMPARED WITH 1996 AND 1996 COMPARED WITH 1995
TOTAL REVENUES
Total revenues in 1997 increased 12.8% to $609.1 million from $539.8 million
in 1996. Total revenues in 1996 increased 7.8% from $500.8 million in 1995.
These increases were due primarily to increased premium and other revenue as a
result of membership increases and increased net investment gains.
PREMIUM REVENUE--HMO premium revenue in 1997 increased 13.8% to $479.2
million from $421.2 million in 1996. HMO premium revenue in 1996 increased 4.7%
from $402.4 million in 1995. The increases in both years are primarily due to
increases in average HMO premium revenue per member and increases in the average
number of HMO medical members. Average HMO medical premium per member in 1997
increased 3.0% from 1996 and 3.1% from 1995, due to premium increases, partially
offset by benefit buy downs. The average number of HMO medical members in 1997
increased 10.8% to 287,534 from 259,507 in 1996. This increase was due in part
to the elimination of a key provider from the network of one of Compcare's
competitors, resulting in a shift of members to Compcare. The average number of
HMO medical members in 1996 increased 1.6% from 255,471 in 1995.
Premium revenue for specialty managed care products and services in 1997
increased 13.8% to $83.9 million from $73.8 million in 1996. Premium revenue in
1996 increased 9.7% from $67.2 million in 1995. The increase was due primarily
to an increase in life and disability premiums in both years and an increase in
workers' compensation premiums in 1997. The increases in life and disability
premiums were driven by membership increases, while the increase in workers'
compensation premiums was due primarily to a change in the reinsurance agreement
related to this business. In 1996, Newco ceded 50% of the workers' compensation
premiums written by United Heartland, Inc. to a third-party reinsurer. In 1997,
the percentage ceded to the outside reinsurer was reduced to 40%.
OTHER REVENUE--Other revenue in 1997 increased 1.3% to $40.0 million from
$39.5 million in 1996. Included in other revenue in 1996 is a $1.5 million gain
on the sale of the vision line of business which is non-recurring. Other revenue
in 1996 increased 32.1% from $29.9 million in 1995. After adjusting for the gain
on the sale of the vision line of business, other revenue increased by 5.2% from
1996 to 1997 and by 27.1% from 1995 to 1996. These increases are primarily
attributable to growth in managed behavioral health, electronic claims and
pharmacy management services.
INVESTMENT RESULTS--Investment results include investment income and
realized gains (losses) on investments. Investment results in 1997 increased
16.8% to $22.2 million from $19.0 million in 1996. Investment results in 1996
increased 97.0% from $9.7 million in 1995. Increases in both 1996 and 1997 were
due primarily to increased net investment gains. Average annual investment
yields, excluding net realized gains, were 5.75%, 5.90% and 5.15% for 1997, 1996
and 1995, respectively. Investment results in 1997 included $1.8 million of
mutual fund distributions which were recorded as investment income in December
1997. Net realized investment gains increased from $1.1 million in 1995 to $8.4
million in 1996 and $11.9 million in 1997. Investment gains are realized in the
normal investment process in response to market opportunities. In addition, a
portion of the gains realized during the second half of 1997 were achieved as
part of a portfolio restructuring to reduce the overall level of equity
investments from 10% to
37
<PAGE>
5%. Average invested assets in 1997 declined 0.1% to $179.5 million from $180.7
million in 1996. Average invested assets in 1996 increased 8.5% from $166.6
million in 1995. Changes in levels of average invested assets relate to ongoing
operations, including collection of receivables and timing of claim payments.
EXPENSE RATIOS
LOSS RATIO--The combined loss ratio represents the ratio of medical and
other benefits to premium revenue for Newco on a combined basis, and is a
blended ratio for medical, life, dental, disability and other product lines. The
combined loss ratio was 87.3% in 1997 compared with 86.8% in 1996 and 89.1% in
1995. The combined loss ratio is influenced by the component loss ratio for each
of Newco's primary product lines, as discussed below.
The medical loss ratio for HMO products in 1997 was 89.5%, compared with
89.8% in 1996 and 91.1% in 1995. The higher loss ratio in 1995 is attributable
to the competitive market conditions in southeastern Wisconsin where pricing
pressures, coupled with increased utilization, had an adverse impact on
Compcare's loss ratio.
The loss ratio for specialty managed care products and services in 1997 was
74.1%, compared with 69.8% in 1996 and 77.1% in 1995. The higher loss ratio in
1997 and 1995 was due primarily to higher loss experience on the life and
disability products marketed by UHLIC and UWIC. The 1995 loss ratio reflects
unusually high life insurance claims as well as higher than average workers'
compensation claims which were partially offset by a profit sharing payment from
a joint venture partner. This profit sharing payment was recorded as other
revenue. The anticipated loss ratio for specially managed care products is in
the range of 70% to 75%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO--The SGA expense ratio
includes commissions, administrative expenses, and premium taxes and other
assessments. The SGA expense ratio for HMO products in 1997 was 9.2%, compared
with 9.3% in 1996 and 9.2% in 1995.
SGA expenses related to specialty managed care products and services
increased 11.6% in 1997 to $57.9 million from $51.9 million in 1996. SGA
expenses related to specialty managed care products and services increased 28.3%
in 1996 to $51.9 million from $40.5 million in 1995. Increases in SGA expenses
are tied to premium and other revenues which increased 8.0% in 1997 compared
with 1996 and increased 16.6% in 1996 compared with 1995. In addition, the mix
of business shifted over these yearly periods, as a result of greater growth in
ancillary lines of business that have higher SGA expense ratios.
OTHER EXPENSES
Profit sharing on joint ventures was $3.4 million in 1997, compared with
$2.9 million in 1996 and $2.7 million in 1995, net of intercompany eliminations.
Included in this caption is expense related to the Unity and Valley joint
ventures and income from the workers' compensation joint venture. Profit sharing
expenses related to the Unity and Valley joint ventures were $4.0 million, $3.0
million and $2.7 million in 1997, 1996 and 1995, respectively. Income from the
workers' compensation joint venture was $0.6 million and $0.1 million in 1997
and 1996, respectively.
NET INCOME
Combined net income in 1997 decreased 3.1% to $15.8 million from $16.3
million in 1996. Combined net income in 1996 increased 201.9% from $5.4 million
in 1995 due primarily to an increase in investment results.
Newco's effective tax rate was 37.4% in 1997, compared with 37.4% in 1996
and 34.8% in 1995. Newco's effective tax rate fluctuates based upon the relative
profitability of Newco's three product lines and the differing effective tax
rates for each of those product lines.
38
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Newco's sources of cash flow consist primarily of premium and other revenues
and investment income. The primary uses of cash include medical and other
benefits and operating expense payments. Positive cash flows are invested
pending future payments of medical and other benefits and other operating
expenses. Newco's investment policies are designed to maximize yield, preserve
principal and provide liquidity to meet anticipated payment obligations.
For the six months ended June 30, 1998 and 1997, net cash provided by
operations amounted to $2.1 million and $8.2 million, respectively. Net cash
provided by operating activities amounted to $2.8 million, $6.6 million and
$11.4 million in 1997, 1996 and 1995, respectively. The fluctuations in cash
flow from operations related to net income as well as levels in intercompany
balances, advanced premiums and claims payable. Due to periodic cash flow
requirements of certain subsidiaries, Newco made borrowings under its bank line
of credit ranging up to $8.5 million during 1997 and up to $10.0 million for the
six months ended June 30, 1998 to meet short-term cash needs. No balance was
outstanding at December 31, 1997 or June 30, 1998.
Newco's investment portfolio consists primarily of investment grade
corporate bonds, Government securities and common stock. At June 30, 1998,
$122.0 million or 75.2% of Newco's total investment portfolio was invested in
bonds compared to $127.9 million or 80.1% at December 31, 1997 and $123.8
million or 75.8% at December 31, 1996. The bond portfolio had an average quality
rating of A1 at June 30, 1998 and Aa3 at December 31, 1997, and December 31,
1996 based on Moody's Investor Service ratings, and the majority of the bond
portfolio was classified as available for sale. In accordance with Statement of
Financial Accounting Standards No. 115, bonds classified as available for sale
are recorded on Newco's balance sheet at market value. Newco's Government
securities at June 30, 1998 consisted of $27.9 million in U.S. Treasury
securities, $26.7 million of Government agency mortgage-backed securities, $5.7
million of foreign government securities, and $2.0 million of state and
municipal securities. Government agency mortgage-backed securities are subject
to certain risks. The actual maturity of a mortgage-backed security varies,
depending on when the mortgagors prepay or repay the underlying mortgage loans.
Prepayments on the underlying mortgage loans may shorten the life of the
investment, thereby adversely affecting its yield to maturity and the related
market value of the mortgage-backed security. Therefore, mortgage-backed
securities are particularly subject to reinvestment risk. For example, during
periods of falling interest rates, higher coupon mortgage-backed securities are
more likely to prepay, and Newco may not be able to reinvest the proceeds from
prepayments in securities with yields similar to those of the prepaying
mortgage-backed securities. Furthermore, prepayments on mortgage-backed
securities are influenced significantly by general interest rates, economic
conditions and competition. During the years ended December 31, 1996 and 1997,
the effects of prepayments of mortgage-backed securities on Newco's financial
condition and/or results of operations were not material. Newco's equity
holdings consist of a diversified portfolio of publicly traded domestic common
stocks. The market value of the total investment portfolio, which includes
stocks and bonds, exceeded amortized cost by $3.9 million, $4.8 million and $6.3
million at June 30, 1998, December 31, 1997 and 1996, respectively. Unrealized
holding gains and losses on bonds classified as available for sale are included
as a component of shareholders' equity, net of applicable deferred taxes. Newco
has no investments in mortgage loans, non-publicly traded securities, real
estate held for investment or financial derivatives.
From time to time, Newco makes capital contributions to its subsidiaries to
assist them in maintaining appropriate levels of capital and surplus for
regulatory and rating purposes. Insurance subsidiaries are required to maintain
certain levels of statutory capital and surplus. In Wisconsin, where a large
percentage of Newco's premiums are written, these levels are based upon the
amount and type of premiums written and are calculated separately for each
subsidiary. As of December 31, 1997, statutory capital and surplus for each of
these insurance subsidiaries exceeded required levels. Should premium growth
outpace existing capital, the insurance subsidiaries may seek additional capital
from Newco or may utilize reinsurance as a means of reducing the capital
requirement.
39
<PAGE>
The Unity and Valley joint ventures are subject to buy back arrangements
whereby the joint venture partners have rights to repurchase these HMOs for a
stated premium over book value. Should the buy back options be exercised, Newco
would receive an amount equal to the premium over book value but would lose
rights to the future profits on the HMO. The cash received by Newco pursuant to
the exercise of the buy back option could be redeployed to support additional
premium writings, acquire other businesses or be invested to earn a portfolio
return. Due to these alternative uses of capital, the potential buy back
arrangements do not represent material claims against Newco's liquidity and
capital resources.
The amount of dividends which may be paid to Newco from insurance
subsidiaries are limited by state regulation. In the past, the insurance
subsidiaries have been allowed, with prior notification to the OCI, to pay
dividends in excess of the ordinary dividend levels prescribed by regulation.
In addition to internally generated funds and periodic borrowings on its
bank line of credit, Newco believes that additional financing to facilitate
long-term growth could be obtained through equity offerings, debt offerings,
financings from BCBSUW or bank borrowings, as market conditions may permit or
dictate. Immediately after the Distribution, Newco recognizes that its debt to
equity ratio will be high, primarily as a result of its assumption of the $70.0
million loan from BCBSUW to UWS. However, Newco believes that this ratio should
improve within a year following the Distribution Date, as a result of BCBSUW's
intended purchases of shares of Newco Common Stock to bring its direct and
indirect ownership of Newco from 38.1% to approximately 51%. The purchase price
for the shares of Newco Common Stock which are purchased directly from Newco
will be paid through either the cancellation of a corresponding portion or all
of the $70.0 million debt obligation or in cash. BCBSUW may purchase some of the
shares of Newco Common Stock in the open market.
INFLATION
Health care costs have been rising and are expected to continue to rise at a
rate that exceeds the consumer price index. Newco's cost control measures,
risk-sharing incentive arrangements with medical care providers, and premium
rate increases are designed to reduce the adverse effect of medical cost
inflation on its operations. In addition, Newco utilizes its ability to apply
appropriate underwriting criteria in selecting groups and individuals and in
controlling the utilization of health care services. However, there can be no
assurance that Newco's efforts will fully offset the impact of inflation or that
premium revenue increases will equal or exceed increasing health care costs.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of Newco's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Newco has determined that it will be required to modify or replace portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Newco's financial systems were
replaced with software which is Year 2000 compliant effective January 1, 1998.
Newco's operating subsidiaries have reviewed their computer systems and are in
the process of addressing the Year 2000 issue. The operating system for Compcare
is being converted from its current platform to a Year 2000 compliant system
operated by a third party vendor. This conversion is scheduled for completion
during the third quarter of 1998. Valley's operating system has been upgraded
and is Year 2000 compliant. Unity is in the process of testing upgrades to its
claims processing system which is scheduled for implementation by year end 1998.
During the past two years, United Heartland has worked to customize a purchased
operating system which is Year 2000 compliant. This system is fully operational.
Software, that is Year 2000 compliant, has been purchased to administer the
life, disability and dental products sold by
40
<PAGE>
UWIC, UHLIC and Heartland Dental. This software is in the process of being
installed with a target effective date of December 1, 1998. None of Newco
subsidiaries sell products which are characterized as long duration contracts.
Newco has estimated that it will have costs totalling approximately $2.5 million
in 1998 and 1999 to make such modifications or replacements. Based on ongoing
assessments of progress on system upgrades and conversions, Newco believes that
the Year 2000 Issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not completed timely, the Year 2000 Issue could have a material impact on
the operations of Newco.
Newco has initiated formal communications with its systems processing vendor
and all large customers using electronic interfaces to determine the extent to
which Newco's interface systems are vulnerable to those third parties' failure
to remedy their own Year 2000 Issues.
Newco will utilize both internal and external resources to reprogram, or
replace, and test the software for the Year 2000 modifications. Newco
anticipates completing the Year 2000 projects by December 31, 1998, which is
prior to any anticipated impact on its operating systems. A number of repairs to
current systems are covered by existing maintenance agreements and by normal
operational upgrades and do not present incremental additional expense. Costs
related to modification of existing computer hardware and software are expensed
as incurred. Purchases of new hardware or software in replacement of non-
compliant hardware or software are being capitalized in accordance with Newco's
standard accounting practices.
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<PAGE>
BUSINESS OF NEWCO
GENERAL
Newco is a Wisconsin corporation organized in May 1998 as a wholly owned
subsidiary of UWS, and will continue to be a wholly owned subsidiary of UWS
until the Effective Date. Newco's principal executive offices are located at 401
West Michigan Street, Milwaukee, Wisconsin 53203.
On the Effective Date, UWS will contribute to Newco all of the stock of the
Managed Care Companies, the Management Business and working capital for the
Management Business, in exchange for shares of Newco Common Stock and
the assumption by Newco of certain unfunded employee post-retirement health
benefit liabilities, certain accrued expenses, a $70.0 million loan from BCBSUW
and all other liabilities relating to the Managed Care Companies and the
Management Business. Immediately thereafter, UWS will own 100% of the issued and
outstanding shares of Newco Common Stock. On the Distribution Date, UWS then
will distribute all of the outstanding shares of Newco Common Stock to its
shareholders on a one-for-one basis.
On and after the Effective Date, Newco will be a leading managed care and
employee benefits company primarily in Wisconsin, but also will serve markets in
38 other states. The products and services offered by Newco will comprise a
broad range of group medical and related benefit products which provide
employers with cost effective solutions to their employee benefits needs. The
medical products are delivered through health maintenance organizations that
encourage or require use of contracting providers. HMOs help control health care
costs by various means, including utilization controls such as pre-admission
approval for hospital inpatient services, pre-authorization of outpatient
surgical procedures, and capitated or discounted fee arrangements. Newco also
will offer various specialty products and services, including group life,
dental, disability income, workers' compensation and electronic claim
transmission services.
Since its acquisition by Newco in 1992, Valley, an HMO in Northwestern
Wisconsin, has operated as a joint venture with Midelfort, its main provider.
Unity, an HMO serving Southwestern and Central Wisconsin, was formed by the
combination of HMO of Wisconsin Health Insurance Corporation ("HMO-W") and the
business of U-Care HMO, Inc., ("U-Care"). HMO-W and U-Care were purchased by
Newco effective October 1, 1994. Unity is operated as a joint venture among
Newco, CHS and UHC, which through their affiliates, Community Physicians'
Network, Inc. ("CPN") and the University of Wisconsin-Madison Medical Center,
constitute the provider networks for Unity.
Newco's HMO products are sold primarily by a salaried sales force to
employers and other groups, including Medicaid-eligible individuals, throughout
Wisconsin. Specialty products and services are sold through a variety of
distribution channels to employer groups and providers in Wisconsin and
throughout the United States.
The following table lists earned premiums and other revenue for Newco's
various lines of business for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
HMO products earned premiums and other revenue....... $ 402,354 $ 421,248 $ 479,182 $ 234,750 $ 254,702
Specialty managed care products and services and
other revenue...................................... 97,138 113,277 123,859 60,270 66,191
Eliminations....................................... (8,341) (13,801) (16,170) (7,909) (7,913)
---------- ---------- ---------- ---------- ----------
Total earned premiums and other
revenue........................................ $ 491,151 $ 520,724 $ 586,871 $ 287,111 $ 312,980
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
42
<PAGE>
NEWCO'S STRATEGY
Newco believes current market conditions in health care favor companies that
provide quality health care products and services, while ensuring meaningful
cost containment for the buyer. Newco also believes there are significant niches
offering opportunities for companies that are responsive to consumer demand for
affordable health care. Newco is a managed care leader in Wisconsin due to the
quality and extent of its provider network, the number of members, the breadth
of its managed care product offerings and the pricing of those products. Newco
also believes there are opportunities to develop or enhance specialty managed
care products and services which will leverage Newco's expertise in the health
care market. To take advantage of market opportunities, Newco has developed the
following business strategy:
- EMPHASIZE COST-EFFECTIVE ACCESS TO QUALITY HEALTH CARE OPTIONS. Newco
believes that rising health care costs continue to cause buyers to seek
cost-effective quality health care options for employees. Newco plans to
focus on this demand through its HMO and specialty managed care products
by offering a full range of products coupled with state-of-the-art managed
care techniques and competitive administrative costs. Newco recently began
marketing its "United 24" product in selected Wisconsin counties which
combines health, disability and workers' compensation coverage into a
single lower premium product.
- PURSUE ACQUISITIONS AND DEVELOP STRATEGIC ALLIANCES. Newco intends to
continue to pursue strategic acquisitions and alliances, including
agreements with providers that it believes will complement or enhance its
existing products and/or markets. Since 1996, Newco has expanded its HMO
operations through two new start-up HMO's in the northern half of
Wisconsin in a partnership arrangement with two major providers. Newco
also recently completed the acquisition of the remaining interest in CNR.
Further, Newco believes that additional strategic alliances will enable
Newco to provide additional products and services in its existing markets.
- EXPAND GEOGRAPHICALLY. Newco intends to continue to expand its activities
outside of its traditional areas of operation both inside and outside of
Wisconsin. Compcare has continued to increase its market share in
southeastern Wisconsin by expanding its provider networks in counties
surrounding Milwaukee. Newco has recently initiated a plan to expand
Heartland Dental, its dental HMO product, to selected market territories
in a number of states in the upper Midwest. Newco continues to expand its
life and disability products through a brokerage sales effort in the upper
Midwest. The workers' compensation product is now being actively marketed
in Iowa and Illinois, and Newco seeks additional opportunities to expand
the workers' compensation business through acquisitions or strategic joint
ventures. In addition, Newco may acquire other managed care companies or
related lines of business in order to enter new markets both inside and
outside of Wisconsin.
- LEVERAGE BCBSUW RELATIONSHIP. When BCBSUW increases its direct or
indirect ownership of Newco to approximately 51%, Compcare intends to
license and use the Blue Service Marks with its products. Newco believes
this licensing and use will give Compcare a marketing and sales advantage
over its other managed care competitors in its markets. In addition, as a
result of its affiliation with BCBSUW, including through the Service
Agreements, Newco has access to BCBSUW's extensive database of health care
claims information. Newco believes this database provides it with a
competitive advantage since it is able to utilize the database to design,
underwrite, price and administer its products more effectively.
HMO PRODUCTS
PRODUCTS
Compcare, a wholly owned subsidiary of Newco, offers a variety of HMO and
POS products throughout Wisconsin. POS products have become the coverage of
choice for a number of employers as they provide a complete replacement for
programs which include a PPO plan or both traditional indemnity
43
<PAGE>
and HMO coverages. Compcare offers its members a broad network of providers
which include all three of the major physician hospital organizations in
Southeastern Wisconsin.
Valley, Newco's joint venture with Midelfort, offers the following plans:
(i) the Group Plan, a comprehensive HMO plan; (ii) the Partner Plan, a
traditional HMO plan which incorporates co-payments; (iii) POS products, which
combines a traditional HMO plan with an out-of-network benefit with deductible
and coinsurance; (iv) a Medicare Supplement product, which is designed to close
the gap between health care costs incurred and government programs' allowed
payments; (v) a small group product, combining managed care with deductibles and
co-payments; and (vi) an HMO Medicaid plan, which is a comprehensive HMO plan
for Medicaid recipients.
Unity, Newco's joint venture with CHS and UHC, offers a comprehensive group
plan which incorporates some co-payments and deductibles and a modified
comprehensive group plan which incorporates co-payments and deductibles as well
as coinsurance on certain benefits such as hospitalization and specialty care.
Unity also offers an individual plan, including an in-area conversion plan, and
a Medicare Supplement plan. In addition, Unity markets POS products with a wide
variety of benefit options.
The POS plans provide significant incentives for their members to utilize
the plans' managed care benefits and provide reduced benefits and increased
deductibles and co-payments when services are rendered by providers outside of
the HMO networks. In order to receive the higher level of benefits available
within the network, a member must receive care from a primary care physician or
be referred to a specialist by the primary care physician. These incentives
lower the overall premium for the group, even though the POS premiums tend to be
slightly higher than comparable traditional HMO products. POS plans provide a
greater level of health care cost control than a traditional HMO and an
indemnity plan. POS plans are sold generally as a complete replacement for an
employer's HMO and indemnity offerings.
MARKETING AND CUSTOMERS
Marketing HMO products generally is a two-step process. Presentations are
made first to employers. Once selected by an employer, Newco then directly
solicits members from the employee base. During periodic "open enrollments,"
when employees are permitted to change health care programs, Newco uses
advertising and work site presentations to attract new members. Virtually all of
the HMO employer group contracts are renewable annually.
Significant factors in HMO selection by employers and employees include the
composition of provider networks, quality of services, price, choice and scope
of benefits and market presence. To the extent permitted by OCI and the federal
government, Newco can offer an employer a wide spectrum of benefit options,
including federally qualified and non-federally qualified products. To address
rising health care costs, some employers now consider a variety of health care
options to encourage employees to use the most cost-effective form of health
care services. These options, which include HMO and POS plans, may either be
self-funded or provided by third parties.
As of June 30, 1998, HMO membership consisted of the following (in numbers
of individuals):
<TABLE>
<CAPTION>
COMMERCIAL
--------------------
HMO POS MEDICAID TOTAL
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Compcare........................................... 104,584 36,420 31,821 172,825
Valley............................................. 23,901 12,312 3,990 40,203
Unity.............................................. 62,843 16,819 5,218 84,880
--------- --------- ----------- ---------
191,328 65,551 41,029 297,908
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
Trends in membership over the last several years have shown that there is
strong growth in Newco's POS and Medicaid products, with slower growth in HMO
membership.
