<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
From the transition period from _________________ to ________________
Commission File Number 0-14320
UICI
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2044750
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 McEwen, Suite 200, Dallas, Texas 75244
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (972) 392-6700
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Common Stock, $.01
Par Value--46,230,941 shares as of May 5, 1999.
<PAGE> 2
INDEX
UICI AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Consolidated condensed balance sheets-March 31, 1999
(unaudited)-and December 31, 1998 3
Consolidated condensed statements of income
(unaudited)-Three months ended March 31, 1999 and 1998 4
Consolidated statements of comprehensive income
(unaudited)-Three months ended March 31, 1999 and 1998 5
Consolidated condensed statements of cash flows
(unaudited)-Three months ended March 31, 1999 and 1998 6
Notes to consolidated condensed financial statements
(unaudited)-March 31, 1999 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
2
<PAGE> 3
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale--
Fixed maturities, at fair value
(cost: 1999--$867,580; 1998--$865,589) .. $ 871,069 $ 886,406
Equity securities, at fair value
(cost: 1999--$24,003; 1998--$12,302) .... 23,323 18,764
Mortgage and collateral loans .................. 7,983 8,266
Policy loans ................................... 20,914 21,332
Investment in unconsolidated subsidiary ........ 46,070 45,843
Short-term investments ......................... 154,545 209,616
------------ ------------
Total investments ........................ 1,123,904 1,190,227
Student loans .................................... 788,058 670,429
Credit card loans ................................ 157,411 136,280
Cash ............................................. 10,807 16,900
Agents' receivables .............................. 12,775 11,249
Reinsurance receivables .......................... 89,185 89,566
Receivables from related parties ................. 17,315 14,069
Due premiums and other receivables ............... 32,611 39,675
Investment income due and accrued ................ 52,318 41,022
Deferred acquisition costs ....................... 91,068 93,008
Goodwill ......................................... 109,982 108,346
Property and equipment, net ...................... 52,367 51,938
Other ............................................ 14,286 12,346
------------ ------------
$ 2,552,087 $ 2,475,055
============ ============
LIABILITIES
Policy liabilities:
Future policy and contract benefits ............ $ 466,609 $ 468,297
Claims ......................................... 315,842 317,298
Unearned premiums .............................. 108,690 110,569
Other policy liabilities ....................... 20,203 20,590
Federal income taxes ............................. 25,797 36,111
Other liabilities ................................ 86,305 91,133
Notes payable to related parties ................. 210 497
Time deposits .................................... 107,311 98,913
Short-term debt .................................. 44,755 29,778
Long-term debt ................................... 21,940 21,268
Student loan credit facility ..................... 738,725 669,026
------------ ------------
1,936,387 1,863,480
MINORITY INTERESTS .................................. 16,471 16,784
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share ........... 464 464
Preferred stock, par value $.01 per share
Additional paid-in capital ....................... 166,489 166,489
Treasury stock ................................... (4,575) --
Accumulated other comprehensive income:
Net unrealized investment gains ................ 1,545 13,412
Retained earnings ................................ 435,306 414,426
------------ ------------
599,229 594,791
------------ ------------
$ 2,552,087 $ 2,475,055
============ ============
</TABLE>
NOTE: The balance sheet as of December 31, 1998 has been derived from the
audited financial statements at that date.
See notes to consolidated condensed financial statements.
3
<PAGE> 4
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUE
Premiums
Health .......................................... $ 174,479 $ 181,810
Life premiums and other considerations .......... 12,073 12,717
Investment income ................................. 21,216 21,602
Other interest income ............................. 17,948 1,115
Credit card fees .................................. 54,578 16,783
Other fee income .................................. 29,698 26,302
Other income ...................................... 1,113 15,665
Gains on sale of investments ...................... 1,981 1,817
----------- -----------
313,086 277,811
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses ......... 141,472 145,874
Underwriting, acquisition, and insurance expenses . 61,345 70,280
Other expenses .................................... 40,260 41,706
Provisions for doubtful accounts .................. 27,095 3,639
Interest expense .................................. 1,008 729
Interest expense - student loan credit facility ... 10,525 --
----------- -----------
281,705 262,228
INCOME BEFORE FEDERAL INCOME TAXES
AND MINORITY INTERESTS .......................... 31,381 15,583
Federal income taxes ................................. 10,287 5,131
----------- -----------
INCOME BEFORE MINORITY INTERESTS ................ 21,094 10,452
Minority interests ................................... 214 2,295
----------- -----------
NET INCOME ...................................... $ 20,880 $ 8,157
=========== ===========
BASIC EARNINGS PER COMMON SHARE ................. $ 0.45 $ 0.18
=========== ===========
DILUTED EARNINGS PER COMMON SHARE ............... $ 0.44 $ 0.18
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
UICI AND SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------- ----------
<S> <C> <C>
Net income ..................................................... $ 20,880 $ 8,157
Other comprehensive income (loss), before tax:
Unrealized gains (losses) in securities:
Unrealized holding gains (losses) arising during period ... (19,637) (5,874)
Less: reclassification adjustment for gains
included in net income .................................. 1,386 1,862
---------- ----------
Other comprehensive loss,
before tax ................................... (18,251) (4,012)
Income tax benefit related to items of
other comprehensive income .............................. 6,384 1,399
---------- ----------
Other comprehensive loss, net of tax ........... (11,867) (2,613)
---------- ----------
Comprehensive income ........................................... $ 9,013 $ 5,544
========== ==========
</TABLE>
5
<PAGE> 6
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................... $ 20,880 $ 8,157
Adjustments to reconcile net income to
cash provided by operating activities:
Increase (decrease) in policy liabilities .................. (1,817) 28,124
Increase (decrease) in other liabilities ................... (4,762) 8,244
