<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1996
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
UNITED WISCONSIN SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WISCONSIN 6324 39-1431799
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) 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)
THOMAS R. HEFTY, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNITED WISCONSIN SERVICES, INC.
401 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53203-2896
(414) 226-6900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
Geoffrey R. Morgan Randall J. Erickson
Michael Best & Friedrich Godfrey & Kahn, S.C.
100 East Wisconsin Avenue 780 North Water Street
Milwaukee, Wisconsin 53202 Milwaukee, Wisconsin 53202
(414) 271-6560 (414) 273-3500
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE
AND THE EFFECTIVE TIME OF THE MERGER OF AMERICAN MEDICAL SECURITY GROUP, INC.
WITH AND INTO THE REGISTRANT, AS DESCRIBED HEREIN.
------------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE (1) FEE (1)
<S> <C> <C> <C> <C>
Common Stock, no par value........... 4,000,000 shares N/A N/A $559
</TABLE>
(1) Estimated in accordance with Rule 457(f)(2) of the Securities Act solely for
purposes of calculating the registration fee on the basis of the book value,
as of June 30, 1996, of securities of AMSG to be canceled in the Merger of
AMSG into Registrant ($68,630,000) LESS the aggregate amount of cash paid by
the Registrant to holders of AMSG securities ($67,010,000).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNITED WISCONSIN SERVICES, INC.
401 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53203-2896
, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"UWS Special Meeting") of United Wisconsin Services, Inc. ("UWS"), which will be
held on , , 1996, at 11:00 a.m., local time, at ,
, Wisconsin. A notice of the UWS Special Meeting, a proxy statement and
a proxy card are enclosed. All holders of UWS's outstanding shares of common
stock, no par value per share ("UWS Common Stock"), as of , 1996
(the "Record Date") will be entitled to notice of and to vote at the UWS Special
Meeting.
At the UWS Special Meeting, you will be asked to consider and vote upon a
proposal to approve the merger (the "Merger") of American Medical Security
Group, Inc. ("AMSG") with and into UWS pursuant to an Agreement and Plan of
Merger between AMSG, Blue Cross & Blue Shield United of Wisconsin, UWS, Wallace
J. Hilliard and Ronald A. Weyers (the "Merger Agreement"). Pursuant to the
Merger Agreement, the respective businesses of UWS and AMSG will be combined,
and all of the outstanding shares of capital stock of AMSG (other than shares
held by UWS and shares with respect to which dissenters' rights are exercised)
and options to purchase AMSG capital stock will be converted into the right to
receive an aggregate of 4,000,000 shares of, or options to purchase, UWS Common
Stock and $67,010,000 in cash (less applicable expenses) in accordance with the
Merger Agreement. You will also be asked to approve amendments to the United
Wisconsin Services, Inc. Equity Incentive Plan (the "Plan Amendments"). The
amendments increase the number of shares available for granting, limit the
number of shares which may be granted to individual participants, change the
requirements for membership on the committee which administers the plan, and
permit the gifting of nonqualified options. To UWS's knowledge after reasonable
inquiry, each of UWS's executive officers and directors, holding in the
aggregate 49,960 shares of UWS Common Stock (approximately 0.4% of the
outstanding shares of UWS Common Stock), currently intends to vote all shares of
UWS Common Stock held of record or beneficially owned by such person for
approval and adoption of the Merger Agreement and the Plan Amendments. You
should read carefully the accompanying Notice of Special Meeting of Shareholders
and the Joint Proxy Statement/Prospectus for details of the Merger and the Plan
Amendments.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND HAS DETERMINED
THAT THE MERGER AGREEMENT IS FAIR TO AND IN THE BEST INTERESTS OF UWS AND ITS
SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED THE PLAN AMENDMENTS, AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE PLAN
AMENDMENTS.
Your vote is important. Whether or not you plan to attend the UWS Special
Meeting, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed postage-prepaid envelope. Failure to return a properly
executed proxy card or to vote at the UWS Special Meeting will have the same
effect as a vote against the Merger. Your proxy may be revoked at any time
before it is voted by signing and returning a later-dated proxy with respect to
the same shares or by filing with the Secretary of UWS a written revocation
bearing a later date. If you attend the UWS Special Meeting, you may vote in
person if you wish, even though you previously have returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Sincerely,
Thomas R. Hefty
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
UNITED WISCONSIN SERVICES, INC.
401 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53203-2896
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
TO THE SHAREHOLDERS OF UNITED WISCONSIN SERVICES, INC.
A Special Meeting of Shareholders (the "UWS Special Meeting") of United
Wisconsin Services, Inc., a Wisconsin corporation ("UWS"), will be held on
, 1996, at 11:00 a.m., local time, at , ,
Wisconsin for the following purposes:
1. To consider and vote upon a proposal to approve the merger (the
"Merger") of American Medical Security Group, Inc. ("AMSG") with and into UWS
pursuant to an Agreement and Plan of Merger among AMSG, Blue Cross & Blue Shield
United of Wisconsin, UWS, Wallace J. Hilliard and Ronald A. Weyers (the "Merger
Agreement"). Pursuant to the Merger Agreement, the respective businesses of UWS
and AMSG will be combined, and all of the outstanding shares of capital stock of
AMSG (other than shares held by UWS and shares with respect to which dissenters'
rights are exercised) and options to purchase AMSG capital stock will be
converted into the right to receive an aggregate of 4,000,000 shares of, or
options to purchase, UWS Common Stock and $67,010,000 in cash (less applicable
expenses) in accordance with the Merger Agreement. The Merger, including the
shares of UWS Common Stock to be issued and the cash to be paid in connection
with the Merger, is more completely described in the accompanying Joint Proxy
Statement/Prospectus, and a copy of the Merger Agreement is attached as Appendix
A thereto.
2. To consider and vote upon a proposal to amend the United Wisconsin
Services, Inc. Equity Incentive Plan (the "Plan Amendments"). The Plan
Amendments will increase the number of shares available for granting, limit the
number of shares which may be granted to individual participants, change the
requirements for membership on the committee which administers the plan, and
permit the gifting of nonqualified options. Approval of the Plan Amendments is a
condition to consummation of the Merger.
3. To transact such other business as may properly come before the UWS
Special Meeting or any adjournment or postponement thereof.
Only holders of record of UWS Common Stock at the close of business on
, 1996, the record date for the UWS Special Meeting, are entitled to
notice of and to vote at the UWS Special Meeting and any adjournment or
postponement thereof.
THE MERGER AGREEMENT, THE MERGER AND THE PLAN AMENDMENTS HAVE BEEN APPROVED
AND ADOPTED BY THE BOARD OF DIRECTORS OF UWS (THE "UWS BOARD"). THE UWS BOARD
HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND CONDITIONS OF THE PROPOSED
MERGER, THE MERGER AGREEMENT AND THE PLAN AMENDMENTS AND THE UWS BOARD BELIEVES
THE MERGER, THE MERGER AGREEMENT AND THE PLAN AMENDMENTS ARE FAIR TO AND IN THE
BEST INTERESTS OF UWS AND ITS SHAREHOLDERS. THE UWS BOARD UNANIMOUSLY RECOMMENDS
A VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND FOR THE ADOPTION
AND APPROVAL OF THE PLAN AMENDMENTS.
Your vote is important. Whether or not you plan to attend the UWS Special
Meeting, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed postage-prepaid envelope. Failure to return a properly
executed proxy card or to vote at the UWS Special Meeting will have the same
effect as a vote against the Merger. Your proxy may be revoked at any time
before it is voted by signing and returning a later-dated proxy with respect to
the same shares or by filing with the Secretary of UWS a written revocation
bearing a later date. If you attend the UWS Special Meeting, you may vote in
person if you wish, even though you previously have returned your proxy card.
Your prompt cooperation will be greatly appreciated.
UNITED WISCONSIN SERVICES, INC.
Thomas R. Hefty
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Milwaukee, Wisconsin
, 1996
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
3100 AMS BOULEVARD
GREEN BAY, WISCONSIN 54313
, 1996
Dear Stockholder:
A Special Meeting of Stockholders (the "AMSG Special Meeting") of American
Medical Security Group, Inc. ("AMSG") will be held on , , 1996,
at , local time, at , , Wisconsin. A notice of the AMSG
Special Meeting, a proxy statement and a proxy card are enclosed. All holders of
AMSG outstanding shares of common stock, $1.00 par value per share ("AMSG Common
Stock"), as of ________, 1996 (the "AMSG Record Date") will be entitled to
notice of and to vote at the AMSG Special Meeting.
At the AMSG Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Merger dated July 31, 1996 by
and between AMSG, United Wisconsin Services, Inc. ("UWS"), Blue Cross & Blue
Shield United of Wisconsin, Wallace J. Hilliard and Ronald A. Weyers (the
"Merger Agreement"), providing for the merger (the "Merger") of AMSG with and
into UWS, as described in the accompanying Joint Proxy Statement/Prospectus.
Pursuant to the Merger, AMSG and UWS will combine their respective businesses
and (i) each outstanding share of AMSG Common Stock, other than dissenters'
shares and shares held by UWS, will be converted into the right to receive,
after expenses, approximately $382 in cash and approximately 24 shares of common
stock, no par value, of UWS (the "UWS Common Stock"), for each share of AMSG
Common Stock, (ii) all outstanding shares of capital stock of AMSG held by UWS
will be canceled, and (iii) each outstanding option to acquire AMSG Common Stock
(the "AMSG Options") will be converted into an option to purchase approximately
42.4 shares of UWS Common Stock for each share of AMSG Common Stock subject to
such option at an exercise price of approximately $4.67 per share. In addition,
approximately $52 per share of AMSG Common Stock will be placed in escrow to
indemnify UWS against possible liability for claims under the Merger Agreement.
See "THE MERGER -- Escrow Agreement" for more information. For more information
regarding the consideration to be received by AMSG stockholders and holders of
AMSG Options in the Merger, please refer to the accompanying Joint Proxy
Statement/Prospectus, under "THE MERGER -- Terms of the Merger -- Conversion of
AMSG Common Stock in the Merger" and "--Conversion of AMSG Stock Options in the
Merger."
All of the outstanding shares of AMSG Common Stock, other than shares owned
by UWS, are subject to a Voting Trust Agreement dated as of February 3, 1989,
pursuant to which Ron Weyers and I, as trustees, are empowered to vote all of
the shares subject thereto. We have determined, however, to vote the AMSG Common
Stock in accordance with the instructions of the holders of record of the trust
certificates issued under the Voting Trust Agreement.
The AMSG Board of Directors has approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is in the
best interests of AMSG and its stockholders. After careful consideration, the
Board of Directors recommends a vote in favor of the Merger. Ron Weyers and I
have agreed to vote our shares of AMSG Common Stock in favor of the Merger and
urge you to do the same.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by AMSG shareholders at the AMSG Special Meeting, and a form
of appointment of proxy. The Joint Proxy Statement/Prospectus more fully
describes the proposed Merger and includes information about UWS and AMSG.
Sincerely,
Wallace J. Hilliard,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Green Bay, Wisconsin
, 1996
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
3100 AMS BOULEVARD
GREEN BAY, WISCONSIN 54313
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1996
TO THE STOCKHOLDERS:
A Special Meeting of Stockholders (the "AMSG Special Meeting") of American
Medical Security Group, Inc., a Delaware corporation ("AMSG"), will be held
on , , 1996, at , local time, at ,
, Wisconsin. At the AMSG Special Meeting, AMSG's stockholders will
be asked to consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated July 31, 1996 by and between AMSG, United Wisconsin
Services, Inc. ("UWS"), Blue Cross & Blue Shield United of Wisconsin, Wallace J.
Hilliard and Ronald A. Weyers (the "Merger Agreement") providing for the merger
(the "Merger") of AMSG with and into UWS, as described in the accompanying Joint
Proxy Statement/Prospectus. Pursuant to the Merger, AMSG and UWS will combine
their respective businesses and (i) each outstanding share of AMSG common stock,
$1.00 par value (the "AMSG Common Stock"), other than dissenters' shares and
shares held by UWS, will be converted into the right to receive, after expenses,
approximately $382 in cash and approximately 24 shares of common stock, no par
value per share, of UWS (the "UWS Common Stock") for each share of AMSG Common
Stock, (ii) all outstanding shares of capital stock held by UWS will be
canceled, and (iii) each outstanding option to acquire AMSG Common Stock (the
"AMSG Options") will be converted into an option to purchase approximately 42.4
shares of UWS Common Stock for each share of AMSG Common Stock subject to such
option at an exercise price of approximately $4.67 per share. In addition,
approximately $52 per share of AMSG Common Stock will be placed in escrow to
indemnify UWS against possible liability for claims under the Merger Agreement.
See "THE MERGER -- Escrow Agreement" for more information. The consideration to
be paid for the AMSG Common Stock and the options to acquire AMSG Common Stock
is described in more detail in the accompanying Joint Proxy Statement/Prospectus
under "THE MERGER -- Terms of the Merger Conversion of AMSG Common Stock in the
Merger" and "-- Conversion of AMSG Stock Options in the Merger." The Merger is
more fully described in, and the Merger Agreement is attached in its entirety
to, the accompanying Joint Proxy Statement/Prospectus.
Only stockholders of record at the close of business on , 1996,
are entitled to notice of and to vote at the Special Meeting, or at any
continuance(s) or adjournment(s) thereof. APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF SHARES REPRESENTING A
MAJORITY OF THE NUMBER OF SHARES OF AMSG COMMON STOCK OUTSTANDING. The Merger
Agreement and the Merger have been approved and adopted by the Board of
Directors of AMSG (the "AMSG Board"). The AMSG Board has carefully reviewed and
considered the terms and conditions of the proposed Merger and the Merger
Agreement and the AMSG Board believes the Merger and the Merger Agreement are
fair to and in the best interests of AMSG and its stockholders. THE AMSG BOARD
RECOMMENDS A VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
AS DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS,
STOCKHOLDERS OF AMSG WILL BE ENTITLED TO PAYMENT OF THE FAIR VALUE OF THOSE
SHARES WHICH ARE NOT VOTED IN FAVOR OF THE MERGER AGREEMENT, IF WRITTEN NOTICE
OF THE STOCKHOLDERS' INTENT TO DEMAND PAYMENT IF THE MERGER AGREEMENT AND MERGER
ARE APPROVED IS DELIVERED TO AMSG BEFORE THE VOTE IS TAKEN AND THE REQUIREMENTS
OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW ARE MET.
By Order of the Board of Directors,
Wallace J. Hilliard
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Green Bay, Wisconsin
, 1996
<PAGE>
JOINT PROXY STATEMENT
OF
UNITED WISCONSIN SERVICES, INC.
AND
AMERICAN MEDICAL SECURITY GROUP, INC.
------------------------
PROSPECTUS
OF
UNITED WISCONSIN SERVICES, INC.
------------------------
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
United Wisconsin Services, Inc., a Wisconsin corporation ("UWS"), in connection
with the solicitation of proxies by UWS's Board of Directors for use at the
Special Meeting of Shareholders of UWS (the "UWS Special Meeting") to be held on
, 1996, at , , Wisconsin,
commencing at 11:00 a.m., local time, and at any adjournment or continuance
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of American Medical Security Group, Inc., a Delaware corporation
("AMSG"), in connection with the solicitation of proxies by the Board of
Directors of AMSG for use at the Special Meeting of Stockholders of AMSG (the
"AMSG Special Meeting") to be held on , 1996, at
, , Wisconsin, commencing at 11:00 a.m., local
time, and at any adjournment or continuance thereof.
This Joint Proxy Statement/Prospectus relates to the proposed merger of AMSG
with and into UWS (the "Merger"). UWS has filed a Registration Statement on Form
S-4 with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to 4,000,000
shares of common stock, no par value, of UWS (the "UWS Common Stock"), issuable
as part of the consideration for the Merger. This Joint Proxy
Statement/Prospectus constitutes the Prospectus of UWS with respect to the
shares of UWS Common Stock to be issued in the Merger. All information contained
in this Joint Proxy Statement/Prospectus relating to UWS has been supplied by
UWS, and all information contained herein relating to AMSG has been supplied by
AMSG.
This Joint Proxy Statement/Prospectus is first being mailed to shareholders
of UWS and AMSG on or about , 1996.
THE SHARES OF UWS COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
FOR A DESCRIPTION OF CERTAIN FACTORS AMSG STOCKHOLDERS SHOULD CONSIDER IN
EVALUATING THE MERGER AND THE RECEIPT OF THE UWS COMMON STOCK OFFERED HEREBY,
SEE "RISK FACTORS".
------------------------
The date of this Joint Proxy Statement/Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
UWS is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain
regional offices of the Commission located at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such information can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains an internet web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants such as UWS that file
electronically with the Commission. In addition, UWS Common Stock is included
for quotation on the New York Stock Exchange ("NYSE") and such reports, proxy
and information statements, registration statements and other information
concerning UWS should be available for inspection and copying at the offices of
the NYSE, 20 Broad Street, New York, New York 10005. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement on Form S-4 (the "Registration Statement") filed by UWS
with the Commission under the Securities Act, certain parts of which are omitted
in accordance with the rules and regulations of the Commission. The Registration
Statement and any amendments thereto, including exhibits as a part thereof, are
available for inspection and copying as set forth above.