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<PAGE>
Compcare's operations in the seven counties in Southeastern Wisconsin
account for approximately 90% of its medical membership. The remainder of
Compcare's membership is spread throughout Wisconsin. Valley operates in a 15
county area in Western Wisconsin, and Unity operates in a 31 county area in
Southwestern and Central Wisconsin. During 1996, Newco entered into two
strategic partnerships to offer HMO products in Northern Wisconsin. Compcare
Northwest is a partnership with the Duluth Clinic to bring managed care
operations to the underserved rural market. Northwoods Health Plans, LLC is a
joint venture formed with Howard Young Health Care, Inc., a leading provider of
health care services in North Central Wisconsin. Newco believes that expansion
efforts should contribute to increased enrollment by attracting new employer
groups, by increasing penetration in existing employer groups, and by broadening
its access to the Medicaid population.
The following table identifies the seven group contracts with the largest
HMO earned premium for 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
EARNED PREMIUMS IN 1997
-------------------------
<S> <C>
Medicaid............................................................ 12.5%
State of Wisconsin.................................................. 11.7
Federal Employee Health Benefits Program............................ 4.5
Briggs & Stratton Corporation....................................... 3.1
City of Milwaukee................................................... 3.0
General Motors Corporation.......................................... 3.0
Milwaukee County.................................................... 2.8
-----
Subtotal........................................................ 40.6
Other employer groups (3,567 in number)............................. 59.4
-----
100.0%
-----
-----
</TABLE>
The HMOs have significant enrollment among federal, state and municipal
government employees, as well as employees represented by collective bargaining
units. Newco believes that health care will continue to be an important
negotiating issue with organized labor groups and the reputation of Newco's HMOs
are advantageous to its future marketing efforts.
Through one of the Service Agreements, Newco utilizes BCBSUW's salaried
sales force that as of December 31, 1997, consisted of 20 account
representatives and customer relations personnel, 36 account executives, one
agency manager, four agency consultants, and five sales directors, to market HMO
products. Newco directly employs a sales staff of seven account executives, one
sales director, one agency manager and two agency consultants who market
products for Unity as well as BCBSUW.
PROVIDERS
Compcare, Valley and Unity contract with physicians and hospitals to provide
medical services to their members. Members designate one physician in the
network as their primary care provider and are required to seek non-emergency
care from this physician.
Compcare has an extensive provider network in Southeastern Wisconsin, which
included 3,111 physicians as of December 31, 1997. Compcare is the only HMO that
contracts with all eight of the largest multi-specialty clinics in Milwaukee for
the provision of health care services to its members. This network is augmented
by individual physicians, hospitals and IPAs affiliated with Milwaukee's large
hospitals. Providers outside of Milwaukee consist of multi-specialty clinics and
hospitals. Ancillary services are provided under capitated arrangements through
sub-networks including chiropractic, mental health, oral surgery, home care,
durable medical equipment and vision. No single provider represents a material
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<PAGE>
relationship in Compcare's provider network. Compcare's contracts with providers
renew annually. Compcare considers its relationships with its provider networks
to be good and has been able to renew its provider contracts on acceptable
terms.
Approximately 56.5% of Valley's medical and other benefits are provided
under an arrangement with Midelfort and its affiliate, Luther Hospital, which
Newco believes is the leading medical services provider in Eau Claire,
Wisconsin. Arrangements with three smaller area clinics and five other hospitals
provide a majority of the other Valley medical and other benefits. As of June
30, 1998, Valley's provider network consisted of 324 physicians. Approximately
81% of Valley's physician services are provided under the Midelfort arrangement.
Valley has contracts with six hospitals (one of which is affiliated with
Midelfort) which have provided a majority of Valley's hospital services. The
relationship with Midelfort is generated by the Valley joint venture agreement,
which is renewable by the parties through December 31, 2002. Valley's contracts
with its other providers renew annually. Newco considers its relationships with
Midelfort and its other providers for Valley to be good and has been able to
renew provider contracts on acceptable terms.
Unity contracts with CPN, an Independent Physician Association ("IPA"), and
UHC, an affiliate of the University of Wisconsin Hospital and Clinics, which
together provide all of the physician services for Unity's membership throughout
its 31 county service area. The contracts with CPN and UHC are renewable through
October 1, 2004. CPN and UHC collectively contract with approximately 400
primary care providers and 2,100 specialists and ancillary health care
providers. In addition, Unity contracts directly with approximately 50 acute
care and specialty care hospitals. Newco believes its CPN and UHC provider
relationships are good, and CPN and UHC have been able to renew their provider
contracts on acceptable terms.
Compcare, Valley and Unity manage the cost of health care provided to their
members through the method of payment and risk-sharing programs with physician
groups and hospitals and with their utilization management program. The method
of payment consists of a mixture of capitation, fee schedules and discounted
fee-for-service arrangements. Capitation allows the payment of a fixed amount
per member per month to providers, regardless of services provided, which
stabilizes medical and dental costs. Capitation encourages providers to avoid
unnecessary utilization of hospital, physician and ancillary health care
services. For the six months ended June 30, 1998, approximately 43%, 24% and 96%
of Compcare's, Valley's and Unity's medical benefits, respectively, were
provided under capitated arrangements.
For certain medical providers, compensation for services is calculated on a
discounted fee-for-service basis. Under this arrangement, Newco will reimburse
physician groups for services rendered based upon negotiated fee schedules or
usual and customary charges less an agreed upon discount. Hospitals may be
reimbursed at a set per diem rate for each inpatient day, on a flat rate per
procedure basis, or on a discounted charge basis. In fee-for-service
arrangements, risks associated with utilization are retained by Compcare and
Valley. However, such arrangements provide Compcare and Valley with greater
pricing flexibility and opportunities to benefit by application of underwriting
on a group specific or individual basis. Furthermore, fee schedule-based
compensation allows Compcare and Valley to better target improvement in loss
ratios through product development and benefit modification. Such changes are
more difficult in a capitated system since capitation levels must be
renegotiated before any effective changes can be made to benefits or products.
One capitated physician group and two hospital systems in Compcare's
provider network elect to participate in stop-loss arrangements with Newco. For
example, one of the hospital systems elected a stop-loss arrangement in which
the inpatient, outpatient and professional service costs incurred for any
eligible member cannot exceed $75,000 in a given contract year. Any cumulative
costs in excess of $75,000 per year are paid to the provider in addition to the
capitation payments previously paid. These arrangements limit the facility's or
group's claim liability to a fixed amount per member per year. Claim costs in
excess of stop-loss limits are reimbursed by Compcare to the participating
providers and represent approximately 0.2% of the total capitation payments in
1997.
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<PAGE>
OPERATIONS OF JOINT VENTURE ARRANGEMENTS
Valley is operated as a joint venture with Midelfort. The joint venture
began in 1992 and had an initial five year term. The joint venture was renewed
for an additional three year term through January 1, 2000, with an option for an
additional three year renewal term or renewal terms of one year each. During the
initial five year term, after-tax profits were shared equally with Midelfort.
Effective January 1, 1997, 50% of pre-tax profits are shared with Midelfort.
Profit sharing with Midelfort equaled $1.3 million, $0.8 million and $0.9
million during 1997, 1996 and 1995, respectively, and $0.7 million for the six
months ended June 30, 1998. Midelfort has an option to repurchase Valley on
December 31, 1999 for Valley's net equity plus $400,000. If Midelfort exercises
its repurchase option under the terms of the joint venture agreement, Newco
would have no ongoing interest in Valley.
Unity is operated as a joint venture among Newco and its partners, CHS and
UHC. The joint venture agreements have ten year terms which run through November
1, 2004. During the terms of the joint venture agreements, 50% of the pre-tax
profits are shared with the joint venture partners, with CHS receiving 30% and
UHC receiving 20%. The profit sharing payments by Unity to CHS and UHC together
were $2.3 million, $2.0 million and $1.8 million for 1997, 1996 and 1995,
respectively, and $1.0 million for the six months ended June 30, 1998. The
partners have the option to repurchase the businesses originally sold to Newco
and the increased membership related to their respective provider networks on
November 1, 1999 or November 1, 2004. CHS has the right to repurchase the former
HMO-W business related to the rural provider networks and the Unity legal entity
for the book value of Unity related to the business being repurchased plus
$500,000. If CHS exercises this repurchase option, Newco would need to transfer
the remaining Unity business to one of its other Managed Care Companies. UHC has
the option to repurchase the former U-Care business related to the University of
Wisconsin provider network for the value of the net worth of Unity related to
the business being repurchased plus $500,000. Exercise of the repurchase option
ends the joint venture with respect to that partner but the venture would
continue with the others. If both repurchase options are exercised, Newco would
have no ongoing interest in Unity.
COST CONTAINMENT
The majority of medical management and cost containment services for
Compcare are provided by Meridian Managed Care, Inc. Services for Valley and
Unity are coordinated by medical directors in conjunction with the medical
staffs of their joint venture partners.
MANAGEMENT INFORMATION SERVICES
Each of Newco's HMOs utilizes information systems developed and/or
customized specifically to meet the needs of the HMO. The information systems
support marketing, sales, underwriting, contract administration, billing,
financial and other administrative functions as well as provider capitation and
claims administration, provider management, quality management and utilization
review.
Newco continually evaluates, upgrades and enhances the information systems
which support its operations. Information systems utilized by Compcare and
Valley are outsourced to a third party.
SPECIALTY MANAGED CARE PRODUCTS AND SERVICES
In the last few years, Newco has focused on growing its specialty products
and services it offers. Such products and services include prepaid dental care,
life and disability insurance, workers' compensation and managed behavioral
health benefits, managed care consulting, electronic claims processing and other
medical benefits. Such specialty products are sold through a variety of methods,
including brokers, agents and an in-house sales force.
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<PAGE>
DENTAL
At year end 1997, a separate corporate entity, Heartland Dental Plan, Inc.
("HEARTLAND DENTAL"), was established to manage Newco's dental HMO operations
(formerly known as Dentacare). Heartland Dental was established as a separate
entity to facilitate growth of prepaid dental business outside of Wisconsin.
Prepaid dental services were provided to 168,044 members as of June 30, 1998,
which makes Heartland Dental the largest dental HMO in Wisconsin. Premium
revenues attributable to Heartland Dental were $27.8 million for the year ended
December 31, 1997. Heartland Dental contracts with group dental practices on a
capitated basis throughout Wisconsin and Northern Illinois. Members receive
services through their selected dental center. In addition, Heartland Dental
offers POS and out-of-area products. The Heartland Dental provider network had
279 dental providers as of June 30, 1998. Newco considers its relationship with
its dental provider network to be good and has been able to renew its dental
provider contracts on acceptable terms. Heartland Dental competes with other
regional and national managed care dental plans, indemnity dental insurance,
self funded dental plans and direct reimbursement dental programs.
Heartland Dental offers ten different products with varying benefit options,
most of which cover all preventive and diagnostic services. Other services are
offered at various levels of coverage. All products cover pre-existing
conditions and the full range of dental services, including orthodontics.
LIFE AND DISABILITY
Newco offers group term life and AD&D coverages as well as dependent life
and accelerated death benefits. Short and long-term disability products have
been designed to provide income replacement for an employee who becomes disabled
through a non-work related situation. Newco's Rapid Pay plan is a unique
short-term disability product by which claimants receive benefits on a timely
basis with minimal up-front paperwork. As of June 30, 1998, Newco had a total of
253,490 life and disability certificates. Premium revenue related to life and
disability products was $34.0 million for the year ended December 31, 1997. Life
products are underwritten by United Wisconsin Life Insurance Company ("UWLIC"),
a wholly-owned subsidiary of AMSG, and ceded to United Heartland Life Insurance
Company ("UHLIC"), which is licensed in Ohio and Wisconsin. UWLIC is licensed to
do business in 39 states and the District of Columbia. United Wisconsin
Insurance Company ("UWIC"), which sells disability products, is licensed in 35
states and the District of Columbia. Newco competes with national providers of
group life and disability coverage.
An insurance company's rating is an important factor in establishing its
competitive position. In 1997, UWIC, UWLIC and UHLIC were assigned ratings of
"A-" "(Excellent)" by A.M. Best Company, Inc. ("BEST"). The "A-" "(Excellent)"
rating is the fourth highest rating given to insurance companies.
MANAGED CARE WORKERS' COMPENSATION
Through United Heartland, Inc. ("UNITED HEARTLAND"), Newco applies managed
care techniques to the workers' compensation market in Wisconsin. United
Heartland is a managing general agent that until January 1, 1995 was owned
equally by Newco and Aon Corporation ("AON"). On January 1, 1995, Newco
exercised its option to acquire Aon's interest in United Heartland, thereby
making United Heartland a wholly owned subsidiary of Newco. The workers'
compensation coverage sold through United Heartland is underwritten by UWIC in
those states where UWIC is licensed to provide such coverage. A reinsurer
underwrites risk for coverage in those states where UWIC is not licensed to
provide workers' compensation coverage. Premium revenue attributable to United
Heartland approximated $21.0 million during 1997. During 1997 and the first six
months of 1998, Newco retained 60% of the workers' compensation risk and ceded
the other 40% to a reinsurer. The workers' compensation market, both nationally
and in the state of Wisconsin, is extremely competitive. Competition has
primarily come from the large, national multi-line property and casualty
insurance companies.
48
<PAGE>
Newco believes the key elements to success in the workers' compensation
insurance business are service to employers and control of workers' compensation
costs through comprehensive loss control and claims management procedures. As
part of its underwriting process, United Heartland performs a loss control
review of each prospective insured prior to making a commitment to provide
coverage. It also examines the employer's commitment toward developing or
improving light duty/return to work programs, safety awareness programs,
supervisor training in accident investigation and enforcement of safety in the
workplace. United Heartland also reviews the financial resources of the
employers to verify an ability to follow through on any commitments made that
may require a capital expenditure.
United Heartland utilizes medical management resources to assist in the
adjustment of its claims, which include: (i) access to BCBSUW's usual and
customary charges database; (ii) the PPO network established by Newco for United
Heartland clients; and (iii) access to the hospital bill audit and medical staff
of Newco as needed in claims handling. Newco believes this managed care
capability, combined with a commitment to communicating with employers,
employees and medical providers, assists United Heartland in monitoring the
major cost factors of workers' compensation claims. Cost savings have been
demonstrated as United Heartland's customers over the six year period ended
December 31, 1997 have experienced a 16% drop in the cost of their workers'
compensation claims.
MANAGED CARE CONSULTING
Through Meridian Resource Corporation ("MERIDIAN"), Newco specializes in
providing consulting and technical services to insurance companies, employers,
providers, government agencies, coalitions and other organizations to make
decisions regarding health care benefits and more effective health care
delivery. Consulting services include health care data analysis, hospital cost
indexing and analysis, feasibility studies and economic analysis. Technical
services include hospital bill audit, data analysis and reporting, claims audit
and subrogation recovery services. Meridian also has established a niche in
collecting salvage and subrogation recoveries for self-insured groups and other
health insurers. Newco competes against other stand-alone companies that provide
similar cost reduction strategies and other large insurance companies that have
these functions. Revenues from managed care consulting services totalled $10.7
million for the year ended December 31, 1997.
Newco's combined medical management functions are conducted through Meridian
Managed Care, Inc. ("MMC"). MMC primarily serves the population of Compcare and
BCBSUW but also markets its programs to non-affiliated organizations. MMC
controls costs by promoting quality and efficiency. Central to its effectiveness
is promoting and developing partnerships with providers.
MMC's utilization management program provides comprehensive, custom-designed
strategies which protect its members and control costs by ensuring
cost-effective, quality care. MMC's traditional utilization management program
offers inpatient prior authorization, admission review, continued stay review,
discharge planning, patient education, appropriateness review and outpatient
procedure review.
ELECTRONIC CLAIM SUBMISSION
United Wisconsin Proservices, Inc. ("PROSERVICES") provides software and
claim submission services and has created the largest provider/insurer network
for such services in Wisconsin, extending to 103 hospitals and 75 clinics in
Wisconsin, and 530 home health agencies nationwide. Proservices electronically
transmits more than seven million medical claims annually for such clients as
Medicare, Medicaid, private insurers, third party administrators and re-pricers.
Proservices competes with other hospital software vendors and national suppliers
of electronic claims processing.
MANAGED BEHAVIORAL HEALTH
CNR Health, Inc. ("CNR") is a managed care organization that provides
cost-effective behavioral health care management solutions to a variety of
customers. In December 1997, Newco increased its
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<PAGE>
ownership of CNR from 53% to 100%. CNR's primary products include behavioral
health management, provider networks, employee assistance programs, medical
management, 24-hour triage, disability management, claims administration and
Healthy Additions, its prenatal program. In 1997, CNR introduced its Cavion
behavioral health management software product to the market and formed a
partnership with two local organizations to become one of the entities managing
the Wisconsin Works ("W-2") program. W-2 is a new program that replaced Aid to
Families with Dependent Children with programs to prepare individuals for the
job market and help them find and keep those jobs. CNR competes with other
national providers of behavioral health management services.
CNR customers include insurance companies, self-funded employers, third
party administrators, Medicaid and other governmental entities. Through its
managed care programs, CNR managed approximately 913,500 lives as of June 30,
1998, while its revenues for the year ended December 31, 1997 were $18.8
million.
COMPETITION
The managed care industry is highly competitive. During the past few years,
the managed care industry in Wisconsin and the upper Midwest has experienced
consolidation. Newco believes the principal competitive features affecting its
ability to retain and increase its managed care membership include the price of
benefit plans offered, the composition of provider networks, quality of service,
responsiveness to user demands, financial stability, comprehensiveness of
coverage, diversity of product offerings and market presence and reputation.
Although Newco is a leading provider of managed care services in Wisconsin,
Newco may experience increased competition in the future. Newco competes with
national competitors for its HMO products including Humana, Inc. and United
HealthCare Corp. The Unity HMO competes with Dean Health Plan, Inc. in the
Madison area and surrounding counties. Many of Newco's competitors are larger,
have considerably greater financial resources and distribution capabilities and
offer more diversified types of insurance coverage than Newco.
REINSURANCE
Newco manages the risk it retains through the use of reinsurance. Newco
maintains in force both "quota share" and "excess of loss" reinsurance treaties.
Quota share reinsurance is a contractual arrangement whereby the reinsurer
assumes an agreed percentage of certain risks insured by the ceding insurer and
shares premium revenue and losses proportionately. Newco's quota share
reinsurance treaties allocate the total amount of business subject to the
treaties between Newco and the respective parties to the treaties. Through quota
share reinsurance, UHLIC assumes 100% of certain life coverages underwritten by
UWLIC and cedes to BCBSUW 100% of certain medical coverages underwritten by
UWIC. 40% of Newco's workers' compensation business is ceded to an independent
reinsurer. Excess of loss reinsurance is used to cap the amount of loss retained
by Newco on individual claims or a series of claims. Excess of loss reinsurance
is utilized by Newco's HMOs to limit their exposure to inpatient hospital claims
or, in the case of Compcare, to organ transplants. On the life and disability
business, Newco limits its retention per claim to $75,000. For workers'
compensation claims, Newco limits its retention per claim to $75,000, retains
the first $250,000 of a loss, which it shares with its quota share reinsurer,
and cedes losses between $250,000 and $10,000,000 on an excess of loss basis to
third party reinsurers. Except for affiliates of Newco, all reinsurers with
which Newco contracts are rated "A-" "(Excellent)" or better by Best.
SERVICE AGREEMENTS
Newco and various of its subsidiaries purchase services from, or provide
services to, BCBSUW pursuant to written agreements (the "SERVICE AGREEMENTS").
Services covered by these agreements include marketing, information systems,
legal, investment, actuarial, accounting, underwriting and other administrative
and management services. Fees under the Service Agreements are calculated on a
cost basis. Costs directly attributable to a particular company are paid by such
company. Costs that are not specific to any
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particular company are allocated based on utilization and allocation methods
agreed to by the parties to the agreements. If the recipient can obtain any of
the services under more favorable terms by performing the services itself or by
procuring them from a third party, it is not obligated to renew the Service
Agreement for those services if the provider is unwilling to substantially match
such terms. The Service Agreements automatically renew annually unless otherwise
terminated. In addition, under Wisconsin law, the OCI reviews the Service
Agreements to ensure that the agreements are reasonable and fair to the
interests of the insurance companies that are parties to the agreements. For the
year ended December 31, 1997, Newco paid approximately $9.3 million for such
services, and received approximately $14.6 millon from BCBSUW for the provision
of such services.
After the Distribution, Newco may provide certain services to AMSG pursuant
to a written agreement (the "AMSG SERVICE AGREEMENT"). Services that AMSG may
utilize pursuant to the AMSG Service Agreement include investment management,
investment accounting, risk management, accounting and financial audit and
corporate communications. Fees under the AMSG Service Agreement for investment
management and investment accounting will be based on a percentage of the
portfolio plus a flat rate for each company whose investments are being handled
by Newco. Fees for risk management will be based on a percentage of the annual
premiums for risk management insurance. Fees for accounting and financial audit
and corporate communications will be based on an hourly rate. The AMSG Service
Agreement will terminate on December 31, 1999 unless terminated earlier upon
appropriate notice. The AMSG Service Agreement will be submitted to OCI for its
review and lack of disapproval.
INVESTMENTS
Newco attempts to minimize its business risk through conservative investment
policies. Investment guidelines set quality, concentration and return
parameters. Newco's investment guidelines permit investments in various types of
liquid assets, including U.S. Treasury obligations, securities of various
Federal agencies and commercial paper, and other assets including corporate debt
securities, municipal securities, asset-backed securities, mortgage-backed
securities, equity securities and mutual funds. Up to 10% of Newco's fixed
income portfolio (at the time of purchase) may be invested in issues rated BB by
Standard & Poor's Corporation or an equivalent rating from another nationally
recognized securities rating organization. The remainder of the individual fixed
income issues must carry an investment grade rating at the time of purchase, and
the ongoing average portfolio rating must be "A-" or better, based on ratings of
Standard & Poor's Corporation or another nationally recognized securities rating
organization. Newco invests in securities authorized by applicable state laws
and regulations and follows investment policies designed to maximize yield,
preserve principal and provide liquidity. Newco's portfolio contains no
investments in mortgage loans or non-publicly traded securities, except for
investments in affiliates. However, at December 31, 1997, $21.8 million of
Newco's investment portfolio was invested in investment grade government agency
mortgage-backed securities.
With the exception of short-term investments and securities on deposit with
various state regulators, investment responsibilities have been delegated to
external investment managers. Such investment responsibilities, however, must be
carried out within the investment parameters established by Newco, which may be
amended from time to time.
Securities which may be sold prior to maturity to support Newco's investment
strategies, such as in response to changes in interest rates, the yield curve
concentration or sector concentration, are classified as available for sale and
are stated at market value with unrealized gains and losses reported as a
component of shareholders' equity in accordance with Statement of Financial
Accounting Standards No. 115. Securities for which Newco has both the positive
intent and ability to hold to maturity are recorded at amortized cost. Bonds
which are held to meet deposit requirements of the various states are classified
as held to maturity. All other bonds are classified as available for sale.
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<PAGE>
The table below reflects investment results for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average invested assets(1)........................... $ 166,564 $ 180,679 $ 179,505 $ 186,433 $ 176,775
Net investment income(2)............................. 8,571 10,659 10,317 5,127 4,937
Average yield........................................ 5.15% 5.90% 5.75% 5.50% 5.58%
Net realized gain (losses)........................... 1,094 8,381 11,921 5,545 5,023
Net unrealized gains (losses) on stocks & bonds...... 3,511 3,959 3,211 3,482 1,247
</TABLE>
- ------------------------
(1) Average of aggregate investment amounts at the beginning and end of each
period.