Increase (decrease) in federal income taxes payable ........ (10,314) 3,402
Decrease (increase) in deferred acquisition costs .......... 1,939 (2,829)
Increase in accrued investment income ...................... (11,296) (794)
Decrease (increase) in reinsurance and other receivables ... 4,199 (5,804)
Depreciation and amortization .............................. 3,935 2,066
Provision for doubtful accounts ............................ 27,095 3,639
Net income attributable to minority interests .............. 214 2,295
Gains on sale of investments ............................... (1,981) (1,817)
Other items, net ........................................... (1,940) (2,482)
---------- ----------
Cash Provided by Operations ............................ 26,152 42,201
---------- ----------
INVESTING ACTIVITIES
Increase in student loans .................................... (117,629) (279,937)
Increase in credit card loans ................................ (48,226) (17,670)
Decrease (increase) in other investments ..................... 56,293 (31,473)
Decrease (increase) in agents' receivables ................... (1,525) 510
Minority interest purchased .................................. (3,000) (6,000)
Decrease (increase) in property and equipment ................ (3,066) 1,472
---------- ----------
Cash Used in Investing Activities ...................... (117,153) (333,098)
---------- ----------
FINANCING ACTIVITIES
Net cash provided from time deposits ......................... 8,398 11,310
Deposits from investment products ............................ 4,139 4,472
Withdrawals from investment products ......................... (7,732) (8,388)
Proceeds from student loan credit facility ................... 296,330 282,690
Repayment of student loan credit facility .................... (226,631) --
Proceeds from debt ........................................... 15,811 486
Repayments of debt ........................................... (448) (3,245)
Purchase of treasury stock ................................... (4,575) --
Distributions to minority interests .......................... (384) 882
---------- ----------
Cash Provided by Financing Activities .................. 84,908 288,207
---------- ----------
Net Decrease in Cash ................................... (6,093) (2,690)
Net Cash at Beginning of Period ........................ 16,900 15,932
---------- ----------
Cash at End of Period .................................. $ 10,807 $ 13,242
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE> 7
UICI AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements for UICI
and its subsidiaries (the Company) have been prepared in accordance with
generally accepted accounting principles (?GAAP?) for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1998. Certain amounts in the 1998 financial statements have been
reclassified to conform with the 1999 financial statement presentation.
NOTE B--STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
The Company is assessed amounts by state guaranty funds to cover losses of
policyholders of insolvent or rehabilitated insurance companies, by state
insurance oversight agencies to cover the operating expenses of such agencies
and by other similar legislative entities. These mandatory assessments may be
partially recovered through a reduction in future premium taxes in certain
states. Effective January 1, 1999, the Company adopted the provisions of AICPA
Statement of Position 97-3 ("SOP 97-3"), under which these assessments are
accrued in the period in which they are incurred. The effects of initially
adopting SOP 97-3 were not material to the Company.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.
7
<PAGE> 8
NOTE C--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended
1999 1998
---------- ----------
(In thousands, except
per share amounts)
<S> <C> <C>
Net income available to common shareholders ...... $ 20,880 $ 8,157
---------- ----------
Weighted average shares outstanding--
basic earnings per share .................... 46,337 46,229
Effect of diluted securities:
Employee stock options ...................... 1,299 31
---------- ----------
Weighted average shares outstanding--
dilutive earnings per share ................. 47,636 46,260
---------- ----------
Basic earnings per common share .................. $ 0.45 $ 0.18
========== ==========
Diluted earnings per common share ................ $ 0.44 $ 0.18
========== ==========
</TABLE>
NOTE D--LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various pending legal
proceedings arising in the ordinary course of business, including some asserting
significant damages arising from claims under insurance policies, disputes with
agents and other matters. Based in part upon the opinion of counsel as to the
ultimate disposition of such lawsuits and claims, management believes that the
liability, if any, resulting from the disposition of such proceedings will not
be material to the Company's financial condition or results of operations.
The Company and its Chairman are involved in litigation with an outside
party concerning the distribution of proceeds from the sale of SunTech
Processing Systems, LLC ("STP") assets in February 1998. The District Court
ruled in December 1998 that, as a matter of law, the March 1997 Agreement should
be read in the manner urged by Sun Communications, Inc. ("Sun") and consistent
with the liquidator's previous ruling and entered a judgment directing
distribution of the proceeds in the manner urged by Sun which included an
additional $1.7 million in attorney's fees which could be increased to $2.1
million under certain circumstances. The Company's Chairman has filed a notice
of appeal in his personal capacity as a party to the agreement but has not
determined whether or how he will proceed with that appeal. The Company has
filed a notice of appeal and is considering whether to raise as issues the
amount of attorney's fees to be paid to Sun and other issues ruled on by the
Court. However, the Company does not intend to directly appeal the District
Court's ruling with regard to the distribution of the proceeds. The Company
believes it is probable that the outcome of the appeal and or potential
settlement, if any, will not materially affect the distribution of the proceeds
to the Company as contained in the final judgment of the District Court.
8
<PAGE> 9
NOTE E-- Segment Information
The Company's operating segments are: (i) Insurance, which includes the
businesses of the Self Employed Agency Division, the Student Insurance Division,
the OKC Division, the Special Risk Division and the National Motor Club
Division; (ii) Financial Services, which includes the businesses of the Credit
Services Division, the Educational Finance Group Division, the Insurdata
Division and Other Business Units and (iii) Other Key Factors. Other Key Factors
include investment income not allocated to the other segments, interest and
general expenses relating to corporate operations, amortization of goodwill,
realized gains or losses on sale of investments and the AMLI operations.