AMSG is not subject to the information and reporting requirements of the
Exchange Act.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/ PROSPECTUS
IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO THE SECRETARY, UNITED WISCONSIN
SERVICES, INC., 401 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53203-2896,
TELEPHONE (414) 226-6900. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BEFORE , 1996.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING, BUT NOT LIMITED TO THE
SECTIONS ENTITLED "RISK FACTORS," "BACKGROUND OF AND REASONS FOR THE MERGER,"
"THE MERGER," "AMSG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE,
CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF AMSG AND UWS. SUCH FORWARD
LOOKING STATEMENTS ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES THAT MAY
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM THE
MERGER CANNOT BE FULLY REALIZED; (2) COMPETITIVE PRESSURE IN THE HEALTHCARE
INDUSTRY INCREASES SIGNIFICANTLY; (3) COSTS OR DIFFICULTIES RELATED TO THE
INTEGRATION OF THE BUSINESSES OF AMSG AND UWS ARE GREATER THAN EXPECTED; AND (4)
GENERAL ECONOMIC CONDITONS, EITHER NATIONALLY OR IN THE STATES IN WHICH THE
COMBINED COMPANY WILL BE DOING BUSINESS, ARE LESS FAVORABLE THAN EXPECTED.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
UWS's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
and Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996 previously filed with the Commission pursuant to the Exchange Act
are incorporated herein by reference. All documents filed by UWS pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the UWS Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date any such
document is filed. The information relating to UWS contained in this Joint Proxy
Statement/Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded. All information appearing in this Joint Proxy
Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY UWS OR AMSG. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
SECURITIES OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS NOR THE ISSUANCE
OR DELIVERY OF ANY SHARES OF UWS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF UWS OR AMSG SINCE THE DATE HEREOF OR THAT THE
INFORMATION IN THIS JOINT PROXY STATEMENT/ PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................... 1
General........................................................... 1
The Companies..................................................... 1
Meetings of Shareholders.......................................... 1
The Merger........................................................ 2
Risk Factors...................................................... 6
Selected Consolidated Financial Data of UWS....................... 7
Selected Consolidated Financial Data of AMSG...................... 8
RISK FACTORS.......................................................... 9
SELECTED HISTORICAL AND PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL DATA....................................................... 11
UWS AND AMSG PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
DATA................................................................. 12
COMPARATIVE PER SHARE DATA............................................ 13
HISTORICAL AND PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS........................................................... 14
COMPARATIVE PER SHARE MARKET INFORMATION.............................. 26
UWS............................................................... 26
AMSG.............................................................. 26
SPECIAL MEETING OF UWS SHAREHOLDERS................................... 27
General........................................................... 27
Matters to be Considered at the UWS Special Meeting............... 27
Record Date; Shares Entitled to Vote; Vote Required............... 27
Proxies; Proxy Solicitation....................................... 28
SPECIAL MEETING OF AMSG SHAREHOLDERS.................................. 28
General........................................................... 28
Matters to be Considered at the AMSG Special Meeting.............. 29
Record Date; Shares Entitled to Vote; Vote Required............... 29
Proxies; Proxy Solicitation....................................... 29
BACKGROUND OF AND REASONS FOR THE MERGER.............................. 30
Background........................................................ 30
UWS's Reasons for the Merger...................................... 33
AMSG's Reasons for the Merger..................................... 33
Opinion of UWS Financial Advisor.................................. 34
Recommendation of UWS Board....................................... 38
Recommendation of AMSG Board...................................... 38
THE MERGER............................................................ 38
Terms of the Merger............................................... 38
Effective Time of the Merger...................................... 39
Exchange of AMSG Stock............................................ 39
Representations and Warranties.................................... 40
Business of AMSG Pending the Merger............................... 40
Covenants of AMSG and UWS......................................... 41
Voting Agreements................................................. 42
Conditions; Waivers............................................... 42
Termination; Amendment............................................ 43
Indemnification Agreements........................................ 44
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Escrow Agreement.................................................. 44
Resale of UWS Common Stock Issued in the Merger; Affiliates....... 45
Registration of UWS Common Stock Issued in the Merger:
Registration Rights and Stock Restriction Agreement.............. 45
Listing of UWS Common Stock on New York Stock Exchange............ 46
Certain Federal Income Tax Considerations......................... 46
Accounting Treatment.............................................. 47
Management and Operations of AMSG After the Merger................ 47
Expenses and Fees................................................. 47
RIGHTS OF DISSENTING SHAREHOLDERS..................................... 47
AMSG Stockholders................................................. 47
UWS Shareholders.................................................. 50
CONFLICTS OF INTEREST................................................. 51
BUSINESS OF UWS....................................................... 53
BUSINESS OF AMSG...................................................... 53
AMSG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................ 54
Overview.......................................................... 54
Results of Operations............................................. 54
Liquidity and Capital Resources................................... 57
Inflation......................................................... 58
Health Care Reform................................................ 59
STOCK OWNED BY AMSG MANAGEMENT AND PRINCIPAL SHAREHOLDERS............. 60
APPROVAL OF AMENDMENTS TO UNITED WISCONSIN SERVICES, INC. EQUITY
INCENTIVE PLAN....................................................... 60
DESCRIPTION OF UWS CAPITAL STOCK...................................... 63
Common Stock...................................................... 63
Preferred Stock................................................... 64
Certain Charter and Bylaw Provisions.............................. 64
Certain Statutory Provisions...................................... 64
Transfer Agent and Registrar...................................... 65
COMPARATIVE RIGHTS OF AMSG STOCKHOLDERS AND UWS SHAREHOLDERS.......... 65
Comparison of Shareholder Rights.................................. 65
Takeover Statutes................................................. 67
Directors......................................................... 68
Action Without A Meeting.......................................... 69
Amendment of Corporate Charter.................................... 69
Stockholder Derivative Proceedings................................ 69
LEGAL OPINION......................................................... 70
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS.......................... 70
EXPERTS............................................................... 70
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS -- AMERICAN MEDICAL
SECURITY GROUP, INC.................................................. F-1
</TABLE>
ii
<PAGE>
SUMMARY
CERTAIN SIGNIFICANT MATTERS DISCUSSED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS ARE SUMMARIZED BELOW. THIS SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE MORE DETAILED
INFORMATION APPEARING OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/ PROSPECTUS (INCLUDING THE APPENDICES HERETO).
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of American Medical Security Group, Inc., a Delaware corporation
("AMSG"), with and into United Wisconsin Services, Inc., a Wisconsin corporation
("UWS"). Subject to the approval of the Merger by the stockholders of AMSG at
the Special Meeting of AMSG stockholders scheduled to be held on ,
1996 (the "AMSG Special Meeting"), and by the shareholders of UWS at the Special
Meeting of UWS shareholders scheduled to be held on , 1996 (the "UWS
Special Meeting") and subject to the satisfaction or waiver of certain other
conditions, the Merger will be effected pursuant to the terms of an Agreement
and Plan of Merger dated as of July 31, 1996 (the "Merger Agreement") between
AMSG, Blue Cross & Blue Shield United of Wisconsin ("BCBSUW"), UWS, Wallace J.
Hilliard and Ronald A. Weyers, a copy of which is attached hereto as Appendix A
and is incorporated herein by reference.
THE COMPANIES
UNITED WISCONSIN SERVICES, INC. UWS is a leading managed care company with
(i) the largest health maintenance organization ("HMO") membership in Wisconsin,
(ii) significant small group preferred provider ("PPO") products, and (iii)
substantial operations in specialty managed care and other products, including a
large dental HMO division of UWS ("Dentacare"), as well as life and disability
insurance, workers' compensation insurance, mental health and other businesses.
UWS has been successful in consistently growing its revenue within its existing
businesses, as well as by acquisition and other strategic arrangements. UWS was
formed to operate the for-profit managed care operations of Blue Cross & Blue
Shield United of Wisconsin ("BCBSUW"), which will own approximately 37% of UWS's
outstanding Common Stock upon completion of the Merger and after giving effect
to UWS's issuance of shares therein. UWS was incorporated in Wisconsin in 1983.
The mailing address of UWS's principal executive offices is 401 West Michigan
Street, Milwaukee, Wisconsin 53203-2896, and its telephone number is (414)
226-6900.
AMERICAN MEDICAL SECURITY GROUP, INC. AMSG, through American Medical
Security, Inc. ("AMS"), a wholly owned subsidiary, develops, markets and
administers managed care insurance products, specialty group insurance products
and administrative services for small groups pursuant to its joint venture with
UWS. American Medical Security Insurance Company, Inc. ("AMSIC"), also a wholly
owned subsidiary of AMSG, assumes via reinsurance 50% of the health and life
insurance products administered by AMS and underwritten by United Wisconsin Life
Insurance Company ("UWLIC") and United Wisconsin Insurance Company ("UWIC"),
both of which are subsidiaries of UWS. Finally, through various HMOs with which
AMSG has entered into joint ventures, AMS has gained access to certain markets
that otherwise would not be available. For example, AMS has used such HMOs as a
tool to access large employer groups and, in certain locations, the Medicaid
population. The mailing address of AMSG's principal executive offices is 3100
AMS Boulevard, Green Bay, Wisconsin 54313, and its telephone number is (414)
661-1111.
MEETINGS OF SHAREHOLDERS
UWS SPECIAL MEETING. The UWS Special Meeting is scheduled to be held on
, 1996 at 11:00 a.m., local time, at
, , Wisconsin. At the UWS Special
Meeting, shareholders of UWS will consider and vote upon (i) a proposal to
approve and adopt the Merger Agreement and the Merger, (ii) a proposal to amend
the United Wisconsin Services, Inc. Equity Incentive Plan (the "UWS Equity
Incentive Plan") to increase the number of shares available for grants, limit
the number of shares which may be granted to individual participants, change the
1
<PAGE>
requirements for membership on the committee which administers the plan, and
permit the gifting of nonqualified options; and (iii) such other business as may
be properly brought before the UWS Special Meeting.
Only holders of record of UWS Common Stock at the close of business on
, 1996 are entitled to notice of and to vote at the UWS Special
Meeting. On that date, shares of UWS Common Stock were outstanding and
entitled to vote. The affirmative vote of a majority of the outstanding UWS
Common Stock is required for approval and adoption of the Merger Agreement and
the Merger. The affirmative vote of a majority of the shares of UWS Common Stock
represented at the UWS Special Meeting is required to amend the UWS Equity
Incentive Plan. See "SPECIAL MEETING OF UWS SHAREHOLDERS."
AMSG SPECIAL MEETING. The AMSG Special Meeting is scheduled to be held on
, 1996 at 11:00 a.m., local time, at
, , Wisconsin. At the AMSG Special
Meeting, stockholders of AMSG will consider and vote upon a proposal to approve
and adopt the Merger Agreement and the Merger.
Only holders of record of AMSG common stock, par value $1.00 per share
("AMSG Common Stock"), at the close of business on , 1996, are
entitled to notice of and to vote at the AMSG Special Meeting (the "AMSG Record
Date"). On that date, 174,733.67 shares of AMSG Common Stock were outstanding
and entitled to vote. The affirmative vote of holders of shares representing a
majority of the number of shares of AMSG Common Stock outstanding is necessary
to approve and adopt the Merger Agreement and the Merger. See "SPECIAL MEETING
OF AMSG STOCKHOLDERS."
THE MERGER
GENERAL. Upon consummation of the Merger, AMSG will merge with and into
UWS, and the shares of AMSG Common Stock then outstanding (other than shares as
to which dissenters' rights have been properly exercised and shares held by
UWS), and the options to purchase shares of AMSG Common Stock which are then
outstanding under AMSG's 1993 Nonstatutory Stock Option Plan (the "AMSG
Options"), will be converted as described below.
EFFECTIVE TIME OF THE MERGER. Following receipt of all required approvals
and satisfaction or waiver of the other conditions to the Merger, the Merger
will be consummated and become effective at the time (the "Effective Time") at
which the Articles of Merger to be filed pursuant to the Wisconsin Business
Corporation Law (the "WBCL") are received by and accepted for filing by the
Department of Financial Institutions of the State of Wisconsin and the
Certificate of Merger to be filed pursuant to the Delaware General Corporatation
Law ("DGCL") is received and approved for filing by the Secretary of State of
Delaware or such later date and time as may be specified in such Articles of
Merger and Certificate of Merger. See "THE MERGER -- Effective Time of the
Merger" and "-- Conditions; Waivers."
CONVERSION OF AMSG COMMON STOCK IN THE MERGER. Upon consummation of the
Merger, all shares of AMSG Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares as to which dissenters' rights of
appraisal have been properly exercised and shares held by UWS) and all shares of
AMSG Common Stock issuable upon exercise of AMSG Options will, collectively, be
exchanged for an aggregate of $67,010,000 in cash (less applicable expenses) and
4,000,000 shares of or options to purchase shares of UWS Common Stock (the
"Aggregate Merger Consideration"). The shares of capital stock of AMSG held by
UWS will be canceled concurrently with the Merger.
ALLOCATION OF MERGER CONSIDERATION. At the Effective Time, each share of
AMSG Common Stock (other than shares as to which dissenters' rights have been
properly exercised and shares held by UWS) will be converted into the right to
receive, after expenses, approximately $382 in cash and approximately 24 shares
of UWS Common Stock. In addition, approximately $52 per share of AMSG
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Common Stock (other than shares as to which dissenters' rights have been
properly exercised and shares held by UWS) will be placed into an escrow account
to be held and paid as described more fully in "THE MERGER -- Escrow Agreement."
The closing price of UWS Common Stock was $ on , 1996.
CONVERSION OF AMSG OPTIONS IN THE MERGER. Upon consummation of the Merger,
each AMSG Option that is outstanding immediately prior to the Effective Time
will be converted into an option to purchase approximately 42.4 shares of UWS
Common Stock for each share of AMSG Common Stock subject to such option (each a
"UWS Option"). The per share exercise price for a UWS Option will be
approximately $4.67. At or after the Effective Time, option agreements for UWS
Options will be issued pursuant to the UWS Equity Incentive Plan to holders of
AMSG Options. Subject to the foregoing, such UWS Options will have terms which
are substantially identical to the terms of the AMSG Options they replace
(including, without limitation, expiration date and exercise provisions), except
that the UWS Options will be fully vested.
FRACTIONAL SHARES. No fractional shares of UWS Common Stock will be issued
in the Merger. Any fractional amount resulting from the Merger will be converted
into the right to receive cash, without interest, in an amount equal to the
product of (a) such fraction of a share of UWS Common Stock and (b) the closing
price of UWS Common Stock on the NYSE for the business day immediately preceding
the Effective Time.
RECOMMENDATION OF UWS BOARD OF DIRECTORS. The UWS Board of Directors (the
"UWS Board") has determined the Merger to be fair to and in the best interests
of UWS and its shareholders and has approved the Merger Agreement. The UWS Board
unanimously recommends that UWS shareholders vote FOR the Merger and the
amendment of the UWS Equity Incentive Plan. The UWS Board's recommendations are
based upon a number of factors discussed in this Joint Proxy Statement/
Prospectus. See "BACKGROUND OF AND REASONS FOR THE MERGER," and "APPROVAL OF
AMENDMENTS TO UWS EQUITY INCENTIVE PLAN".
OPINION OF UWS FINANCIAL ADVISOR. Merrill Lynch & Co., Inc. ("Merrill
Lynch") has been retained by UWS to act as its financial advisor in connection
with the Merger. Merrill Lynch delivered its oral opinion to the UWS Board of
Directors on July 31, 1996, which was subsequently confirmed in writing (the
"Merrill Lynch Opinion"), to the effect that, as of such date and based on the
procedures followed, factors considered and assumptions made by Merrill Lynch as
set forth therein, the consideration to be paid to holders of capital stock of
AMSG pursuant to the Merger Agreement is fair from a financial point of view to
the shareholders of UWS. The full text of the Merrill Lynch Opinion, which sets
forth assumptions made, matters considered and limitations on the review
undertaken, is attached hereto as Appendix B. UWS shareholders are urged to read
the opinion carefully and in its entirety. The Merrill Lynch Opinion is directed
only to the fairness to the shareholders of UWS of the consideration to be paid
to the AMSG shareholders pursuant to the Merger Agreement from a financial point
of view and should not be deemed to constitute a recommendation by Merrill Lynch
to UWS shareholders to vote in favor of any matter presented in this Joint Proxy
Statement/Prospectus. The summary of the Merrill Lynch Opinion set forth herein
is qualified in its entirety by reference to the full text of such opinion. See
"BACKGROUND OF AND REASONS FOR THE MERGER -- Opinion of UWS Financial Advisor."
RECOMMENDATION OF AMSG BOARD OF DIRECTORS. The AMSG Board of Directors (the
"AMSG Board") has determined the Merger to be fair to and in the best interests
of AMSG and its stockholders and has approved the Merger Agreement and the
Merger. The AMSG Board recommends that AMSG stockholders approve the Merger
Agreement and the Merger. The AMSG Board's recommendations are based upon a
number of factors discussed in this Joint Proxy Statement/Prospectus. See
"BACKGROUND OF AND REASONS FOR THE MERGER" and "CONFLICTS OF INTEREST." Mr.
Thomas Hefty, a member of the AMSG Board and Chairman, President and Chief
Executive Officer of UWS, did not participate in the deliberations of the AMSG
Board concerning whether to approve the Merger Agreement.
3
<PAGE>
VOTING AGREEMENTS. Messrs. Hilliard and Weyers, the President and Executive
Vice President of AMSG, respectively, have agreed with UWS to vote 74,961.67
shares of AMSG Common Stock which they, collectively, have the power to vote and
which represents approximately 43% of the issued and outstanding shares of AMSG
Common Stock, for approval of the Merger and the Merger Agreement. UWS has
agreed to vote its capital stock (representing 12% of the aggregate voting power
with respect to AMSG Common Stock) in favor of the Merger. Approval of the
Merger by the shareholders of AMSG is thus assured. In addition, BCBSUW, which
owns an aggregate of 6,207,675 shares of UWS Common Stock representing 49% of
all outstanding UWS Common Stock before giving effect to the Merger, has agreed
with AMSG to vote all of its shares of UWS Common Stock for approval of the
Merger and the Merger Agreement. See "THE MERGER -- Voting Agreements."
EXCHANGE OF AMSG COMMON STOCK IN THE MERGER. As soon as practicable after
the Effective Time, Firstar Trust Company, the Exchange Agent for the Merger
(the "Exchange Agent"), will deliver to each holder of certificates representing
shares of AMSG Common Stock (other than dissenting shares), a form of letter of
transmittal and instructions for use in effecting the surrender of such
certificates for conversion into shares of UWS Common Stock and cash. Upon
surrender of such certificates to the Exchange Agent, together with the letter
of transmittal and other required documents, each such holder will receive for
each share of AMSG Common Stock represented by such certificate the number of
shares of UWS Common Stock and/or the cash into which such shares of AMSG Common
Stock were converted in the Merger. See "THE MERGER -- Terms of the Merger" and
"-- Exchange of AMSG Stock."
LISTING OF UWS COMMON STOCK ON THE NEW YORK STOCK EXCHANGE. UWS has agreed
to use all reasonable efforts to cause the UWS Common Stock to be issued
pursuant to the Merger Agreement and upon exercise of AMSG Options to be
admitted to trading on the New York Stock Exchange ("NYSE"). See "THE MERGER --
Listing of UWS Common Stock on the New York Stock Exchange."