(2) Amounts are calculated net of investment expenses, but prior to adjustment
for other interest income and expense.
REGULATION
GENERAL. Government regulation of employee benefit plans, including health
care coverage, health plans and Newco's specialty managed care products, is a
changing area of law that varies from jurisdiction to jurisdiction and generally
gives responsible administrative agencies broad discretion. Newco believes that
it is in compliance in all material respects with the various federal and state
regulations applicable to its current operations. To maintain such compliance,
it may be necessary for Newco or a subsidiary to make changes from time to time
in its services, products, structure or operations. Additional government
regulation or future interpretation of existing regulations could increase the
cost of Newco's compliance or otherwise affect Newco's operations, products,
profitability or business prospects.
Newco is unable to predict what additional government regulations, if any,
affecting its business may be enacted in the future or how existing or future
regulations might be interpreted. A number of jurisdictions have enacted small
group insurance and rating reforms which generally limit the ability of insurers
and health plans to use risk selection as a method of controlling costs for
small group business. These laws may generally limit or eliminate use of
pre-existing condition exclusions, experience ratings and industry class
ratings, and limit the amount of rate increases from year to year. Under these
laws, cost control through provider contracting and managing care may become
more important, and Newco believes its experience in these areas will allow it
to compete effectively.
Recently, federal legislation significantly expanded regulation of group
health plans and health care coverage. The new laws place restrictions on the
use of pre-existing conditions and eligibility restrictions based upon health
status and prohibit cancellation of coverage due to claims experience or health
status. Federal regulations also prohibit insurance companies from declining
coverage to small employers. Additional federal laws which take effect in 1998
include prohibitions against separate, lower, dollar maximums for mental health
benefits and requirements relating to minimum coverage for maternity inpatient
hospitalization. Newco does not anticipate that these new laws will affect its
comparable profitability or business prospects because all insurance companies
across the country are subject to the same requirements. Furthermore, many
requirements of the federal legislation are similar to small group reforms that
have been in place for many years. Newco will be able to utilize and expand upon
the cost control measures initiated as a result of small group legislative
reform.
Increasingly, states are considering various health care reform measures and
are adopting laws or regulations, which may limit Newco's health plans' and
insurance operations' ability to control which providers are part of their
networks and may hinder their ability to effectively manage utilization and
cost.
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Newco is unable to predict what reforms, if any, may be enacted or how these
reforms would affect Newco's operations.
HMOS. Wisconsin and the other states in which Newco offers HMO products
have enacted statutes regulating the activities of those health plans. Most
states require periodic financial reports from HMOs licensed to operate in their
states and impose minimum capital or reserve requirements. In addition, certain
of Newco's subsidiaries are required by state regulatory agencies to maintain
restricted cash reserves represented by interest-bearing instruments which are
held by trustees or state regulatory agencies to ensure that adequate financial
resources are maintained or to act as a fund for insolvencies of other HMOs in
the state.
As a federally qualified HMO, Compcare must file periodic reports with, and
is subject to periodic review by, the Department of Health and Human Services,
the Health Care Financing Administration and the Office of Prepaid Health Care.
Newco's other HMOs are only subject to state regulation because they are not
federally qualified HMOs.
Newco's HMOs which have Medicaid contracts are subject to both federal and
state regulation regarding services to be provided to Medicaid enrollees,
payment for those services and other aspects of the Medicaid program. Medicaid
has in force and/or has proposed regulations relating to fraud and abuse,
physician incentive plans and provider referrals which may affect Newco's
operations.
Several of Newco's health plans have contracts with the Federal Employees
Health Benefit Plan ("FEHBP"). These contracts are subject to extensive
regulation, including complex rules relating to the premiums charged. FEHBP has
the authority to retroactively audit the rates charged and may seek premium
refunds and other sanctions against health plans participating in the program.
Newco's health plans which have contracted with FEHBP are subject to such audits
and may be requested to make such refunds.
INSURANCE REGULATION. Newco's insurance subsidiaries are subject to
regulation by the Department of Insurance in each state in which the entity is
licensed. Regulatory authorities exercise extensive supervisory power over
insurance companies relating to the licensing of insurance companies; the amount
of reserves which must be maintained; the approval of forms and insurance
policies used; the nature of, and limitation on, an insurance company's
investments; periodic examination of the operations of insurance companies; the
form and content of annual statements and other reports required to be filed on
the financial condition of insurance companies; and the establishment of capital
requirements for insurance companies. Newco's insurance company subsidiaries are
required to file periodic statutory financial statements in each jurisdiction in
which they are licensed. Additionally, such companies are examined periodically
by the insurance departments of the jurisdiction in which they are licensed to
do business.
The National Association of Insurance Commissioners ("NAIC") adopted the
Risk-Based Capital ("RBC") for Life and/or Health Insurers Model Act ("RBC MODEL
ACT"), effective December 31, 1993, to evaluate the adequacy of statutory
capital and surplus in relation to investment and insurance risks associated
with: (i) asset quality; (ii) mortality and morbidity; (iii) asset and liability
matching; and (iv) other business factors. The RBC Model Act formula is used by
the states to monitor trends in statutory capital and surplus for the purpose of
initiating regulatory action. The NAIC adopted similar RBC requirements for
property and casualty insurance companies effective December 31, 1994, and for
health organizations, including HMOs, effective December 31, 1998. Newco has
calculated the risk-based capital for its life and property and casualty
subsidiaries as of December 31, 1997 using the applicable RBC formula. These
calculations produced risk-based capital levels which exceed the levels at which
the RBC formulas recommend intervention by regulatory authorities. The RBC
requirements for HMOs are not expected to have a significant effect on Newco's
capital requirements.
Under Wisconsin law, insurance companies must provide OCI with advance
notice of any dividend that is more than 15% larger than any dividend for the
corresponding period of the previous year. In
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addition, OCI may disapprove any "extraordinary" dividend, defined as any
dividend which, together with other dividends paid by an insurance company in
the prior twelve months, exceeds the lesser of: (i) 10% of statutory capital and
surplus as of the preceding December 31; (ii) with respect to a life insurer,
net income less realized gains for the calendar year preceding the date of the
dividend; or (iii) with respect to a non-life insurer, the greater of (ii) above
or the aggregate net income less realized gains for the three calendar years
preceding the date of the dividend less distributions made within the first two
of those three years.
Based upon the financial results of Newco's combined insurance entities for
the year ended December 31, 1997, $4.2 million is available for 1998 dividend
payments to their parent without regulatory approval.
INSURANCE HOLDING COMPANY REGULATIONS. Newco is a holding company which
conducts all of its business through combined entities and is subject to
insurance holding company laws and regulations. Under Wisconsin law, acquisition
of control of Newco, and thereby indirect control of its insurance subsidiaries,
requires the prior approval of OCI. "Control" is defined as the direct or
indirect power to direct or cause the direction of the management and policies
of a person. Any purchaser of 10% or more of the outstanding voting stock of a
corporation is presumed to have acquired control of the corporation and its
subsidiaries unless OCI, upon application, determines otherwise.
Each of Newco's combined insurance entities is subject to regulation under
state insurance holding company regulations. Such insurance holding company laws
and regulations generally require registration with that state's department of
insurance and the filing of certain reports describing capital structure,
ownership, financial condition, certain intercompany transactions and general
business operations. Various notice and reporting requirements generally apply
to transactions between companies within an insurance holding company system,
depending on the size and nature of the transactions. Certain state insurance
holding company laws and regulations require prior regulatory approval or, in
certain circumstances, prior notice of, certain material intercompany transfers
of assets as well as certain transactions between the regulated companies, their
parent holding companies and affiliates, and acquisitions.
UTILIZATION REVIEW REGULATIONS. A number of states have enacted laws and/or
adopted regulations governing the provision of utilization review activities.
Generally, these laws and regulations require compliance with specific standards
for the delivery of services, confidentiality, staffing, and policies and
procedures of private review entities, including the credentials required of
personnel. Some of these laws and regulations may affect certain operations of
Newco's business units.
A few jurisdictions have enacted laws which hold managed care organizations
liable for damages resulting from wrongful denial of care or payment for care.
Newco provides utilization review services through CNR in at least one state
that has passed such legislation. The liability law encompasses entities which
do not provide insurance coverage, but merely provide utilization review
services. CNR is developing risk management procedures and believes that it will
be able to minimize potential liability for coverage decisions.
ERISA. The provision of goods and services to or through certain types of
employee health benefit plans is subject to ERISA. ERISA is a complex set of
laws and regulations that are subject to periodic interpretation by the United
States Department of Labor. ERISA places certain controls on how Newco's
business units may do business with employers covered by ERISA, particularly
employers that maintain self-funded plans. The Department of Labor is engaged in
an ongoing ERISA enforcement program which may result in additional constraints
on how ERISA-governed benefit plans conduct their activities. There recently
have been legislative attempts to limit ERISA's preemptive effect on state laws.
If such limitations were to be enacted, they might increase Newco's liability
exposure under state law-based suits relating to employee health benefits
offered by Newco's health plans and specialty businesses and may permit greater
state regulation of other aspects of those businesses' operations.
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EMPLOYEES
As of June 30, 1998, Newco had 1,189 full-time and 47 part-time employees,
of whom 200 were managerial and supervisory personnel. Of these employees, 58
were represented by a union. Newco considers its relations with its employees to
be good.
TRADEMARKS
"Compcare" is a federally registered service mark of Newco. Newco has filed
for and maintains various other trademarks and trade names at the federal level
and in the State of Wisconsin. Although Newco considers its registered service
marks, trademarks and trade names important in the operation, of its business,
the business of Newco is not dependent on any individual service mark, trademark
or trade name.
PROPERTIES
Newco occupies common facilities with BCBSUW and is charged a proportionate
share of the cost of such facilities under the Service Agreements. Newco's
corporate headquarters are located in Milwaukee, Wisconsin in a 235,000 square
foot building leased by BCBSUW. Newco also utilizes space in a Milwaukee
regional office leased by BCBSUW, which has approximately 299,000 square feet of
office and warehouse space. In addition, Newco's business is sold and serviced
in four other Wisconsin regional offices leased by BCBSUW and a 40,000 square
foot facility in Sauk City, Wisconsin owned by Unity.
LEGAL PROCEEDINGS
Newco is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. Although the results of
litigation proceedings cannot be predicted with certainty, Newco believes that
the ultimate resolution of these proceedings will not have a material adverse
effect on its financial condition or results of operations.
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MANAGEMENT OF NEWCO
DIRECTORS OF NEWCO
Newco's Board of Directors is classified into three classes, designated
Class I, Class II and Class III, each class to be as nearly equal in number of
directors as possible. The term of office of the Class I directors expires at
the 1999 annual meeting of shareholders, the term of office of the Class II
directors expires at the 2000 annual meeting of shareholders, and the term of
office of the Class III directors expires at the 2001 annual meeting of
shareholders. In May 1998, UWS, as the sole shareholder of Newco at that time,
elected the following directors to the Newco Board of Directors: Messrs. Forbes,
Hickman, Hefty, Abdoo, Johnson, Dunham and Menden, Dr. Rupp and Ms. Skornicka.
The Class I directors consist of Messrs. Dunham and Forbes and Dr. Rupp; the
Class II directors consist of Messrs. Abdoo, Johnson and Menden; and the Class
III directors consist of Messrs. Hefty and Hickman and Ms. Skornicka. Directors
elected to succeed those directors whose terms expire will be elected to a
three-year term of office. All directors hold office until the next annual
meeting of shareholders at which their terms expire and until their successors
have been duly elected and qualified. Directors are not eligible to stand for
re-election after the age of 70. Newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal or
other cause will be filled solely by the affirmative vote of a majority of the
remaining directors then in office. Increases or decreases in the number of
directors will be apportioned among the classes as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class will hold office for a term that will coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director.
The name, age (as of the Effective Date), class of directorship and business
background of each of the persons who serve as directors of Newco are set forth
below. Messrs. Forbes, Abdoo and Dunham, Dr. Rupp and Ms. Skornicka will resign
as directors of UWS as of the Distribution Date, while Messrs. Hefty, Hickman,
Johnson and Menden will remain as directors of UWS following the Distribution
Date.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
CLASS I DIRECTORS
Michael D. Dunham Director of UWS from 1997 to 1998; Director of BCBSUW from 1996 to 1997; President and
Age: 53 a director of Effective Management Systems, Inc., a developer of integrated
manufacturing and business management software, since its incorporation in 1978.
James L. Forbes Director of UWS from 1991 to 1998; Director of BCBSUW since 1974; President and Chief
Age: 66 Executive Officer and Director of Badger Meter, Inc., a manufacturer of products using
flow measurement technology, since 1985; Director of Universal Foods Corporation,
Firstar Corporation and Firstar Trust Company, a subsidiary of Firstar Corporation.
William C. Rupp, M.D. Director of UWS from 1997 to 1998; President and Chief Executive Officer of
Age: 52 Luther/Midelfort Mayo Health System since 1994; President of Midelfort Clinic since
1991; practicing physician in oncology since 1982.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- --------------------------------------------------------------------------------------
<S> <C>
CLASS II DIRECTORS
Richard A. Abdoo Director of UWS from 1991 to 1998; Director of BCBSUW from 1991 to 1997; Chairman of
Age: 54 the Board, President and Chief Executive Officer of Wisconsin Energy Corporation, a
diversified energy services holding company, since 1991; Chairman of the Board and
Chief Executive Officer of Wisconsin Electric Power Company since 1990; Director of
Wisconsin Energy Corporation since 1988; Director of Wisconsin Electric Power Company
since 1989; Chairman of the Board and Chief Executive Officer of Wisconsin Natural Gas
Company from 1990 to 1995; Director of Wisconsin Natural Gas Company from 1989 to
1995; Director of Marshall & Ilsley Corporation, a bank holding company, and
Sundstrand Corporation.
William R. Johnson Director of UWS since 1993; Chairman of Johansen Capital Investment and Financial
Age: 71 Consulting since 1986; President of Johansen Capital Associates, Inc., a financial and
investment consultant to corporations and individuals, since 1984; Chairman, President
and Chief Executive Officer of National Investment Services of America, Inc., an
investment manager of pension, profit sharing and other funds, from 1968 to 1984.
Eugene A. Menden Director of UWS since 1991; Director of BCBSUW from 1987 to 1992. Prior to his
Age: 67 retirement, Director of International Finance for Marquette Medical Systems, Inc.
(f/k/a Marquette Electronics, Inc.), a manufacturer of medical electronic products.
Served as Vice President of Finance for Marquette Electronics, Inc. from 1970 to 1991,
Treasurer from 1970 to 1989, and director from 1972 until 1996.
CLASS III DIRECTORS
Thomas R. Hefty Director of UWS since 1983; President of UWS from 1986 to 1998 and Chairman of the
Age: 51 Board and Chief Executive Officer of UWS from 1991 to 1998; Chairman of the Board and
Director of BCBSUW since 1988; President of BCBSUW since 1986; Executive Vice
President of BCBSUW from 1982 to 1986; Deputy Insurance Commissioner for OCI from 1979
to 1982; Director of Artisan Funds, Inc., an investment company registered under the
Investment Company Act of 1940, as amended.
James C. Hickman Director of UWS since 1991; Director of BCBSUW since 1986; Director of Century
Age: 71 Investment Management Company; Emeritus Professor and Emeritus Dean of the School of
Business of the University of Wisconsin-Madison since 1993; Professor in the UW School
of Business from 1990 to 1993; Dean of the University of Wisconsin-Madison School of
Business from 1985 to 1990.
Carol N. Skornicka Director of UWS from 1997 to 1998; Senior Vice President - Corporate Development,
Age: 56 Secretary and General Counsel of Midwest Express Holdings, Inc. and Midwest Express
Airlines, Inc. since March 1998; Vice President, Secretary and General Counsel of
Midwest Express Holdings, Inc. and Midwest Express Airlines, Inc. since 1996;
Secretary of the Wisconsin Department of Industry, Labor and Human Relations from 1991
to 1996; Director of Astral Aviation, Inc. since 1996.
</TABLE>
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DIRECTORS' MEETINGS AND COMMITTEES
The Newco Board of Directors expects to have four regularly scheduled
meetings per year and will hold such special meetings as it deems advisable to
review significant matters affecting Newco and to act upon matters requiring
Board approval. The Newco Board of Directors will have standing Executive,
Finance, Management Review and Audit Committees.
The Executive Committee will discharge certain of the responsibilities of
the Board of Directors when so instructed by the Board and will study proposals
and make recommendations to the Board. Specifically, the Executive Committee
will have the authority to approve long range corporate and strategic plans,
advise and consult with management on corporate policies, approve Newco's annual
operating plan and approve major changes in policy affecting new services and
programs. It is anticipated that the Executive Committee will not meet regularly
but instead will meet only when the entire Board of Directors is unable to do
so. The members of the Executive Committee will be Messrs. Forbes (Chairman),
Abdoo and Hickman.
The Finance Committee will approve investment policies and plans and approve
the investment of funds of Newco, consult with management regarding real estate,
accounts receivable and other assets, determine the amounts and types of
insurance carried by Newco, advise and consult with management regarding
selection of insurance carriers and corporate tax policies and discharge certain
other responsibilities of the Board of Directors when so instructed by the
Board. The members of the Finance Committee will be Messrs. Hefty, Rupp and
Johnson and Ms. Skornicka.
The Management Review Committee will evaluate the performance of Newco's
executive officers, approve executive officer development programs, determine
the compensation of the executive officers and review management's
recommendations as to the compensation of other key personnel, act as the
nominating committee for officers and directors and make recommendations to the
Board of Directors regarding the types, methods and levels of director
compensation, administer the compensation plans for the officers, directors and
key employees, and discharge certain other responsibilities of the Board of
Directors when so instructed by the Board. The Management Review Committee will
consider a nominee for election to the Board of Directors recommended by a
shareholder if the shareholder submits the nomination in compliance with the
requirements of Newco's By-Laws relating to nominations by shareholders. The
members of the Management Review Committee will be Messrs. Forbes, Abdoo, Dunham
and Hickman.
The Audit Committee will review the scope and timing of the audit of Newco's
financial statements by Newco's independent public accountants and review with
these accountants Newco's management policies and procedures with respect to
auditing and accounting controls. The Audit Committee also will review with the
independent accountants the financial statements for Newco and the auditors'
reports and management letter. The Audit Committee will select and engage
Newco's accountants and review and approve all related party transactions. In
addition, it will review and evaluate conflict of interest statements and
discharge certain other responsibilities of the Board of Directors when so
instructed by the Board. The members of the Audit Committee will be Messrs.
Menden, Abdoo, Dunham and Hickman.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of Newco will receive no
compensation as such for service as members of the Board of Directors or
Committees of the Board. A director who is not an officer or employee of Newco
will receive a fee of $1,100 for each Board or Committee meeting attended, and a
monthly retainer of $750. In addition, each Committee Chairman will receive a
monthly fee of $250.
Newco also will maintain a Deferred Compensation Plan for Directors under
which members of the Newco Board of Directors may elect to defer receipt of all
or a portion of their directors' fees. Under such plan, Newco will be obligated
to repay the deferred fees, in either a lump sum or installments as elected by
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the participating director, together with any earnings on such deferred fees.
The repayments generally will commence upon the participating director's
resignation or termination from the Newco Board of Directors.
EXECUTIVE OFFICERS OF NEWCO
The name, age, title as of the Effective Date of the Distribution and
business background of each of the persons who will become on the Effective Date
the executive officers of Newco are set forth below. The individuals named below
are currently officers of UWS and various of its subsidiaries, but will resign
from all positions held at UWS or its remaining subsidiaries as of the Effective
Date of the Distribution. The business address of each of the executive officers
is 401 West Michigan Street, Milwaukee, Wisconsin 53203.
<TABLE>
<CAPTION>
NAME AGE TITLE
- -------------------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Thomas R Hefty.................................... 51 Chairman of the Board, President, Chief Executive
Officer and Director
Stephen E. Bablitch............................... 44 Vice President, General Counsel and Secretary
Devon W. Barrix................................... 56 Vice President
Roger A. Formisano................................ 49 Executive Vice President and Chief Operating Officer
and President of Compcare and Meridian
Mark H. Granoff................................... 52 Vice President and President of UWIC
Gail L. Hanson.................................... 42 Vice President and Treasurer
C. Edward Mordy................................... 55 Vice President and Chief Financial Officer
Emil E. Pfenninger................................ 47 Vice President and President of United Heartland
Penny J. Siewert.................................. 41 Vice President
Mary Traver....................................... 47 Vice President
</TABLE>
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed. There are no family
relationships among any of the directors and/or executive officers of Newco.
THOMAS R. HEFTY is the Chairman of the Board, President and Chief Executive
Officer of Newco. Mr. Hefty was elected President of UWS in 1986 and Chairman of
the Board and Chief Executive Officer of UWS in 1991. Since 1987, he has served
in various capacities with UWS's subsidiaries and joint ventures. Mr. Hefty has
been Chairman of the Board and a director of BCBSUW since 1988, having joined
BCBSUW in 1982 and later serving as President. From 1979 to 1982, Mr. Hefty was
Deputy Insurance Commissioner for OCI.
STEPHEN E. BABLITCH will be Vice President, General Counsel and Secretary of
Newco. Mr. Bablitch joined UWS in 1996 as General Counsel, Vice President and
Secretary. He has been General Counsel, Vice President and Secretary of BCBSUW
since 1996 as well. Prior to joining UWS and BCBSUW, Mr. Bablitch was an
attorney with Dewitt, Ross and Stevens, Madison, Wisconsin from 1991 to 1996.
DEVON W. BARRIX will be Vice President of Newco. He was elected a Vice
President of UWS in 1994 following UWS's acquisition of Unity and its parent,
HMO-W. Mr. Barrix was the Chief Executive Officer of Unity (f/k/a HMO of
Wisconsin Insurance Corporation) from 1985 to 1994 and was the President of
Unity from 1994 to 1996.
ROGER A. FORMISANO will be Executive Vice President and Chief Operating
Officer of Newco. Mr. Formisano was elected Executive Vice President and Chief
Operating Officer of UWS in 1995. He had been a Vice President of UWS since
1992. He serves as President of Compcare and Meridian. Mr. Formisano was a
Professor in the School of Business of the University of Wisconsin-Madison from
1978 to 1993. He also serves in various capacities with UWS's subsidiaries and
joint ventures, and is a
59
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director of Integrity Mutual Insurance Company and Wisconsin Sports Authority,
Inc., both privately held companies.
MARK H. GRANOFF will be Vice President of Newco. Mr. Granoff was elected a
Vice President of UWS in 1991 and was elected President of UWIC in 1991 and
UHLIC in 1997. He has served in various capacities with some of UWS's other
subsidiaries since 1991. Mr. Granoff has been a Vice President of BCBSUW since
1990. Prior to joining BCBSUW, from 1988 to 1990, Mr. Granoff served as Employee
Benefits Marketing Vice President for Business Men's Assurance Company of
America, an insurance company.
GAIL L. HANSON will be Vice President and Treasurer of Newco. Ms. Hanson has
been Treasurer of UWS since 1987 and was elected a Vice President in 1996. She
has served in various capacities with UWS's subsidiaries since 1984. Ms. Hanson
was elected Vice President and Treasurer of BCBSUW in 1996 and had been
Assistant Vice President and Treasurer since 1987, having joined BCBSUW in 1984
as the Controller of UWIC.
C. EDWARD MORDY will be Chief Financial Officer of Newco. Mr. Mordy has been
a Vice President and the Chief Financial Officer of UWS since 1987. He has
served in various capacities with UWS's subsidiaries since 1987. Mr. Mordy has
been a Vice President and Corporate Controller of BCBSUW since 1986.