Allocations of investment income and certain general expenses are based on a
number of assumptions and estimates, and the business segments reported
operating results would change if different methods were applied. Certain assets
are not individually identifiable by segment and, accordingly, have been
allocated by formulas. Segment revenues include premiums and other policy
charges and considerations, net investment income, and fees and other income.
Operations which do not constitute reportable operating segments have been
combined with Other Key Factors. Depreciation expense and capital expenditures
are not considered material. Management does not allocate income taxes to
segments. Transactions between reportable operating segments are accounted for
under respective agreements which are generally at cost. Financial information
by operating segment for revenues, income before federal income taxes and
minority interests, and identifiable assets is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Revenues
Insurance:
Self Employed Agency .............. $ 146,680 $ 149,201
Student Insurance ................. 26,087 25,854
OKC Division ...................... 23,984 25,041
Special Risk ...................... 14,547 17,531
National Motor Club ............... 6,698 7,053
------------ ------------
217,996 224,680
Financial Services:
Credit Services ................... 58,814 17,899
Educational Finance Group ......... 23,373 7,481
Insurdata ......................... 11,215 9,868
Other Business Units .............. 121 14,400
------------ ------------
93,523 49,648
Other Key Factors ................... 10,317 10,223
------------ ------------
321,836 284,551
Inter Segment Eliminations .......... (8,750) (6,740)
------------ ------------
Total Revenues ......................... $ 313,086 $ 277,811
============ ============
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Income (loss) before federal income taxes and minority interest Insurance:
Self Employed Agency .................................................... $ 3,151 $ (6,292)
Student Insurance ....................................................... 760 2,392
OKC Division ............................................................ 5,518 4,534
Special Risk ............................................................ (450) 1,285
National Motor Club ..................................................... 1,099 1,014
----------- -----------
10,078 2,933
Financial Services:
Credit Services ......................................................... 14,822 5,405
Educational Finance Group ............................................... 1,226 162
Insurdata ............................................................... 824 971
Other Business Units .................................................... -- 237
----------- -----------
16,872 6,775
Other Key Factors .......................................................... 4,431 5,875
----------- -----------
$ 31,381 $ 15,583
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Identifiable Assets
Insurance:
Self Employed Agency .................................................... $ 438,149 $ 379,293
Student Insurance ....................................................... 81,113 90,184
OKC Division ............................................................ 591,196 601,581
Special Risk ............................................................ 50,960 38,875
National Motor Club ..................................................... 25,991 21,300
----------- -----------
1,187,409 1,131,233
Financial Services:
Credit Services ......................................................... 220,482 98,208
Educational Finance Group ............................................... 853,722 328,805
Insurdata ............................................................... 17,470 13,618
Other Business Units .................................................... 19,333 17,848
----------- -----------
1,111,007 458,479
Other Key Factors .......................................................... 253,671 326,719
----------- -----------
Total assets ...................................................... $ 2,552,087 $ 1,916,431
=========== ===========
</TABLE>
NOTE F--SUBSEQUENT EVENT
Effective May 1, 1999, the Company acquired all of the minority
interest in United Membership Marketing Group, LLC ("UMMG") formerly held by
members of UMMG management for a cash purchase price of $32.3 million.
10
<PAGE> 11
PART I. FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UICI and its subsidiaries (the "Company") reported net income of $0.44
per share for the three month period ended March 31, 1999 compared to net income
of $0.18 per share for the comparable period in 1998. Included in net income are
gains from the sale of investments of $0.03 per share, after tax, for the three
month period ended March 31, 1999 and $0.02 per share, after tax, for 1998.
The Company's business segments are: (1) Insurance, which includes the
businesses of the Self Employed Agency Division, the Student Insurance Division,
the OKC Division, the Special Risk Division and the National Motor Club
Division; (ii) Financial Services, which includes the businesses of the Credit
Services Division, the Educational Finance Group Division, the Insurdata
Division and Other Business Units and (iii) Other Key Factors. Allocation of
investment income is based on a number of assumptions and estimates and the
segments - reported operating results would change if different methods were
applied. Segment revenues include premiums and other policy changes and
considerations, net investment income, and fees and other income. Financial
information by segment for revenues and income before federal income taxes is
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Revenues
Insurance:
Self Employed Agency .................... $ 146,680 $ 149,201
Student Insurance ....................... 26,087 25,854
OKC Division ............................ 23,984 25,041
Special Risk ............................ 14,547 17,531
National Motor Club ..................... 6,698 7,053
---------- ----------
217,996 224,680
Financial Services:
Credit Services ......................... 58,814 17,899
Educational Finance Group ............... 23,373 7,481
Insurdata ............................... 11,215 9,868
Other Business Units .................... 121 14,400
---------- ----------
93,523 49,648
Other Key Factors ......................... 10,317 10,223
---------- ----------
321,836 284,551
Inter Segment Eliminations ................ (8,750) (6,740)
---------- ----------
Total Revenues ............................... $ 313,086 $ 277,811
========== ==========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Income (loss) before federal income taxes and minority interest Insurance:
Self Employed Agency .................................................. $ 3,151 $ (6,292)
Student Insurance ..................................................... 760 2,392
OKC Division .......................................................... 5,518 4,534
Special Risk .......................................................... (450) 1,285
National Motor Club ................................................... 1,099 1,014
----------- -----------
10,078 2,933
Financial Services:
Credit Services ....................................................... 14,822 5,405
Educational Finance Group ............................................. 1,226 162
Insurdata ............................................................. 824 971
Other Business Units .................................................. -- 237
----------- -----------
16,872 6,775
Other Key Factors ........................................................ 4,431 5,875
----------- -----------
$ 31,381 $ 15,583
=========== ===========
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31,
1999 COMPARED TO 1998
Self Employed Agency Division ("SEA"). Operating income for the SEA
Division was $3.2 million for the three month period in 1999 compared to a loss
of $6.3 million in 1998. Revenue for the SEA Division decreased to $146.7
million for the three month period in 1999 from $149.2 million in 1998, a
decrease of 2%. The decrease in revenues is the result of lower sales in 1999
compared to 1998 due to rate increases implemented in 1998. In the first quarter
of 1998 SEA had significant operating losses due to a managed care product that
has been discontinued and adjustments in the estimates of claim reserves.