BUSINESS OF AMSG PENDING THE MERGER. AMSG has agreed that, prior to the
Effective Time or earlier termination of the Merger Agreement, except as
contemplated by the Merger Agreement, it will conduct its operations according
to its ordinary course of business consistent with past practice. In addition,
unless UWS agrees in writing or except as otherwise permitted pursuant to the
Merger Agreement, prior to the Effective Time, AMSG will not engage in any of a
number of actions specified in the Merger Agreement. See "THE MERGER -- Business
of AMSG Pending the Merger."
MANAGEMENT AND OPERATIONS OF AMSG AFTER THE MERGER. After the Merger, AMSG
will operate as one of UWS's business units, and UWS currently intends to
maintain AMSG's corporate headquarters in Howard, Wisconsin. Following the
Merger, AMSG will have access to resources generally available to UWS's other
business units and will participate in appropriate activities with other UWS
business units. Samuel V. Miller, currently the Executive Vice President of UWS,
will become the President and Chief Executive Officer of AMS Holdings, Inc., a
Nevada corporation and wholly owned subsidiary of UWS which has been formed by
UWS to conduct the operations heretofore carried on by AMSG ("Holdings"). In
addition, Messrs. Hilliard and Weyers, the President and Executive Vice
President of AMSG, respectively, will serve as the Chairman and Vice Chairman of
Holdings, respectively. See "THE MERGER -- Management and Operations of AMSG
After the Merger", "RISK FACTORS -- Interests of Certain Persons in the Merger;
Conflicts of Interest," and "INTEREST OF CERTAIN PERSONS IN THE MERGER AND
RELATED MATTERS."
CONDITIONS OF THE MERGER; TERMINATION. The consummation of the Merger is
conditioned upon the fulfillment or waiver of certain conditions set forth in
the Merger Agreement. See "THE MERGER -- Conditions; Waivers." The Merger
Agreement may be terminated (i) by mutual consent of UWS and AMSG, (ii) by any
of UWS, AMSG or Messrs. Hilliard or Weyers if the Merger has not been
consummated by June 30, 1997, and (iii) under certain other circumstances. See
"THE MERGER -- Termination; Amendment."
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. It is expected that the Merger
will constitute a reorganization for federal income tax purposes and,
accordingly, that no gain or loss will be recognized by holders of AMSG Common
Stock upon and to the extent of the conversion of AMSG Common Stock into UWS
Common Stock in the Merger. AMSG stockholders will recognize gain upon the
receipt of cash in an amount equal to the lesser of (i) the amount of cash
received or (ii) the excess of the fair market value of the UWS Common Stock
received in the Merger plus the cash received over the basis of the AMSG Common
Stock surrendered in the exchange therefor. It is further expected that no gain
or loss will be recognized by AMSG or UWS as a result of the Merger. See "THE
MERGER -- Certain Federal Income Tax Considerations." Holders of AMSG Common
Stock and AMSG Options are urged to consult their own tax advisors as to the
specific tax consequences to them of the Merger.
INDEMNITY AND ESCROW ARRANGEMENTS. Of the aggregate $67,010,000 in cash
consideration payable to stockholders of AMSG in the Merger, a total of
$8,000,000 will be held in escrow to secure certain indemnity agreements made in
the Merger Agreement in favor of UWS. See "THE MERGER -- Indemnification
Agreements" and "-- Escrow Agreement."
ANTITRUST MATTERS. Transactions such as the Merger are reviewed by the
Department of Justice and the Federal Trade Commission (the "FTC") to determine
whether they comply with applicable antitrust laws. Under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the Merger
may not be consummated until such time as the specific waiting period
requirements of the HSR Act have been satisfied. UWS, AMSG, and possibly other
individual shareholders of AMSG will file notification reports, together with
requests for early termination of the waiting period, with the Department of
Justice and the FTC under the HSR Act.
At any time prior to consummation of the Merger, the Department of Justice,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger. There can be no assurances that a challenge
to the Merger will not be made or that, if such a challenge is made, UWS or AMSG
will prevail.
INSURANCE REGULATORY MATTERS. Because the Merger involves a change in
control with respect to insurance companies and HMOs which are AMSG
subsidiaries, the Merger may not be consummated until UWS has obtained written
approvals from the Department of Insurance ("Department") or the analagous state
regulatory agency in Arizona, Colorado, Florida, Georgia, Illinois, Ohio, North
Carolina, and Tennessee, unless an exemption or waiver to such requirement is
granted. UWS is in the process of obtaining exemptions where available and
filing requisite Form A Statements Regarding the Acquisition of Control or other
pertinent filings with any relevant Department to obtain such approvals.
Additional department approvals will be required in connection with
corporate actions scheduled to be effected by certain AMSG and UWS affiliates
prior to the Merger. AMSIC intends to pay a dividend of $10,000,000 in cash plus
the stock of three subsidiaries to AMSG. This dividend may not be effected until
AMSIC receives the approval of the Arizona Department of Insurance.
Additionally, BCBSUW may provide UWS with debt financing or financial guarantees
to enable UWS to make all or a portion of the cash payments to be made in
connection with the Merger. Any loan may not be effected unless approved by the
Wisconsin Office of the Commissioner of Insurance ("OCI"). Accordingly, such
companies are filing the necessary notices to obtain any required approvals.
ACCOUNTING TREATMENT. It is expected that the Merger will be accounted for
as a purchase. See "THE MERGER -- Accounting Treatment."
CONFLICTS OF INTEREST. As of the AMSG Record Date, members of the AMSG
Board owned directly an aggregate of 74,961.67 shares of AMSG Common Stock,
representing approximately 43% of the outstanding AMSG Common Stock. As of such
date, UWS held an aggregate of 20,967 shares of AMSG Common Stock, representing
approximately 12% of the aggregate voting power with respect to the AMSG Common
Stock; and an executive officer of UWS held options to acquire 7,113 shares of
AMSG Common Stock owned by UWS. In addition, following the Merger, the principal
stockholders and
5
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executive officers of AMSG and an executive officer of UWS will have long-term
employment arrangements and be granted new stock options by UWS. See "RISK
FACTORS -- Interests of Certain Persons in the Merger; Conflicts of Interest."
DISSENTERS' RIGHTS. Holders of AMSG Common Stock have the right to dissent
from the proposed Merger and, subject to certain conditions, to receive payment
of the "fair value" of their shares of AMSG Common Stock, as provided in Section
262 of the DGCL. A stockholder who elects to exercise his or her dissenters'
rights must perfect such rights by delivering to AMSG prior to the vote at the
AMSG Special Meeting written notice of his or her intent to demand payment, and
not vote his or her shares in favor of the Merger Agreement, by either voting
against adoption of the Merger Agreement or abstaining from voting. See "RIGHTS
OF DISSENTING SHAREHOLDERS -- AMSG Stockholders."
RISK FACTORS
The shareholders of UWS and AMSG should consider carefully the information
set forth herein under the heading "Risk Factors" which discusses, among other
things, the risks associated with: the effect of future sales of the shares
issued in the Merger on the market for UWS Common Stock; the interests of
certain persons in the Merger and conflicts of interest; fluctuations in
operating results of UWS; government regulation; and dependence on key
personnel.
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SELECTED CONSOLIDATED FINANCIAL DATA OF UWS
The following selected consolidated financial data as of and for each of the
five years in the period ended December 31, 1995 have been derived from UWS's
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors. The selected financial data presented as of and for the
six months ended June 30, 1995 and 1996 have been derived from UWS's unaudited
consolidated financial statements. In the opinion of management, the unaudited
consolidated financial statements for such periods include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the consolidated financial position and results of operations for these periods.
The following data should be read in conjunction with the UWS consolidated
financial statements, the related notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" incorporated by
reference herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ --------------------
1995 1994 1993 1992 1991 1996 1995
---------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING STATISTICS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
REVENUES:
Premium revenue................................ $ 973,279 $ 730,980 $ 554,135 $ 395,672 $ 306,851 $ 525,769 $ 467,912
Other revenue.................................. 24,191 15,997 7,955 6,526 3,852 14,108 12,730
Investment income.............................. 27,932 22,112 16,634 13,430 10,584 14,755 12,678
Realized investment gains...................... 12,915 1,649 3,992 3,135 2,238 7,484 2,969
---------- --------- --------- --------- --------- --------- ---------
Total revenues............................... 1,038,317 770,738 582,716 418,763 323,525 562,116 496,289
EXPENSES:
Medical and other benefits..................... 815,616 556,090 428,316 311,906 249,548 437,706 396,239
Commission expenses............................ 64,451 52,850 33,917 17,559 11,910 34,931 30,890
Administrative expenses........................ 117,148 89,832 63,452 45,275 34,479 66,406 58,012
Premium taxes and other assessments............ 12,891 9,066 5,916 3,203 3,016 7,041 5,846
Interest and profit sharing on joint
ventures...................................... 15,170 7,638 5,727 3,941 1,490 8,393 5,444
Interest expense on subordinated notes......... 3,483 3,487 1,560 -- -- 1,739 1,742
Dividends on preferred stock of subsidiary..... 204 2,449 2,449 2,449 2,449 -- 204
---------- --------- --------- --------- --------- --------- ---------
Total expenses............................... 1,028,963 721,412 541,337 384,333 302,892 556,216 498,377
---------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense (benefit)
and cumulative effect of accounting change...... 9,354 49,326 41,379 34,430 20,633 5,900 (2,088)
Income tax expense (benefit)..................... 2,981 16,563 14,536 8,566 7,414 2,413 (575)
---------- --------- --------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
accounting change............................... 6,373 32,763 26,843 25,864 13,219 3,487 (1,513)
Cumulative effect of accounting change........... -- -- 98 -- -- -- --
---------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................ $ 6,373 $ 32,763 $ 26,941 $ 25,864 $ 13,219 $ 3,487 $ (1,513)
---------- --------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per common share................. $ 0.50 $ 2.81 $ 2.43 $ 2.34 $ 1.41 $ 0.28 $ (0.13)
Cash dividends per common share(1)............... $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.33 $ 0.24 $ 0.24
OPERATING STATISTICS:
Medical loss ratio(2).......................... 85.4% 77.1% 78.5% 81.0% 83.5% 85.4% 86.2%
Selling, general and administrative expense
ratio(2)...................................... 15.9 16.8 15.1 12.5 12.2 16.1 15.9
BALANCE SHEET DATA:
Cash and investments........................... $ 581,637 $ 455,886 $ 353,983 $ 239,920 $ 176,766 $ 507,004 $ 463,196
Total assets................................... 721,289 556,171 416,203 274,393 199,627 641,574 575,462
Medical and other benefits payable............. 245,118 162,933 114,248 51,119 38,564 236,330 188,048
Subordinated notes............................. 44,898 44,960 45,000 -- -- 44,888 44,950
Preferred stock of subsidiary.................. -- 30,000 30,000 30,000 30,000 -- --
Redeemable preferred stock..................... -- 2,007 1,370 -- -- -- --
Total shareholders' equity..................... 212,411 171,705 125,387 98,108 72,451 205,149 203,888
</TABLE>
- ------------------------
(1) The cash dividends in 1991 were paid to BCBSUW, which was then the
Company's sole shareholder.
(2) Ratios are based on premium revenues and related expenses for HMO products
and small group PPO products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the UWS Annual Report on
Form 10-K for the year ended December 31, 1995, incorporated by reference
herein.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF AMSG
The following selected consolidated financial data as of and for each of the
five years in the period ended December 31, 1995 have been derived from AMSG's
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors. The selected financial data presented as of and for the
six months ended June 30, 1995 and 1996 have been derived from AMSG's unaudited
consolidated financial statements. In the opinion of management, the unaudited
consolidated financial statements for such periods include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the consolidated financial position and results of operations for these periods.
The following data should be read in conjunction with the AMSG consolidated
financial statements, the related notes thereto, and "AMSG Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1995 1994 1993 1992 1991 1996 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT OPERATING STATISTICS)
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue:
Reinsurance assumed and premium..... $ 496,989 $ 374,875 $ 242,896 $ 82,117 $ 15,621 $ 281,513 $ 232,486
Administrative fees and
commissions........................ 246,458 192,109 124,148 70,916 47,193 134,385 116,310
Other revenue....................... 7,958 4,663 4,381 10,266 7,147 6,848 4,613
Loss from unconsolidated
subsidiaries....................... (2,170) (472) (300) -- -- (1,903) (655)
Investment income................... 14,102 7,020 5,288 3,681 1,312 7,735 5,135
--------- --------- --------- --------- --------- --------- ---------
Total revenue................... 763,337 578,195 376,413 166,980 71,273 428,578 357,889
Expenses:
Medical and other benefits.......... 389,498 249,992 163,642 51,984 9,487 224,899 186,457
Expense allowance on reinsurance
assumed............................ 118,996 92,405 59,821 22,077 4,392 66,261 55,898
Commission expenses................. 119,137 95,299 57,545 32,402 20,521 63,490 56,472
Administrative expenses............. 145,748 102,452 68,329 39,717 25,806 84,071 69,022
--------- --------- --------- --------- --------- --------- ---------
Total expenses.................. 773,379 540,148 349,337 146,180 60,206 438,721 367,849
Income (loss) before minority
interest, income taxes, and
cumulative effect of accounting
change............................... (10,042) 38,047 27,076 20,800 11,067 (10,143) (9,960)
Minority interest in loss of
subsidiary........................... 244 42 -- -- -- 88 119
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of accounting
change............................... (9,798) 38,089 27,076 20,800 11,067 (10,055) (9,841)
Income tax expense (benefit).......... (1,947) 14,250 9,991 7,218 4,009 (2,628) (2,482)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change................. (7,851) 23,839 17,085 13,582 7,058 (7,427) (7,359)
Cumulative effect of accounting
change............................... 1,236 -- -- -- -- -- 1,236
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................... $ (6,615) $ 23,839 $ 17,085 $ 13,582 $ 7,058 $ (7,427) $ (6,123)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Operating Statistics:
Medical loss ratio on reinsurance
assumed (1)........................ 78.4% 66.7% 67.4% 63.3% 60.7% 79.9% 80.2%
Expense allowance ratio (2)......... 23.9% 24.7% 24.6% 26.9% 28.1% 23.5% 24.0%
Administrative expense ratio (3).... 29.3% 27.3% 28.1% 48.4% 165.2% 29.9% 29.7%
Consolidated Balance Sheet Data:
Cash and investments................ $ 38,412 $ 39,960 $ 17,267 $ 20,752 $ 13,927 $ 36,071 $ 23,179
Total assets........................ 242,978 195,791 135,466 72,855 46,948 220,485 195,925
Medical and other benefits
payable............................ 84,838 54,759 38,752 15,823 2,324 78,818 62,777
Long-term debt, excluding current
maturities......................... 2,229 2,299 3,368 1,142 1,688 10,253 11,038
Redeemable preferred stock.......... 15,000 -- -- -- -- 15,000 --
Total shareholders' equity.......... 80,495 65,132 44,869 26,794 13,212 68,630 64,634
</TABLE>
- ------------------------------
(1) Computed as Medical and other benefits to Reinsurance assumed and premium
revenue.
(2) Computed as Expense allowance on reinsurance assumed to Reinsurance assumed
and premium revenue.
(3) Computed as Administrative expenses to Reinsurance assumed and premium
revenue.
8
<PAGE>
RISK FACTORS
The following factors should be considered carefully by the shareholders of
UWS and AMSG in connection with voting on the Merger and the purchase of UWS
Common Stock by AMSG stockholders as a result thereof. These factors should be
considered in conjunction with the other information included or incorporated by
reference in this Joint Proxy Statement/Prospectus.
SHARES ELIGIBLE FOR FUTURE SALE. If the Merger is approved by the
shareholders of UWS and AMSG, UWS will issue up to 4,000,000 shares of UWS
Common Stock or options to acquire UWS Common Stock, in addition to UWS's
payment of $67,010,000 in cash. Shares of UWS Common Stock issued to persons who
are deemed to be "affiliates" for purposes of Rule 145 under the Securities Act
will be subject to restrictions on transfer which will require affiliates who
wish to transfer shares to either (i) comply with Rule 145(d) under the
Securities Act, or (ii) register such shares pursuant to an effective
registration statement under the Securities Act. Subject to the foregoing, these
shares will be freely transferable following the Merger. See "THE MERGER --
Resale of UWS Common Stock Issued in the Merger; Affiliates." Future sales of a
substantial number of such shares could adversely affect or cause substantial
fluctuations in the market price of UWS Common Stock.
ANTITRUST MATTERS. Transactions such as the Merger are reviewed by the
Department of Justice and the FTC to determine whether they comply with
applicable antitrust laws. Under the provisions of the HSR Act, the Merger may
not be consummated until such time as the specific waiting period requirements
of the HSR Act have been satisfied. UWS, AMSG, and possibly other individual
stockholders of AMSG will simultaneously file notification reports, together
with requests for early termination of the waiting period, with the Department
of Justice and the FTC under the HSR Act.
At any time prior to consummation of the Merger, the Department of Justice,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger. There can be no assurances that a challenge
to the Merger will not be made or that, if such a challenge is made, that UWS or
AMSG will prevail.
INSURANCE REGULATORY MATTERS. Because the Merger involves a change in
control with respect to insurance companies and HMOs which are AMSG
subsidiaries, the Merger may not be consummated until UWS has obtained written
approvals from the Department of Insurance ("Department") or the analagous state
regulatory agency in Arizona, Colorado, Florida, Georgia, Illinois, Ohio, North
Carolina, and Tennessee, unless an exemption or waiver to such requirement is
granted. UWS is in the process of obtaining exemptions where available and
filing requisite Form A Statements Regarding the Acquisition of Control or other
pertinent filings with any relevant Department to obtain such approvals.
Additional Department approvals will be required in connection with
corporate actions scheduled to be effected by certain AMSG and UWS affiliates
prior to the Merger. AMSIC intends to pay a dividend of $10,000,000 in cash plus
the stock of three subsidiaries to AMSG. This dividend may not be effected until
AMSIC receives the approval of the Arizona Department of Insurance.
Additionally, BCBSUW may provide UWS funding for some or all of the cash
consideration to be paid in the Merger in the form of a loan or financial
guarantees. Any loan may not be effected unless approved by the OCI.