EMIL E. PFENNINGER will be Vice President of Newco. Mr. Pfenninger was
elected a Vice President of UWS in 1995 and President of United Heartland in
1990. Mr. Pfenninger was the Underwriting Manager with CNA Insurance Companies
from 1987 to 1990.
PENNY J. SIEWERT will be Vice President of Regional Services of Newco. Ms.
Siewert was elected Vice President of Regional Services of UWS in 1995. Ms.
Siewert joined BCBSUW in 1977 and has served in various capacities. Ms. Siewert
was elected Vice President of Operations for BCBSUW in 1990, Vice President of
Special Markets for BCBSUW in 1992, and Vice President of Regional Services for
BCBSUW in 1995.
MARY TRAVER will be Vice President of Newco. Ms. Traver has been a Vice
President of UWS since 1988. Ms. Traver was Vice President and General Counsel
of UWS from 1988 to 1996 and Secretary from 1992 to 1996. She has served in
various capacities with some of UWS's subsidiaries and joint ventures since
1987. Ms. Traver was General Counsel of BCBSUW from 1987 to 1996, Secretary of
BCBSUW from 1992 to 1996, and a Vice President of BCBSUW since 1988. She assumed
the position of Regional Vice President for the Southeastern region of BCBSUW in
1997.
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<PAGE>
EXECUTIVE COMPENSATION
HISTORICAL COMPENSATION
The following table summarizes the total compensation paid by UWS or its
subsidiaries to Newco's Chief Executive Officer and each of the other four
individuals expected to be the most highly compensated executive officers of
Newco during 1998 for services rendered to UWS and BCBSUW for the years ended
December 31, 1997, 1996 and 1995. Pursuant to the Service Agreements, certain
executive officers of Newco provide services to BCBSUW. Costs and expenses
associated therewith are shared in accordance with the terms of the Service
Agreements. See "Certain Relationships and Related Party Transactions."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------- ----------------------------------
AWARDS PAYOUTS
------------------- -------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING LTIP
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1,2) COMPENSATION($)(3) OPTIONS/SARS(#) PAYOUTS($)(1)
- ---------------------------- --------- ----------- -------------- --------------------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Hefty ............ 1997 $ 475,008 $ 97,377 $ 7,885 35,000 $ 5,294
CHAIRMAN OF THE BOARD, 1996 410,028 177,542 9,355 30,000 --
PRESIDENT & CHIEF EXECUTIVE 1995 390,024 91,265 6,693 -- 10,832
OFFICER
Roger A. Formisano ......... 1997 244,536 22,008 904 25,000 2,894
EXECUTIVE VICE PRESIDENT & 1996 235,128 61,604 3,424 15,000 --
CHIEF OPERATING OFFICER; 1995 179,840 41,004 4,999 -- 4,406
PRESIDENT OF COMPCARE AND
MERIDIAN
Mark H. Granoff ............ 1997 154,260 53,837 2,839 7,000 1,571
PRESIDENT, UNITED WISCONSIN 1996 147,612 49,243 4,380 4,000 --
GROUP 1995 139,512 34,161 2,898 -- 3,955
C. Edward Mordy ............ 1997 184,848 20,333 3,385 18,000 2,370
VICE PRESIDENT & CHIEF 1996 176,040 55,805 3,106 10,000 --
FINANCIAL OFFICER 1995 161,496 18,734 2,567 -- 5,502
Penny J. Siewert(5) ........ 1997 174,576 18,180 -- 15,000 2,061
VICE PRESIDENT OF REGIONAL 1996 163,152 53,677 1,737 7,000 --
SERVICES 1995 117,388 33,808 -- 7,500 --
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION($)(4)
- ---------------------------- ---------------------
<S> <C>
Thomas R. Hefty ............ $ 4,000
CHAIRMAN OF THE BOARD, 3,750
PRESIDENT & CHIEF EXECUTIVE 3,750
OFFICER
Roger A. Formisano ......... 4,000
EXECUTIVE VICE PRESIDENT & 3,750
CHIEF OPERATING OFFICER; 3,750
PRESIDENT OF COMPCARE AND
MERIDIAN
Mark H. Granoff ............ 3,857
PRESIDENT, UNITED WISCONSIN 3,690
GROUP 3,488
C. Edward Mordy ............ 4,000
VICE PRESIDENT & CHIEF 3,750
FINANCIAL OFFICER 3,750
Penny J. Siewert(5) ........ 4,000
VICE PRESIDENT OF REGIONAL 3,017
SERVICES 2,935
</TABLE>
- ------------------------------
(1) Amounts include compensation earned and deferred at the election of the
named executive officer during the fiscal years indicated and paid
subsequent to the end of each fiscal year.
(2) Amounts represent bonuses earned under each of UWS's Profit Sharing Plan and
Management Incentive Plan.
(3) Amounts represent reimbursement for the payment of taxes and the payout for
unused personal days. The amounts indicated do not include perquisites and
other personal benefits to the named executive officers which for each such
officer did not exceed the lesser of $50,000 or 10% of the officer's total
annual salary and bonus.
(4) Amounts represent UWS's matching contributions to the UWSI/BCBSUW 401(k)
Plan.
(5) Ms. Siewert was promoted to an executive officer of UWS on September 1,
1995.
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<PAGE>
The following table indicates all grants by UWS of options to purchase
shares of UWS Common Stock to the executive officers listed in the Summary
Compensation Table during 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------------ STOCK PRICE
# OF SECURITIES % OF TOTAL OPTIONS/ APPRECIATION FOR
UNDERLYING SARS GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/ EMPLOYEES IN FISCAL BASE PRICE EXPIRATION --------------------
EXECUTIVE SARS GRANTED(1) YEAR ($/SHARE) DATE 5% 10%
- ----------------------------- ----------------- --------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Hefty.............. 35,000 19.60% $ 25.625 01/01/09 $ 713,784 $1,917,903
Roger A. Formisano........... 25,000 14.00 25.625 01/01/09 509,845 1,369,931
Mark H. Granoff.............. 7,000 3.90 37.125 06/12/09 206,823 555,724
C. Edward Mordy.............. 18,000 10.10 25.625 01/01/09 367,089 986,350
Penny J. Siewert............. 15,000 8.40 25.625 01/01/09 305,907 821,958
</TABLE>
- ------------------------------
(1) All options granted vest at the rate of 25% each year on the anniversary of
the grant date. All options listed for Messrs. Hefty, Formisano, Mordy and
Ms. Siewert were granted on 1/2/97. The options listed for Mr. Granoff were
granted on 6/12/97.
As set forth in the Employee Benefits Agreement, options to purchase shares
of UWS Common Stock held by individuals who will be executive officers,
directors or employees of Newco will be converted into options to purchase
shares of Newco Common Stock and the number and exercise price of the options
will be adjusted to provide equivalent value to each option holder; provided,
however, that options held by Messrs. Hefty and Mordy will be converted into
options to purchase shares of AMSG Common Stock and Newco Common Stock and the
exercise price of the options will be adjusted to provide equivalent value. See
"--Treatment of UWS Options and SARs as a Result of the Distribution" and
"Agreements Between AMSG and Newco."
No Stock Appreciation Rights ("SARS") or options to purchase shares of UWS
Common Stock were exercised by any of the executive officers listed in the
Summary Compensation Table during 1997. The number of unexercised SARs and
options and the total value of unexercised in-the-money SARs and options to
purchase shares of UWS Common Stock at December 31, 1997 are shown in the table
below. See "--Treatment of UWS Options and SARs as a Result of the Distribution"
and "Agreements Between AMSG and Newco."
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END (#) AT FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
- -------------------------------------------------------- -------------------------- ----------------------------
<S> <C> <C>
Thomas R. Hefty......................................... 66,657 / 83,886 $262,763 / $310,263
Roger A. Formisano...................................... 24,018 / 44,256 71,081 / 95,769
Mark H. Granoff......................................... 21,268 / 18,006 64,300 / 72,300
C. Edward Mordy......................................... 32,112 / 38,704 127,788 / 144,412
Penny J. Siewert........................................ 5,500 / 24,000 17,688 / 29,625
</TABLE>
- ------------------------
(1) Options become immediately exercisable upon a change in control of UWS. A
change in control includes the acquisition by certain persons or groups of
25% or more of the outstanding shares of Common Stock; a change in the
membership of a majority of the Board of Directors, if not approved by the
incumbent Directors; or the approval by UWS's shareholders of a plan of
liquidation, an agreement to sell substantially all of UWS's assets, or
certain mergers, consolidations or reorganizations. Newco does not believe
that the Distribution constitutes a change in control of UWS.
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<PAGE>
LONG-TERM INCENTIVE PLAN
UWS adopted a Long-Term Incentive Plan ("LTIP") for, among others, the
executive officers of UWS. The LTIP is administered by UWS's Management Review
Committee. Awards are based on the achievement of certain growth objectives
established at the beginning of each three-year plan cycle by the Management
Review Committee. Goals are set at minimum, target and maximum levels for each
objective. Payout awards are determined at the end of each three-year plan cycle
and are prorated when actual results for any objective lie between the minimum
and maximum goal levels. Payout awards are based on a percentage of each
participant's average base salary range midpoint during the applicable
three-year cycle. The components and maximum payout potential for the 1997-1999
Plan for Messrs. Hefty, Formisano, Granoff and Mordy and Ms. Siewert are:
Average Annual Increase in Combined Surplus of BCBSUW and Newco calculated in
accordance with generally accepted accounting principles, 10.00%; Average Annual
Increase in Government Programs Reimbursement, 2.50%; Increase in Combined
Revenue for BCBSUW and Newco, 4.16%. The potential value of payouts under the
1997-1999 LTIP to the listed executive officers is shown in the following table:
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE OR NON-STOCK PRICE-BASED PLANS(2)
OTHER PERIOD UNTIL ----------------------------------
NAME MATURATION OR PAYOUT(1) THRESHOLD TARGET MAXIMUM
- ------------------------------------------------------ ----------------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Thomas R. Hefty....................................... 3 Years $ 42,944 $ 64,383 $ 107,263
Roger A. Formisano.................................... 3 Years 23,038 24,540 57,544
Mark H. Granoff....................................... 3 Years 9,070 13,598 22,654
C. Edward Mordy....................................... 3 Years 18,643 27,950 56,565
Penny J. Siewert...................................... 3 Years 17,809 26,700 44,482
</TABLE>
- ------------------------
(1) The 1997-1999 LTIP has been discontinued and a pro rata payout was made in
June 1998 as follows: Mr. Hefty--$32,192; Mr. Formisano--$17,270; Mr.
Mordy--$13,975; Ms. Siewert--$13,350; and Mr. Granoff--$6,799.
(2) The average midpoint of the named executive's annual base salary range for
the three-year term is calculated using the actual 1996 and 1997 base salary
range midpoint and the estimated 1998 base salary range midpoint. The
estimated 1998 midpoint is 4% higher than the 1997 actual base salary range
midpoint.
DEFINED BENEFIT PENSION PLANS
UWS has provided a non-contributory defined benefit plan to its salaried
employees pursuant to the UWSI/BCBSUW Salaried Pension Plan (the "SALARIED
PLAN"). The Salaried Plan utilizes a cash balance formula which provides annual
pay credits of 4% plus transition credits of 4% for the number of years of
service on December 31, 1996 (up to 15 years). Interest is credited on the cash
balance account based on the yield on ten-year Treasury securities for the month
of October of the previous year. Newco will assume sponsorship (with BCBSUW) of
the Salaried Plan and the related trust and will continue to provide benefits
for all individuals who, immediately prior to the Effective Date of the
Distribution, were participants in the Salaried Plan.
In addition, UWS provides to executive officers defined benefits from the
UWSI/BCBSUW Supplemental Executive Retirement Plan (the "SERP"). The SERP
provides a total benefit (taking into account Salaried Plan benefits and Social
Security benefits) of 2% of final five-year average pay per year of service (up
to 30 years). Newco will assume sponsorship of the SERP and all liabilities with
respect thereto. The
63
<PAGE>
approximate annual benefits for the following pay classifications and years of
service are expected to be as follows:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- --------------------------------------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
$125,000..................................... $ 37,500 $ 50,000 $ 62,500 $ 75,000
$150,000..................................... $ 45,000 $ 60,000 $ 75,000 $ 90,000
$175,000..................................... $ 52,500 $ 70,000 $ 87,500 $ 105,000
$200,000..................................... $ 60,000 $ 80,000 $ 100,000 $ 120,000
$225,000..................................... $ 67,500 $ 90,000 $ 112,500 $ 135,000
$250,000..................................... $ 75,000 $ 100,000 $ 125,000 $ 150,000
$275,000..................................... $ 82,500 $ 110,000 $ 137,500 $ 165,000
$300,000..................................... $ 90,000 $ 120,000 $ 150,000 $ 180,000
$400,000..................................... $ 120,000 $ 160,000 $ 200,000 $ 240,000
$500,000..................................... $ 150,000 $ 200,000 $ 250,000 $ 300,000
$600,000..................................... $ 180,000 $ 240,000 $ 300,000 $ 360,000
</TABLE>
The persons named in the Summary Compensation Table have the following years
of credited service: Mr. Hefty--15 years; Mr. Formisano--6 years; Mr. Granoff--7
years; Mr. Mordy--12 years; Ms. Siewert-- 21 years.
CHIEF EXECUTIVE OFFICER SUPPLEMENTAL COMPENSATION AGREEMENT
In September 1997, UWS entered into a Supplemental Compensation Agreement
with Mr. Hefty, President, Chairman and Chief Executive Officer, as incentive
for continued employment, and to reward Mr. Hefty for activities that result in
an increase in the shareholder value of UWS as a result of ownership of AMS.
Under the terms of the agreement, Mr. Hefty will be awarded phantom shares of
UWS Common Stock upon the occurrence of specific triggering events. The
Distribution is not a specific triggering event under the Supplemental
Compensation Agreement, and the parties to such Agreement have agreed that the
Supplemental Compensation Agreement shall terminate upon completion of the
Distribution.
TREATMENT OF UWS OPTIONS AND SARS AS A RESULT OF THE DISTRIBUTION
UWS has granted options ("UWS OPTIONS") to purchase shares of UWS Common
Stock under the United Wisconsin Services, Inc. Equity Incentive Plan and the
1995 Director Stock Option Plan (collectively, the "UWS EQUITY INCENTIVE PLANS")
to persons who are or will be executive officers, non-employee directors and
employees of Newco. On the Effective Date, each UWS Option held by the executive
officers, directors and employees of Newco, other than Messrs. Hefty and Mordy
and Ms. Hanson, will be converted into options to purchase shares of Newco
Common Stock and adjusted to provide equivalent value by (i) multiplying the
number of shares of UWS Common Stock subject to the option by the Newco
Adjustment Factor, and (ii) dividing the exercise price per share of the option
by the Newco Adjustment Factor. The "NEWCO ADJUSTMENT FACTOR" is defined as the
quotient obtained by dividing (x) the closing market price of the shares of UWS
Common Stock on the Distribution Date by (y) the closing market price of the
shares of Newco Common Stock on the trading day immediately following the
Distribution Date. The converted options will be assumed by Newco under the
Newco/UWS, Inc. Equity Incentive Plan. In addition, the converted options will
provide that (i) for purposes of the vesting, exercisability and duration of
these options, service with UWS as an executive officer, director or employee
shall be deemed to be service with Newco, and (ii) upon the occurrence of
certain events resulting in a change of control of Newco, these options will
become immediately vested and exercisable to the extent not previously vested
and exercisable.
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<PAGE>
UWS Options held by persons who will be employees and directors of AMSG
after the Distribution, other than certain UWS options held by Mr. Miller, will
be adjusted to provide equivalent value by (i) multiplying the number of shares
of UWS Common Stock subject to the option by the AMSG Adjustment Factor, and
(ii) dividing the exercise price per share of the option by the AMSG Adjustment
Factor. The "AMSG ADJUSTMENT FACTOR" is defined as the quotient obtained by
dividing (x) the closing market price of the shares of UWS Common Stock on the
Distribution Date by (y) the closing market price of the shares of AMSG Common
Stock on the trading day immediately following the Distribution Date.
UWS Options held by certain other individuals will be treated differently
than set forth above. Each option to purchase one share of UWS Common Stock held
by Messrs. Hilliard, Weyers, Hefty and Mordy and Ms. Hanson, and UWS options
held by Mr. Miller which were granted in December 1995, will be converted into
an option to purchase one share of AMSG Common Stock and an option to purchase
one share of Newco Common Stock. In order to provide equivalent value to each
option holder, the exercise price of each option to purchase shares of AMSG
Common Stock will be adjusted to equal the exercise price of the option prior to
the Distribution divided by the AMSG Adjustment Factor, and the exercise price
of each option to purchase shares of Newco Common Stock will be adjusted to
equal the exercise price of the option prior to the Distribution divided by the
Newco Adjustment Factor. All remaining options held by Mr. Miller will be
adjusted to provide equivalent value by (i) multiplying the number of shares of
UWS Common Stock subject to the option by the AMSG Adjustment Factor, and (ii)
dividing the exercise price per share of the option by the AMSG Adjustment
Factor.
UWS has awarded SARs ("UWS SARS") under the United Wisconsin Services, Inc.
1992 Stock Appreciation Rights Plan (the "UWS SAR PLAN") to executive officers
and employees of Newco. Upon the Distribution, each UWS SAR awarded to these
executive officers and employees will be assumed by Newco under a newly
established Newco SAR Plan, which will be substantially similar to the UWS SAR
Plan, and converted into SARs with respect to shares of Newco Common Stock. UWS
SARs awarded to executive officers and employees of Newco will be converted by
multiplying the number of SARs by the Newco Adjustment Factor and dividing the
grant price of the SARs by the Newco Adjustment Factor.
NEWCO BENEFIT PLANS FOLLOWING THE DISTRIBUTION
NEWCO EQUITY INCENTIVE PLAN
Prior to the Distribution, the Newco Board of Directors and UWS, as sole
shareholder of Newco, approved the Newco/UWS, Inc. Equity Incentive Plan (the
"NEWCO EQUITY INCENTIVE PLAN"). The Newco Equity Incentive Plan provides for the
granting of stock options, restricted stock awards and other awards of shares of
Newco Common Stock or Newco Common Stock equivalents payable to Newco employees,
including executive officers, and to Newco Directors. All outstanding awards
granted under the UWS Equity Incentive Plans and the UWS SAR Plan to expected
executive officers, directors and employees of Newco will be assumed by Newco
under the Newco Equity Incentive Plan.
PURPOSE. The primary purpose of the Newco Equity Incentive Plan is to
promote the success and enhance the value of Newco by linking the personal
interests of the participants with an incentive for outstanding performance. The
Newco Equity Incentive Plan also is intended to provide flexibility to Newco in
its ability to motivate, attract and retain the services of participants upon
whose judgment, interest and special effort the successful conduct of its
operation is dependent.
ADMINISTRATION. The Newco Equity Incentive Plan will be administered by the
Management Review Committee of the Newco Board of Directors. The Management
Review Committee is authorized to determine the size and types of employee
awards under the Newco Equity Incentive Plan, the employees to whom they will be
granted, the terms and conditions of such awards, including the date or dates on
which awards become exercisable either in whole or in part, their expiration
date and other matters in their discretion.
65
<PAGE>
ELIGIBILITY AND SHARES SUBJECT TO PLAN. Any key employee of Newco or any
key employee of its subsidiaries is eligible for an award under the Newco Equity
Incentive Plan if selected by the Management Review Committee. Subject to the
provisions of the Newco Equity Incentive Plan, the Management Review Committee
will have full authority and discretion to determine the employees to whom
awards will be granted and the amount and form of such awards. There are
approximately persons who will be employed by Newco and its subsidiaries who
would be eligible for selection for participation by the Management Review
Committee. Newly elected directors also will receive awards under the Newco
Equity Incentive Plan.
Under the Newco Equity Incentive Plan, the maximum number of shares of Newco
Common Stock granted or subject to awards will be 4.5 million (approximately
27.2% of the issued and outstanding shares of Newco Common Stock as of the
Effective Date). The Newco Equity Incentive Plan will assume the outstanding
awards granted under the UWS Equity Incentive Plans and approximately shares
of Newco Common Stock will be subject to such awards. Upon the cancellation or
expiration of an award, the unissued shares of Newco Common Stock subject to
such awards will again be available for additional awards under the Newco Equity
Incentive Plan.
TYPE OF AWARDS. Under the Newco Equity Incentive Plan, the Management
Review Committee is authorized to grant to employees: (i) stock options that
qualify as incentive stock options under Section 422 of the Code ("INCENTIVE
STOCK OPTIONS"); (ii) stock options that do not so qualify ("NONQUALIFIED STOCK
OPTIONS"); (iii) shares of Newco Common Stock, subject to such restrictions as
determined under the Newco Equity Incentive Plan ("RESTRICTED STOCK"); (iv)
SARs; and (v) Performance Units or Performance Shares. The Management Review
Committee is entitled to set the option price of stock options issued to
employees at any price it determines is equal to or in excess of the fair market
value of the shares of Newco Common Stock on the date of grant. Stock options
entitle the recipient to purchase a specific number of shares of Newco Common
Stock after a specified period of time at an option price set by the Management
Review Committee. No stock option can be exercised more than twelve years after
the date such option is granted. In the case of Incentive Stock Options, the
aggregate fair market value of the shares of stock with respect to which options
are exercisable for the first time by any recipient during any calendar year
cannot, under present tax rules, exceed $100,000. Newly elected directors will
receive Nonqualified Stock Options.
TERMS AND CONDITIONS. The term of any Incentive Stock Option or
Nonqualified Stock Option granted to an employee pursuant to the Newco Equity
Incentive Plan shall not exceed ten or twelve years, respectively (five years in
the case of a 10% or greater shareholder who is granted Incentive Stock
Options), and the option price per share shall not be less than the fair market
value of the shares of Newco Common Stock on the date the option is granted
(110% of the fair market value in the case of a 10% or greater shareholder who
is granted Incentive Stock Options). Options are not exercisable in any event
prior to six months following the date of grant. Newly elected directors shall
receive, as of their date of election, Nonqualified Stock Options with respect
to 6,000 shares of Newco Common Stock, exercisable at 100% of fair market value
on the date of grant.
SARs shall have a grant price at least equal to 100% of the fair market
value of the shares of Newco Common Stock if granted independently of any stock
option, or equal to the option price of the related stock option if granted in
connection with a stock option. The term of an SAR granted pursuant to the Newco
Equity Incentive Plan shall not exceed twelve years. SARs are not exercisable in
any event prior to six months following the date of grant.
Restricted Stock may be granted to employees in such amounts as the
Management Review Committee shall determine subject to the terms and provisions
of the Newco Equity Incentive Plan. Restricted Stock generally may not be sold
or otherwise transferred for a certain period (based on the passage of time, the
achievement of performance goals or the occurrence of other events as determined
by the Management Review Committee). During that period, however, participants
may exercise full voting rights and shall be entitled to receive all dividends
and other distributions with respect to shares of Restricted
66
<PAGE>
Stock. The grant of shares of Restricted Stock shall not vest in any event prior
to six months following the date of grant.
The number and/or value of Performance Units or Performance Shares that may
be granted to participants will be based on the extent to which performance
goals, as determined by the Management Review Committee, have been met. The
performance goals will be determined over a period of at least six months. At
the time of grant, each Performance Unit must have an initial value established
by the Management Review Committee and each Performance Share shall have an
initial value equal to the fair market value of the shares of Newco Common Stock
on the date of grant.