Student Insurance. Operating income for the Student Insurance Division
decreased to $760,000 in the first quarter of 1999 compared to $2.4 million in
1998. The reduced earnings reflect lower margins resulting from aggressive
pricing in response to increased price competition. Revenue for Student
Insurance increased to $26.1 million for the first quarter of 1999 compared to
$25.9 million in 1998.
OKC Division. Operating income for the OKC Division was $5.5 million
for the three month period in 1999 compared to $4.5 million in 1998, an increase
of 22%. The increase in operating income is attributed to continuing profits
from the closed life blocks of business which were somewhat offset by lower than
normal earnings from the College Fund Division in the first three months of
1998. Revenues for the OKC Division decreased to $24.0 million for the first
quarter of 1999 compared to $25.0 million in 1998.
12
<PAGE> 13
Special Risk Division. The Special Risk Division incurred an operating
loss of $450,000 for the first three months of 1999 compared to income of $1.3
million in 1998. The 1999 operating loss is due primarily to unusual
catastrophic claim volume and higher than expected life claims for the first
quarter. Revenue decreased to $14.5 million for the first quarter of 1999
compared to $17.5 million for the same period in 1998. The decrease of 17% is
primarily due to the decrease in revenue from closed blocks of business.
National Motor Club. Operating income for the National Motor Club was
comparable for the first three months of 1999 when compared to 1998.
Credit Services. Operating income for the Credit Services business was
$14.8 million for the three month period in 1999 compared to $5.4 million in
1998. The increase is primarily due to the continued growth in new sales of the
ACE program which increases revenue and operating income. Revenues for the first
three months of 1999 were $58.8 million compared to $17.9 million in the first
quarter 1998 when the ACE program was not being widely marketed.
Educational Finance Group ("EFG"). EFG reported operating income of
$1.2 million for the first quarter of 1999 compared to $162,000 for the same
period in 1998. Revenues for the first quarter of 1999 were $23.4 million
compared to $7.5 million in 1998. For the first quarter of 1998 EFG marketed
student loans but did not hold them for investment as it presently does.
Insurdata. Operating income for Insurdata was $824,000 for the three
month period in 1999 compared to operating income of $971,000 in 1998 or a
decrease of 15%. Revenues for Insurdata were $11.2 million in the three month
period in 1999 compared to $9.9 million in 1998, an increase of 13%.
Other Business Units. During 1998, this category ceased to exist with
the Other Business Units sold, closed down or transferred to other categories.
Other Key Factors. Other Key Factors include investment income not
allocated to the other segments, interest expense on corporate debt, general
expenses relating to corporate operations, amortization of goodwill, realized
gains or losses on sale of investments and the AMLI operations. Operating income
for the Other Key Factors was $4.4 million for the three month period in 1999
compared to $5.9 million in 1998. The decrease is primarily due to a $ 1.0
million increase in corporate expenses and a decrease in the operating income of
the AMLI operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's invested assets decreased to $1,124 million at March 31,
1999 compared to $1,190 million at December 31, 1998. The decrease in invested
assets is attributed to a decrease in the amount of short-term investments held
by EFG at December 31, 1998, withdrawals (net of deposits) from investment
products which were partially offset by cash provided by current operations.
The growth in credit card receivables not securitized from $136 million
at December 31, 1998 to $157 million at March 31, 1999 has been funded using
time deposits at UCNB which increased from $99 million at December 31, 1998 to
$107 million at March 31, 1999 and cash provided from current operations. The
growth in the student loans from $670 million at December
13
<PAGE> 14
31, 1998 to $788 million at March 31, 1999 has been funded from the student loan
credit facility, which increased from $669 million at December 31, 1998 to $739
million at March 31, 1999.
The Company increased the amount borrowed on its $50 million unsecured
line of credit from $25 million at December 31, 1998 to $40 million at March 31,
1999.
YEAR 2000 READINESS
State of Readiness. Some of the Company's older computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognize a
date using "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send premium
notices, process credit cards or student loans or engage in similar normal
business activities. As a result, the Company has implemented a project intended
to ensure that hardware and software systems operated or licensed in the
Company's business are designed to operate and properly manage dates beyond
December 31, 1999 ("Year 2000 Ready"). The Year 2000 project has assessed the
Company's information technology and operating systems ("IT Systems") and is
assessing non-information technology systems, including embedded technology,
relating to, among other systems, security systems, elevator systems and
heating, ventilating and air conditioning systems ("Non-IT Systems"). The Year
2000 project consists of five phases: (i) awareness, (ii) assessment, (iii)
analysis, design and remediation, (iv) testing and validation and (v) creation
of contingency plans in the event of Year 2000 failures.
IT Systems. The Company has completed the first two phases of the Year
2000 project for all of its IT Systems. The Company has completed the analysis,
design and remediation phase for substantially all of its IT Systems. The
Company plans to complete the remediation of substantially all of its mission
critical IT systems by mid-second quarter of 1999 and the testing and validation
of all of its IT Systems by mid-third quarter of 1999.
Non-IT Systems. The Company believes that Year 2000 non-readiness of
its own Non-IT Systems would not have a material adverse effect on the Company's
business or operations. Accordingly, the Company has primarily focused its
efforts on its IT Systems.