Accordingly, such companies are filing the necessary notices to obtain any
required approvals.
BCBSUW OWNERSHIP AND FINANCING; POTENTIAL CONFLICTS OF INTEREST. Upon
completion of the Merger, BCBSUW will own approximately 37% of the total
outstanding UWS Common Stock. Such ownership limits the ability of a third party
to acquire control of UWS and, therefore, could adversely affect the market
price of the UWS Common Stock in certain circumstances. UWS and BCBSUW have
entered into a service agreement (the "Service Agreement") 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 Agreement, the company receiving a service pays the company
providing the service an amount which UWS and BCBSUW believe approximates cost.
UWS has entered into reinsurance agreements with BCBSUW in the past, and may do
so in the future,
9
<PAGE>
on terms that are believed to be reasonable at the time but that may not in
retrospect be beneficial to UWS. Pursuant to Wisconsin statutory and regulatory
requirements, such reinsurance agreements and the Service Agreement 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 interests of the
insurer," as required by Wisconsin statutes. In addition, BCBSUW's sales force
markets and sells some of UWS's products. Also, certain of UWS'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 Agreement or stop marketing and selling certain
of UWS's products, UWS's business and operations could be adversely affected.
Several of UWS's executive officers devote portions of their time to the
operations of BCBSUW. Furthermore, eight of the ten directors of UWS also are
directors of BCBSUW.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST. In
considering the respective recommendations of the UWS Board and the AMSG Board
with respect to the Merger and the recommendation of the UWS Board with respect
to approval of the amendments to the UWS Equity Incentive Plan, the respective
shareholders of UWS and AMSG should be aware that certain members of the AMSG
Board and AMSG management and certain members of the management of UWS have
certain interests respecting the Merger separate from their interests as holders
of AMSG Common Stock and AMSG Options and as holders of UWS Common Stock and UWS
Options, respectively. See "CONFLICTS OF INTEREST."
FLUCTUATION OF OPERATING RESULTS. A variety of factors may cause
period-to-period fluctuations in the operating results of UWS following the
Merger. Such factors include, but are not limited to, competitive pricing
pressures, revenue and expenses related to new products or revisions to existing
products, delays in regulatory approvals and changes in distribution channels or
product mix, changes in legislation or industry cost reform, increased fees
charged by health care providers or increased utilization of medical services by
UWS. Singularly or in combination, these factors can adversely affect UWS's
operating results and financial condition.
MERGER-RELATED COMPENSATION EXPENSE. Mr. Samuel V. Miller, an executive
officer of UWS, has options to purchase from UWS 7,113 shares of AMSG Common
Stock at an exercise price of $703 per share. At the Effective Time of the
Merger, UWS will convert Mr. Miller's options into options to purchase 301,567
shares of UWS Common Stock at an exercise price of $16.54 per share. As a result
of this conversion, UWS will record a compensation expense, before taxes, of
$2,137,000 or $0.13 per share of UWS Common Stock outstanding after the Merger.
INCREASING HEALTH CARE COSTS AND THE HEALTH CARE INDUSTRY. UWS's
profitability depends in large part on its ability to predict and manage
effectively health care costs. According to a compilation of industry and U.S.
Government agency statistics, from 1986 through 1993, national health care costs
increased at an average annual rate of 9.6%, while the average annual rate of
increase in the consumer price index during this period was 3.2%. The aging of
the population and other demographic characteristics and advances in medical
technology continue to contribute to rising health care costs.
Government-imposed limitations on Medicare and Medicaid reimbursements also have
caused the private sector to bear a greater share of increasing health care
costs. Changes in health care practices, inflation, new technologies, major
epidemics, natural disasters and numerous other factors affecting the delivery
and cost of health care are beyond any company's control and may limit UWS's
ability to predict and control health care costs and claims.
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 UWS in the near
future.
HEALTH CARE REFORM LAWS. In recent years, many states, including certain of
the principal states in which UWS and AMS conduct business, have enacted or are
considering various health care reform
10
<PAGE>
statutes. These include small group reform statutes that limit the ability of
insurers to underwrite and rate, and statutes that provide for the creation of
regional purchasing pools. Implementation of such reform measures by a
substantial number of states, particularly measures mandating purchasing pools,
could significantly increase competition in the health care industry. In 1996,
Congress enacted H.R. 3103, the Kennedy-Kassenbaum 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.
ONGOING GOVERNMENT REGULATION. UWS is subject to extensive regulation in
Wisconsin and the other states in which it does business. Such regulation
governs, among other things, the amount of dividends and other distributions
that can be paid by certain of UWS'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 UWLIC 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
primarily intended to protect policyholders rather than investors.
Statutory capital and surplus requirements vary based upon the types of
risks underwritten and the nature of the provider contracts. The premiums
written by certain 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 UWS's other
businesses. In addition, risk-based capital formulas, which are currently in
effect or may be adopted, affect statutory capital and surplus requirements. In
order to maintain its recent rate of growth in premium revenue, to underwrite
workers' compensation coverage and to continue to meet risk-based capital
requirements, UWIC and/or UWLIC may have to obtain additional statutory capital
or utilize reinsurance agreements to cede a greater percentage of premium
revenue. Should additional resources be necessary, UWS may be required to obtain
additional financing. There can be no assurance such financing could be obtained
upon terms acceptable to UWS.
DEPENDENCE ON KEY PERSONNEL. The future success of both UWS and AMSG is
dependent on a number of key management and technical employees. Competition for
highly skilled people with extensive experience in the health care industry is
intense. Both companies will be dependent on the continued services and
management experience of their executive officers. If such executive officers
were to leave, the operating results of the combined companies could be
adversely affected. The future success of both companies will also be dependent
on their ability to continue to attract key managerial and technical personnel.
SELECTED HISTORICAL AND PRO FORMA UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial information of UWS
and AMSG has been derived from their respective historical consolidated
financial statements, and should be read in conjunction with such financial
statements and the notes thereto. UWS's consolidated financial statements are
incorporated by reference in this Joint Proxy Statement/Prospectus. AMSG's
consolidated financial statements are included elsewhere in this Joint Proxy
Statement/Prospectus. The selected historical and pro forma unaudited condensed
consolidated financial information, which gives effect to the Merger as if it
had been consummated on January 1, 1995 for income statement data, and on June
30, 1996 for balance sheet data is derived from the pro forma unaudited
condensed consolidated financial statements included elsewhere in this Joint
Proxy Statement/Prospectus and should be read in conjunction with such
statements and the notes thereto. Adjustments to arrive at the pro forma
consolidated amounts are based on the purchase method of accounting, including
estimates of the approximate fair values of the assets and liabilities of AMSG.
11
<PAGE>
The pro forma unaudited condensed consolidated financial statements are not
necessarily indicative of the consolidated results of operations or the
financial position that would have been reported had the Merger occurred on the
dates indicated, and should not be construed as representative of future
operations. Furthermore, no effect has been given in the selected historical and
pro forma consolidated income statement data for operating and synergistic
benefits that may be realized through the combination of the entities. See
"HISTORICAL AND PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS."
UWS AND AMSG PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AS OF AND FOR THE SIX
DECEMBER 31, 1995 MONTHS ENDED JUNE 30, 1996
----------------------------------- -----------------------------------
HISTORICAL PRO HISTORICAL PRO
---------------------- FORMA(2) ---------------------- FORMA(2)
UWS AMSG(1) CONSOLIDATED UWS AMSG(1) CONSOLIDATED
--------- ----------- ----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Premium revenue................ $ 973,279 $ 496,989 $1,468,264 $ 525,769 $ 281,513 $ 806,258
Other revenue.................. 24,191 252,246 56,115 14,108 139,330 30,878
Investment income.............. 27,932 14,486 29,068 14,755 7,735 13,951
Realized investment gains...... 12,915 -- 12,915 7,484 -- 7,484
--------- ----------- ----------- --------- ----------- -----------
Total revenues............... 1,038,317 763,721 1,566,362 562,116 428,578 858,571
Expenses:
Medical and other benefits..... 815,616 389,498 1,201,385 437,706 224,899 658,337
Commission expenses............ 64,451 61,486 122,103 34,931 33,004 65,416
Administrative expenses........ 116,470 312,923 210,784 66,090 175,005 122,730
Premium taxes and other
assessments................... 12,891 9,537 22,428 7,041 5,725 12,766
Interest and profit sharing on
joint ventures................ 15,170 -- 2,734 8,393 -- 1,578
Interest expense on long term
debt.......................... 3,483 -- 9,562 1,739 -- 4,999
Amortization of goodwill and
other intangibles............. 678 -- 8,648 316 -- 4,301
Dividends on preferred stock of
subsidiary.................... 204 -- 204 -- -- --
--------- ----------- ----------- --------- ----------- -----------
Total expenses............... 1,028,963 773,444 1,577,848 556,216 438,633 870,127
--------- ----------- ----------- --------- ----------- -----------
Income (loss) before income tax
expense (benefit) and cumulative
effect of accounting change..... 9,354 (9,723) (11,486) 5,900 (10,055) (11,556)
Income tax expense (benefit)..... 2,981 (1,872) 8 2,413 (2,628) (1,409)
--------- ----------- ----------- --------- ----------- -----------
Income (loss) before cumulative
effect of accounting change..... 6,373 (7,851) (11,494) 3,487 (7,427) (10,147)
Cumulative effect of accounting
change.......................... -- 1,236 -- -- -- --
--------- ----------- ----------- --------- ----------- -----------
Net income (loss)................ $ 6,373 $ (6,615) $ (11,494) $ 3,487 $ (7,427) $ (10,147)
--------- ----------- ----------- --------- ----------- -----------
--------- ----------- ----------- --------- ----------- -----------
Earnings (loss) per common
share........................... $ 0.50 $ (37.86) $ (0.70) $ 0.28 $ (42.50) $ (0.61)
Weighted average common shares... 12,550,601 174,734 16,550,601 12,599,715 174,734 16,599,715
BALANCE SHEET DATA:
Cash and investments........... $ 507,004 $ 27,169 $ 525,264
Total assets................... 641,574 220,485 838,728
Medical and other benefits
payable....................... 236,330 78,818 233,685
Long term debt................. 44,888 -- 135,971
Redeemable preferred stock..... -- 15,000 --
Total shareholders' equity..... 205,149 68,630 305,294
</TABLE>
- ------------------------------
(1) Certain reclassifications have been made to the AMSG consolidated financial
data to conform to UWS's presentation.
(2) Adjustments necessary to arrive at the pro forma consolidated financial
data are described in the Notes to Historical and Pro Forma Unaudited
Condensed Consolidated Financial Statements.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents comparative per share data for UWS on a
historical basis and consolidated per share data on an unaudited pro forma
basis. The pro forma data gives effect to the Merger on a purchase basis. The
aggregate consideration payable by UWS is based on an assumed UWS Common Stock
price of $23.625, which was the closing price of UWS Common Stock on July 31,
1996. See "THE MERGER -- Terms of the Merger -- Conversion of AMSG Common Stock
in the Merger." This data should be read in conjunction with the selected
historical financial information, the pro forma unaudited condensed consolidated
financial statements and the separate historical financial statements of UWS and
AMSG and the notes thereto incorporated by reference or included elsewhere in
this Joint Proxy Statement/Prospectus. The unaudited pro forma condensed
consolidated financial statements are not necessarily indicative of the actual
consolidated results of operations or the financial position that would have
been reported had the Merger occurred on the date indicated, and should not be
construed as representative of future operations.
<TABLE>
<CAPTION>
AS OF AND
FOR
THE SIX
FOR THE YEAR MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
--------------- -----------
(UNAUDITED)
<S> <C> <C>
Historical -- UWS:
Net income per share......................................... $ 0.50 $ 0.28
Tangible book value per share................................ $ 15.76
Historical -- AMSG
Net income (loss) per share.................................. $ (37.86) $ (42.50)
Tangible book value per share................................ $ 376.88
Pro Forma -- Consolidated:
Net income (loss) per UWS share.............................. $ (0.70) $ (0.61)
Tangible book value per UWS share............................ $ 10.84
</TABLE>
13
<PAGE>
HISTORICAL AND PRO FORMA UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following historical and pro forma unaudited condensed consolidated
financial statements of UWS and its subsidiaries as of June 30, 1996 and for the
year ended December 31, 1995 and the six months ended June 30, 1996 illustrate
the effect of the Merger on such financial statements, as though the Merger had
occurred on June 30, 1996 in the pro forma unaudited condensed consolidated
balance sheet and as of January 1, 1995 in the pro forma unaudited condensed
consolidated statements of income. Adjustments to arrive at the pro forma
consolidated amounts are based on the purchase method of accounting, including
estimates of the approximate fair values of the assets and liabilities of AMSG.
The pro forma adjustments and the assumptions on which they are based are
described in the accompanying Notes to Historical and Pro Forma Unaudited
Condensed Consolidated Financial Statements.
The pro forma unaudited condensed consolidated financial statements are not
necessarily indicative of the consolidated results of operations or the
consolidated financial position which would have been reported had the Merger
occurred on the dates indicated or which may be reported in the future.
Furthermore, no effect has been given in the historical and pro forma unaudited
condensed consolidated statements of income for operating and synergistic
benefits that may be realized through the combination of the entities.
The historical and pro forma unaudited condensed consolidated financial
statements should be read in conjunction with the historical consolidated
financial statements of AMSG included herein and the historical consolidated
financial statements of UWS incorporated herein by reference.
14
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
UWS AMSG PRO FORMA NOTE CONDENSED
HISTORICAL HISTORICAL ADJUSTMENTS REF. CONSOLIDATED
----------- ----------- ------------ ----- ------------
<S> <C> <C> <C> <C> <C>
Investments:
Bonds available for sale, at market............... $ 414,924 $ 8,450 $ -- $ 423,374
Bonds held to maturity, at amortized cost......... 10,635 1,880 -- 12,515
----------- ----------- ------------ ------------
Total bonds..................................... 425,559 10,330 -- 435,889
Stocks, at market................................. 64,787 -- -- 64,787
----------- ----------- ------------ ------------
Total investments............................... 490,346 10,330 -- 500,676
Cash and cash equivalents........................... 16,658 16,839 (8,909) 2 24,588
Receivables:
Due from affiliates............................... 1,169 -- (741) 428
Other receivables................................. 76,591 14,441 (6,308) 84,724
----------- ----------- ------------ ------------
Total receivables............................... 77,760 14,441 (7,049) 85,152
Funds held by affiliated reinsurers................. -- 129,349 (125,686) 3 3,663
Land, building and equipment -- net................. 9,879 24,062 32,180 4 66,121
Goodwill and other intangibles...................... 6,535 2,776 116,120 5 125,431
Other assets........................................ 40,396 22,688 (29,987) 6 33,097
----------- ----------- ------------ ------------
Total assets.................................... $ 641,574 $ 220,485 $ (23,331) $ 838,728
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Medical and other benefits payable................ $ 236,330 $ 78,818 $ (81,463) 3 $ 233,685
Advance premiums.................................. 46,599 12,122 (10,987) 47,734
Due to affiliates................................. 31,734 -- (9,764) 21,970
Funds held on behalf of affiliated reinsurers..... 28,344 -- (28,344) 3 --
Long term debt.................................... 44,888 -- 91,083 7 135,971
Other liabilities................................. 48,530 60,915 (15,371) 8 94,074
----------- ----------- ------------ ------------
Total liabilities............................... 436,425 151,855 (54,846) 533,434
Shareholders' equity:
Common stock...................................... 12,600 175 3,825 16,600
Redeemable preferred stock........................ -- 15,000 (15,000) 9 --
Paid-in capital................................... 86,902 3,816 92,720 183,438
Retained earnings................................. 103,824 50,030 (50,030) 103,824
Unrealized gains (losses) on investments.......... 1,823 (391) -- 1,432
----------- ----------- ------------ ------------
Total shareholders' equity...................... 205,149 68,630 31,515 10 305,294
----------- ----------- ------------ ------------
Total liabilities and shareholders' equity.... $ 641,574 $ 220,485 $ (23,331) $ 838,728
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
See accompanying notes.
15
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
UWS AMSG PRO FORMA NOTE CONDENSED
HISTORICAL HISTORICAL ADJUSTMENTS REF. CONSOLIDATED
------------- ----------- ------------ ----- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premium revenue................................. $ 973,279 $ 496,989 $ (2,004) 11 $ 1,468,264
Other revenue................................... 24,191 252,246 (220,322) 12 56,115
Investment income............................... 27,932 14,486 (13,350) 13 29,068
Realized investment gains....................... 12,915 -- -- 12,915
------------- ----------- ------------ -------------
Total revenues................................ 1,038,317 763,721 (235,676) 1,566,362
Expenses:
Medical and other benefits...................... 815,616 389,498 (3,729) 14 1,201,385
Commission expenses............................. 64,451 61,486 (3,834) 15 122,103
Administrative expenses......................... 116,470 312,923 (218,609) 16 210,784
Premium taxes and other assessments............. 12,891 9,537 -- 22,428
Interest and profit sharing on joint ventures... 15,170 -- (12,436) 13 2,734
Interest expense on long term debt.............. 3,483 -- 6,079 17 9,562
Amortization of goodwill and other
intangibles.................................... 678 -- 7,970 18 8,648
Dividends on preferred stock of subsidiary...... 204 -- -- 204
------------- ----------- ------------ -------------
Total expenses................................ 1,028,963 773,444 (224,559) 1,577,848
------------- ----------- ------------ -------------
Income (loss) before income tax expense and
cumulative effect of accounting change........... 9,354 (9,723) (11,117) (11,486)
Income tax expense (benefit)...................... 2,981 (1,872) (1,101) 19 8
------------- ----------- ------------ -------------
Income (loss) before cumulative effect of
accounting change................................ 6,373 (7,851) (10,016) (11,494)
Cumulative effect of accounting change............ -- 1,236 (1,236) 20 --
------------- ----------- ------------ -------------
Net income (loss)............................... $ 6,373 $ (6,615) $ (11,252) $ 11,494
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Earnings (loss) per common share.................. $ 0.50 21 $ (0.70)
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
16
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
UWS AMSG PRO FORMA NOTE CONDENSED
HISTORICAL HISTORICAL ADJUSTMENTS REF. CONSOLIDATED
----------- ----------- ------------ ----- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premium revenue................................... $ 525,769 $ 281,513 $ (1,024) 11 $ 806,258
Other revenue..................................... 14,108 139,330 (122,560) 12 30,878
Investment income................................. 14,755 7,735 (8,539) 13 13,951
Realized investment gains......................... 7,484 -- -- 7,484
----------- ----------- ------------ ------------
Total revenues.................................. 562,116 428,578 (132,123) 858,571
Expenses:
Medical and other benefits........................ 437,706 224,899 (4,268) 14 658,337
Commission expenses............................... 34,931 33,004 (2,519) 15 65,416
Administrative expenses........................... 66,090 175,005 (118,365) 16 122,730
Premium taxes and other assessments............... 7,041 5,725 -- 12,766
Interest and profit sharing on joint ventures..... 8,393 -- (6,815) 13 1,578
Interest expense on long term debt................ 1,739 -- 3,260 17 4,999
Amortization of goodwill and other intangibles.... 316 -- 3,985 18 4,301
----------- ----------- ------------ ------------
Total expenses.................................. 556,216 438,633 (124,722) 870,127
----------- ----------- ------------ ------------
Income (loss) before income tax expense (benefit)... 5,900 (10,055) (7,401) (11,556)
Income tax expense (benefit)........................ 2,413 (2,628) (1,194) 19 (1,409)
----------- ----------- ------------ ------------
Net income (loss)................................... $ 3,487 $ (7,427) $ (6,207) $ (10,147)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Earnings (loss) per common share.................... $ 0.28 21 $ (0.61)
----------- ------------
----------- ------------
</TABLE>
See accompanying notes.