Awards under the Newco Equity Incentive Plan shall immediately vest and/or
be exercisable upon the occurrence of the participant's death, disability or
retirement, or a Change in Control (as defined in the Newco Equity Incentive
Plan). Subject to the terms of the Newco Equity Incentive Plan, awards may be
exercised within three months after termination of employment for any reason
except death, disability or retirement (but any awards held by a participant
dismissed for cause will immediately expire), within one year after the date of
the participant's death (by the participant's personal representative, legatees
or heirs) if the participant was employed by Newco at such date, within one year
after a participant's employment with Newco is terminated by reason of
disability, and within three years after a participant retires (as defined in
Newco's "tax qualified pension plan"). The Management Review Committee may
permit a participant to defer such participant's receipt of the payment of cash
or the delivery of shares of Newco Common Stock that would otherwise be due.
FEDERAL INCOME TAX CONSEQUENCES OF ISSUANCES AND EXERCISES OF OPTIONS. An
optionee will not be deemed to have received taxable income upon the grant or
exercise of any Incentive Stock Option, provided that such shares of Newco
Common Stock are held for at least one year after the date of exercise and two
years after the date of grant. No gain or loss will be recognized by Newco as a
result of the grant or exercise of Incentive Stock Options. An optionee will be
deemed to receive ordinary income upon exercise of Nonqualified Stock Options in
an amount equal to the amount by which the fair market value of the shares of
Newco Common Stock on the exercise date exceeds the exercise price. The amount
of any ordinary income deemed to be received by an optionee due to a premature
disposition of the shares of Newco Common Stock acquired upon the exercise of an
Incentive Stock Option or upon the exercise of a Nonqualified Stock Option will
be a deductible expense for tax purposes for Newco.
In general, a recipient of other stock awards, including Newco Common Stock
equivalents, but excluding restricted stock awards (see below), will have
ordinary income equal to the cash or fair market value of the shares of Newco
Common Stock on the date received in the year in which the award is actually
paid. Newco will have a corresponding deductible expense in the same year in an
amount equal to that reported by the recipient as ordinary income. The
recipient's basis in the shares of Newco Common Stock received will be equal to
the fair market value of the stock when received and the recipient's holding
period will begin on that date. With respect to restricted stock awards, such
awards do not constitute taxable income under existing federal tax law until
such time as restrictions lapse with respect to the total award or any
installment of such award. When any installment of securities are released from
restriction, the market value of such shares on the date of the lapse
constitutes income to the recipient in that year and is taxable at ordinary
income tax rates, and Newco will have a corresponding deductible expense in an
amount equal to that reported by the recipient as ordinary income in the same
year.
The Code permits a recipient of a restricted stock award to elect to have
the award treated as taxable income in the year of the award and to be subject
to tax at ordinary income tax rates on the fair market value of all of the
shares awarded, based on the price of the shares on the date the recipient
receives a beneficial interest in such shares. The election must be made
promptly within time limits prescribed by the Code and the regulations
thereunder. Any appreciation in value thereafter would be taxed at capital gain
rates when the restrictions lapse and the stock is subsequently sold. However,
should the market value of the stock at the time the restrictions lapse and the
stock is sold, be lower than at the date the award was
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acquired, the recipient would have a capital loss, to the extent of the
difference. In addition, if after electing to pay tax on the award in the year
the award was received the recipient subsequently forfeits the award for any
reason, the tax previously paid is not recoverable.
Since the lapse of restrictions on restricted stock awards is accelerated in
the event of a change of control of Newco, such an acceleration may result in an
excess parachute payment, as defined in Section 280 (G) of the Code. In such
event, Newco's deduction with respect to such payment is denied and the
recipient is subject to a nondeductible 20% excise tax on such excess parachute
payment.
ADJUSTMENTS IN THE EVENT OF CAPITAL CHANGES. The Management Review
Committee may make appropriate adjustments to the number of shares available for
awards and the terms of outstanding awards under the Newco Equity Incentive Plan
to reflect any change in capital stock of Newco, the issuance of any targeted
stock, split-up, stock dividend, exercisability of stock purchase rights,
special distribution to shareholders, combinations or reclassifications with
respect to any outstanding series or class of stock, or consolidation, merger or
sale of all or substantially all of the assets of Newco.
DURATION AND AMENDMENT OF THE NEWCO EQUITY INCENTIVE PLAN. No options,
Restricted Stock, SARs, Performance Units or Performance Shares will be awarded
under the Newco Equity Incentive Plan following the tenth anniversary of
approval of such plan. The Management Review Committee may terminate, amend or
modify the Newco Equity Incentive Plan with the approval of the Board of
Directors.
NONQUALIFIED COMPENSATION PLANS
Upon the Effective Date, Newco will assume sponsorship of the 1998
Nonqualified Profit Sharing Plan and the Management Incentive Plan
(collectively, the "NONQUALIFIED COMPENSATION PLANS"). Eligible employees of
Newco and its subsidiaries may receive a cash payment under the 1998
Nonqualified Profit Sharing Plan (the "PROFIT SHARING PLAN") based on Newco's
profitability as well as the profitability and customer satisfaction of the
employee's business unit or regional area, measured against targets set at the
beginning of the year (and adjusted as of the Effective Date). To be eligible to
receive a Profit Sharing Plan payment for the year, an employee must be employed
at the beginning of the year and remain employed through the date benefits are
paid (generally March of the following year), unless the termination is due to
retirement, death or disability. Payments can be up to 21% of the employee's
base pay, with an employee able to earn up to 7% of base pay based on Newco's
profitability, 7% of base pay based on the profitability of the employee's
business unit or regional area, and 7% of base pay based on the employee's
business unit or regional area achieving certain customer satisfaction
objectives. Generally, no payment will be made based on business unit or
regional area profitability or customer satisfaction if no payment is made based
on Newco's profitability.
Newco's executive officers and certain other employees also are eligible to
receive an annual performance bonus under the Management Incentive Plan. To be
eligible to receive a Management Incentive Plan bonus, the executive officer
must be employed at the beginning of the year and remain employed through the
date benefits are paid (by April 1 of the following year), unless the
termination is due to retirement, death or disability. The percentage of base
earnings paid is based on achievement of various performance levels and is
established separately for each executive officer. Payment under the Management
Incentive Plan is based one-third on achievement of business unit or regional
area financial results and two-thirds on achievement of individual or local area
performance objectives. Generally, no payment will be made under the Management
Incentive Plan if no payment is made under the Profit Sharing Plan.
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RETIREMENT PLANS
On the Effective Date, Newco will assume sponsorship (with BCBSUW) of the
UWSI/BCBSUW Salaried Pension Plan, the UWSI/BCBSUW Hourly Pension Plan, the
UWSI/BCBSUW 401(k) Plan and the UWSI/BCBSUW Union Employees' 401(k) Plan
(collectively, the "RETIREMENT PLANS"). Participants in the UWSI/BCBSUW 401(k)
Plan will be permitted to hold shares of UWS Common Stock, as an investment
option, through the 1999 plan year. For purposes of eligibility, vesting,
benefit accruals and other matters, participants in the Retirement Plans prior
to the Effective Date will be credited with the compensation and term of service
credited to such participants as of the Effective Date as if the service had
been rendered to Newco. Participants in the Retirement Plans will have the same
accrued benefit following the Effective Date as was accrued under the Retirement
Plans as of the Effective Date.
Employees of Newco who are not covered under a collective bargaining
agreement will participate in the UWSI/BCBSUW 401(k) Plan after completing one
year of service. Contributions are based on compensation up to $160,000 (in
1998). Participants may make salary reduction contributions between 2% and 16%
of compensation up to a maximum, in 1998, of $10,000 per year. A matching
contribution of 50% of the first 5% of compensation is made by Newco. The salary
reduction contributions and matching contributions of highly compensated
employees may be reduced to comply with certain discrimination requirements of
the Code. The matching contribution will be made in shares of Newco Common
Stock. The salary reduction contributions will be invested, at the discretion of
the participant, in mutual funds, collective funds or in shares of Newco Common
Stock. Salary reduction contributions are fully vested when made, while matching
contributions are vested ratably over a five-year period.
Bargaining unit employees of Newco will participate in the UWSI/BCBSUW Union
Employees 401(k) Plan after completing one year of service. Participants may
make salary reduction contributions between 1% and 16% of compensation up to a
maximum, in 1998, of $10,000 per year. A matching contribution of 50% of the
first 5% of compensation is made by Newco. Contributions will be invested, at
the discretion of the participant, in mutual funds and collective funds. Salary
reduction contributions are fully vested when made while matching contributions
are vested over a six-year period.
Salaried employees of Newco will participate in the UWSI/BCBSUW Salaried
Pension Plan after completing one year of service. The benefit payable under
this plan is based on the participant's cash balance account. The cash balance
account was credited with an initial balance based on the participant's accrued
benefit as of December 31, 1996. The initial cash balance is increased by (i) an
annual credit of 4% of the participant's earnings up to $160,000 (in 1998); (ii)
an annual interest credit based on the interest rate on ten-year treasury
securities; and (iii) an annual transition credit equal to 4% of the
participant's earnings up to $160,000 (in 1998) with such annual transition
credit payable with respect to the cash balance account of any participant for
the lesser of 15 years or the participant's years of service as of December 31,
1996. A participant is not vested in his retirement benefits until he completes
five years of service, at which time the participant becomes fully vested. A
participant's retirement benefit is the actuarial equivalent of his cash balance
account and is generally paid in the form of a life annuity if the participant
is single or in the form of a joint and survivor annuity if the participant is
married. The retirement benefit also may be paid in other actuarial equivalent
forms, including a single sum.
SUPPLEMENTAL RETIREMENT PLAN
Upon the Effective Date, Newco will assume sponsorship of the SERP and all
liabilities with respect thereto. Participants in the SERP prior to the
Effective Date will be credited with the compensation and term of service
credited to such participants as of the Effective Date as if the service had
been rendered to Newco.
Executive officers of Newco may become participants in the SERP if they are
employed as a vice president or officer of Newco or its subsidiaries and are
designated as a participant by Newco's Employee Benefits Committee. A
participant who has completed five years of service with Newco or its
subsidiaries is
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eligible for a retirement benefit at age 65 equal to 2% of the participant's
final average earnings multiplied by the participant's years of service, less
both the participant's social security benefit and benefit under the UWSI/BCBSUW
Salary and Hourly Pension Plans. Benefits are paid in the form of a life annuity
to a single participant with ten years certain at 70%, and in the form of an
actuarial equivalent joint and 50% survivor annuity for a married participant. A
reduced benefit is payable at any age.
DEFERRED COMPENSATION PLANS
Upon the Effective Date, Newco will create new deferred compensation plans
which will assume all liabilities (except liabilities relating to Mr. Miller)
with respect the United Wisconsin Services, Inc. Voluntary Deferred Compensation
Plan and the UWSI Deferred Compensation Plan for Directors (the "DEFERRED
COMPENSATION PLANS"). All assets in the Deferred Compensation Trust (other than
assets attributable to Mr. Miller's deferred compensation) will be transferred
to a new trust established by Newco.
Selected executive officers and directors of Newco may participate in the
Deferred Compensation Plan. Participants may elect in December of each year to
defer compensation earned in the following year. Amounts deferred will be
credited to an account. Upon termination of employment or termination of service
as a director, the participant will receive a distribution of the amount
credited such account in the form of a lump sum of installments.
OTHER BENEFIT PLANS
Pursuant to the Employee Benefits Agreement, Newco will create plans for
management and other employees of Newco that generally are comparable to the
existing UWS benefit plans covering the expected employees of Newco.
AGREEMENTS BETWEEN AMSG AND NEWCO
For purposes of governing certain of the ongoing relationships between AMSG
and Newco after the Distribution and to provide for an orderly transition on the
Effective Date to the status of two separate, independent companies, AMSG and
Newco are entering into the various agreements described below. The discussion
below is a summary of the principal provisions of the Distribution and Indemnity
Agreement, the Employee Benefits Agreement, the Tax Allocation Agreement, the
AMSG Service Agreement and the Reinsurance Agreements. This summary does not
purport to be complete. Reference is made to the complete provisions of, and
such summary is qualified in its entirety by reference to, the forms of such
agreements, copies of which are filed as exhibits to the Registration Statement
of which this Information Statement forms a part.
DISTRIBUTION AGREEMENT
UWS and Newco will enter into the Distribution Agreement as of the Effective
Date providing for, among other things, the principal corporate transactions
required to effect the Distribution, the allocation between UWS and Newco of
assets and liabilities and certain other agreements governing the relationship
between UWS and Newco with respect to or in consequence of the Distribution.
THE REORGANIZATION. The Distribution Agreement will effect the following
transactions as of the Effective Date: (i) the contribution by UWS to Newco of
the outstanding shares of the Managed Care Companies; (ii) the contribution by
UWS to Newco of all assets utilized by UWS in its management and operations of
the Managed Care Companies; (iii) the contribution by UWS to Newco of working
capital to support the Management Business; (iv) the issuance by Newco to UWS of
shares of Newco Common Stock; (v) the assumption by Newco of certain
employee benefit plan liabilities associated with the operation of such
contributed businesses; (vi) the assumption by Newco of $70.0 million in a note
obligation of UWS to BCBSUW; and (vii) the assumption by Newco of certain
accrued liabilities of UWS.
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The items described in (v)--(vii) above are herein referred to as "NEWCO
LIABILITIES". On the Effective Date, UWS will deliver to the Distribution Agent
the shares of Newco Common Stock, for distribution on the Distribution
Date.
The Distribution Agreement provides that Newco will hire all employees of
UWS and its subsidiaries (other than AMS and its subsidiaries). UWS will have no
further responsibility or liability with respect to the employment relationship
of such employees on and after the Effective Date.
ASSUMPTION OF LIABILITIES AND INDEMNIFICATION. UWS and Newco will each be
responsible for all claims and liabilities relating to their respective
businesses, whether or not such claims and liabilities are asserted prior to the
Effective Date. All liabilities of the Managed Care Companies will be
transferred to Newco by operation of law. All liabilities of UWS, other than the
Newco Liabilities, will remain exclusively the liabilities of UWS, except as set
forth in the Tax Allocation Agreement, the Employee Benefits Agreement, the AMSG
Service Agreement or the Intellectual Property Agreement.
Subject to certain exceptions, the Distribution Agreement also provides for
certain indemnification by the parties. UWS has agreed to indemnify Newco
against any liabilities assumed or retained by UWS pursuant to the Distribution
Agreement and liabilities relating to (i) any breach by UWS or any of its
subsidiaries of the Distribution Agreement or any other agreement referred to
therein (the "ANCILLARY AGREEMENTS"); (ii) the operation of the businesses
conducted, or to be conducted, by UWS and its subsidiaries or the ownership of
its assets (other than businesses and assets to be contributed to Newco) both
prior to and following the Effective Date; (iii) with respect to employee
benefit plans sponsored by UWS, the failure of UWS to comply with provisions of
ERISA or of the Code; and (iv) any violations of the Code, or of federal or
state securities laws, in connection with the Distribution or with any filings
made with governmental agencies with respect thereto, or in connection with
operations of UWS's business after the Effective Date, to the extent that such
violations, or allegations of violations, result from, or are related to, the
disclosure, or failure to disclose, information to Newco's corporate staff by
officers, directors, employees, agents, consultants and representatives of UWS.
Newco has agreed to indemnify UWS against any liabilities assumed by Newco
or its subsidiaries pursuant to the Distribution Agreement, and liabilities
relating to (i) any breach by Newco or any of its subsidiaries of the
Distribution Agreement or any Ancillary Agreement, (ii) the operation of the
business conducted, or to be conducted, by Newco or its subsidiaries or the
ownership of its assets both prior to and after the Effective Date, (iii) with
respect to employee benefit plans sponsored by Newco, the failure of Newco to
comply with the provisions of ERISA or the Code, and (iv) any violations, or
allegations of violations, of the Code or federal or state securities laws in
connection with the Distribution or with any filings made with governmental
agencies with respect thereto, to the extent that such violations, or
allegations of violations, result from, or are related to, the disclosure, or
failure to disclose, information to UWS's corporate staff by officers,
directors, employees, agents, consultants and representatives of Newco.
The indemnities described above will be limited to the amount of the loss,
less insurance proceeds, net of deductibles and allocated paid loss
retro-premiums received by the indemnified party. The Distribution Agreement
also includes procedures for notice and payment of indemnification claims and
provides that the indemnifying party may assume the defense of a claim or suit
brought by a third party.
NONSOLICITATION. The Distribution Agreement provides that, for a period of
twelve months following the Distribution, UWS and its subsidiaries will not
employ or attempt to employ any Newco employee or attempt to induce any Newco
employee to leave his or her employment, and Newco and its subsidiaries will not
employ or attempt to employ any UWS employee or attempt to induce any UWS
employee to leave his or her employment.
ADDITIONAL COVENANTS. The Distribution Agreement provides that each of UWS
and Newco will be granted access to certain records and information in the
possession of the other party and requires retention for a period of seven years
following the Distribution of all such information in its possession,
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and thereafter requires that each party give the other party prior notice of the
intention to dispose of such information. From and after the Effective Date,
both Newco and UWS will promptly transfer to the other, from time to time, any
property received that is an asset of the other. Funds received by one upon the
payment of accounts receivable that belong to the other will be transferred to
the other by wire transfer not more than five business days after receipt of
such payment.
Except as stated in the Distribution Agreement, no party to such agreements
or any other agreement or document contemplated by the Distribution Agreement
has or shall be deemed to have made any representation or warranty as to: (i)
the assets, businesses or liabilities retained, transferred or assumed as
contemplated thereby; (ii) any consents or approvals required in connection with
the transfer or assumption by such party of any asset or liability contemplated
by the Distribution Agreement; (iii) the value or freedom from any lien, claim,
equity or other encumbrance of, or any other matter concerning, any assets of
such party; or (iv) the absence of any defenses or right of set off or freedom
from counterclaim with respect to any claim or other asset of any party. Except
as may expressly be set forth in the Distribution Agreement, all such assets
were, or are being, transferred, or are being retained, on an "as is," "where
is" basis and the respective transferees will bear the economic and legal risks
that any conveyance will prove to be insufficient to vest in the transferee a
title that is free and clear of any lien, claim, equity or other encumbrance.
Any disputes arising from or in connection with the Distribution Agreement
must be resolved in accordance with the dispute resolution procedures set forth
in the Distribution Agreement.
UWS has agreed to use its best efforts to maintain directors' and officers'
liability insurance coverage at least equal to the amount of UWS's current
directors' and officers' liability insurance coverage for a period of five years
with respect to the directors and officers of UWS who will become directors and
officers of Newco as of the Effective Date for acts as directors and officers of
UWS or one of its affiliates during periods prior to the Effective Date.
EMPLOYEE BENEFITS AGREEMENT
UWS and Newco have entered into the Employee Benefits Agreement providing
for the treatment of employee benefit matters and other compensation
arrangements in connection with the Distribution. On or prior to the
Distribution, Newco will offer to employ each active and inactive employee
employed by UWS (parent company only) immediately prior to the Effective Date,
including all employees laid off, disabled or on leave of absence, unless such
employment has been terminated by UWS prior to the Effective Date. Employees at
UWS's subsidiaries will remain employed at such subsidiary. Generally, except as
noted herein, as of the Effective Date, Newco will assume sponsorship of, and
all liabilities under, all benefit plans, and all other plans, programs,
policies and arrangements sponsored by UWS (or jointly sponsored by UWS and
BCBSUW) and in effect prior to the Effective Date, and UWS will cease to have
any liability or obligation to individuals who become employees of Newco or one
of its subsidiaries ("NEWCO EMPLOYEES") under any UWS benefit plans, programs or
practices. All benefit plans sponsored by UWS's subsidiaries will remain
sponsored by such subsidiaries after the Effective Date. Newco will assume
liability for employment-related claims (including harassment and
discrimination) regardless of when filed with respect to all Newco Employees,
regardless of whether the claimant was, prior to the Effective Date, a UWS
employee.
Subject to local laws or regulations, UWS and Newco have agreed that, with
respect to individuals who, in connection with the Distribution, cease to be
employees of UWS or one of its subsidiaries and become Newco Employees, such
cessation will not be deemed a severance of employment for purposes of any plan
providing for the payment of severance or salary continuation, and UWS and Newco
will, in connection with the Distribution, if and to the extent appropriate,
obtain waivers from individuals against any such assertion.
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The Employee Benefits Agreement provides that Newco will assume sponsorship
(in some cases with BCBSUW) of the following benefit plans of UWS: (i) the
Nonqualified Compensation Plan; (ii) the Retirement Plans; (iii) the SERP; (iv)
the Deferred Compensation Plans; (v) all welfare plans which provide medical,
health, disability, accident, life insurance, death, dental or other welfare
benefits, including any post-employment benefits or retiree medical, life
insurance or other such benefits; and (vi) any other benefit plan. Newco will be
responsible for the payment of all liabilities for the benefits due and payable
under such plans, except that liabilities relating to Mr. Samuel V. Miller will
be retained by AMSG. See "Newco Benefit Plans Following the Distribution."
Pursuant to the Employee Benefits Agreement, Newco will establish the Newco
Equity Incentive Plan which will be substantially similar to the UWS Equity
Incentive Plans in place prior to the Distribution, except that directors of
Newco will be eligible for awards under the plan. All outstanding UWS Options
and SARs relating to shares of UWS Common Stock to be converted into options and
SARs relating to shares of Newco Common Stock will be assumed by Newco under the
Newco Equity Incentive Plan. Generally, all options and SARs held by persons who
will become Newco Employees or directors of Newco will be converted into options
and SARs relating to shares of Newco Common Stock and adjusted by increasing the
number of shares of Newco Common Stock subject to each option and decreasing the
exercise price per share for each option and SAR to provide equivalent value;
provided, however, that options held by Messrs. Hefty and Mordy and Ms. Hanson
will be converted into options to purchase an equal number of shares of AMSG
Common Stock and Newco Common Stock, and adjusted by decreasing the exercise
price per share for each option to provide equivalent value. For options held by
employees, former employees and directors of UWS who will remain with UWS after
the Distribution, all options generally will be converted into options to
purchase shares of AMSG Common Stock and adjusted by increasing the number of
shares of AMSG Common Stock subject to each option and decreasing the exercise
price per share for each option to provide equivalent value; provided, however,
that options held by Messrs. Hilliard, Weyers and Miller will be either
converted into options to purchase an equal number of shares of Newco Common
Stock and AMSG Common Stock and adjusted by decreasing the exercise price per
share for each option to provide equivalent value, or converted into options to
purchase shares of AMSG Common Stock and adjusted by increasing the number of
shares of AMSG Common Stock subject to each option and decreasing the exercise
price of each option to provide equivalent value. See "Newco Benefit Plans
Following the Distribution" and "Management of Newco--Treatment of UWS Options
and SARs as a Result of the Distribution."
In general, the Employee Benefits Agreement provides that for purposes of
eligibility, vesting and benefit accruals, participants in UWS's benefit plans
prior to the Effective Date will be credited with the compensation and term of
service credited to such participants as of the Effective Date as if the service
had been rendered to Newco. In addition, for any benefits accrued under any UWS
benefit plan prior to the Distribution, such participants will have the same
accrued benefit following the Effective Date.
TAX ALLOCATION AGREEMENT
Prior to the Distribution, an agreement will be entered into that reflects
each of Newco's and UWS's rights and obligations with respect to deficiencies
and refunds of federal, state or other income taxes relating to the business of
UWS that are attributable to periods ending prior to or on the Effective Date.