Readiness of Third Parties. The Company relies on hardware and software
of third parties as material components of its IT Systems, including network
access between the Company's data center and credit card transaction processors.
As part of the Year 2000 project, the Company is testing such software, hardware
and interfaces for Year 2000 and has determined that some of the software,
hardware and interfaces are not Year 2000 ready. In addition, the Company is
polling the third parties who provide software, hardware or data to the Company
regarding each of such third party's Year 2000 readiness plan and state of
readiness. The Company is requesting written responses from such third parties
that their software, hardware and data is, or will be on a timely basis, Year
2000 ready.
The Company provides services to third parties. If a Year 2000 problem
caused the interruption of such services to those customers, such interruption
could have a material adverse effect on the Company's business and the Company
could incur liability as a result.
14
<PAGE> 15
Year 2000 Costs. The Company expects to incur internal labor costs, as
well as other expenses, in its Year 2000 project. The Company's total estimated
cost of the project is approximately $10.5 million of which approximately $7.7
million, cumulatively, was incurred as of March 31, 1999 and $1.5 million was
incurred during the three month period ended March 31, 1999. Future costs of the
Year 2000 project will primarily result from the re-deployment of information
technology resources, although no significant internal IT Systems projects are
being deferred to further the Year 2000 Project. Costs associated with the Year
2000 project are expensed as incurred and are paid from operating cash flows.
Risks of Year 2000 Non-Readiness and Contingency Plans. The economy in
general may be adversely affected by risks associated with the Year 2000. The
Company's business, financial condition, and results of operations could be
materially adversely affected if systems that it operates or licenses to third
parties, or systems that are operated by other parties (e.g., utilities,
telecommunications service providers, data providers, associates, credit card
transaction processors) with which the Company's systems interface, are not Year
2000 Ready in time. There can be no assurance that these systems will continue
to properly function and interface and will otherwise be Year 2000 Ready.
Although the Company is not aware of any threatened claims related to the Year
2000, the Company may be subject to litigation arising from such claims and,
depending on the outcome, such litigation could have a material adverse affect
on the Company. It is not clear whether the Company's insurance coverage would
be adequate to offset these and other business risks related to the Year 2000.
The Company has not had any material processing disruptions to date
that were caused by Year 2000 issues. Internal testing provides the Company with
a level of confidence that in a most reasonably likely worst case scenario these
systems will not cause a material disruption on a forward-looking basis. A most
reasonably likely worst case scenario would anticipate that it is possible that
potential consequences would include, among other possibilities, the inability
to accurately and timely process benefit claims, update customers' accounts,
bill customers, calculate financial and actuarial data, and report accurate data
to management, shareholders, customers and regulators. The Company cannot
guarantee that it will be able to resolve all of its Year 2000 issues. Any
critical unresolved Year 2000 issues could have a material adverse effect on the
Company's results of operations, liquidity or financial condition. The Company
expects to complete the process of identifying contingency plans by June 30,
1999.
The expected costs of the Year 2000 project and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties, the success in becoming Year 2000 Ready of third parties whose
software and hardware systems interface with the Company, the outcome of
possible Year 2000 litigation involving the Company and similar uncertainties.
15
<PAGE> 16
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements set forth herein or incorporated by reference herein
from the Company's filings that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general economic
conditions, including the performance of financial markets, and interest rates;
competitive, regulatory or tax changes that affect the cost of or demand for the
Company's products; health care reform, ability to predict and effectively
manage claims related to health care costs; reliance on key management and
adequacy of claim liabilities and the ability of the Company and third party
vendors to modify computer systems for the Year 2000 data conversion in a timely
manner. The Credit Services segment's future results also could be adversely
affected by the possibility of future economic downturns causing an increase in
credit losses or changes in regulations for credit cards or credit card national
banks. The Company has certain risks associated with the Educational Finance
Group business. The changes in the Higher Education Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder may adversely impact the education credit market. In addition,
existing legislation and future measures by the federal government may adversely
affect the amount and nature of federal financial assistance available with
respect to loans made through the U.S. Department of Education. Finally the
level of competition currently in existence in the secondary market for loans
made under the Federal Loan Programs could be reduced, resulting in fewer
potential buyers of the Federal Loans and lower prices available in the
secondary market for those loans. Investors are also directed to other risks and
uncertainties discussed in documents filed by the Company with the Securities
and Exchange Commission.
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates, and
other relevant market rate or price changes. Market risk is directly influenced
by the volatility and liquidity in the markets in which the related underlying
assets are traded.
The primary market risk to the Company's investment portfolio is
interest rate risk associated with investments and the amount of interest that
policyholders expect to have credited to their policies. The interest rate risk
taken in the investment portfolio is managed relative to the duration of the
liabilities. The Company's investment portfolio consists mainly of high quality,
liquid securities that provide current investment returns. The Company believes
that the annuity and universal life-type policies are generally competitive with
those offered by other insurance companies of similar size. The Company does not
anticipate significant changes in the primary market risk exposures or in how
those exposures are managed in the future reporting periods based upon what is
known or expected to be in effect in future reporting periods.
Profitability of the student loans is affected by the spreads between
the interest yield on the student loans and the cost of the funds borrowed under
the various credit facilities. Although the interest rates on the student loans
and the interest rate on the credit facilities are variable, the interest earned
on the student loans uses the 91-day T-bill as the base rate while the base rate
on the credit facilities is LIBOR.