17
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The pro forma unaudited condensed consolidated balance sheet reflects the
Merger as though it occurred on June 30, 1996. The pro forma unaudited condensed
consolidated statements of income reflect the Merger as though it occurred on
January 1, 1995. The Merger will be accounted for as a purchase transaction.
Certain reclassifications have been made to the AMSG historical consolidated
financial statements to conform to UWS's presentation.
No effect has been given in the pro forma unaudited condensed consolidated
statements of income for operating and synergistic benefits that may be realized
through the combination of the entities.
UWS currently owns 12% of the common stock of AMSG, and through reinsurance
agreements with AMSIC, UWS retains 50% of the health and life business sold by
AMS on the books of UWIC and UWLIC, insurance subsidiaries of UWS. Under the
terms of the Merger Agreement, UWS will purchase the remaining 88% of AMSG's
common stock for approximately $67.0 million in cash and 4,000,000 newly issued
shares of UWS common stock. Upon completion of the transaction, UWS will record
100% of the health and life business sold by AMSG.
2. CASH AND CASH EQUIVALENTS
Pro forma adjustments to cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
(IN
000'S)
---------
Proceeds from long-term debt (see Note 7)................................ $ 70,000
<S> <C>
Proceeds from exercise of AMSG options (see Note 10)..................... 1,425
Cash paid to shareholders of AMSG........................................ (67,010)
Expenses related to the Merger........................................... (3,426)
Repayment of AMSG bank debt.............................................. (10,000)
Cash of U&C Real Estate Partnership (see Note 4)......................... 102
---------
$ (8,909)
---------
---------
</TABLE>
3. FUNDS HELD BY AFFILIATED REINSURERS
AMSG records an asset for funds held by affiliated reinsurers, which
predominantly represents balances held by subsidiaries of UWS. The corresponding
UWS balances are recorded primarily as medical and other benefits payable and
funds held on behalf of affiliated reinsurers. The pro forma adjustments to
eliminate these intercompany balances are as follows:
<TABLE>
<CAPTION>
(IN
000'S)
---------
UWS Liabilities:
<S> <C>
Medical and other benefits payable.................................... $ (81,463)
Funds held on behalf of affiliated reinsurers......................... (28,344)
Other adjustments, net................................................ (15,879)
---------
$(125,686)
---------
---------
AMSG Assets:
Funds held by affiliated reinsurers................................... $(125,686)
---------
---------
</TABLE>
4. LAND, BUILDING AND EQUIPMENT -- NET
Subsidiaries of UWS and AMSG are equal partners in U&C Real Estate
Partnership, which owns the office building occupied by the employees of AMSG
and AMS. Each partner's 50% ownership in
18
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LAND, BUILDING AND EQUIPMENT -- NET (CONTINUED)
this partnership investment, net of outstanding mortgages, is recorded in other
assets on each partner's respective historical balance sheet. Upon Merger, the
partnership will be wholly owned by the combined entity and consolidated. The
pro forma adjustments replace each partner's recorded investment balance with
the actual assets and liabilities (see Notes 2, 6 and 7) of the partnership,
including the book value of the land and building of $32,180,000.
5. GOODWILL AND OTHER INTANGIBLES
Pro forma adjustments for purchase price in excess of net assets acquired,
resulting from the Merger, consist of the following:
<TABLE>
<CAPTION>
(IN
000'S)
---------
Purchase Price:
<S> <C>
Cash................................................................... $ 67,010
Market value of newly issued shares of UWS common stock................ 94,500
Grant of UWS options (see Note 10)..................................... 4,220
Expenses of Merger..................................................... 4,000
---------
169,730
Net Assets Acquired:
Common equity of AMSG.................................................. 53,630
Less cost basis of 12% of AMSG previously owned by UWS................. (1,445)
Cash from exercise of AMSG options (see Note 10)....................... 1,425
---------
53,610
---------
Purchase price in excess of net assets acquired.......................... $ 116,120
---------
---------
</TABLE>
Management has completed a preliminary analysis of the purchase price paid
in excess of the net assets acquired, which identified the following intangible
assets:
<TABLE>
<CAPTION>
(IN
000'S)
---------
Identified Intangibles:
<S> <C>
Distribution system.................................................... $ 25,000
Tradename/mark......................................................... 24,000
Software............................................................... 8,300
Unidentified Intangibles:
Goodwill resulting from the Merger..................................... 61,596
Elimination of goodwill previously recorded by AMSG.................... (2,776)
---------
$ 116,120
---------
---------
</TABLE>
In addition, management's preliminary analysis indicates that the amounts
reflected on AMSG's historical consolidated balance sheet as tangible assets and
liabilities approximate the fair values of such assets and liabilities, and
accordingly, such assets have not been adjusted in the accompanying pro forma
financial statements.
19
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. OTHER ASSETS
Pro forma adjustments to other assets consist of the following:
<TABLE>
<CAPTION>
(IN
000'S)
---------
Consolidation of partner investments in U&C Real Estate Partnership, net
of other balances recorded (see Note 4)................................. $ (11,043)
<S> <C>
AMSG preferred stock (see Note 9)........................................ (15,000)
Other adjustments........................................................ (3,944)
---------
$ (29,987)
---------
---------
</TABLE>
7. LONG-TERM DEBT
Pro forma adjustments to long-term debt consist of borrowings to finance the
Merger as follows:
<TABLE>
<CAPTION>
(IN 000'S)
-----------
New debt:
<S> <C>
Cash paid to shareholders of AMSG.......................................................... $ 67,010
Partial funding of expenses related to the Merger.......................................... 2,990
Recording of mortgage payable related to U&C Real Estate Partnership (see Note 4)............ 21,083
-----------
$ 91,083
-----------
-----------
</TABLE>
8. OTHER LIABILITIES
Pro forma adjustments to other liabilities consist of the following:
<TABLE>
<CAPTION>
(IN
000'S)
---------
Repayment of AMSG bank debt.............................................. $ (10,000)
<S> <C>
Other adjustments........................................................ (5,371)
---------
$ (15,371)
---------
---------
</TABLE>
9. REDEEMABLE PREFERRED STOCK
UWLIC, a subsidiary of UWS, owns $15,000,000 of AMSG preferred stock, which
is eliminated by the pro forma adjustments (see Note 10).
20
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY
Pro forma adjustments to shareholders' equity consist of the following:
<TABLE>
<CAPTION>
REDEEMABLE UNREALIZED
COMMON PREFERRED PAID-IN RETAINED GAINS
STOCK STOCK CAPITAL EARNINGS (LOSSES) TOTAL
----------- ----------- --------- --------- ----------- ---------
(IN
000'S)
<S> <C> <C> <C> <C> <C> <C>
Common stock issued..... $ 4,000 $ -- $ 90,500 $ -- $ -- $ 94,500
Elimination of preferred
stock.................. -- (15,000) -- -- -- (15,000)
Exercise of AMSG
options................ -- -- 1,425 -- -- 1,425
Grant of UWS options.... -- -- 4,220 -- -- 4,220
To record unrealized
losses of AMSG......... -- -- 391 -- (391) --
Elimination of equity
accounts of AMSG....... (175) -- (3,816) (50,030) 391 (53,630)
----------- ----------- --------- --------- ----------- ---------
$ 3,825 $ (15,000) $ 92,720 $ (50,030) $ -- $ 31,515
----------- ----------- --------- --------- ----------- ---------
----------- ----------- --------- --------- ----------- ---------
</TABLE>
The pro forma adjustments assume all outstanding AMSG common stock options
are redeemed for cash in connection with the Merger. The pro forma adjustments
also include an adjustment to record the value of UWS common stock options
issued to the principal shareholders of AMSG in connection with the Merger,
which is recorded as part of the purchase price with a corresponding increase in
paid in capital.
An executive officer of UWS has 7,113 options to purchase AMSG common shares
at an option price of $703, which will be converted in connection with the
Merger into 301,567 options to purchase UWS common shares at an option price of
$16.54. Upon conversion, UWS will record compensation expense of $2,137,000. In
accordance with Regulation S-X regarding the preparation of pro forma financial
information, this nonrecurring charge has not been included in the pro forma
unaudited condensed consolidated statements of income.
11. PREMIUM REVENUE
Pro forma adjustments to premium revenue consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER ENDED
31, JUNE 30,
1995 1996
----------- -----------
(IN 000'S)
<S> <C> <C>
Elimination of intercompany insurance premiums for AMSG
employees.................................................... $ (855) $ (480)
Elimination of intercompany billing fees...................... (1,149) (544)
----------- -----------
$ (2,004) $ (1,024)
----------- -----------
----------- -----------
</TABLE>
21
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. OTHER REVENUE
Pro forma adjustments to other revenue consist of the following:
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED ENDED
DECEMBER JUNE 30,
31, 1995 1996
----------- ---------
(IN 000'S)
<S> <C> <C>
Elimination of intercompany third-party administration and
commission revenues recorded by AMS (see Note 16)........... $ 217,011 $ 118,429
Elimination of intercompany revenue recorded by other
subsidiaries of AMSG........................................ 3,311 4,131
----------- ---------
$ 220,322 $ 122,560
----------- ---------
----------- ---------
</TABLE>
13. INVESTMENT INCOME
Pro forma adjustments to investment income consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER JUNE 30,
31, 1995 1996
----------- -----------
(IN 000'S)
<S> <C> <C>
Elimination of interest and profit sharing on joint
ventures..................................................... $ (12,436) $ (6,815)
Elimination of investment income recorded by partners in U&C
Real Estate Partnership (see Note 4)......................... (591) (325)
Elimination of dividend income recorded by UWLIC on AMSG
preferred stock (see Note 9)................................. (234) (441)
Elimination of investment income (computed based on historical
rates of return) on investment of cash used to repay AMSG's
bank debt and to finance certain expenses of the Merger...... (89) (958)
----------- -----------
$ (13,350) $ (8,539)
----------- -----------
----------- -----------
</TABLE>
UWS holds funds on behalf of AMSIC, and credits investment income to AMSIC
on the funds held balance at UWS's average portfolio rate. The pro forma
adjustments eliminate the investment income recorded by AMSIC and the related
expense recorded by UWS as interest and profit sharing on joint ventures.
14. MEDICAL AND OTHER BENEFITS
Pro forma adjustments to medical and other benefits consist of the
following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
(IN 000'S)
Elimination of intercompany claims expenses related to insurance for AMS
employees................................................................... $ (419) $ (137)
Elimination of intercompany claims expenses recorded by UWS for managed care
services provided by AMSG's subsidiaries.................................... (3,310) (4,131)
------------ -----------
$ (3,729) $ (4,268)
------------ -----------
------------ -----------
</TABLE>
22
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. COMMISSION EXPENSES
Pro forma adjustments to commission expenses consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
(IN 000'S)
Reclassification of expenses of AMS from commission expenses to
administrative expenses..................................................... $ (3,834) $ (2,519)
------------ -----------
------------ -----------
</TABLE>
16. ADMINISTRATIVE EXPENSES
Pro forma adjustments to administrative expenses consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
(IN 000'S)
Elimination of intercompany administrative expenses recorded by AMS (see
Note 12)................................................................... $ (217,011) $ (118,429)
Reclassification of cumulative effect of accounting change (see Note 20).... (1,901) --
Other adjustments, net...................................................... 303 64
------------ ------------
$ (218,609) $ (118,365)
------------ ------------
------------ ------------
</TABLE>
17. INTEREST EXPENSE ON LONG-TERM DEBT
Pro forma adjustments to interest expense on long-term debt consist of the
following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------- -----------
<S> <C> <C>
(IN 000'S)
Interest expense on long-term debt (see Note 7).............................. $ 4,725 $ 2,363
Recording of interest expense on mortgage payable related to U&C Real Estate
Partnership (see Note 4).................................................... 1,354 897
------------- -----------
$ 6,079 $ 3,260
------------- -----------
------------- -----------
</TABLE>
The interest rate on the long-term debt incurred to finance the Merger is
expected to be a floating rate based upon the London Interbank market plus
1.25%, which, based upon current rates, would be approximately 6.75%. Each 0.25%
increase or decrease in the floating rate would change annual pro forma
consolidated net income by $114,000 and pro forma earnings per common share by
$0.01 per annum.
23
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Pro forma adjustments to amortization of goodwill and other intangibles
consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
(IN 000'S)
Amortization of goodwill and other intangibles resulting
from the Merger............................................................. $ 7,970 $ 3,985
------------ -----------
------------ -----------
</TABLE>
Goodwill and other intangibles resulting from the Merger (see Note 5) are
amortized on a straight-line basis over lives ranging from 5 to 40 years. The
weighted average life of goodwill and other intangibles resulting from the
Merger is 31 years.
19. INCOME TAX EXPENSE (BENEFIT)
Pro forma adjustments to income tax expense (benefit) consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER ENDED JUNE
31, 30,
1995 1996
----------- -----------
(IN 000'S)
<S> <C> <C>
Reclassification of cumulative effect of accounting change
(see Note 20)................................................ $ 665 $ --
Tax expense (benefit) related to pro forma adjustments, net... (1,766) (1,194)
----------- -----------
$ (1,101) $ (1,194)
----------- -----------
----------- -----------
</TABLE>
20. CUMULATIVE EFFECT OF ACCOUNTING CHANGES
The pro forma adjustments include the reclassification of a benefit recorded
by AMSG in 1995 for the cumulative effect of accounting changes as follows:
<TABLE>
<CAPTION>
(IN
000'S)
---------
<S> <C>
Administrative expenses...................................................................... $ (1,901)
Income tax expense (benefit)................................................................. 665
---------
$ (1,236)
---------
---------
</TABLE>
See Note 2 to Notes to Consolidated Financial Statements of AMSG and
subsidiaries for a discussion of the accounting change. The impact of the
accounting change is deemed immaterial to require separate disclosure in the Pro
Forma Condensed Consolidated Statements of Income.
21. EARNINGS (LOSS) PER COMMON SHARE
Pro forma earnings (loss) per common share is based upon the weighted
average number of common shares outstanding during the respective periods,
including the 4,000,000 common shares issued in connection with the Merger.
Since the pro forma condensed consolidated financial statements reflect a net
loss for the year ended December 31, 1995 and the six months ended June 30,
1996, common stock equivalents are not considered in the pro forma calculation
of earnings (loss) per share since they would be anti-dilutive.
24
<PAGE>
UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. EARNINGS (LOSS) PER COMMON SHARE (CONTINUED)
The weighted average number of common shares used in the computation of pro
forma earnings (loss) per common share is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE
DECEMBER 31, 30,
1995 1996
------------- -------------
<S> <C> <C>
Weighted average shares prior to Merger................................... 12,550,601 12,599,715
Shares issued in connection with the Merger............................... 4,000,000 4,000,000
------------- -------------
16,550,601 16,599,715
------------- -------------
------------- -------------
</TABLE>
Net income (loss) included in the computation of pro forma earnings (loss)
per common share is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER ENDED JUNE
31, 30,
1995 1996
----------- -----------
(IN 000'S)
<S> <C> <C>
Historical net income of UWS.................................. $ 6,373 $ 3,487
Historical net loss of AMSG................................... (6,615) (7,427)
Pro forma adjustments:
Amortization of goodwill and other intangibles (Note 18).... (7,970) (3,985)
Interest expense on new long-term debt (Note 17)............ (4,725) (2,363)
Elimination of dividend income recorded by UWLIC on AMSG
preferred stock (see Note 9)............................... (234) (441)
Elimination of investment income on investment of cash used
to repay AMSG's bank debt and to finance certain expenses
of the Merger (see Note 13)................................ (89) (958)
Elimination of interest expense on repaid AMSG bank debt.... -- 346
Tax benefit related to proforma adjustments, net (Note
19)........................................................ 1,766 1,194
----------- -----------
Pro forma consolidated net loss............................... (11,494) (10,147)
Less discount on redeemable preferred stock of UWS............ (113) --
----------- -----------
Pro forma consolidated net loss allocable to common stock..... $ (11,607) $ (10,147)
----------- -----------
----------- -----------
Pro forma net loss per common share........................... $ (0.70) $ (0.61)
----------- -----------
----------- -----------
</TABLE>
25
<PAGE>
COMPARATIVE PER SHARE MARKET INFORMATION
UWS
The UWS Common Stock commenced trading on the NYSE under the symbol "UWZ" in
June 1994. Prior to that time, the UWS Common Stock was quoted on the Nasdaq
National Market (NASDAQ) under the symbol "UWSI." The following table sets forth
the per share high and low sale prices for the UWS Common Stock as reported on
the NYSE and NASDAQ, as applicable, for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1993
First Quarter........................................................................ $ 37.00 $ 26.50
Second Quarter....................................................................... 29.75 20.75
Third Quarter........................................................................ 31.75 22.50
Fourth Quarter....................................................................... 31.25 27.25
FISCAL 1994
First Quarter........................................................................ $ 35.75 $ 29.25
Second Quarter....................................................................... 34.50 28.00
Third Quarter........................................................................ 37.25 27.38
Fourth Quarter....................................................................... 39.75 31.50
FISCAL 1995
First Quarter........................................................................ $ 44.38 $ 30.75
Second Quarter....................................................................... 40.88 18.63
Third Quarter........................................................................ 24.50 18.50
Fourth Quarter....................................................................... 26.50 20.50
FISCAL 1996
First Quarter........................................................................ $ 23.88 $ 19.63
Second Quarter....................................................................... 26.00 19.38
Third Quarter (through )......................................................