The Tax Allocation Agreement also expresses each party's intention with respect
to certain tax attributes of UWS after the Distribution. The Tax Allocation
Agreement provides that UWS shall only be responsible for federal, state and
local income taxes relating to the Small Group Business of UWS for the period up
to and including the Effective Date. The Tax Allocation Agreement provides for
payments between the two companies for certain audit adjustments made after the
Distribution that cover pre-Distribution tax liabilities. Other provisions cover
the handling of audits, settlements, stock options, elections, accounting
methods, and return filings in cases where both companies have an interest in
the results of these activities.
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In addition, the Tax Allocation Agreement requires UWS and Newco to cooperate in
preparing those filings that cover overlapping taxable periods that include the
Effective Date.
Pursuant to the Tax Allocation Agreement, Newco and UWS will agree to
refrain from engaging in certain transactions for three years following the
Effective Date unless the party proposing to engage in such transaction obtains
prior written consent from the other party. Transactions subject to these
restrictions will include, among other things, the liquidation, merger, or
consolidation with another company, the redemption of shares of UWS Common Stock
or Newco Common Stock, the sale, distribution or other disposition of assets out
of the ordinary course of business, and the discontinuation of certain
businesses. Newco and UWS will each agree to indemnify the other from
liabilities arising as a result of the breach by Newco or UWS, as the case may
be, of the Tax Allocation Agreement. In addition, Newco and UWS have each agreed
that neither party will take any action inconsistent with the information
furnished to the IRS in connection with the Tax Ruling, and will indemnify each
of them with respect to any tax liability resulting from their respective
failures to comply with such provisions.
In addition, the Tax Ruling also is based on the accuracy of two covenants
agreed to by Newco in the Tax Allocation Agreement: within one year after the
Distribution, (i) licenses for use of the Blue Service Marks shall be obtained
by Compcare, and (ii) the Managed Care Companies shall have entered into a joint
venture with an unrelated third party.
AMSG SERVICE AGREEMENT
Newco may provide certain services to AMSG, at AMSG's option, pursuant to
the AMSG Service Agreement. Services that AMSG may utilize pursuant to the AMSG
Service Agreement include investment management, investment accounting, risk
management, accounting and financial audit and corporate communications. Fees
under the AMSG Service Agreement for investment management and investment
accounting will be based on a percentage of the portfolio plus a flat rate for
each company held by AMSG whose investments are being handled by Newco. Fees for
risk management will be based on a percent of the annual premiums for such risk
management insurance. Fees for accounting and financial audit and corporate
communications will be based on an hourly rate. The AMSG Service Agreement will
terminate on December 31, 1999, unless terminated earlier upon appropriate
notice. The AMSG Service Agreement will be submitted to OCI for its review and
lack of disapproval.
REINSURANCE AGREEMENTS
AMSG and Newco will enter into various quota share reinsurance agreements
pursuant to which each company will cede to the other certain risks related to
life insurance, health insurance, dental insurance, point-of-service and other
insurance plans. In addition, each company acting as the reinsurer will provide
administrative services to the other company acting as the ceding company. As
consideration for such reinsurance, the ceding company shall receive a ceding
commission of approximately 0.5% of the gross premiums reinsured under each
applicable agreement.
INTELLECTUAL PROPERTY AGREEMENT
UWS and Newco will enter into the Intellectual Property Agreement pursuant
to which UWS will assign to Newco or one or more of its subsidiaries all of
UWS's rights in certain trademarks, trade secrets and other intellectual
property associated with the Managed Care Companies and the Management Business
(the "INTELLECTUAL PROPERTY"). The Intellectual Property Agreement will provide
that UWS will transfer to Newco, without charge, title to the Intellectual
Property used solely or primarily in the business of Newco, effective on the
Effective Date. UWS will retain title to any of the Intellectual Property it
uses solely or primarily in connection with the Small Group Business. UWS and
Newco will agree to cooperate with each other after the Effective Date to effect
the purposes of the Intellectual Property Agreement.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS WITH BCBSUW
Newco and various of its subsidiaries purchase services from, or provide
services to, BCBSUW through the Service Agreements. Services covered by these
agreements include marketing, information systems, legal, investment, actuarial,
accounting, underwriting and other administrative and management services. Fees
under the Service Agreements are calculated on a cost basis. Costs directly
attributable to a particular company are paid by such company. Costs that are
not specific to any particular company are allocated based on utilization and
allocation methods agreed to by the parties to the agreements. If the recipient
can obtain any of the services under more favorable terms by performing the
services itself or by procuring them from a third party, it is not obligated to
renew the Service Agreement for those services if the provider is unwilling to
substantially match such terms. The Service Agreements automatically renew
annually unless otherwise terminated. In addition, pursuant to Wisconsin law,
OCI reviews the Service Agreements to ensure that the agreements are reasonable
and fair to the interests of the insurance companies that are parties to the
agreements. For the year ended December 31, 1997, Newco paid approximately $14.6
million for such services, and received approximately $9.3 millon from BCBSUW
for the provision of such services.
AMSG SERVICE AGREEMENT
Newco may provide certain services to AMSG, at AMSG's option, pursuant to
the AMSG Service Agreement. Services that AMSG may utilize pursuant to the AMSG
Service Agreement include investment management, investment accounting, risk
management, accounting and financial audit and corporate communications. Fees
under the AMSG Service Agreement for investment management and investment
accounting will be based on a percentage of the portfolio plus a flat rate for
each company held by AMSG whose investments are being handled by Newco. Fees for
risk management will be based on a percent of the annual premiums for such risk
management insurance. Fees for accounting and financial audit and corporate
communications will be based on an hourly rate. The AMSG Service Agreement will
terminate on December 31, 1999 unless terminated earlier upon appropriate
notice. The AMSG Service Agreement will be submitted to OCI for its review and
lack of disapproval.
SUPPLEMENTAL COMPENSATION AGREEMENT
In September 1997, Newco entered into a Supplemental Compensation Agreement
with Thomas R. Hefty, President, Chairman and Chief Executive Officer of UWS, as
incentive for continued employment, and to reward Mr. Hefty for activities
resulting in an increase in shareholder value as a result of Newco's interest in
AMS. The Distribution is not a specific triggering event under the Supplemental
Compensation Agreement, and the parties have agreed that the Supplemental
Compensation Agreement shall terminate upon completion of the Distribution.
BCBSUW LOAN
In connection with the Distribution, Newco will assume a debt obligation of
UWS to BCBSUW in the principal amount of $70.0 million. On October 30, 1996, UWS
borrowed $70.0 million from BCBSUW to fund the cash portion of the merger
consideration in connection with the merger of American Medical Security Group,
Inc. into UWS. UWS pledged the common stock of certain of its subsidiaries as
collateral for the loan. Interest only is payable quarterly at a rate equal to
LIBOR plus 125 basis points, adjusted quarterly. The entire principal balance is
due October 30, 1999.
BCBSUW INTENDED PURCHASE OF ADDITIONAL SHARES OF NEWCO COMMON STOCK
Upon completion of the Distribution, BCBSUW will own 38.1% of the issued and
outstanding shares of UWS Common Stock and 38.1% of the issued and outstanding
shares of Newco Common Stock. One of
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the primary reasons for effectuating the Distribution is so that the Managed
Care Companies can use the Blue Service Marks in connection with their products
and services. In order to use the Blue Service Marks, one of the requirements is
that a Blue Plan must "control" the company (meaning that a Blue Plan must
directly or indirectly own more than 50% of the stock of the company and must
have operational control over the company). Therefore, within a year after the
Distribution Date, BCBSUW intends to purchase additional shares of Newco Common
Stock to bring its overall direct and indirect ownership of Newco to
approximately 51%. The purchase price for the shares of Newco Common Stock to be
purchased directly from Newco will be based on the market price of the shares of
Newco Common Stock and an independent third party valuation, and will be paid
through the cancellation of a corresponding portion or all of the $70.0 million
Newco indebtedness to BCBSUW or in cash. BCBSUW may purchase some of the shares
of Newco Common Stock in the open market. The intended purchases are subject to
the receipt of OCI approval and may be subject to the receipt of Newco
shareholder approval as a result of certain NYSE rules. The rules of the NYSE
require that the shareholders of Newco approve the sale of shares of Newco
Common Stock to BCBSUW (the "BCBSUW SALE") if either (i) Newco sells a number of
shares (the "APPROVAL AMOUNT") of Newco Common Stock in one or a series of
transactions which equals or exceeds 20% of the number of shares of Newco Common
Stock outstanding prior to such sale(s), or (ii) the sale of shares of Newco
Common Stock results in a "change of control" of Newco. UWS believes that, prior
to the BCBSUW Sale, BCBSUW will directly or indirectly own a number of shares of
Newco Common Stock such that the BCBSUW Sale will involve the sale of a number
of shares of Newco Common Stock which is fewer than the Approval Amount. If,
however, as a result of changed facts and circumstances at the time of the
BCBSUW Sale, Newco is required to sell a number of shares of Newco Common Stock
to BCBSUW which exceeds the Approval Amount, Newco will be required to obtain
shareholder approval to consummate the BCBSUW Sale. Whether a "change in
control" results from the BCBSUW Sale will depend upon the facts and
circumstances in existence at the time of the BCBSUW Sale and the treatment of
the BCBSUW Sale by the staff of the NYSE.
SETTLEMENT AGREEMENT; CERTAIN REGISTRATION RIGHTS AND VOTING AGREEMENTS RELATING
TO NEWCO COMMON STOCK
In April 1998, UWS, Newco and Messrs. Hilliard and Weyers entered into a
Settlement Agreement ("SETTLEMENT AGREEMENT") relating to matters arising out of
UWS's acquisition of American Medical Security Group, Inc. in December 1996.
Under the terms of the acquisition agreement, $8.0 million of the purchase price
was deposited into escrow as security for indemnification payments to be made to
UWS for breaches of certain representations, warranties, covenants and other
agreements contained in the acquisition agreement. In the Settlement Agreement,
the parties agreed to settle all claims against the escrow for $500,000, and
release the remaining escrow amount to the shareholders of American Medical
Security Group, Inc., and agreed to amend the employment agreements of Messrs.
Hilliard and Weyers. The Settlement Agreement also contained provisions relating
to the treatment of options to purchase shares of UWS Common Stock held by
Messrs. Hilliard and Weyers in connection with the Distribution. In addition, in
connection with the acquisition by UWS of American Medical Security Group, Inc.
in December 1996, UWS entered into an agreement with two of that corporation's
shareholders, Messrs. Hilliard and Weyers, providing for registration rights for
the shares of UWS Common Stock they received in that transaction and containing
certain voting and standstill agreements (the "REGISTRATION AGREEMENT"). In the
Settlement Agreement, UWS and Messrs. Hilliard and Weyers agreed to extend those
terms to the shares of Newco Common Stock they will receive in the Distribution
as follows:
(i) Messrs. Hilliard and Weyers will be entitled to make up to two
requests that Newco register at least 50% of the then outstanding shares of
Newco Common Stock held by them, which Newco is obligated to use its best
efforts to do unless (a) the request comes during the period 45 days prior
to the estimated date of filing and 180 days following the effective date of
Newco's own registration of shares of Newco Common Stock pertaining to an
underwritten public offering; (b) Newco has already effected two such
registrations pursuant to Messrs. Hilliard's and Weyers' requests; (c) the
filing of the
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registration statement could jeopardize or delay a material transaction
contemplated by Newco or would require the disclosure of material
information that Newco needs to preserve as confidential; or (d) Newco is
unable to comply with the requirements of the SEC; and
(ii) Messrs. Hilliard and Weyers will be entitled to make up to two
requests that Newco include Messrs. Hilliard's and Weyers' shares of Newco
Common Stock in an offering of shares of Newco Common Stock otherwise being
registered upon being notified by Newco that Newco is registering shares of
Newco Common Stock in connection with a public offering for cash on a form
that also would permit the registration of Messrs. Hilliard's and Weyers'
shares of Newco Common Stock (which notice Newco is obligated to give).
These registration rights expire upon the earlier of April 1, 2001 or upon
the date on which Messrs. Hilliard and Weyers in the aggregate own less than
three percent of the outstanding shares of UWS Common Stock.
Pursuant to the Settlement Agreement, Messrs. Hilliard and Weyers agreed
that, until December 3, 2006, they will not acquire, or propose to acquire (i)
any Newco securities (other than pursuant to the exercise of stock options) with
the power to vote for the election of directors of Newco (the "VOTING
SECURITIES"), or (ii) any rights or options to acquire any Voting Securities, if
any of such acquisitions would require regulatory approval, application or
notification other than as required by the Exchange Act. In addition, Messrs.
Hilliard and Weyers agreed that, until December 3, 1999, they will not (i) make
or participate in any solicitation of proxies (within the meaning of Rule 14a-1
of the Exchange Act) or initiate any shareholder proposals with respect to
Newco; (ii) make any proposals with respect to a merger or other business
combination, sale or transfer of assets, liquidation or other extraordinary
corporate transaction of Newco; or (iii) form, join or participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) with respect to
Newco securities or seek to exercise control or influence over management, the
Newco Board of Directors, or the corporate policies of Newco. Finally, Messrs.
Hilliard and Weyers agreed that, until December 3, 2006, they will vote their
shares of Newco Common Stock in accordance with BCBSUW directions on matters
submitted to a Newco shareholder vote which pertain to, or are a result of,
BlueCross and BlueShield Association rules, regulations or marketing issues.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the expected beneficial ownership of shares
of Newco Common Stock by each shareholder expected to own beneficially more than
5% of the shares of Newco Common Stock (as disclosed in certain reports
regarding such ownership filed with UWS and the SEC in accordance with Sections
13(d) and 13(g) of the Exchange Act), by each director of Newco, each of the
executive officers of Newco who appear in the Summary Compensation Table, and
all directors and officers of Newco as a group, based upon the beneficial
ownership of such shareholders of UWS Common Stock as of June 30, 1998 (except
as noted otherwise below), including shares that such shareholder has the right
to acquire ownership. Unless otherwise indicated, each shareholder listed below
has sole voting and dispositive power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OWNED(3) CLASS
- -------------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
Blue Cross & Blue Shield United of Wisconsin(1)................................. 6,309,525 37.5%
Wallace J. Hilliard(2).......................................................... 1,401,601 8.3
Ronald A. Weyers(2)............................................................. 1,197,659 7.1
Heartland Advisors, Inc.(2)..................................................... 1,103,150 6.6
Thomas R. Hefty(4)(5)........................................................... 95,859 *
Roger A. Formisano(4)(5)........................................................ 39,038 *
C. Edward Mordy(5).............................................................. 54,572 *
Mark H. Granoff(5).............................................................. 28,485 *
Penny J. Siewert(5)............................................................. 13,446 *
Richard A. Abdoo................................................................ 2,800 *
Michael D. Dunham............................................................... 1,000 *
James L. Forbes................................................................. 3,500 *
James C. Hickman................................................................ 2,200 *
William R. Johnson.............................................................. 6,500 *
Eugene A. Menden................................................................ 3,500 *
William C. Rupp, M.D............................................................ 1,000 *
Carol N. Skornicka.............................................................. 1,300 *
All directors and executive officers as a group (19 persons)(4)................. 311,903 1.9%
</TABLE>
- ------------------------
* Amount represents less than 1% of the total shares of Newco Common Stock
expected to be issued and outstanding.
(1) BCBSUW's address is 1515 North River Center Drive, Milwaukee, Wisconsin
53212. Within one year after the Distribution Date, BCBSUW intends to
purchase additional shares of Newco Common Stock such that its direct and
indirect ownership of Newco is approximately 51%.
(2) Based on Amendments to Schedules 13G filed with UWS pursuant to the Exchange
Act by such beneficial owner on the following dates: Hilliard--February 12,
1998; Weyers--February 12, 1998; and Heartland Advisors--February 6, 1998.
Mr. Hilliard's address is P.O. Box 12146, Green Bay, Wisconsin 54307-2146;
Mr. Weyer's address is 500 AMS Court, Green Bay, Wisconsin 54313; and
Heartland Advisors, Inc.'s address is 790 North Milwaukee Street, Milwaukee,
Wisconsin 53202.
(3) Includes the following number of shares of UWS Common Stock which the named
individuals and certain executive officers have the right to acquire within
60 days of June 30, 1998: Mr. Hefty, 79,293; Mr. Formisano, 34,524; Mr.
Mordy, 37,316; Mr. Granoff, 24,524; Ms. Siewert, 11,000; Mr. Abdoo, 2,000;
Mr. Dunham, 1,000; Mr. Forbes, 2,000; Mr. Hickman, 2,000; Mr. Johnson,
2,000; Mr. Menden, 2,000; Ms. Skornicka, 1,000; and all directors and
officers as a group, 245,931.
(4) Includes the following shares owned jointly with such person's spouse, with
respect to which such person shares voting power and dispositive power: Mr.
Hefty, 2,000 shares; and Mr. Formisano, 3,750 shares.
(5) Includes the following shares held under UWS's 401(k) plan, as to which such
person has dispositive power: Mr. Hefty, 2,816; Mr. Formisano, 764; Mr.
Mordy, 3,156; Mr. Granoff, 1,251; Ms. Siewert, 1,796; and all directors and
officers as a group, 15,509.
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DESCRIPTION OF CAPITAL STOCK OF NEWCO
The authorized capital stock of Newco consists of 50,000,000 shares of Newco
Common Stock, no par value per share, and 1,000,000 shares of Preferred Stock,
no par value per share, issuable in series. Based on the number of shares of UWS
Common Stock currently outstanding, shares of Newco Common Stock will
be issued to shareholders of UWS in the Distribution. No shares of Preferred
Stock will be issued in connection with the Distribution. The following summary
description of the capital stock of Newco is qualified in its entirety by
reference to the Articles of Incorporation and By-Laws.
COMMON STOCK
Holders of shares of Newco Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of shareholders. Holders of shares
of Newco Common Stock do not have cumulative voting rights in the election of
directors and have no preemptive, subscription or redemption rights. After the
Distribution, all outstanding shares of Newco Common Stock will be validly
issued, fully paid and non-assessable, except for certain statutory liabilities
which may be imposed by Section 180.0622 of the WBCL for unpaid employee wages.
Section 180.0622 of the WBCL provides that shares held by shareholders of
corporations incorporated in Wisconsin may be assessed up to their par value to
satisfy obligations to employees for services rendered, but not exceeding six
months' service in the case of any individual employee. Wisconsin courts have
interpreted "par value" to mean the full amount paid by the original subscriber
for the shares upon the original issuance thereof. Holders of shares of Newco
Common Stock are entitled to such dividends as may be declared by the Board of
Directors out of funds legally available therefor. Upon liquidation, dissolution
or winding up of Newco, the assets legally available for distribution to
shareholders are distributable ratably among the holders of shares of Newco
Common Stock at that time outstanding subject to prior distribution rights of
creditors of Newco.
PREFERRED STOCK
The Articles of Incorporation provide that the Board of Directors of Newco
is authorized, subject to certain limitations prescribed by law, without further
shareholder approval, to issue from time to time up to an aggregate of 1,000,000
shares of Preferred Stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of shares
of Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of Newco. The rights, preferences and privileges of holders of
shares of Newco Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock which Newco
may designate and issue in the future. Newco has no present plans to issue any
shares of Preferred Stock.
CERTAIN ARTICLES OF INCORPORATION AND BY-LAWS PROVISIONS OF NEWCO
Certain provisions of the Articles of Incorporation and By-Laws could have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
shareholder might consider in the shareholder's best interest. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of and in the policies formulated by the Board of Directors of
Newco. In addition, these provisions also are intended to ensure that the Board
of Directors will have sufficient time to act in what the Board of Directors
believes to be the best interests of Newco and its shareholders.
CLASSIFIED BOARD OF DIRECTORS. The Articles of Incorporation provide for a
Board of Directors divided into three classes of directors serving staggered
three-year terms. The classification of directors has the effect of making it
more difficult for shareholders to change the composition of the Board of
Directors in a
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short period of time. At least two annual meetings of shareholders, instead of
one, will generally be required to effect a change in a majority of the Board of
Directors.
NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL. The Articles of
Incorporation and By-Laws provide that the Board of Directors will consist of
nine members. The By-Laws provide that the Board of Directors, acting by
majority vote of the directors then in office, may fill any newly created
directorship or vacancies on the Board of Directors. The By-Laws provide that a
director may be removed upon the affirmative vote of a majority of the
outstanding shares entitled to vote for the election of such directors.
SHAREHOLDER NOTICE REQUIREMENTS. The By-Laws provide that for nominations
for the Board of Directors or for other business to be properly brought by a
shareholder before an annual meeting of shareholders, the shareholder must first
have given adequate notice thereof in writing to the Secretary of Newco. To be
adequate, a shareholder's notice generally must be delivered not later than 90
days nor more than 120 days in advance of the date of the meeting. The notice
must contain, among other things, certain information about the shareholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting.
CERTAIN WBCL PROVISIONS
RESTRICTIONS ON BUSINESS COMBINATIONS. Sections 180.1130 to 180.1134 of the
WBCL provide generally that in addition to the vote otherwise required by law or
the articles of incorporation of an "issuing public corporation," such as Newco,
certain business combinations not meeting certain fair price standards specified
in the statute must be approved by the affirmative vote of at least (i) 80% of
the votes entitled to be cast by the outstanding voting shares of the
corporation, and (ii) two-thirds of the votes entitled to be cast by the holders
of voting shares other than voting shares beneficially owned by a "significant
shareholder" or an affiliate or associate thereof who is a party to the
transaction. The term "business combination" is defined to include, subject to
certain exceptions, a merger or share exchange of the issuing public corporation
(or any subsidiary thereof) with, or the sale or other disposition of
substantially all of the property and assets of the issuing public corporation
to, any significant shareholder or affiliate thereof. "Significant shareholder"
is defined generally to mean a person that is the beneficial owner of 10% or
more of the voting power of the outstanding voting shares of the issuing public
corporation. These statute sections also restrict the repurchase of shares and
the sale of corporate assets by an issuing public corporation in response to a
takeover offer.
Sections 180.1140 to 180.1144 of the WBCL prohibit certain "business
combinations" between a "resident domestic corporation," such as Newco, and a
person beneficially owning 10% or more of the voting power of the outstanding
voting stock of such corporation (an "interested shareholder") within three
years after the date such person became a 10% beneficial owner, unless the
business combination or the acquisition of such stock has been approved before
the stock acquisition date by the corporation's board of directors. After such
three-year period, a business combination with the interested shareholder may be
consummated only with the approval of the holders of a majority of the voting
stock not beneficially owned by the interested shareholder at a meeting called
for that purpose, unless the business combination satisfies certain
adequacy-of-price standards intended to provide a fair price for shares held by
disinterested shareholders. BCBSUW will be an interested shareholder of Newco
due to its expected ownership of 38.1% of the outstanding shares of Newco Common
Stock following the Distribution. The acquisition of shares of Newco Common
Stock by BCBSUW was approved by Newco's Board of Directors prior to such
acquisition, and therefore, the three-year restriction on business combinations
with an interested shareholder will not apply to BCBSUW.
CONTROL SHARE VOTING RESTRICTIONS. Under Section 180.1150(2) of the WBCL,
the voting power of shares of an "issuing public corporation," such as Newco,
which are held by any person in excess of 20% of the voting power in the
election of directors shall be limited (in voting on any matter) to 10% of the
full voting power of such excess shares, unless otherwise provided in the
articles of incorporation or unless full
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voting rights have been restored at a special meeting of the shareholders called
for that purpose. This statute is a "scaled voting rights/control share
acquisition" statute and is designed to protect corporations against uninvited
takeover bids by reducing to one-tenth of their normal voting power all shares
in excess of twenty percent owned by an acquiring person. Shares held or
acquired under certain circumstances are excluded from the application of
Section 180.1150(2), including (among others) shares acquired directly from
Newco and shares acquired in a merger or share exchange to which Newco is a
party. The Articles of Incorporation provide that shares of Newco Common Stock
held by BCBSUW are not subject to the voting power restrictions provided by
Section 180.1150(2) of the WBCL.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Newco Common Stock will be Firstar
Trust Company.
NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL
The Articles of Incorporation provide that, subject to any rights of holders
of shares of Preferred Stock to elect additional directors under specified
circumstances, the number of directors will be fixed from time to time
exclusively pursuant to a resolution adopted by the Board of Directors. In
addition, the By-Laws provide that vacancies, including those created by an
increase in the number of directors, may be filled by the remaining directors
then in office. Accordingly, the Board of Directors could prevent any
shareholder from enlarging the Board and filling the new directorships with such
shareholder's own nominees.
Under the WBCL, shareholders may remove one or more directors with or
without cause unless the Articles or By-Laws provide that a director may be
removed only for cause. The By-Laws provide that directors may be removed with
or without cause and only upon the affirmative vote of holders of at least a
majority of the voting power of all the then outstanding shares of stock
entitles to vote generally in the election of directors ("VOTING STOCK"), voting
together as a single class.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The Articles of Incorporation and By-Laws provide that any action required
or permitted to be taken at a meeting of Newco's shareholders may be taken
without a meeting by shareholders holding the minimum number of votes necessary
to authorize or take such action at a meeting at which all shares entitled to
vote were present and voted. Any action so taken must be done by written consent
signed by the number of shareholders necessary to take such action. Newco will
give notice of such action to shareholders who were entitled to vote on such
action and whose shares were not represented on the written consent within ten
days of the action. These provisions allow the holders of a majority of the
Voting Stock to unilaterally use the written consent procedure to take
shareholder action.
SPECIAL MEETINGS
The By-Laws provide that special meetings of shareholders may be called by
the Chairman of the Board of Directors, a majority of the Board of Directors or
holders of at least 10% of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting. The business
permitted to be conducted at any special meeting of shareholders is limited to
the business brought before the meeting pursuant to the notice of meeting given
by Newco.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The By-Laws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors, or bring other business
before an annual or special meeting of shareholders of Newco (the "SHAREHOLDER
NOTICE PROCEDURE").
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The Shareholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a shareholder who has
given adequate written notice to the Secretary of Newco prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
Newco. The Shareholder Notice Procedure provides that at an annual or special
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Board or by a shareholder who has given
adequate written notice to the Secretary of Newco of such shareholder's
intention to bring such business before such meeting. Under the Shareholder
Notice Procedure, for notice of shareholder nominations or other business
proposals to be made at an annual meeting to be adequate, such notice must be
received by Newco not less than 90 days nor more than 120 days prior to the last
Tuesday in May; provided, however, than in the event the annual meeting is
changed by more than 30 days from the last Tuesday in May, notice by a
shareholder, to be adequate, must be received not earlier than the 120th day
prior to such meeting and not later than the close of business of the later of
(x) the 90th day prior to such annual meeting, or (y) the tenth day after public
announcement of the date of such annual meeting is first made. In connection
with a special meeting of shareholders, in order for a notice of shareholder
nominations or other business proposals to be adequate, notice by such
shareholder must be received not earlier than the 90th day prior to such meeting
and not later than the close of business of the later of (x) the 60th day prior
to such special meeting, or (y) the tenth day after public announcement of the
date of such special meeting is first made.
Under the Shareholder Notice Procedure, a shareholder's notice to Newco
proposing to nominate a person for election as a director must contain certain
information, including: the name and address of the nominating shareholder and
the beneficial owners on whose behalf the nomination or proposal is made; the
class and number of shares of Newco beneficially owned by such shareholder or
beneficial owners; a representation that such shareholder is a holder of record
of shares of Newco entitled to vote at such meeting and that such shareholder
intends to appear in person or by proxy at the meeting to make the nomination
specified in the notice; the name, age and residence address of such nominee; a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the shareholder; the
principal occupation or employment of the nominee, the class and number of
shares of Newco which are beneficially owned by the nominee, and any other
information regarding the proposed nominee that would be required to be included
in a proxy statement soliciting proxies for the proposed nominee; and a written
consent of each nominee to be named in a proxy statement and to serve as a
director if so elected.
Under the Shareholder Notice Procedure, a shareholder's notice relating to
the conduct of business other than the nomination of directors must contain
certain information about such business and about the proposing shareholder,
including, without limitation: the name and address of the nominating
shareholder and the beneficial owners on whose behalf the nomination or proposal
is made; the class and number of shares of stock of Newco beneficially owned by
such shareholder; a representation that such shareholder is a holder of record
of shares of Newco entitled to vote at such meeting and that such shareholder
intends to appear in person or by proxy at the meeting to introduce the other
business specified in the notice; a brief description of the business the
shareholder proposes to bring before the meeting, and, if the business includes
a proposal to amend the By-Laws, the language of the proposed amendment; the
reasons for conducting such business at such meeting; any material interest of
such shareholder in the business so proposed; and any other information required
to be provided by the shareholder pursuant to Regulation 14A under the Exchange
Act in his capacity as a proponent to a shareholder proposal. If the chairman of
the meeting determines that a person was not nominated, or other business was
not brought before the meeting, in accordance with the Shareholder Notice
Procedure, such person will not be eligible for election as a director, or such
business will not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by shareholders, the Shareholder
Notice Procedure will afford the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent
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deemed necessary or desirable by the Board, to inform shareholders about such
qualifications. By requiring advance notice of other proposed business, the
Shareholder Notice Procedure also will provide a more orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed necessary
or desirable by the Board, will provide the Board with an opportunity to inform
shareholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any recommendations as to the Board's position
regarding action to be taken with respect to such business, so that shareholders
can better decide whether to attend such a meeting or to grant a proxy regarding
the disposition of any such business.
Although the By-Laws do not give the Board any power to approve or
disapprove shareholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of shareholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to Newco and its shareholders.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of Newco authorized at the time of the
Distribution will have any preemptive right to subscribe for or purchase any
kind or class of securities of Newco.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF NEWCO
Under the By-Laws and the WBCL, directors and officers of Newco are entitled
to mandatory indemnification from Newco against certain liabilities and expenses
(a) to the extent such officers or directors are successful in the defense of a
proceeding, and (b) in proceedings in which the director or officer is not
successful in the defense thereof, unless it is determined the director or
officer breached or failed to perform such person's duties to Newco and such
breach or failure constituted: (i) a willful failure to deal fairly with Newco
or its shareholders in connection with a matter in which the director or officer
had a material conflict of interest; (ii) a violation of criminal law, unless
the director or officer had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(iii) a transaction from which the director or officer derived an improper
personal profit; or (iv) willful misconduct. The WBCL specifically states that
it is the public policy of Wisconsin to require or permit indemnification,
allowance of expenses and insurance in connection with a proceeding involving
securities regulation, as described therein, to the extent required or permitted
as described above.
Under the WBCL, unless the Articles of Incorporation provide otherwise,
directors of Newco are not subject to personal liability to Newco, its
shareholders, or any person asserting rights on behalf thereof for certain
breaches or failures to perform any duty resulting solely from their status as
directors, unless the person asserting liability proves that the breach or
failure constituted: (i) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director had a
material conflict of interest, (ii) a violation of criminal law, unless the
director had reasonable cause to believe his or her conduct was lawful or no
reasonable cause to believe that his or her conduct was unlawful, or (iii) a
transaction from which the director derived an improper personal profit, or (iv)
willful misconduct. The Articles of Incorporation do not limit a director's
immunity provided by the WBCL. The above provisions pertain only to breaches of
duty by directors as directors and not in any other corporate capacity, such as
officers. As a result of such provisions, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. If equitable remedies are found not to be
available to shareholders in any particular case, shareholders may not have any
effective remedy against the challenged conduct.
83
<PAGE>
SHAREHOLDER PROPOSALS
Article II of the By-Laws provides that shareholders desiring to nominate
candidates for directors or to present a proposal or bring other business before
a Newco shareholders' meeting must give advance written notice not less than 90
days nor more than 120 days prior to the meeting. In each case the notice must
be given to the Secretary of Newco, Mr. Steven E. Bablitch, 401 West Michigan
Street, Milwaukee, Wisconsin 53203-2896. The 1999 Annual Meeting of Shareholders
of Newco is expected to be held on May 25, 1999. To be considered, notice of any
such nomination or proposal must be received by February 25, 1999 and no earlier
than January 26, 1999. To be included in Newco's proxy statement and form of
proxy for that meeting, any such proposal also must comply in all respects with
the rules and regulations of the SEC.
INDEPENDENT AUDITORS
Ernst & Young LLP has audited the combined balance sheets of Newco as of
December 31, 1996 and 1997 and the related combined statements of income,
changes in shareholder's equity and comprehensive income and cash flows for each
of the three years in the period ended December 31, 1997, included in this
Information Statement, and the Board of Directors of Newco has appointed Ernst &
Young LLP as Newco's auditors for the year ending December 31, 1998.
84
<PAGE>
NEWCO/UWS, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Combined Balance Sheets at December 31, 1997 and 1996 and June 30, 1998 (unaudited)........................ F-3
Combined Statements of Income for the years ended December 31, 1997, 1996 and 1995 and the six months ended
June 30, 1998 and 1997 (unaudited)....................................................................... F-4
Combined Statements of Changes in Shareholder's Equity and Comprehensive Income for the years ended
December 31, 1997, 1996 and 1995 and the six months ended June 30, 1998 (unaudited)...................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 and the six months
ended June 30, 1998 and 1997 (unaudited)................................................................. F-6
Notes to Combined Financial Statements..................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
United Wisconsin Services, Inc. and
The Board of Directors of Newco/UWS, Inc.
We have audited the accompanying combined balance sheets of Newco/UWS, Inc.
(the Company) (see Note 1 to the combined financial statements) as of December
31, 1996 and 1997, and the related combined statements of income, changes in
shareholder's equity and comprehensive income and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1996 and 1997, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Milwaukee, Wisconsin
May 29, 1998
F-2
<PAGE>
NEWCO/UWS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ---------- JUNE 30,
-----------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 19,147 $ 17,033 $ 14,750
Investments--available for sale........................................... 156,392 151,653 154,365
Due from affiliates....................................................... 7,966 313 201
Other receivables......................................................... 47,027 53,753 52,910
Prepaid and other current assets.......................................... 5,660 7,304 7,864
---------- ---------- -----------
Total current assets.................................................. 236,192 230,056 230,090
Investments--held to maturity............................................... 6,892 7,893 7,856
Property and equipment, net................................................. 7,091 6,978 8,086
Goodwill and other intangibles, net......................................... 2,966 5,005 4,715
Other noncurrent assets..................................................... 16,337 16,324 16,767
---------- ---------- -----------
Total assets.......................................................... $ 269,478 $ 266,256 $ 267,514
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Medical and other benefits payable........................................ $ 54,724 $ 60,724 $ 55,537
Deferred premium credits.................................................. 6,879 6,641 5,524
Advance premiums.......................................................... 26,043 24,060 29,765
Due to affiliates......................................................... 3,738 3,867 4,472
Payables and accrued expenses............................................. 25,427 20,926 16,869
Other current liabilities................................................. 3,546 1,104 2,758
---------- ---------- -----------
Total current liabilities............................................. 120,357 117,322 114,925
Medical and other benefits payable--noncurrent.............................. 20,417 20,918 20,099
Minority interest in subsidiary............................................. 800 -- --
Other noncurrent liabilities................................................ 4,022 4,400 6,296
---------- ---------- -----------
Total liabilities..................................................... 145,596 142,640 141,320
Shareholder's equity:
Investments by and advances from United Wisconsin Services................ 119,923 120,405 124,947
Unrealized gains on investments........................................... 3,959 3,211 1,247
---------- ---------- -----------
Total shareholder's equity............................................ 123,882 123,616 126,194
---------- ---------- -----------
Total liabilities and shareholder's equity............................ $ 269,478 $ 266,256 $ 267,514
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
NEWCO/UWS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Health services revenues:
Premium revenue.................................. $ 466,929 $ 493,092 $ 560,825 $ 273,760 $ 298,602
Other revenue.................................... 24,222 27,632 26,046 13,351 14,378
Investment results................................. 9,665 19,040 22,238 10,672 9,960
---------- ---------- ---------- ---------- ----------
Total revenues................................. 500,816 539,764 609,109 297,783 322,940
Expenses:
Medical and other benefits......................... 416,167 425,258 485,735 235,763 253,708
Selling, general and administrative expenses:
Other............................................ 67,077 78,105 88,224 44,491 47,728
Allocations to related party..................... (4,368) (7,474) (9,278) (4,770) (4,406)
Allocations from related party................... 10,028 13,315 14,564 7,205 7,352
---------- ---------- ---------- ---------- ----------
Total selling, general and administrative
expenses......................................... 72,737 83,946 93,510 46,926 50,674
Profit sharing on joint ventures................... 2,734 2,868 3,380 1,188 1,413
Minority interest in net earnings of combined
subsidiary....................................... (161) (107) 449 277 --
Amortization of goodwill and other intangibles..... 678 841 818 881 215
---------- ---------- ---------- ---------- ----------
Total expenses................................. 492,155 512,806 583,892 285,035 306,010
---------- ---------- ---------- ---------- ----------
Income before income tax expense..................... 8,661 26,958 25,217 12,748 16,930
Income tax expense................................... 3,277 10,617 9,433 4,861 6,515
---------- ---------- ---------- ---------- ----------
Net income........................................... $ 5,384 $ 16,341 $ 15,784 $ 7,887 $ 10,415
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma earnings per common share:
Basic.............................................. $0.96 $0.63
---------- ----------
---------- ----------
Diluted............................................ $0.95 $0.62
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
NEWCO/UWS, INC.
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
INVESTMENTS BY AND
ADVANCES FROM (TO) UNREALIZED GAINS TOTAL
UNITED WISCONSIN (LOSSES) ON COMPREHENSIVE SHAREHOLDER'S
SERVICES INVESTMENTS INCOME EQUITY
------------------------ ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994........... $ 107,839 $ (6,374) $ 101,465
Net income........................... 5,384 -- $ 5,384 5,384
Net investments by and advances from
(to) United Wisconsin Services..... 3,543 -- -- 3,543
Change in unrealized gains (losses)
on investments..................... -- 9,885 9,885 9,885
-------
Comprehensive Income -- -- $ 15,269 --
-------- ------- ------- -------------
-------
Balance at December 31, 1995........... 116,766 3,511 120,277
Net income........................... 16,341 -- $ 16,341 16,341
Net investments by and advances from
(to) United Wisconsin Services..... (13,184) -- -- (13,184)
Change in unrealized gains (losses)
on investments..................... -- 448 448 448
-------
Comprehensive Income -- -- $ 16,789 --
-------- ------- ------- -------------
-------
Balance at December 31, 1996........... 119,923 3,959 123,882
Net income........................... 15,784 -- $ 15,784 15,784
Net investments by and advances from
(to) United Wisconsin Services..... (15,302) -- -- (15,302)
Change in unrealized gains (losses)
on investments..................... -- (748) (748) (748)
-------
Comprehensive Income -- -- $ 15,036 --
-------- ------- ------- -------------
-------
Balance at December 31, 1997........... 120,405 3,211 123,616
(1998 AMOUNTS UNAUDITED)
Net income........................... 10,415 -- $ 10,415 10,415
Net investments by and advances from
(to) United Wisconsin Services..... (5,873) -- -- (5,873)
Change in unrealized gains (losses)
on investments..................... -- (1,964) (1,964) (1,964)
-------
Comprehensive Income -- -- $ 8,451 --
-------- ------- ------- -------------
-------
Balance at June 30, 1998............... $ 124,947 $ 1,247 $ 126,194
-------- ------- -------------
-------- ------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
NEWCO/UWS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income............................................. $ 5,384 $ 16,341 $ 15,784 $ 7,887 $ 10,415
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 1,550 2,341 1,964 1,723 1,278
Realized investment gains............................ (1,094) (8,381) (11,921) (5,545) (5,023)
Deferred income tax expense (benefit)................ 190 (901) (1,023) 739 116
Changes in other operating accounts:
Other receivables.................................. (26,969) 2,802 (5,584) (698) 910
Medical and other benefits payable................. 20,882 1,415 6,501 (2,676) (6,006)
Advance premiums................................... (365) 4,062 (1,983) 3,493 5,705
Due to/from affiliates............................. 10,247 (10,327) 7,782 17,158 717
Other, net......................................... 1,575 (763) (8,701) (13,902) (5,973)
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in) operating activities.... 11,400 6,589 2,819 8,179 2,139
INVESTING ACTIVITIES
Purchases of available for sale investments............ (351,731) (413,648) (452,906) (103,149) (102,367)
Proceeds from sale of available for sale investments... 314,529 364,321 433,012 107,592 98,291
Proceeds from maturity of available for sale
investments.......................................... 41,292 43,031 34,252 2,985 5,575
Purchases of held to maturity investments.............. (3,112) (2,573) (2,894) (211) (313)
Proceeds from maturity of held to maturity
investments.......................................... 2,266 2,171 3,567 340 265
Purchase of minority interest in subsidiary............ -- -- (2,218) -- --
Other, net............................................. (1,344) 1,528 (1,244) -- --
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in) investing activities.... 1,900 (5,170) 11,569 7,557 1,451
FINANCING ACTIVITIES
Repayment of debt...................................... -- -- (1,200) -- --
Increase (decrease) in investments by and advances from
(to) United Wisconsin Services....................... 3,543 (15,352) (15,302) (6,704) (5,873)
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in) financing activities.... 3,543 (15,352) (16,502) (6,704) (5,873)
----------- ----------- ----------- ---------- ----------
Cash and cash equivalents:
Increase (decrease) during year...................... 16,843 (13,933) (2,114) 9,032 (2,283)
Balance at beginning of year......................... 16,237 33,080 19,147 19,147 17,033
----------- ----------- ----------- ---------- ----------
Balance at end of year............................... $ 33,080 $ 19,147 $ 17,033 $ 28,179 $ 14,750
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
1. STRUCTURE AND PLAN OF DISTRIBUTION
United Wisconsin Services, Inc. ("UWS") has previously announced its
intention to contribute its Health Maintenance Organization, ("HMO") and
specialty managed care products and services businesses and management business
to a wholly owned subsidiary, Newco/UWS, Inc. which was formed on May 26, 1998.
The common stock of Newco/UWS, Inc. will be distributed on a share for share
basis to UWS common shareholders. Completion of the contribution and
distribution is subject to final approval by UWS's Board of Directors and
various third parties and government agencies. In June, 1998, a private letter
ruling was received from the Internal Revenue Service that the distribution will
be tax free to UWS, Newco/UWS, Inc. and UWS shareholders.
The accompanying combined financial statements of Newco/UWS, Inc.
essentially comprise the HMO and specialty managed care products and services
business operations of UWS including dental, life, disability, workers'
compensation, managed care consulting, electronic claims processing,
pharmaceutical services and managed mental health services. The following UWS
wholly owned subsidiaries will be contributed to Newco/UWS, Inc. in conjunction
with the spin-off and are included in the combined financial statements of
Newco/UWS, Inc.: Compcare Health Services Insurance Corporation; Valley Health
Plan, Inc.; HMO-W, Inc.; Hometown Insurance Service, Inc.; United Wisconsin
Insurance Company ("UWIC"); United Heartland Life Insurance Company ("UHLIC");
Meridian Resource Corporation; Meridian Managed Care, Inc.; Meridian Marketing
Services, Inc.; United Wisconsin Proservices, Inc.; United Heartland, Inc.; CNR
Health, Inc.; Unity Health Plans Insurance Corporation; and Heartland Dental
Plan, Inc. The above businesses included in these combined financial statements
are herein collectively referred to as the "Company." Significant intercompany
accounts have been eliminated.
The Company's HMO products are sold primarily in Wisconsin and the specialty
managed care products and services are sold throughout the United States.
The authorized capital stock of Newco/UWS, Inc. consists of 1,000,000 shares
of no par value preferred stock and 50,000,000 shares of no par value common
stock of which 100 shares are issued and outstanding at May 28, 1998.
Certain officers and directors of the Company are also officers and
directors of UWS.
The Company is affiliated with Blue Cross & Blue Shield United of Wisconsin,
"BCBSUW," through certain common officers and directors. At December 31, 1997,
BCBSUW owned approximately 38% of the issued and outstanding UWS common stock.
The combined financial statements included herein include all costs of doing
business. However, the combined financial statements may not necessarily be
indicative of the results of operations, financial position and cash flows of
the Company in the future (See Note 6). The combined financial statements
included herein do not reflect any changes that may occur in the financing and
operations of the Company as a result of the distribution.
F-7
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The accompanying combined financial statements have been prepared in
accordance with generally accepted accounting principles, "GAAP." The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
combined financial statements and accompanying notes. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include operating cash and short-term investments
with original maturities of three months or less. These amounts are recorded at
cost, which approximates market.
INVESTMENTS
Investments are classified as either held to maturity or available for sale.
Investments which the Company has the intent and ability to hold to maturity are
designated as held to maturity and are stated at amortized cost. All other
investments are classified as available for sale and are stated at fair value
based on quoted market prices, with unrealized gains and losses excluded from
earnings and reported as a separate component of shareholder's equity, net of
income tax effects. Realized gains and losses from the sale of available for
sale debt securities and equity securities are based on the first-in, first-out
basis.
OTHER RECEIVABLES
Receivables are stated at net realizable value, net of allowances of
$284,000 and $394,000 at December 31, 1996 and 1997, respectively, based upon
historical collection trends and management's judgment of the ultimate
collectibility.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of cost over the fair market value of net
assets acquired. Goodwill and other intangible assets are being amortized on a
straight-line basis over a period of 15 years or less with a weighted average
original amortization period of 13 years. Accumulated amortization was
$1,670,000 and $1,447,000 at December 31, 1996 and 1997, respectively.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its intangibles. At December 31, 1997, the Company's
management believed that no material impairment of goodwill or other intangible
assets existed.
REVENUE RECOGNITION
Health services premiums and managed behavioral health fees are recognized
as revenue in the period in which enrollees are entitled to care. Managed care
consulting revenues are generally recognized when services are rendered.
MEDICAL AND OTHER BENEFITS
Medical and other benefits expense consists principally of capitation
expenses, health and disability claims and life insurance benefits. In addition
to actual paid claims and capitation, these expenses include
F-8
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the change in estimates of reported and unreported claims and accrued capitation
fees and adjustments, which are unpaid as of the balance sheet date. The
estimates of reported and unreported claims and accrued capitation fees and
adjustments, which are unpaid as of the balance sheet date are based on
historical payment patterns using actuarial techniques. Processing costs are
accrued as operating expenses based on an estimate of the costs necessary to
process these claims. The Company's year-end claim liabilities are substantially
satisfied through claim payments in the subsequent year. Any adjustments to
prior period estimates are reflected in the current period. Capitation
represents monthly fees to participating physicians and other medical
specialists as compensation for providing comprehensive health or dental care
services. In addition, certain subsidiaries have risk-sharing, stop-loss, and
bonus arrangements with certain providers. Accruals relating to these
arrangements are developed based on historical payment patterns using actuarial
techniques. The noncurrent portion of medical and other benefits payable
pertaining to long-term disability, workers' compensation and certain life
insurance products is $20,417,000 and $20,918,000 at December 31, 1996 and 1997,
respectively. The long-term portion of long-term disability, worker's
compensation and certain life insurance products is estimated using actuarial
techniques based on historical patterns. Amounts estimated to be paid more than
one year from the balance sheet date are considered non-current.