16
<PAGE> 17
The Credit Services Division's operations are subject to risk resulting
from interest rate fluctuations to the extent that there is a difference between
the amount of interest earned on the credit cards and the amount of the interest
paid on the time deposits. The maturity of the time deposits is less than one
year. The principal objective of the Company's asset/liability management
activities is to provide maximum levels of net interest income while maintaining
acceptable levels of interest rate and liquidity risk and facilitating the
funding needs of the Company.
On April 30, 1999, the Company commenced trading its shares on the New
York Stock Exchange under the symbol "UCI".
PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various pending legal
proceedings arising in the ordinary course of business, including some asserting
significant damages arising from claims under insurance policies, disputes with
agents and other matters. Based in part upon the opinion of counsel as to the
ultimate disposition of such lawsuits and claims, management believes that the
liability, if any, resulting from the disposition of such proceedings will not
be material to the Company's financial condition or results of operations.
The Company and its Chairman are involved in litigation with an outside party
concerning the distribution of proceeds from the sale of SunTech Processing
Systems, LLC ("STP") assets in February 1998. The District Court ruled in
December 1998 that, as a matter of law, the March 1997 Agreement should be read
in the manner urged by Sun Communications, Inc. ("Sun") and consistent with the
liquidator's previous ruling and entered a judgment directing distribution of
the proceeds in the manner urged by Sun which included an additional $1.7
million in attorney's fees which could be increased to $2.1 million under
certain circumstances. The Company's Chairman has filed a notice of appeal in
his personal capacity as a party to the agreement but has not determined whether
or how he will proceed with that appeal. The Company has filed a notice of
appeal and is considering whether to raise as issues the amount of attorney's
fees to be paid to Sun and other issues ruled on by the Court. However, the
Company does not intend to directly appeal the District Court's ruling with
regard to the distribution of the proceeds. The Company believes it is probable
that the outcome of the appeal and or potential settlement, if any, will not
materially affect the distribution of the proceeds to the Company as contained
in the final judgment of the District Court.
17
<PAGE> 18
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 5, 1999.
The following members were elected to the Company's Board of Directors
to hold office for the ensuing year.
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------------- ---------- --------
<S> <C> <C>
Ronald L. Jensen 40,571,054 53,153
Gregory T. Mutz 40,519,681 104,526
Richard J. Estell 40,245,548 378,659
Richard T. Mockler 40,560,559 63,648
Stuart Bilton 40,569,859 54,348
Patrick J. McLaughlin 40,571,059 53,148
George H. Lane 40,569,856 54,351
</TABLE>
The results of the voting on the appointment of auditors were as
follows:
Ratification of Appointment of Ernst & Young, LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1999.
The votes of the stockholders on this item were as follows:
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
40,562,319 17,391 44,497
</TABLE>
The results of the voting on the proposal to amend certificate of
incorporation to increase authorized common stock was as follows:
Proposal to amend certificate of incorporation of the Company
to increase the authorized shares of common stock from
50,000,000 shares up to 100,000,000 shares.
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
39,956,470 609,698 58,039
</TABLE>
The results of the voting on the proposal to amend stock option plan
was as follows:
Proposal to amend stock option plan.
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
40,020,787 539,121 64,299
</TABLE>
18
<PAGE> 19
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.1 UICI Restated and Amended 1987
Stock Option Plan as amended and restated
March 16, 1999.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UICI
--------------------------------
(Registrant)
Date: May 17, 1999 /s/ Gregory T. Mutz
----------------------- --------------------------------
Gregory T. Mutz, President, Chief
Executive Officer, and Director
Date: May 17, 1999 /s/ Warren B. Idsal
----------------------- --------------------------------
Warren B. Idsal, Vice President,
(Chief Financial Officer)
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.1 UICI Restated and Amended 1987 Stock Option Plan as amended and
restated March 16, 1999.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
UICI
RESTATED AND AMENDED
1987 STOCK OPTION PLAN
(NON-QUALIFIED)
1. PURPOSE OF PLAN
The purpose of the UICI 1987 Stock Option Plan originally
established the 3rd day of December, 1987, as amended and restated the
28th day of January, 1989, as further amended and restated the 28th day
of February, 1991, and as further amended and restated the 16th day of
March, 1999 (the "Plan"), is (a) to aid UICI (the "Company") in
securing and retaining individuals of outstanding ability, including
key personnel who are or may be employed by the Company or its
subsidiaries, non-employee Directors of the Company or its
subsidiaries, and non-employee individuals who contribute to the
success and growth of the Company by the performance of past, present
or future services to the Company and/or its subsidiaries; and (b) to
provide additional motivation to such persons to exert their best
efforts on behalf of the Company. The Company expects that it will
benefit from the added interest which such persons will have in the
welfare of the Company as a result of their ownership or increased
ownership of the Company's Common Stock.
2. STOCK SUBJECT TO THE PLAN
The total number of shares of Common Stock of the Company as
of March 16, 1999 for which options are to be granted under the Plan is
four million (4,000,000) shares, which may consist, in whole or in
part, of unissued shares or treasury shares. Any option granted
hereunder, or portion thereof, shall be forfeited to the extent that it
fails by its terms to become exercisable or is not otherwise exercised
before its expiration. If a participant forfeits options under the
terms of the Plan, then the shares reserved for such forfeited options
shall revert to the Plan and be available to be issued again.
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 1
<PAGE> 2
3. ADMINISTRATION
The Stock Option Committee appointed by the Board of Directors
of the Company (the "Committee") shall have two or more members
selected from time to time by the Board of Directors, all of whom shall
be "outside directors" as that term is defined in Treasury Regulation
Section .1.162-27, and "disinterested persons" as defined in SEC Rule
16b-3(c)(2)(i), whichever is the more stringent. The Committee shall
have the sole authority, consistent with the Plan, to determine the
provisions of the options to be granted, to interpret the Plan and the
options granted under the Plan, to adopt, amend and rescind rules and
regulations for the administration of the Plan, and generally to
administer the Plan and to make all determinations in connection
therewith which may be necessary or advisable, and all such actions of
the Committee shall be binding upon all participants. The Committee
shall have the sole authority to name new optionees and to grant shares
to any optionees, including increasing the number of shares available
to any existing optionee, as the Committee in its sole discretion deems
appropriate.