</TABLE>
On June 25, 1996, the last full trading day prior to announcement of the
execution of the letter of intent pertaining to the proposed Merger and related
matters, the reported New York Stock Exchange closing price per share of UWS
Common Stock was $21.875. On July 31, 1996, the date on which execution of the
definitive Merger Agreement was publicly announced by UWS, the reported NYSE
closing price per share of UWS Common Stock was $23.625. On , 1996, the
most recent available date prior to printing this Joint Proxy
Statement/Prospectus, the reported New York Stock Exchange closing price per
share of UWS Common Stock was $ . On that date, there were approximately
beneficial holders of UWS Common Stock. UWS shareholders and AMSG
shareholders are urged to obtain current market quotations.
Since the first quarter of 1992, UWS has paid a quarterly dividend of $.12
per share, when adjusted for the three-for-two stock split occurring on
September 9, 1992. In conjunction with the initial public offering of UWS Common
Stock, BCBSUW agreed to return to UWS via a capital contribution cash dividends,
less applicable taxes and expenses, received on or before March 31, 1995. The
continuation of dividends at the historical level is subject to the discretion
of the UWS Board and will depend upon UWS's operating results, financial
condition, and capital requirements, general business conditions, legal
restrictions on the payment of dividends and other factors the UWS Board deems
relevant.
AMSG
There is no public market for shares of AMSG Common Stock. No dividends have
been paid on the AMSG Common Stock since its inception in June 1988, and AMSG
has no current plans to pay any
26
<PAGE>
dividends on the AMSG Common Stock in the future. UWS is the only holder of
record of AMSG Common Stock other than the trustees under the Voting Trust
Agreement (as defined below). As of , 1996, there were 42 owners of AMSG
Common Stock under the Voting Trust Agreement.
SPECIAL MEETING OF UWS SHAREHOLDERS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of UWS
Common Stock in connection with the solicitation of proxies by the UWS Board for
use at the UWS Special Meeting to be held on , , 1996, at
, , Wisconsin, commencing at 11:00 a.m., local
time, and at any adjournments or continuances thereof. This Joint Proxy
Statement/Prospectus and the accompanying form of proxy are first being mailed
to shareholders of UWS on or about , 1996.
MATTERS TO BE CONSIDERED AT THE UWS SPECIAL MEETING
At the UWS Special Meeting, shareholders of record of UWS as of the close of
business on , 1996, will consider and vote upon (i) approval and
adoption of the Merger Agreement; (ii) an amendment to the UWS Equity Incentive
Plan to (a) increase from 600,000 to 2,750,000 the number of shares of UWS
Common Stock to be issued thereunder (including approximately 1,775,000 shares
to be issued in connection with the Merger and approximately 508,000 available
for future grants); (b) limit the number of shares which may be granted to
individual participants in a three year period; (c) change the requirements for
membership on the Committee which administers the Plan to comply with changes to
Securities Exchange Act Rule 16b-3 (relating to short swing profits) and Treas.
Reg. 1.162-27 (relating to compensation in excess of $1,000,000); (d) permit the
gifting of stock options to an employee's spouse, children or grandchildren (or
trusts for their benefit); and (iii) such other business as may properly be
brought before the UWS Special Meeting.
Holders of UWS Common Stock will not be entitled to dissenters' rights as a
result of the Merger. See "RIGHTS OF DISSENTING SHAREHOLDERS -- UWS
Shareholders."
THE UWS BOARD UNANIMOUSLY HAS APPROVED THE MERGER AGREEMENT AND THE MERGER
AND RECOMMENDS THAT UWS SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND "FOR" APPROVAL AND ADOPTION OF THE AMENDMENTS TO THE UWS
EQUITY INCENTIVE PLAN. SEE "BACKGROUND OF AND REASONS FOR THE MERGER" AND
"APPROVAL OF AMENDMENTS TO UWS EQUITY INCENTIVE PLAN."
As of the date of this Joint Proxy Statement/Prospectus, the UWS Board does
not know of any other matters to be presented for action by the shareholders at
the UWS Special Meeting. UWS's Bylaws require that notice with respect to
matters to be presented for action by the shareholders at a special meeting be
received by UWS not earlier than , 1996 and not later than
, 1996. If any other matters not now known are properly brought
before the meeting, the persons named in the accompanying proxy will vote such
proxy in accordance with the determination of a majority of the UWS Board.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on , 1996 (the "UWS Record Date") has been
fixed as the record date for determining the holders of UWS Common Stock who are
entitled to notice of and to vote at the UWS Special Meeting. As of the UWS
Record Date, there were approximately beneficial holders of the
shares of UWS Common Stock then outstanding and entitled to vote.
The holders of record on the UWS Record Date of UWS Common Stock are entitled to
one vote per share of UWS Common Stock. The presence in person or by proxy of
the holders of shares representing a majority of the voting power of the UWS
Common Stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the UWS Special Meeting. The affirmative vote of the
holders of a majority of the outstanding shares of UWS Common Stock is required
for adoption of the Merger Agreement. The affirmative vote of a majority of the
total votes cast on the proposal is required to amend the UWS Equity Incentive
Plan.
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BCBSUW, which owns 6,207,075 shares of UWS Common Stock representing 49% of
all outstanding UWS Common Stock before giving effect to the Merger, has agreed
to vote all of its shares of UWS Common Stock for approval of the Merger and the
Merger Agreement.
Abstention from voting and broker nonvotes will have the same effect as
voting against the adoption of the Merger Agreement since they represent one
less vote for such approval. Abstentions will also have the effect of a vote
against the Plan Amendments, but broker nonvotes will have no effect on the
voting.
PROXIES; PROXY SOLICITATION
Shares of UWS Common Stock represented by properly executed proxies received
at or prior to the UWS Special Meeting that have not been revoked will be voted
at the UWS Special Meeting in accordance with the instructions contained
therein. Shares of UWS Common Stock represented by properly executed proxies for
which no instruction is given will be voted "FOR" adoption of the Merger
Agreement and "FOR" approval of the amendment to the UWS Equity Incentive Plan.
UWS shareholders are requested to complete, sign, date and return promptly the
enclosed proxy card in the postage-prepaid envelope provided for this purpose to
ensure that their shares are voted. A shareholder may revoke a proxy at any time
before its exercise by submitting a later-dated proxy with respect to the same
shares, by delivering written notice of revocation to the Secretary of UWS or by
attending the UWS Special Meeting and voting in person. Mere attendance at the
UWS Special Meeting will not in and of itself revoke a proxy.
If the UWS Special Meeting is continued or adjourned for any reason, at any
subsequent reconvening of the UWS Special Meeting all proxies will be voted in
the same manner as such proxies would have been voted at the original convening
of the UWS Special Meeting (except for any proxies that have theretofore
effectively been revoked or withdrawn), notwithstanding that they may have been
effectively voted on the same or any other matter at a previous meeting.
UWS will bear the cost of soliciting proxies from its shareholders. In
addition to solicitation by mail, directors, officers and employees of UWS may
solicit proxies by telephone, telegram or otherwise. Such directors, officers
and employees will not be additionally compensated for such solicitation, but
may be reimbursed for out-of-pocket expenses incurred in connection therewith.
Brokerage firms, fiduciaries and other custodians who forward soliciting
material to the beneficial owners of UWS Common Stock held of record by them
will be reimbursed for their reasonable expenses incurred in forwarding such
material.
SPECIAL MEETING OF AMSG SHAREHOLDERS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of AMSG
Common Stock in connection with the solicitation of proxies by the AMSG Board of
Directors for use at the Special Meeting of AMSG shareholders to be held on
, 1996, at , , Wisconsin, commencing at
11:00 a.m., local time, and at any adjournments or continuances thereof. This
Joint Proxy Statement/Prospectus and the accompanying form of proxy is first
being mailed to stockholders of AMSG on or about , 1996.
With the exception of the 20,967 (approximately 12%) shares of AMSG Common
Stock owned by UWS, all of the issued and outstanding shares of AMSG Common
Stock are subject to the Voting Trust Agreement. Wallace J. Hilliard
("Hilliard"), as trustee under the Voting Trust Agreement, is empowered to vote
substantially all of the shares subject thereto and Ronald A. Weyers ("Weyers"),
as successor trustee under the Voting Trust Agreement, is entitled to vote the
remaining shares (Hilliard and Weyers are collectively referred to as the
"Trustees"). Under the terms of the Voting Trust Agreement, the Trustees have
the full and unqualified right and power to vote all shares subject to the
Voting Trust Agreement at all meetings of stockholders for any purpose,
including the right to vote such shares at a stockholders' meeting called to
approve the Merger. However, the Voting Trust Agreement grants the Trustees the
right to call a meeting of the holders of record of the trust
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certificates issued under the Voting Trust Agreement (the "Certificate Holders")
to ascertain the views of such holders with respect to such issues as the
Trustees may, in their discretion, determine. At each such meeting, every
Certificate Holder is entitled to one vote for each share of capital stock
represented by trust certificates standing in his name. The Trustees have
determined to vote the AMSG Common Stock subject to the Voting Trust Agreement
in accordance with the instructions of the Certificate Holders. Accordingly, at
the AMSG Special Meeting, the Trustees intend to hold a meeting of the
Certificate Holders for the purpose of obtaining the Certificate Holders'
approval of the Merger.
MATTERS TO BE CONSIDERED AT THE AMSG SPECIAL MEETING
At the AMSG Special Meeting, stockholders of record of AMSG as of the close
of business on , 1996 will consider and vote upon a proposal to
approve and adopt the Merger Agreement and the Merger.
Holders of AMSG Common Stock will be entitled to dissenters' rights as a
result of the Merger. See "RIGHTS OF DISSENTING SHAREHOLDERS--AMSG
Stockholders."
THE AMSG BOARD HAS APPROVED THE MERGER AGREEMENT AND THE MERGER AND
RECOMMENDS THAT AMSG STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. See "BACKGROUND OF AND REASONS FOR THE MERGER" and "CONFLICTS OF
INTEREST."
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on , 1996 (the "AMSG Record Date") has
been fixed as the record date for determining the holders of AMSG Common Stock
who are entitled to notice of and to vote at the AMSG Special Meeting. As of the
AMSG Record Date, there were 174,733.67 shares of AMSG Common Stock outstanding
and entitled to vote. The holders of record of shares of AMSG Common Stock on
the AMSG Record Date are entitled to one vote per share of AMSG Common Stock.
The presence in person or by proxy of the holders of shares representing a
majority of the AMSG Common Stock entitled to vote is necessary to constitute a
quorum for the transaction of business at the AMSG Special Meeting. The
affirmative vote of holders of shares representing a majority of the number of
shares of AMSG Common Stock outstanding is necessary to approve and adopt the
Merger Agreement and Merger. Abstentions from voting will have the practical
effect of voting against the approval and adoption of the Merger Agreement and
the Merger since they represent one less vote for adoption of such proposals.
Messrs. Hilliard and Weyers have agreed to vote 74,961.67 shares of AMSG
Common Stock which they, collectively, have the power to vote and which
represents approximately 43% of the issued and outstanding shares of AMSG Common
Stock for approval of the Merger and the Merger Agreement. In addition, UWS
intends to vote its 20,967 shares of AMSG Common Stock representing
approximately 12% of the outstanding AMSG Common Stock, for approval of the
Merger and the Merger Agreement. Accordingly, approval of the Merger and the
Merger Agreement at the AMSG Special Meeting is assured.
PROXIES; PROXY SOLICITATION
Shares of AMSG Common Stock represented by properly executed proxies
received at or prior to the AMSG Special Meeting that have not been revoked will
be voted at the AMSG Special Meeting in accordance with the instructions
contained therein. Shares of AMSG Common Stock represented by properly executed
proxies for which no instruction is given will be voted "FOR" approval and
adoption of the Merger Agreement and the Merger. AMSG stockholders are requested
to complete, sign, date and return promptly the enclosed form of proxy in the
postage-prepaid envelope provided for this purpose to ensure that their shares
are voted. A stockholder may revoke a proxy by submitting at any time prior to
the vote on the Merger Agreement and the Merger a written notice of revocation
to the Secretary of AMSG or by attending the AMSG Special Meeting and voting in
person. Mere attendance at the AMSG Special Meeting will not in and of itself
revoke a proxy.
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If the AMSG Special Meeting is continued or adjourned for any reason, at any
subsequent reconvening of the AMSG Special Meeting all proxies will be voted in
the same manner as such proxies would have been voted at the original convening
of the AMSG Special Meeting (except for any proxies that have theretofore
effectively been revoked or withdrawn), notwithstanding that they may have been
effectively voted on the same or any other matter at a previous meeting.
AMSG will bear the cost of soliciting proxies from its stockholders. In
addition to solicitation by mail, directors, officers and employees of AMSG may
solicit proxies by telephone, telegram or otherwise. Such directors, officers
and employees of AMSG will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND
In October 1988, UWS entered into a joint venture agreement with AMSG (the
"Joint Venture Agreement") for the purpose of offering small group PPO products
primarily to employers with 100 or fewer employees. Pursuant to the Joint
Venture Agreement, UWS obtained a 10.3% equity interest in AMSG for which it
invested $500,000. Subsequent purchases of AMSG Common Stock for an aggregate
amount of $940,000 raised UWS's ownership of AMSG Common Stock to approximately
12%. The initial term of the Joint Venture Agreement continued until December
31, 1993 and was subsequently amended to extend until December 31, 1996, subject
to annual renewal for subsequent one-year terms upon mutual agreement of the
parties.
As described in more detail under "BUSINESS OF AMSG" herein, AMS is a third
party administrator which sells small group health care products and life and
other employee benefit products. The business sold by AMS is underwritten by
UWIC and UWLIC which reinsure a portion of the business sold by AMS with AMSIC.
Through these reinsurance agreements, the net underwriting results of this
business are divided equally between UWLIC and AMSIC. UWLIC oversees
underwriting and pricing decisions, and AMS is responsible for sales, premium
collection, administration and claims payment. AMS must first receive UWS's
consent if AMS wants to sell a product line that is not underwritten by UWIC or
UWLIC.
The Joint Venture Agreement includes a buyout provision (the "Buyout
Option") exercisable on December 31, 1996, whereby UWS could acquire the 88% of
the equity interests in AMSG that it does not already own at a formula price
equal to the sum of:
(a) Five percent (5%) of premiums earned by AMS in 1996 allocable to the
AMSG Common Stock not owned by UWS;
(b) the book value of AMSG as of December 31, 1996 allocable to the AMSG
Common Stock not owned by UWS; and
(c) the aggregate after-tax earnings of AMSG for each of the calendar years
1993-1996 allocable to the AMSG Common Stock not owned by UWS.
For purposes of arriving at the above formula price, the following items are
excluded: (i) any premium equivalents earned by AMS for self-funded accounts;
(ii) any and all AMS accounts for which claims processing is subcontracted to a
third party; (iii) any and all accounts which were assumed by UWIC and UWLIC on
or after January 1, 1989 and which AMS administers; and (iv) premiums earned by
AMS shall not include any billing fee charged by AMS on any premium billing.
Further, the formula price is not affected by, among other things, Messrs.
Hilliard and Weyers' purchase of the Regency Center Office and/or the lease of
the ground upon which such building sits.
Messrs. Hilliard and Weyers are employed in the capacities of President and
Executive Vice President, respectively, of AMSG pursuant to employment contracts
dated August 1, 1991 (the "AMSG Employment Contracts"). The terms of the AMSG
Employment Contracts continue until either party provides three years' prior
written notice of termination (regardless of exercise of the
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Buyout Option); provided, however, they may not be otherwise terminated except
by AMSG for good cause. The Employment Agreements have non-competition clauses
during the terms thereof and, in the event of termination, for a period of five
years thereafter.
As previously discussed, all of the stockholders of AMSG, except UWS, have
entered into a Voting Trust Agreement whereby Mr. Hilliard, as trustee, and Mr.
Weyers, as successor trustee, are given absolute authority to vote and sell each
stockholder's stock in AMSG on his or her behalf. The Voting Trust Agreement
gives Mr. Hilliard and Mr. Weyers effective control over AMSG.
All of the stockholders of AMSG, except UWS, have also entered into an
agreement (the "AMSG Shareholder Agreement"), which restricts the transfer of
shares of AMSG Common Stock unless the stockholder desiring to transfer shares
first offers the same for sale first to UWS, then to AMSG, and then to the other
stockholders. The AMSG Shareholder Agreement contains provisions similar to
those contained in the Joint Venture Agreement regarding UWS's right of first
refusal to meet any good faith offer to purchase all or substantially all of
AMSG's property or assets, and/or any segment of its business, or to purchase
all or substantially all of the issued and outstanding capital stock of AMSG.
The AMSG Shareholder Agreement also contains a similar provision to the Buyout
Option in the Joint Venture Agreement regarding UWS's buyout right, exercisable
beginning on December 31, 1996, whereby UWS can acquire all of the issued and
outstanding shares of stock of AMSG at the formula price described above.
From 1988 through 1994, profits recorded by UWS from the joint venture
increased consistently, and in 1994 represented approximately 71% of UWS's net
income for that year. Because the joint venture has historically had such a
significant impact on UWS's operations, UWS management has regularly considered
ways to enhance shareholder value with respect to the joint venture and, if UWS
decided to exercise the Buyout Option or negotiate an alternative transaction
with respect to AMSG, to ensure that the change in ownership would proceed
smoothly and with minimum disruption to AMSG's operations.