REINSURANCE
Certain premiums and benefits are assumed from and ceded to other insurance
companies under various reinsurance agreements. The ceded reinsurance agreements
provide the Company with increased capacity to write larger risks and maintain
its exposure to loss within its capital resources. The ceding company is
contingently liable on reinsurance ceded in the event that the reinsurers do not
meet their contractual obligations. Premiums ceded totaled $44,366,000,
$46,549,000 and $49,522,000 in 1995, 1996 and 1997, respectively. Ceded benefits
totaled $28,532,000, $32,073,000 and $42,003,000 in 1995, 1996 and 1997,
respectively. Premiums assumed totaled $24,168,000, $31,098,000, and $38,071,000
in 1995, 1996, and 1997, respectively. Assumed benefits totaled $19,154,000,
$21,722,000, and $28,213,000 1995, 1996 and 1997, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives,
which are 20 to 30 years for land improvements, 10 to 40 years for buildings and
building improvements, 3 to 5 years for computer equipment and software and 3 to
10 years for furniture and other equipment.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. A valuation allowance is
recorded on deferred tax assets that more likely than not will not be realized.
PRO FORMA EARNINGS PER COMMON SHARE
Pro forma earnings per share, "EPS," are based on the pro forma weighted
average number of shares of outstanding Company common stock and dilutive common
equivalent shares from stock options, giving
F-9
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effect to the planned distribution of one share of the Company's common stock
for each share of UWS common stock. Pro forma dilutive common equivalent shares
from stock options are stated at the historical UWS dilutive common equivalent
share level. The Company cannot currently determine the number of shares of its
common stock that will be subject to substitute awards after the distribution.
See Note 10.
The following table sets forth the pro forma computation of basic and
diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1997 JUNE 30, 1998
-------------- ---------------
(IN THOUSANDS,
<S> <C> <C>
EXCEPT SHARE AND PER SHARE
DATA)
Numerator:
Net income allocable to common
shareholders........................... $ 15,784 $ 10,415
-------------- ---------------
-------------- ---------------
Denominator:
Denominator for basic EPS--weighted
average shares......................... 16,423,270 16,531,108
Effect of dilutive securities--employee
stock options.......................... 147,710 173,671
-------------- ---------------
Denominator for diluted EPS................ 16,570,980 16,704,779
-------------- ---------------
-------------- ---------------
Pro forma basic EPS........................ $0.96 $0.63
Pro forma diluted EPS...................... $0.95 $0.62
</TABLE>
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) 130, "Reporting Comprehensive Income." SFAS 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Company's net
income or shareholder's equity. SFAS 130 requires unrealized gains or losses on
the Company's available for sale securities, which prior to adoption were
reported separately in shareholder's equity, to be included in other
comprehensive income. During the years ended December 31, 1995, 1996 and 1997,
and the six months ended June 30, 1997 and 1998, total comprehensive income
amounted to $15,269,000, $16,789,000, $15,036,000, $7,700,000 and $8,451,000,
respectively.
INTERIM FINANCIAL DATA
The interim financial data presented is unaudited. In management's opinion,
the interim financial data includes all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of the interim periods.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with GAAP have been omitted. The Company
believes that disclosures made are adequate to make the interim information
presented not misleading. Interim results are not necessarily indicative of
fiscal year performance because of the impact of seasonal variations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information" has been issued effective for fiscal years beginning after December
15, 1997. Management is reviewing SFAS 131 and may report additional segment
information in the future.
F-10
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. JOINT VENTURE ARRANGEMENTS
The Company is a party to certain HMO joint venture arrangements in
conjunction with Unity Health Plans Insurance Corporation (Unity) and Valley
Health Plan, Inc. (Valley), wholly owned HMO subsidiaries included in the
Company's combined financial statements, which include profit-sharing payments
to certain providers and repurchase provisions with certain joint venture
participants. Profit-sharing expense related to these acquisitions is calculated
based on the profitability of the HMO subsidiary and totaled $2,754,000,
$3,002,000 and $3,960,000, in 1995, 1996 and 1997, respectively. The repurchase
options provide for the purchase of Unity and Valley by certain joint venture
participants at amounts approximating net assets. The repurchase options expire
in 2000 and 2004. Total revenues subject to repurchase options, pursuant to the
various acquisition agreements, totaled $160,003,000, $191,342,000 and
$191,688,000 for 1995, 1996 and 1997, respectively. Total assets and total net
assets subject to repurchase options were $56,281,000 and $22,475,000,
respectively, at December 31, 1996, and $49,802,000 and $20,632,000,
respectively, at December 31, 1997.
In addition, the Company is a party to a workers' compensation joint venture
arrangement whereby profit sharing income totaled $20,000, $134,000 and $580,000
in 1995, 1996 and 1997, respectively.
4. INVESTMENTS
Investment results comprise the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on bonds............................................ $ 7,290 $ 10,097 $ 9,075
Dividends on equity securities............................... 628 636 1,103
Realized gains............................................... 1,609 13,463 15,317
Realized losses.............................................. (515) (5,082) (3,396)
Interest on cash equivalents and other investment income..... 747 922 473
--------- --------- ---------
Gross investment results..................................... 9,759 20,036 22,572
Investment expenses.......................................... (233) (467) (424)
Other interest income (expense).............................. 139 (529) 90
--------- --------- ---------
$ 9,665 $ 19,040 $ 22,238
--------- --------- ---------
--------- --------- ---------
</TABLE>
Unrealized gains (losses) are computed as the difference between estimated
fair value and amortized cost for debt securities or cost for equity securities.
A summary of the net increase (decrease) in unrealized gains, less deferred
income taxes, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities.............................................. $ 9,774 $ (2,884) $ 1,582
Equity securities............................................ 2,125 3,542 (3,134)
Provision for deferred income taxes.......................... (2,014) (210) 804
--------- --------- ---------
$ 9,885 $ 448 $ (748)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated fair values of investments are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1997:
Available for sale:
U.S. Treasury securities................. $ 30,618 $ 330 $ (2) $ 30,946
State and municipal securities........... 2,487 67 -- 2,554
Foreign government securities............ 7,337 113 (111) 7,339
Corporate debt securities................ 56,017 1,314 (59) 57,272
Government agency mortgage-backed
securities............................. 21,466 376 (25) 21,817
Equity securities........................ 29,033 3,716 (1,024) 31,725
---------- ----------- ----------- ----------
146,958 5,916 (1,221) 151,653
Held to maturity--U.S. Treasury securities... 7,893 109 (9) 7,993
---------- ----------- ----------- ----------
$ 154,851 $ 6,025 $ (1,230) $ 159,646
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
At December 31, 1996:
Available for sale:
U.S. Treasury securities................. $ 24,944 $ 251 $ (231) $ 24,964
State and municipal securities........... 4,613 43 (14) 4,642
Foreign government securities............ 5,225 114 (69) 5,270
Corporate debt securities................ 53,621 766 (311) 54,076
Government agency mortgage-backed
securities............................. 27,451 189 (317) 27,323
Equity securities........................ 34,291 6,418 (592) 40,117
---------- ----------- ----------- ----------
150,145 7,781 (1,534) 156,392
Held to maturity:
U.S. Treasury securities................. 6,692 35 (10) 6,717
Corporate debt securities................ 200 -- -- 200
---------- ----------- ----------- ----------
6,892 35 (10) 6,917
---------- ----------- ----------- ----------
$ 157,037 $ 7,816 $ (1,544) $ 163,309
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
F-12
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated fair values of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Available for sale:
Due in one year or less............................................. $ 1,524 $ 1,526
Due after one through five years.................................... 43,555 44,092
Due after five through ten years.................................... 39,259 40,011
Due after ten years................................................. 12,121 12,482
---------- ----------
96,459 98,111
Government agency mortgage-backed securities........................ 21,466 21,817
---------- ----------
$ 117,925 $ 119,928
---------- ----------
---------- ----------
Held to maturity:
Due in one year or less............................................. $ 405 $ 404
Due after one through five years.................................... 7,488 7,589
---------- ----------
$ 7,893 $ 7,993
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997, the insurance subsidiaries had debt securities and
cash equivalents on deposit with various state insurance departments with
carrying values of approximately $7,844,000, which are included in investments
held to maturity on the balance sheet.
5. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements.............................................. $ 394 $ 394
Building and building improvements...................................... 3,594 3,611
Computer equipment and software......................................... 5,369 6,259
Furniture and other equipment........................................... 4,183 4,484
--------- ---------
13,540 14,748
Less accumulated depreciation........................................... (6,449) (7,770)
--------- ---------
$ 7,091 $ 6,978
--------- ---------
--------- ---------
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company provides marketing, underwriting, actuarial and certain
administrative services for BCBSUW. In addition, BCBSUW provides health
insurance to the employees of the Company and provides office space to the
Company. These activities are reimbursed at amounts approximating cost, which
resulted in allocations to the Company of $10,028,000, $13,315,000 and
$14,564,000 in 1995, 1996
F-13
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
and 1997, respectively, and allocations to BCBSUW of $4,368,000, $7,474,000 and
$9,278,000 in 1995, 1996 and 1997, respectively. These amounts are included in
selling, general and administrative expenses.
Certain subsidiaries of the Company provide health, life and other insurance
benefits to the employees of BCBSUW. Premium revenue received from BCBSUW
totalled $4,568,000, $4,370,000 and $4,537,000 in 1995, 1996 and 1997,
respectively.
The Company has an agreement with a subsidiary of UWS not included in these
combined financial statements, United Wisconsin Life Insurance Company
("UWLIC"), whereby UWIC underwrites certain small group health care products and
life, dental, drug and disability products in Minnesota as UWLIC products have
not yet been approved for sale in Minnesota. The Company ceded to UWLIC 100% of
the premium revenue of these products sold in Minnesota. The ceded premium
revenue approximated $20,430,000, $24,739,000 and $27,014,000 in 1995, 1996 and
1997, respectively.
The Company also has agreements with UWLIC whereby UWLIC underwrites certain
healthcare, life, dental, drug and disability products on behalf of United
Heartland Life Insurance Company, Compcare Health Services Insurance
Corporation, Heartland Dental Plan, Inc., and CNR Health, Inc. The Company
assumes 100% of the premium revenues on these products from UWLIC. The assumed
premium revenue approximated $23,389,000, $30,573,000, and $36,177,000 in 1995,
1996, and 1997, respectively.
Management believes the above-stated related party activity was entered into
on a reasonable basis and include all costs of doing business; however, it is
not necessarily indicative of future expenses or income.
The Company's operations have been financed through its operating cash flows
and investments by and advances from UWS.
Amounts due from/to affiliates are related primarily to operating expenses
and reinsurance arrangements. The amounts due from/to affiliates are generally
settled on a monthly basis for operating expenses and are settled in accordance
with industry practice for reinsurance agreements. The amounts due from/to
affiliates is typically less than $10,000,000 at any point in time during the
fiscal year.
7. INCOME TAXES
Income tax expense has been calculated as if the Company filed separate
federal income tax returns. Except as noted below, the Company has been included
in the consolidated federal income tax return filed by UWS. UHLIC has filed
separate federal income tax returns due to specific provisions of the Internal
Revenue Code of 1986, as amended related to consolidation of life insurance
entities. The entities included in these combined financial statements file
separate state franchise, income and premium tax returns as applicable.
The Company had a net federal income tax receivable of $337,000 and $436,000
included in other current assets at December 31, 1996 and 1997, respectively.
Federal and state income tax payments, net of refunds, totaled $477,000,
$1,545,000 and $3,243,000 in 1995, 1996 and 1997, respectively.
F-14
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................................... $ 2,771 $ 9,642 $ 8,870
State....................................................... 316 1,876 1,586
--------- --------- ---------
3,087 11,518 10,456
--------- --------- ---------
Deferred:
Federal..................................................... 50 (222) (651)
State....................................................... 140 (679) (372)
--------- --------- ---------
190 (901) (1,023)
--------- --------- ---------
$ 3,277 $ 10,617 $ 9,433
--------- --------- ---------
--------- --------- ---------
</TABLE>
The differences between taxes computed at the federal statutory rate and
recorded income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at federal statutory rate................................. $ 3,031 $ 9,435 $ 8,826
Nondeductible expenses........................................ 283 254 154
Tax-exempt interest and dividends received deduction.......... (256) (246) (230)
State income and franchise taxes, net of federal benefit...... 324 820 827
Other, net.................................................... (105) 354 (144)
--------- --------- ---------
$ 3,277 $ 10,617 $ 9,433
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of deferred income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Reserve discounting.............................................. $ -- $ (1,050) $ --
Employee benefits................................................ -- 434 --
Depreciation and amortization.................................... 269 81 (1,299)
Net operating loss carryforwards................................. -- (482) --
Other, net....................................................... (79) 116 276
--------- --------- ---------
$ 190 $ (901) $ (1,023)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Significant components of the Company's federal and state deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
DECEMBER 31, 1997
-------------------- --------------------
FEDERAL STATE FEDERAL STATE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Depreciation........................................ $ (728) $ (6) $ (721) $ (512)
Claims-based receivables............................ (1,482) (13) (1,331) (945)
Intangibles......................................... (1,162) (10) -- --
Pension accrual..................................... (1,835) (16) (2,158) (1,532)
Unrealized gains on investments..................... (1,521) (13) (1,367) (970)
Other, net.......................................... (709) (6) (825) (586)
--------- --- --------- ---------
(7,437) (64) (6,402) (4,545)
Deferred tax assets:
Postretirement benefits other than pensions......... 1,294 16 1,387 1,138
Advance premium discounting......................... 1,101 13 1,080 886
Deferred compensation............................... 1,373 17 1,387 1,138
Medical and other benefits payable discounting...... 1,804 22 1,142 937
Business loss carryforwards......................... -- -- 509 --
Other, net.......................................... 655 8 435 774
--------- --- --------- ---------
6,227 76 5,940 4,873
--------- --- --------- ---------
Net deferred tax assets (liabilities)................. $ (1,210) $ 12 $ (462) $ 328
--------- --- --------- ---------
--------- --- --------- ---------
</TABLE>
The federal deferred benefit arising from the deductibility of state
deferred tax is included as a component of other federal deferred taxes. The net
deferred tax assets and liabilities are included in other current or other
noncurrent assets and liabilities, as applicable.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions occurring in the normal
course of its business. In the opinion of management, adequate provision has
been made for losses which may result from these actions and, accordingly, the
outcome of these proceedings is not expected to have a material adverse effect
on the combined financial statements.
The Company participates with BCBSUW in a bank line of credit, which permits
aggregate borrowings to $30,000,000. Periodic borrowings have been made on this
line of credit. The outstanding line of credit balance was $1,200,000 at
December 31, 1996 and is included in other current liabilities. There was no
balance outstanding at December 31, 1997.
F-16
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDER'S EQUITY
STATUTORY FINANCIAL INFORMATION
Insurance companies are subject to regulation by the Office of the
Commissioner of Insurance of the State of Wisconsin and certain other state
insurance regulators. These regulations require, among other matters, the filing
of financial statements prepared in accordance with statutory accounting
practices prescribed or permitted for insurance companies. The combined
statutory surplus of insurance subsidiaries at December 31, 1996 and 1997 was
$106,205,000 and $95,356,000, respectively. The combined statutory net income of
insurance subsidiaries was $1,293,000, $24,159,000 and $17,380,000 in 1995, 1996
and 1997, respectively.
State insurance regulations also require the maintenance of a minimum
compulsory surplus based on a percentage of premiums written. At December 31,
1997, the Company's insurance subsidiaries were in compliance with these
compulsory regulatory requirements.
RESTRICTIONS ON DIVIDENDS FROM SUBSIDIARIES
Dividends paid by insurance companies are limited by state insurance
regulations. The insurance regulator in the state of domicile may disapprove any
dividend which, together with other dividends paid by an insurance company in
the prior twelve months, exceeds the regulatory maximum as computed for the
insurance company based on its statutory surplus and net income.
Based upon the financial statements of the insurance entities included in
these combined financial statements as of December 31, 1997, as filed with the
insurance regulators, the aggregate amount available for dividends in 1998
without regulatory approval is $4,209,000.
10. EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
Certain of the entities included in these combined financial statements
participate with BCBSUW in two multiple-employer defined benefit pension plans.
The salaried plan, covering salaried employees, provides benefits based on
compensation, years of service, year of birth and date of retirement. The hourly
plan, covering hourly employees, provides for benefit payments of stated
amounts, based on number of hours worked and years of credited service. Since
both plans were overfunded, no contributions were made in 1995, 1996 or 1997,
and a pension credit was recorded in each year.
Effective January 1, 1997, the salaried pension plan and the hourly pension
plan with respect to non-union participants were amended to include expansion of
the lump-sum payment provisions and changes in the methods and formulae used for
the calculation of benefit accruals (a cash balance formula). The resulting
reduction in the projected benefit obligation is included in the funded status
of the pension plans at December 31, 1996 and 1997, and was also considered in
the calculation of the 1996 pension credit.
F-17
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes the combined funding status of the defined
benefit pension plans and the amounts recorded in the combined balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits..................................................... $ (12,806) $ (15,644)
Nonvested benefits.................................................. (2,923) (1,870)
---------- ----------
Total accumulated benefit obligations................................. (15,729) (17,514)
Adjustment for projected benefit obligations.......................... (52) (54)
---------- ----------
Projected benefit obligations......................................... (15,781) (17,568)
Assets, at fair market value.......................................... 29,309 36,082
---------- ----------
Excess of assets over projected benefit obligations................... 13,528 18,514
Unrecognized net gains................................................ (122) (5,151)
Unrecognized net asset................................................ (1,326) (1,051)
Unrecognized prior service credit..................................... (6,836) (6,146)
---------- ----------
Prepaid pension expense in combined balance sheets.................... $ 5,244 $ 6,166
---------- ----------
---------- ----------
</TABLE>
The pension plans' assets consist primarily of debt, equity and other
marketable securities.
Assumptions used in developing the projected benefit obligation are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Discount rate................................................................ 8.00% 8.00%
Rate of increase in compensation............................................. 4.75 4.75
Rate of return on plan assets................................................ 9.00 9.00
</TABLE>
The unrecognized net asset is being amortized over the remaining estimated
service lives of participating employees at January 1, 1986: 15.4 years for
salaried employees and 16.9 years for hourly employees.
The components of the pension credit, which is included in selling, general
and administrative expenses, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the period............... $ 1,117 $ 829 $ 1,335
Interest cost on benefit obligations.......................... 1,116 1,034 1,259
Actual return on plan assets.................................. (4,136) (2,866) (7,475)
Net amortization and deferrals................................ 1,503 (432) 3,958
--------- --------- ---------
$ (400) $ (1,435) $ (923)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
After giving effect to all administrative expense allocations between the
Company and BCBSUW, the pension credit was $435,000, $1,288,000 and $945,000 in
1995, 1996 and 1997, respectively.
DEFINED CONTRIBUTION AND BONUS PLANS
Certain of the entities included in these combined financial statements
participate in defined contribution plans whereby the employer contributes a
percentage of participants' qualifying compensation up to certain limits, as
defined by the plans. The entities also participate with BCBSUW in various other
profit sharing and bonus programs. Expenses related to all of these plans, after
giving effect to all administrative expense allocations between the Company and
BCBSUW, totaled $1,838,000, $2,932,000 and $1,978,000 in 1995, 1996 and 1997,
respectively. Included in these Company plans is a supplemental executive
retirement plan (SERP) for which there is no liability on the Company's balance
sheet at December 31, 1996 and 1997, respectively. BCBSUW is liable for
obligations under the SERP and has allocated a portion of the SERP costs to the
Company in the amounts of $146,000, $142,000 and $225,000 in 1995, 1996 and
1997, respectively.
STOCK-BASED COMPENSATION
Newco/UWS, Inc. intends to establish a stock-based compensation plan that
will allow for granting of options for up to 4,500,000 shares of common stock as
incentive or nonqualified stock options. Certain executive officers,
non-employee directors and employees were granted stock options under UWS stock-
based compensation plans. Also, certain individuals hold UWS stock options
related to an acquisition. At December 31, 1997, there were outstanding options
to purchase approximately 2,217,307 shares of UWS common stock of which
1,369,842 were exercisable. Immediately following the distribution, options to
purchase 257,322 shares of UWS common stock with a weighted average exercise
price of $26.09 per share will be converted into options to purchase shares of
common stock of Newco/UWS, Inc. The number of options and exercise prices will
be adjusted to provide equivalent value. In addition, options to purchase
1,386,378 shares of UWS common stock with a weighted average exercise price of
$30.87 per share will be converted, on a share for share basis, into options to
purchase shares of Newco/UWS, Inc. and UWS common stock. The exercise prices
will be adjusted to provide equivalent value of the respective companies'
shares. The Company cannot currently determine the number of shares of common
stock of Newco/UWS, Inc. that will be subject to equivalent awards after the
distribution.
In 1992, certain executive officers of UWS were awarded stock appreciation
rights (SARs) in UWS. At December 31, 1997 67,500 SARs are outstanding at $9.67
per share. Immediately following the distribution, the UWS SARs will be assumed
by Newco/UWS, Inc. and converted into SARs of Newco/ UWS, Inc. to provide
equivalent value.
The Company follows Accounting Principles Board Opinion No. 25 under which
no compensation expense is recorded when the number of shares is fixed and the
exercise price of UWS stock option grants to Company employees equals the market
price of the underlying stock on the date of grant. If the Company had measured
compensation cost for the UWS stock options granted to Company employees in 1996
and 1997 under the fair value based method prescribed by Statement of Financial
Accounting Standards No. 123, the pro forma net income would have been
$16,732,000 and $16,208,000 in 1996 and 1997, respectively.
F-19
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The fair values of UWS stock options granted to Company employees used to
compute pro forma net income disclosures were estimated on the date of grant
using the Black-Scholes option-pricing model based on the following
weighted-average assumptions used by UWS:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Risk free interest rate........................... 5.68% 5.71%
Expected life..................................... 6.22 years 6.04 years
Expected volatility............................... 0.34 0.38
Expected dividend yield........................... 2.09% 1.77%
</TABLE>
The weighted-average fair value of UWS stock options granted to Company
employees during 1996 and 1997 was $8.11 and $10.79, respectively.
The pro forma amounts above are not necessarily representative of the
effects of stock-based awards on future pro forma net income because (1) future
grants of employee stock options by Company management may not be comparable to
awards made to employees while the Company was a part of UWS, (2) the
assumptions used to compute the fair value of any stock option awards will be
specific to the Company and therefore may not be comparable to the UWS
assumptions used.
F-20
<PAGE>
NEWCO/UWS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 1996 and
1997 and the six months ended June 30, 1998 are as follows:
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996
Total revenues................... $ 133,056 $ 134,190 $ 134,145 $ 138,373 $ 539,764
Income before income tax
expense........................ 6,053 7,116 6,780 7,009 26,958
Net income....................... 3,559 4,472 4,120 4,190 16,341
Pro forma earnings
per common share:
Basic $ 0.28 $ 0.36 $ 0.33 $ 0.30 $ 1.27
Diluted $ 0.28 $ 0.36 $ 0.33 $ 0.30 $ 1.27
1997
Total revenues................... $ 146,993 $ 150,790 $ 154,479 $ 156,847 $ 609,109
Income before income tax
expense........................ 6,607 6,141 6,091 6,378 25,217
Net income....................... 3,998 3,889 3,859 4,038 15,784
Pro forma earnings
per common share:
Basic $ 0.24 $ 0.24 $ 0.23 $ 0.25 $ 0.96
Diluted $ 0.24 $ 0.23 $ 0.23 $ 0.25 $ 0.95
1998
Total revenues................... $ 159,158 $ 163,782
Income before income tax
expense........................ 8,005 8,925
Net income....................... 4,963 5,452
Pro forma earnings
per common share:
Basic $ 0.30 $ 0.33
Diluted $ 0.29 $ 0.33
</TABLE>
F-21