Committee decisions and selections shall be made by a majority
of the members present at a meeting at which a quorum is present, and
shall be final. Any decision or selection reduced to writing and signed
by the Chairman of the Committee on behalf of all of the members of the
Committee reflecting its decision shall be as fully effective as if it
had been made at a meeting duly held.
4. ELIGIBILITY
Each option is granted in consideration of each optionee:
(i) being or agreeing to become an employee, officer or
director of the Company and/or its subsidiaries; or
(ii) being or agreeing to become a non-employee director of
the Company and/or its subsidiaries, excluding members
of the Committee while serving on the Committee; and
(iii) performing or agreeing to perform services, on a
non-employee or independent contract basis, for or on
behalf of the Company and/or its subsidiaries.
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 2
<PAGE> 3
The persons who shall receive options under the Plan shall be selected
from time to time by the Committee, in its sole discretion, from among
those eligible, and the Committee shall determine, in its sole
discretion, the number of shares to be covered by the option or options
granted to each such optionee selected.
5. TERMS AND CONDITIONS OF STOCK OPTIONS
All options granted under this Plan shall be subject to all
the applicable provisions of the Plan, including the following terms
and conditions, and to such other terms and conditions not inconsistent
therewith as the Committee shall determine:
(a) Maximum Shares Per Optionee. The maximum number of
options that may be granted to any one eligible
optionee shall be limited to seven hundred fifty
thousand (750,000). The maximum number shall include
all options previously issued, outstanding, cancelled
and reissued, exercised, or expired.
(b) Option Price. The option price shall be the closing
price at which the Common Stock of the Company traded
on the date the option was granted. If the stock was
not traded on the date the option was granted, then
the option price shall be determined by using the
closing price for the stock on the last trading date
preceding the date the option was granted.
(c) When Options Expire. No option shall be exercisable
after the Expiration Date, except as provided in
paragraph (h) below. The Expiration Date shall be the
thirtieth (30th) day following the fifth (5th)
anniversary of the date the option is granted.
(d) When Options Become Exercisable. Each option shall be
exercisable: (i) twenty percent (20%) after twelve
months from the date of the granting of the option,
and an additional twenty percent (20%) after each
twelve (12) month period thereafter, except as
otherwise provided in (h) below; or (ii) sooner, at
the discretion of the Committee. Thus, each option,
to the extent not previously exercised, would be one
hundred percent (100%) exercisable on the fifth (5th)
anniversary date of the granting of the option.
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 3
<PAGE> 4
(e) How Options are Exercised. Each option shall be
exercised by giving written notice to the Company
specifying the number of shares to be purchased and
accompanied by payment as described in (e) below. No
optionee shall have any rights to dividends or other
rights of a stockholder with respect to shares
subject to the option until written notice of
exercise of the option has been given to the Company,
and payment in full for such shares has been made.
(f) Payment Upon Exercise of Options. Upon exercise of an
option, the option price for the shares to be
purchased shall be paid for, at the election of the
optionee:
(1) In cash;
(2) By retendering to the Company a sufficient
number of shares so optioned or other shares
of Common Stock of the Company, to produce a
fair market value (calculated at the closing
price at which the Company's Common Stock
traded on such date) equal to the total
exercise price;
(3) By a loan from the Company to the optionee for
the amount of the total exercise price. The
terms of the note or loan agreement shall be
determined by the Committee, interest shall
not exceed prime plus 1% at the time of the
loan, and the principal and interest shall not
be due thereunder until at least the end of
the twelfth (12th) month after the date of the
loan or one (1) month after termination of
employment, whichever is earlier; or
(4) By any combination of the above.
(g) Retender or Withholding for Income Tax Liability. The
optionee may also retender to the Company a number of
the optioned shares sufficient to pay the optionee's
income tax liability arising from the exercise of an
option. The optionee may retender an amount of shares
equal in value to the income tax withholding
liability or the optionee's marginal income tax rate
liability, if higher, resulting from the exercise,
whichever the optionee chooses. If an optionee
chooses not to retender shares for such tax liability
and if the Company is subject to income tax
withholding liability for such exercise, the
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 4
<PAGE> 5
Company may withhold an amount of shares equal in
value to such liability or may otherwise require the
optionee to pay or indemnify the Company for such
liability as the Committee may determine.
(h) Accelerated Exercisability Upon Certain Events.
(1) Permanent Disability. If prior to the
Expiration Date an optionee becomes
permanently disabled, the options, to the
extent not previously exercised, shall
immediately become 100% exercisable. Such
options may thereafter be exercised in full at
any time within three hundred sixty-five (365)
days after the date of such date of permanent
disability.
(2) Death. If prior to the Expiration Date an
optionee shall die, the options, to the extent
not previously exercised, shall immediately
become 100% exercisable. Such options may
thereafter be exercised in full by the legal
representative of the estate or by the legatee
of the optionee under a last will at any time
within three hundred sixty-five (365) days
after the date of the optionee's death.
(3) Change of Control. In the event of a change of
control of the Company, the options, to the
extent not previously exercised, shall
immediately become 100% exercisable. For
purposes herein, change of control is defined
as any person (or any person and affiliates of
such person), other than Ronald L. Jensen, his
spouse, his adult children, or any trust
controlled by such persons, acquiring the
beneficial ownership, directly or indirectly,
of more than 25% of the Company's outstanding
voting stock.