In assessing whether to exercise the Buyout Option, UWS recognized that
there were several aspects of simply exercising the Buyout Option that could be
less desirable than alternative methods of continuing UWS's interest in AMSG,
both for UWS and for the AMSG stockholders. First, the Buyout Option does not
provide for the issuance of UWS Common Stock as consideration. Having all or a
portion of the consideration consisting of UWS Common Stock could provide UWS
with additional flexibility for financing the Buyout Option, and also would
allow the AMSG stockholders to defer recognition of some or all of their gain
for federal and state income tax purposes. Second, although the AMSG Employment
Contracts would remain in effect, exercise of the Buyout Option would not
necessarily ensure the continued commitment or involvement of Messrs. Hilliard
and Weyers. Third, the Buyout Option made no provisions for any other aspects of
the transition, including continued employment of the other AMSG executives or
representations, warranties and indemnity agreements in favor of UWS in
connection with its purchase of AMSG.
Accordingly, UWS consistently has believed that an arrangement addressing
these and other issues would ensure a smooth transition and enhance the value of
UWS's interest in AMSG in the event UWS chose to exercise the Buyout Option. In
early 1994, UWS and Merrill Lynch began to investigate alternative structures to
an all cash buyout at the end of 1996. In early 1994, UWS initiated discussions
with Messrs. Hilliard and Weyers, both individually and in their capacities as
voting trustees under the Voting Trust Agreement, and proposed a transaction in
which UWS and the AMSG stockholders would contribute AMSG Common Stock owned by
them to a newly formed holding company in a tax-free exchange for holding
company common stock. UWS also considered the possibility of contributing other
assets to the holding company, including UWLIC, so that the holding company
would be an independent corporation embracing all aspects of the AMSG business.
Discussions regarding that transaction continued for several weeks, but the
parties ultimately were unable to agree on the relative percentages of holding
company stock that each would receive and discussions were abandoned in early
summer 1994.
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In early 1995, UWS with the assistance of Merrill Lynch began to investigate
the possibility of separating UWS's interest in the joint venture from the rest
of its operations. UWS then retained Merrill Lynch to advise UWS with respect to
alternatives to enhance shareholder value, including a possible separation of
UWS's interest in AMSG. Management of UWS believed that both the complex nature
of UWS's interest in AMSG and the fact that the nature of the AMSG business and
UWS's other businesses were substantially different caused some confusion in the
marketplace with respect to valuation of UWS. Management asked Merrill Lynch to
consider, among other things, whether separating the AMSG business would permit
the market to make a more accurate assessment of each line of business and allow
investors a choice of more narrowly focused investments.
After considering a number of alternatives, UWS and Merrill Lynch concluded
that a favorable structure for accomplishing a separation would be a tax-free
spinoff to UWS shareholders (the "Spinoff") of a newly formed subsidiary into
which UWS's businesses, other than those relating primarily to the joint
venture, would be contributed. UWS considered two types of Spinoffs: (1)
negotiating with Hilliard and Weyers for an early exercise of the Buyout Option,
upon completion of which all of the outstanding AMSG Common Stock (and therefore
100% of the equity interests in AMSG) would be included in the company retaining
the AMSG-related operations; and (2) having such company own UWS's AMSG-related
operations and the Buyout Option, which would then be exercised in accordance
with its terms. In connection with the Spinoff, in September 1995 UWS prepared
and submitted a private letter ruling request to the Internal Revenue Service
(the "IRS") regarding the tax-free nature of the Spinoff, and in January 1996,
the IRS issued a private letter ruling to the effect that the Spinoff would be
tax-free to UWS shareholders.
Although UWS received the requested private letter ruling in early 1996, it
still had not negotiated any alternative to the Buyout Option and, in the
opinion of UWS and Merrill Lynch, the depressed earnings reported by AMSG
throughout 1995 and the continued depressed performance during the first quarter
of 1996 did not then support creating a publicly traded company whose assets
consisted only of UWS's AMSG-related operations and the Buyout Option.
By April 1996, UWS recognized that a certain degree of uncertainty existed
both at AMSG and in the marketplace given the Buyout Option's December 31, 1996
exercise date and the fact that UWS had not announced its intentions with
respect to the Buyout Option.
On April 26, 1996, the Executive Committee of the UWS Board met to discuss
the AMSG situation. Merrill Lynch attended that meeting and reviewed for the
Committee the strategic alternatives that had been evaluated and recommended
that UWS exercise the Buyout Option. At the conclusion of the meeting, the UWS
Board unanimously approved giving AMSG notice of UWS's intent to exercise the
Buyout Option. Accordingly, in late April 1996, UWS gave AMSG formal notice of
its intent to exercise the Buyout Option and deferred any plans for a Spinoff.
Following the delivery of that notice, UWS again began discussions with
Messrs. Hilliard and Weyers regarding a possible early exercise of the Buyout
Option which, by its terms, would not become effective until December 31, 1996.
In particular, UWS recognized that a number of factors favored a negotiated and
early completion of the transaction. In particular, a number of
insurance-related regulatory approvals would be required before UWS could assume
control of AMSG. Further, a negotiated transaction in which Messrs. Hilliard and
Weyers had defined roles and which provided for a transition process to which
all parties were committed would result in minimum disruption to AMSG's business
and a negotiated transaction would allow UWS to gain effective control of AMSG
sooner, permitting UWS to facilitate changes it deems necessary to restore AMSG
to profitability. Additionally, UWS believed that a negotiated transaction would
provide a framework for due diligence concerning AMSG's and UWS's receipt of
representations, warranties and indemnities concerning AMSG. Consequently, UWS
and Messrs. Hilliard and Weyers began further discussions for a transaction that
could accomplish the above objectives and, on June 25, 1996, executed a letter
of intent relating to the Merger. Subsequent to execution of the letter of
intent, the parties began negotiations of the Merger Agreement consistent with
the terms of the letter of intent. The UWS Board met on
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July 31, 1996 to consider the Merger Agreement. At that meeting, Merrill Lynch
delivered its fairness opinion concerning the terms of the Merger, after which
the UWS Board unanimously approved the Merger Agreement. Following the UWS Board
meeting on July 31, 1996, the Merger Agreement was executed by all parties.
UWS'S REASONS FOR THE MERGER
In addition to the mutual reasons for the Merger stated above, UWS's Board
of Directors believes the following strategic factors will also contribute to
the success of the combined Merger:
In the course of its deliberations in arriving at its unanimous decision to
approve the Merger, the UWS Board reviewed and considered with UWS's management
a number of other factors relevant to the Merger. The factors the Board
considered included, but were not limited to, (a) information concerning UWS's
and AMSG's respective businesses, historical financial performance, operations,
services and marketing approaches; (b) their strategic direction and future
opportunities; (c) an analysis of the respective future contributions to
revenue, operating profits and net profits of AMSG; (d) compatibility of the
management and corporate cultures of UWS and AMSG; (e) premiums to market and
multiples paid in other comparable merger and acquisition transactions; (f) the
structure and content of the proposed Merger Agreement; (g) a financial
presentation by Merrill Lynch, including the opinion of Merrill Lynch that the
consideration to be paid to the holders of capital stock of AMSG pursuant to the
Merger Agreement was fair from a financial point of view to the shareholders of
UWS; (h) available alternatives to the Merger; and (i) reports from management,
financial and legal advisors as to the results of their due diligence
investigation of AMSG. For a discussion of many of the foregoing matters, see
"Opinion of UWS Financial Advisor" below.
The UWS Board also considered a variety of potentially negative factors in
its deliberations concerning the Merger, including (a) the potentially dilutive
effect of issuing UWS Common Stock in the Merger; (b) the expenses to be
incurred in connection with the Merger and the effect of such expenses on the
results of operations in the quarter the Merger is consummated; (c) the
dependence of AMSG on the continued participation of key management personnel;
and (d) other risks described under "RISK FACTORS" above. In view of the wide
variety of factors considered, both positive and negative, the UWS Board did not
find it practical to, and did not, quantify or otherwise assign relative weights
to the specific factors considered, but did determine that the anticipated
benefits of the Merger outweighed the potentially negative factors considered.
AMSG'S REASONS FOR THE MERGER
As described above, on April 29, 1996, AMSG received notice of UWS's
intention to exercise the Buyout Option on December 31, 1996. The price to be
paid by UWS under the Buyout Option is based on a formula which cannot be
determined until financial results for 1996 are available, which would not be
until sometime in 1997. In addition, the formula price could be impacted,
possibly materially, by extraordinary events occurring before December 31, 1996.
The Joint Venture Agreement and related agreements have very few specific
provisions regarding the conduct of AMSG's business during the period after
notice of exercise of the Buyout Option has been given and prior to the closing
of the Buyout Option (the "Interim Period"). For example, there are no
transition provisions, there is no framework for obtaining regulatory approvals,
and there are no specific guidelines on what extraordinary actions AMSG can and
cannot take during the Interim Period. AMSG management considered what actions
could be taken under the Joint Venture Agreement and applicable law to maximize
the formula purchase price under the Buyout Option during the Interim Period.
The actions considered included, among others, transactions to realize the fair
market value of certain AMSG assets which AMSG management believed had a fair
market value significantly in excess of the value at which those assets were
carried on the books and records of AMSG for financial accounting purposes.
There was, however, a significant amount of uncertainty as to AMSG's ability to
successfully complete any such transactions prior to December 31, 1996. Absent
any such extraordinary transactions occurring prior to December 31, 1996, AMSG
management estimated in early May 1996 that the formula price under the Buyout
Option would result in an aggregate purchase price of between $125 million and
$170 million (which would be between approximately $770 and $1,056 per share of
AMSG Common Stock).
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The foregoing estimate was based on AMSG management's projections for 1996, and
the actual price under the formula could be higher or lower depending upon
AMSG's actual financial results for 1996. Furthermore, AMSG management was
concerned about the possible detrimental effect on AMSG's business, employees,
agents and customers from the delay between the exercise of the Buyout Option
and the closing of the Buyout Option and the lack of a specified transition
process during such period.
Due to (i) the uncertainties inherent in the Buyout Option formula, (ii) the
uncertainties as to whether, and to what extent, AMSG could engage in
extraordinary transactions during the Interim Period in order to maximize the
formula price, (iii) the possible detrimental effect on AMSG, its business,
employees, agents and customers of proceeding with the Buyout Option without a
negotiated transition process, and (iv) the possibility of obtaining a more
favorable tax treatment and continuing equity interest in the AMSG business for
AMSG shareholders in a negotiated transaction, AMSG management entered into
negotiations with UWS in order to value the AMSG Common Stock outside of the
formula price, to obtain more favorable tax treatment for AMSG shareholders, and
to allow AMSG shareholders to have a continuing equity interest in the AMSG
business. The result of such negotiations is the Merger Agreement and Merger
contemplated thereby.
OPINION OF UWS FINANCIAL ADVISOR
THE COMPLETE TEXT OF THE OPINION DATED , 1996 (THE "MERRILL LYNCH
OPINION") IS ATTACHED HERETO AS APPENDIX B AND THE SUMMARY OF THE OPINION SET
FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. SHAREHOLDERS OF UWS ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS
ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED,
THE ASSUMPTIONS MADE AND SCOPE OF THE REVIEW UNDERTAKEN BY, AS WELL AS
LIMITATIONS ON THE REVIEW UNDERTAKEN BY, MERRILL LYNCH IN RENDERING ITS OPINION.
UWS BELIEVES THAT ALL MATERIAL ELEMENTS OF THE MERRILL LYNCH OPINION ARE
SUMMARIZED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
UWS has retained Merrill Lynch to act as its financial advisor in connection
with the Merger. Merrill Lynch delivered its oral opinion to UWS's Board of
Directors on July 31, 1996, which opinion was subsequently confirmed in writing
(the "Merrill Lynch Opinion"), to the effect that, as of such date, the proposed
consideration to be paid by UWS pursuant to the Merger, taken as a whole, was
fair, from a financial point of view, to the shareholders of UWS.
The full text of the Merrill Lynch Opinion, which sets forth assumptions
made, matters considered and limits on the review undertaken by Merrill Lynch,
is attached hereto as Appendix B and is incorporated herein by reference. UWS
shareholders are urged to read this opinion in its entirety. The summary set
forth in this Proxy Statement/Prospectus of the Merrill Lynch Opinion is
qualified in its entirety by reference to the full text of such opinion.
The Merrill Lynch Opinion is directed to the UWS Board of Directors and does
not constitute a recommendation to any shareholder as to how such shareholder
should vote at the UWS Special Meeting. The proposed consideration to be paid by
UWS pursuant to the Merger was determined through negotiations between UWS and
AMSG.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things,
(i) reviewed AMSG's Annual Reports and related financial information for the
five fiscal years ended December 1995 and AMSG's related unaudited financial
information for the monthly periods ending June 1996; (ii) reviewed UWS's Annual
Reports, Forms 10-K and related financial information for the five fiscal years
ended December 1995, and UWS's Form 10-Q and the related unaudited financial
information for the quarterly period ending March 31, 1996; (iii) reviewed
certain information, including financial forecasts, relating to the business,
earnings, cash flow, assets and prospects of AMSG and UWS, furnished to Merrill
Lynch by UWS and AMSG; (iv) conducted discussions with members of senior
management of AMSG and UWS concerning AMSG's and UWS's businesses and prospects;
(v) compared the results of operations of UWS and AMSG with those of certain
companies which Merrill Lynch deemed to be reasonably similar to UWS and AMSG,
respectively; (vi) reviewed the historical market prices and trading activity
for the UWS Common Stock; (vii) compared the proposed financial terms of the
Merger with the financial terms of certain other mergers and acquisitions which
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Merrill Lynch deemed to be relevant; (viii) considered the pro forma effect of
the Merger on UWS's capitalization ratios and earnings, cash flow and book value
per share; (ix) considered the terms of the Joint Venture Agreement, and the
AMSG Stock Restriction Agreement; (x) reviewed the Merger Agreement; and (xi)
reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as Merrill Lynch deemed
necessary, including its assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the accuracy
and completeness of all information supplied or otherwise made available to it
by AMSG and UWS, and Merrill Lynch has not independently verified such
information or undertaken an independent appraisal of the assets of AMSG or UWS.
With respect to the financial forecasts furnished by AMSG and UWS, Merrill Lynch
assumed that they were reasonably prepared and reflected the best currently
available estimates and judgment of AMSG's or UWS's management as to the
expected future financial performance of AMSG or UWS, as the case may be. The
forecasts of AMSG's future financial performance were based on a pro forma
combination of the respective financial interests of AMSG and UWS in the
existing joint venture, and there can be no assurance that such forecasts will
accurately reflect AMSG's actual future financial performance. Merrill Lynch's
opinion necessarily is based on economic, monetary and market conditions
prevailing, and other circumstances and conditions existing on ,
1996.
In connection with rendering the Merrill Lynch Opinion to the UWS Board,
Merrill Lynch performed a variety of financial analyses, which are summarized
below. Merrill Lynch believes that its analyses must be considered as a whole
and that selecting portions of such analyses and the factors considered therein,
without considering all factors and analyses, could create an incomplete view of
the analyses and the processes underlying the Merrill Lynch Opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Merrill Lynch took into account its assessment of
general economic, market, and financial conditions and its experience in similar
transactions, as well as its experience in securities valuation and its
knowledge of the healthcare and insurance industry generally. In performing its
analyses, Merrill Lynch made numerous assumptions with respect to industry
performance, general business and economic conditions, and other matters, many
of which are beyond the control of UWS or AMSG. With respect to the analyses of
selected comparable acquisition transactions and comparable public healthcare
and insurance companies summarized below, no public company or transaction
utilized as a comparison is identical to UWS or AMSG or the Merger, and such
analyses necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
transactions, and other factors that could affect the companies concerned. Any
estimates contained in Merrill Lynch's analyses are not necessarily indicative
of future results or values, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. None of the analyses performed by Merrill Lynch
was assigned a greater significance by Merrill Lynch than any other.
The following is a summary of the analyses performed by Merrill Lynch in
connection with its presentation to the UWS Board of Directors on July 31, 1996
and the delivery of the Merrill Lynch Opinion:
DISCOUNTED CASH FLOW ANALYSES. Merrill Lynch performed a discounted cash
flow analysis of AMSG based upon estimates of projected financial performance
prepared by UWS for the fiscal years 1997 through 2001. Utilizing these
projections, Merrill Lynch calculated a range of values based upon the
discounted net present value of AMSG's five-year stream of projected levered
after-tax free cash flow and its projected fiscal year 2001 terminal value. In
performing this analysis, Merrill Lynch utilized discount rates reflecting a
weighted average cost of capital ranging from 12.0% to 14.0% and terminal value
multiples of calendar year 2001 net income ranging from 11.0x to 13.0x. Merrill
Lynch calculated a range of present values for 88% of AMSG, representing the
portion of the outstanding
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common stock of AMSG not held by UWS (the "Acquired Stock"), after subtracting
$160.0 million, representing UWS's best estimate of the amount of the net
capital it uses to underwrite policies marketed by the joint venture (the
"Capital Contribution Estimate"), under each of the following four scenarios:
(i) the first scenario (referred to herein as the "Base Case," which reflected
UWS's most reasonable expectation of AMSG's future financial performance and
which assumed significantly lower revenue growth rates than AMSG has experienced
in the past and a return to modest net underwriting gain ratios from the current
net underwriting losses), exclusive of the possible cost savings expected to
result from the Merger, resulted in an estimated range of present values of $330
million to $455 million; (ii) the second scenario, which represented the Base
Case including management's estimates of possible cost savings expected to
result from the Merger, resulted in an estimated range of present values of $450
million to $600 million; (iii) the third scenario (referred to herein as the
"Downside Case," which reflected UWS's most conservative expectation of AMSG's
future financial performance and which assumed significantly lower revenue
growth rates than AMSG has experienced in the past and a return to very modest
net underwriting gain ratios from the current net underwriting losses),
exclusive of possible cost savings expected to result from the Merger, resulted
in an estimated range of present values of $65 million to $135 million; and (iv)
the fourth scenario, which represented the Downside Case including management's
estimates of possible cost savings expected to result from the Merger, resulted
in an estimated range of present values of $185 million to $280 million.