(4) Retirement. If an optionee retires as an
employee of the Company, having reached the
age of at least sixty-five (65) and having
been an employee of the Company for not less
than ten (10) years, then the options, to the
extent not previously exercised, shall
immediately become 100% exercisable. Such
options may thereafter be exercised in full
within ninety (90) days of the date of the
optionee's retirement date.
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 5
<PAGE> 6
(5) Termination for any Other Reason. If an
optionee who is an employee, officer or
director of the Company and/or its
subsidiaries terminates employment for any
reason other than death or permanent
disability, or if a non-employee director of
the Company and/or its subsidiaries ceases to
be a director of such company for any reason
other than death or permanent disability, or
other non-employee optionee ceases to perform
services for or on behalf of the Company for
any reason other than death or permanent
disability, the unexercised options may
thereafter be exercised the earlier of ninety
(90) days after the date of such termination
or cessation, or the Expiration Date, but only
to the extent they were exercisable at the
time of such termination.
However, in the event of termination of
employment or cessation of association for any
reason other than death or permanent
disability, the Committee, in its sole and
absolute discretion, may determine that
options previously granted shall not expire
and be forfeited for reason of such
termination of employment or cessation of
association, but shall continue to be
exercisable as set forth in this paragraph 5.
The Committee may take into account, on an
individual basis as to each optionee, the
nature of the services rendered by the
optionee, the optionee's past, present or
potential contributions to the Company's
success and such other factors as the
Committee in its discretion shall deem
relevant. Nothing in this paragraph shall be
deemed to give any optionee an absolute right
hereunder.
(i) Options Not Transferable. The option by its
terms shall be personal and shall not be
transferable by the optionee other than by
will or by the laws of descent and
distribution. During the lifetime of an
optionee, the option shall be exercisable only
by the optionee, or by a duly appointed legal
representative.
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 6
<PAGE> 7
6. STOCK RESTRICTIONS
The Company agrees that it shall register the shares for which
options are granted hereunder with the Securities and Exchange
Commission and shall take all other reasonable actions necessary to
allow for the unrestricted transfer by the optionees of shares optioned
hereunder, to the extent permitted under applicable law. Registration
shall be within one year after exercise of the option.
7. LEAVE OF ABSENCE
For the purpose of the Plan a leave of absence, duly
authorized in writing by the Company and which leave of absence is
recognized in writing by the Committee, shall not be deemed a
termination of relationship with the Company.
8. RIGHTS OF OPTIONEES
(a) No person shall have any rights or claims under the
Plan except in accordance with the provisions of the
Plan.
(b) Nothing contained in the Plan shall be deemed to give
any optionee the right to a continuance of any
relationship with the Company or its subsidiaries.
9. CHANGES IN CAPITAL
If the outstanding Common Stock of the Company subject to the
Plan shall at any time be changed or exchanged by a declaration of a
stock dividend, stock split, combination of shares, recapitalization,
merger, consolidation or other corporate reorganization in which the
Company is the surviving corporation, the number and kind of shares
subject to this Plan and the option prices shall be appropriately and
equitably adjusted so as to maintain the option price thereof. In the
event of a dissolution or liquidation of the Company or a merger,
consolidation, sale of all or substantially all of its assets, or any
other corporate reorganization in which the Company is not the
surviving corporation, or any merger in which the Company is the
surviving corporation but the holders of its Common Stock receive
securities of another corporation, there shall be substituted for any
outstanding options hereunder a new option of the surviving
corporation, pursuant to which optionees shall receive not less than
substantially the same economic benefit as they would have received
under the Plan. The existence of the Plan or options hereunder shall
not in any way
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 7
<PAGE> 8
prevent any transaction described herein, and no holder of an option
shall have the right to prevent any such transaction.
10. USE OF PROCEEDS
Proceeds from the sale of shares pursuant to the options
granted under this Plan shall constitute general funds of the Company.
11. AMENDMENTS
The Board of Directors of the Company, in its sole discretion,
may discontinue the Plan at any time, but may amend or alter the Plan
only upon the recommendation of and pursuant to the recommendation of
the Committee. No amendment, alteration or discontinuation shall be
made which would impair the rights of any holder of an option
theretofore granted, without the optionee's consent.
12. CONDITIONS SUBSEQUENT
This Plan is subject to approval by the shareholders of the
Company at the next Annual Meeting.
This Restatement of the Plan was adopted by the Board of Directors of the
Company on the 16th day of March, 1999.
/s/ Richard T. Mockler
------------------------------
Richard T. Mockler, Chairman
Stock Option Committee
UICI RESTATED AND AMENDED 1987
STOCK OPTION PLAN (NON-QUALIFIED)
MARCH 16, 1999 PAGE 8
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 871,069
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 23,323
<MORTGAGE> 7,983
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,123,904
<CASH> 10,807
<RECOVER-REINSURE> 89,185
<DEFERRED-ACQUISITION> 91,068
<TOTAL-ASSETS> 2,552,087
<POLICY-LOSSES> 782,451
<UNEARNED-PREMIUMS> 108,690
<POLICY-OTHER> 20,203
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 805,630
0
0
<COMMON> 464
<OTHER-SE> 598,765
<TOTAL-LIABILITY-AND-EQUITY> 2,552,087
186,552
<INVESTMENT-INCOME> 21,216
<INVESTMENT-GAINS> 1,981
<OTHER-INCOME> 1,113
<BENEFITS> 141,472
<UNDERWRITING-AMORTIZATION> 907
<UNDERWRITING-OTHER> 60,438
<INCOME-PRETAX> 31,381
<INCOME-TAX> 10,287
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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