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Merrill Lynch
reviewed certain publicly available information regarding eleven selected
business combinations involving healthcare and insurance companies announced
since February 28, 1987 (collectively, the "Comparable Transactions"). The
Comparable Transactions, in reverse chronological order of public announcement,
and listed as Seller/Buyer, were: Mass Mutual/Wellpoint; Emphesys/Humana;
Mid-South Insurance Co./ Trigon Blue Cross Blue Shield; Provident Life &
Accident/Healthsource; Travelers-Managed Care/ Metropolitan Life Insurance;
GroupAmerica Insurance Co./Veritus; Home Life Financial Assurance/ Community
Mutual Insurance; Colonial Life and Accident/UNUM Corp.; Equicor-Equitable HCA/
CIGNA,; American General -- Group L&H/Associated Insurance Co.; John Alden
Life/Merrill Lynch Cap. -- GECC.
Merrill Lynch compared the prices paid in the Comparable Transactions in
terms of the transaction value (defined as offer value, plus preferred equity at
liquidation value, short-term debt, long-term debt and minority interests, minus
cash and marketable securities and exercisable option proceeds) as a multiple
of, among other things, forward net income and book value. An analysis of the
multiples for the Comparable Transactions, as adjusted to exclude certain
results that Merrill Lynch considered anomalous, yielded a range of multiples of
transaction value to forward net income of 9.8x to 14.7x (with a mean of 12.6x
and a median of 13.4x) and of transaction value to book value of 1.7x to 2.2x
(with a mean of 1.9x and a median of 1.8x). Merrill Lynch then applied multiples
of transaction value to forward net income ranging from 10.0x to 13.0x to AMSG's
projected forward net income, based on the Base Case exclusive of the possible
cost savings expected to result from the Merger, to yield a value range for the
Acquired Stock, after subtracting the Capital Contribution Estimate, from $185
million to $300 million, and multiples of transaction value to book value
ranging from 1.8x to 2.0x to AMSG's projected book value to yield a value range
of $200 million to $240 million.
COMPARABLE PUBLIC HEALTHCARE AND INSURANCE COMPANY ANALYSIS. Merrill Lynch
compared certain publicly available financial and operating data and projected
financial performance of selected healthcare and insurance companies with
similar financial and operating data and projected finincial performance of AMSG
based upon estimates provided by AMSG management. Merrill Lynch compared AMSG to
nine insurance companies deemed by Merrill Lynch to be reasonably similar to
AMSG, AFLAC, American Travellers, Capitol American, John Alden, Penncorp
Financial, Protective Life, United Insurance Co., UNUM and Washington National
(the "Comparable Companies").
Merrill Lynch compared the market values (defined as the product of primary
shares outstanding and market price) of the Comparable Companies as a multiple
of, among other things, 1997 estimated
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net income. An analysis of the multiples for the Comparable Companies, as
adjusted to exclude certain results that Merrill Lynch considered anomalous,
yielded a range of multiples of market value to 1997 estimated net income of
7.4x to 11.7x (with a mean of 9.7x and a median of 9.9x). Merrill Lynch than
applied multiples of market value to 1997 estimated net income ranging from 9.0x
to 11.0x to AMSG's 1997 estimated net income, based on the Base Case exclusive
of the possible cost savings expected to result from the Merger, to yield a
value range for the Acquired Stock, after subtracting the Capital Contribution
Estimate, of $160 million to $225 million.
PRO FORMA ANALYSIS. Merrill Lynch analyzed certain pro forma effects
resulting from the Merger on the earnings per share ("EPS") of UWS. In
conducting its analysis, Merrill Lynch relied upon financial forecasts provided
by UWS and AMSG for the years 1997 through 2000. Based upon such financial
forecasts, and assuming that the joint venture with AMSG would have been
extended past its December 31, 1996 expiration date, Merrill Lynch calculated
that the Merger would have a dilutive effect on the fully diluted EPS of UWS
Common Stock for the years 1997 through 2000. Taking into account management's
estimated cost savings expected to result from the Merger, Merrill Lynch
calculated that the Merger would have an accretive effect on the fully diluted
EPS of UWS Common Stock for the years 1997 through 2000.
Merrill Lynch also calculated UWS's pro forma debt to capitalization ratio
and multiple of earnings before interest and taxes ("EBIT") to total interest
resulting from the Merger. Based upon the financial forecasts provided by UWS
and AMSG, and assuming that the joint venture with AMSG would have been extended
past its December 31, 1996 expiration date without taking into account possible
cost savings expected to result from the Merger, Merrill Lynch calculated that
UWS's pro forma debt to capitalization ratio would be 22.4%, 19.5%, 16.7% and
14.3% for the years 1997 through 2000, respectively, and UWS's pro forma
multiple of EBIT to total interest would be 8.0x, 12.8x, 15.7x and 18.1x for the
years 1997 through 2000, respectively.
OPTION PURCHASE PRICE RANGE. Merrill Lynch calculated a range of purchase
prices for the Acquired Stock which UWS would have been required to pay upon the
exercise of the Buyout Option. In performing this analysis, Merrill Lynch
utilized a range of estimates of projected AMSG 1996 net income determined by
management. Based on management projections of AMSG 1996 net income ranging from
a loss of $10.0 million to a gain of $10.0 million, Merrill Lynch calculated a
range of purchase prices payable upon exercise of the option of $117.0 million
to $152.2 million.
Merrill Lynch also noted that the proposed consideration to be paid by UWS
pursuant to the Merger may exceed the potential price UWS would pay if it
attempted to exercise its option on December 31, 1996 under the terms of the
Joint Venture Agreement. In arriving at the Merrill Lynch Opinion, Merrill Lynch
took into account management's belief that the Merger would permit UWS to accrue
a number of benefits: to gain effective operational control over AMSG
significantly sooner than it would if it simply exercised the option, permitting
UWS to facilitate changes it deemed necessary to restore profitability more
quickly; to use UWS common stock as partial consideration in order to ensure
orderly financing and preserve UWS's balance sheet strength; and to facilitate a
clear, orderly transition of AMSG's business, avoiding any potential management
or customer disruption that may have resulted from an option exercise.
Merrill Lynch is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. UWS selected
Merrill Lynch as a financial advisor in connection with the Merger because of
its reputation and because Merrill Lynch has substantial experience in
transactions similar to the Merger.
Merrill Lynch has from time to time provided various investment banking and
other financial advisory services to UWS, and has received customary fees for
the rendering of such services. In the
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ordinary course of its business, Merrill Lynch and its affiliates may actively
trade UWS Common Stock for its or their own accounts and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in UWS
Common Stock.
UWS and Merrill Lynch have entered into a letter agreement, dated July 31,
1996, relating to the services to be provided by Merrill Lynch in connection
with the Merger. UWS has agreed to pay Merrill Lynch fees as follows: (i) a cash
fee of $500,000, which was payable upon the earlier of the entering into the
Merger Agreement or the delivery of the Merrill Lynch Opinion, and (ii) an
additional cash fee of $1,000,000, payable upon the completion of the Merger,
for a total fee of $1,500,000. In such letter, UWS also agreed to reimburse
Merrill Lynch for its reasonable and necessary out-of-pocket expenses, not to
exceed $150,000 without UWS's prior consent, and to indemnify Merrill Lynch
against certain liabilities related to or arising out of any transaction
contemplated by the letter agreement.
RECOMMENDATION OF UWS BOARD
The UWS Board unanimously has determined the Merger to be fair to and in the
best interests of UWS and its shareholders and has approved the Merger and the
Merger Agreement. The UWS Board recommends that UWS shareholders vote FOR the
Merger and the amendment of the UWS Equity Incentive Plan. The UWS Board's
recommendations are based upon a number of factors discussed in this Joint Proxy
Statement/Prospectus.
RECOMMENDATION OF AMSG BOARD
The AMSG Board has determined the Merger to be fair to and in the best
interests of AMSG and its stockholders and has approved the Merger Agreement and
the Merger. The AMSG Board therefore recommends that AMSG stockholders approve
the Merger Agreement and the Merger. Mr. Thomas R. Hefty did not participate in
the AMSG Board's deliberation as to whether to approve the Merger Agreement. See
"CONFLICTS OF INTEREST."
THE MERGER
THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND INCORPORATED BY REFERENCE HEREIN.
TERMS OF THE MERGER
THE MERGER. Subject to the terms and conditions of the Merger Agreement and
the Plan of Merger between UWS and AMSG attached as Exhibit A to the Merger
Agreement (the "Plan of Merger"), AMSG will merge with and into UWS at the
Effective Time. At the Effective Time, the separate corporate existence of AMSG
will cease, and UWS will be the surviving corporation (the "Surviving
Corporation").
ARTICLES OF INCORPORATION AND BYLAWS. The Plan of Merger provides that the
Articles of Incorporation of UWS as in effect immediately prior to the Effective
Time will become the Articles of Incorporation of the Surviving Corporation and
that the Bylaws of UWS as in effect immediately prior to the Effective Time will
become the Bylaws of the Surviving Corporation.
DIRECTORS AND OFFICERS. The directors of UWS at the Effective Time will
continue as the directors of the Surviving Corporation until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal. The officers of UWS at the Effective Time will continue
as the officers of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal. See "THE MERGER -- Management and Operations of AMSG
After the Merger."
CONVERSION OF AMSG COMMON STOCK IN THE MERGER. At the Effective Time, each
share of AMSG Common Stock which is issued and outstanding immediately prior to
the Effective Time (other than shares as to which dissenters' rights have been
properly exercised and shares held by UWS) will be converted into the right to
receive, after expenses, approximately 24 shares of UWS Common Stock
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and approximately $382 in cash, without interest. In addition, approximately $52
per share of AMSG Common Stock will be placed in an escrow account to be held
and paid as described more fully in "-- Escrow Agreement." Shares of AMSG Common
Stock held by UWS will be canceled.
CONVERSION OF AMSG STOCK OPTIONS IN THE MERGER. Upon consummation of the
Merger, each AMSG Option that is outstanding immediately prior to the Effective
Time will be converted into an option to purchase approximately 42.4 shares of
UWS Common Stock for each share of AMSG Common Stock subject to such option at a
per share exercise price of approximately $4.67 (the "UWS Options"). At or after
the Effective Time, option agreements for UWS Options will be issued pursuant to
UWS's Equity Incentive Plan to holders to AMSG Options. Subject to the
foregoing, the UWS Options will have terms which are substantially identical to
the terms of the AMSG Options they replace.
In addition, Samuel V. Miller was granted, pursuant to his employment
agreement with UWS, an option by UWS (including tandem stock appreciation
rights) to purchase 7,113 shares of AMSG Common Stock from UWS at an exercise
price of $703 per share. It is contemplated that, concurrently with the Merger,
Mr. Miller will convert the option into an option to acquire a comparable amount
of UWS Common Stock at an exercise price of $ per share.
GRANT OF NEW UWS STOCK OPTIONS. Upon the consummation of the Merger
additional options will be granted to Messrs. Hilliard, Weyers and Miller.
Messrs. Hilliard and Weyers will each be granted options to acquire 500,000
shares of UWS Common Stock at an exercise price of 125% of the mean closing
price of the UWS Common Stock for the ten trading days immediately prior to the
Effective Date of the Merger, and exercisable for a period of five years.
Pursuant to his employment agreement with UWS, Mr. Miller will receive an
additional option to purchase $4,000,000 worth of UWS Common Stock (valued at
the average trading price for UWS Common Stock on the ten trading days following
the Effective Time) on the consummation of the Merger, exercisable for a period
of twelve years.
ADJUSTMENTS. The number of shares of UWS Common Stock (i) to be received by
AMSG Shareholders in the Merger and (ii) issuable upon exercise of the AMSG
Options shall be adjusted for any stock split, stock dividend, recapitalization
or similar event affecting UWS Common Stock prior to the Effective Time.
FRACTIONAL SHARES. No fractional shares of UWS Common Stock will be issued
in the Merger. In lieu of the issuance or recognition of fractional shares of
UWS Common Stock, each fractional share resulting from the Merger shall be
converted into a right to receive cash, without interest, in an amount equal to
the product of (A) such fraction of a share of UWS Common Stock, and (B) the
closing price of UWS Common Stock on the NYSE for the business day immediately
preceding the Effective Time.
EFFECTIVE TIME OF THE MERGER
Promptly following receipt of all required governmental approvals and
satisfaction or waiver of the other conditions to the Merger, the Merger will be
consummated and become effective at the time (the "Effective Time") at which (i)
the Articles of Merger to be filed pursuant to the WBCL have been accepted for
filing by the Department of Financial Institutions of the State of Wisconsin,
and (ii) the Certificate of Merger to be filed pursuant to the DGCL has been
accepted for filing by the Secretary of State of the State of Delaware. See "--
Conditions; Waivers."
EXCHANGE OF AMSG STOCK
As soon as practicable after the Effective Time, (i) the Exchange Agent will
deliver to each holder of certificates representing shares of AMSG Common Stock
(other than dissenting shares and shares held by UWS), a form letter of
transmittal and instruction for use in effecting the surrender of such
certificates for conversion into shares of UWS Common Stock and (ii) UWS will
make available, and the holders of AMSG Common Stock (other than dissenting
shares and shares held by UWS) will be entitled to receive, upon surrender to
the Exchange Agent of one or more certificates representing
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shares of AMSG Common Stock for cancellation and such other documents reasonably
requested by the Exchange Agent, certificates representing the number of shares
of UWS Common Stock and the amount of cash, without interest, into which such
holder's AMSG Common Stock is converted in the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties by
AMSG as to: (i) the corporate organization and qualification of AMSG and certain
entities in which AMSG holds a majority interest on a fully-diluted basis (the
"Subsidiaries"); (ii) the capitalization of AMSG and the Subsidiaries; (iii) the
authority of AMSG to enter into the Merger Agreement and the Merger Agreement's
noncontravention of any agreement, law or charter or bylaw provision and the
absence, except as disclosed, of the need for governmental or third-party
consents to the Merger; (iv) the accuracy of AMSG's and its insurance
Subsidiaries' financial statements; (v) AMSG's and its Subsidiaries' accounts
receivable; (vi) the absence of certain changes and events in the business of
AMSG and its Subsidiaries since June 25, 1996; (vii) pending and threatened
litigation; (viii) the compliance of AMSG and its Subsidiaries with all laws,
regulations and rules applicable to such entities; (ix) the accuracy of AMSG's
tax returns; (x) title to assets owned by AMSG; (xi) the contracts and
commitments entered into by AMSG and its Subsidiaries; (xii) the status of
employee relations between AMSG and its employees; (xiii) the terms, existence,
operations, liabilities and compliance with applicable laws of AMSG's employee
benefit plans and certain other matters relating to the Employee Retirement
Income Security Act of 1974, as amended, and the employee relations of AMSG and
its Subsidiaries in general; (xiv) ownership and rights to use intellectual
property and noninfringement on the intellectual property rights of others; (xv)
AMSG's and its Subsidiaries' compliance with environmental laws and the absence
of any notices with respect to environmental matters; (xvi) the absence of
undisclosed and contingent liabilities; (xvii) AMSG's and its Subsidiaries'
insurance policies; (xviii) transactions between AMSG or any Subsidiary and
certain related persons; (xvix) the accuracy of information supplied by AMSG for
inclusion in this Joint Proxy Statement/Prospectus; and (xx) brokers, finders
and financial advisors employed by AMSG.
The Merger Agreement also includes representations and warranties by UWS as
to: (i) the corporate organization and qualification of UWS; (ii) the
capitalization of UWS; (iii) the authority of UWS to enter into the Merger
Agreement and the Merger Agreement's noncontravention of any agreement, law or
charter or bylaw provision and the absence of the need for governmental or
third-party consents to the Merger; (iv) the accuracy of information supplied by
UWS for inclusion in this Joint Proxy Statement/Prospectus; (v) brokers, finders
and financial advisors employed by UWS; and (vi) the accuracy and completeness
of UWS's disclosures under the Exchange Act.
BUSINESS OF AMSG PENDING THE MERGER
AMSG has agreed that prior to the Effective Time, except as contemplated by
the Merger Agreement, AMSG and its Subsidiaries will conduct their operations
according to the ordinary and usual course of business consistent with past and
current practice and use their reasonable best efforts to maintain and preserve
their business organization, prospects, employees and advantageous business
relationships and not, without the prior written consent of the President of
UWS, take any action or permit to occur any event as follows:
(i) in a single transaction or a series of related transactions, sell
(including by sale-leaseback), lease, license, pledge, dispose of or
encumber any assets which individually or in the aggregate, have a fair
market value in excess of $50,000;
(ii) incur or become contingently liable with respect to any
indebtedness for borrowed money or guaranty any such indebtedness, where the
aggregate amount of indebtedness so incurred or guaranteed exceeded $10,000
or redeem, purchase, acquire or offer to purchase or acquire any long-term
debt;
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(iii) acquire or agree to acquire by merging with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership,
association or other business entity, in a transaction or series of related
transactions;
(iv) change any of its accounting practices or procedures;
(v) amend or propose to amend its charter or bylaws; or split, combine
or reclassify its outstanding capital stock, or declare, set aside or pay
any dividend or distribution in respect of any capital stock;
(vi) enter into, amend or become obligated under any employment,
severance, bonus, profit sharing or other employee benefit arrangement;
(vii) issue, purchase or redeem any shares of capital stock of AMSG or
any Subsidiary (including any security convertible or exchangeable into
capital stock) other than: the issuance of shares of AMSG Common Stock upon
exercise of AMSG Options outstanding on, and in accordance with their terms
as of, June 25, 1996, or issue, grant or otherwise create any portion or
right to acquire any such capital stock;
(viii) prepay any material expenses, indebtedness or other obligations;
(ix) enter into or amend any contract, agreement or commitment, or engage
in any transaction, in each case which is material to AMSG and which is not
in the usual and ordinary course of business;
(x) enter into any contract, agreement or commitment or engage in any
transaction (other than transactions pursuant to agreements in existence on
June 25, 1996 which on such date had been previously disclosed in writing to
UWS) with any affiliate of Wallace J. Hilliard, Ronald A. Weyers or any
officer of AMSG or any Subsidiary;
(xi) settle any material claim (including without limitations, any tax
claim), action or lawsuit involving AMSG or any of its Subsidiaries pending
as of or arising on or after June 25, 1996, or amend any tax return in any
respect;
(xii) release, waive or terminate any material obligation of any third
party to AMSG or any Subsidiary;
(xiii) solicit or encourage any inquiries or proposals regarding, or
offers for, or enter into or continue any discussions with, or provide any
information to, any third party concerning any sale or transfer of AMSG or
any of its assets or enter into or consummate any agreement or understanding
providing for a sale or transfer of AMSG or any of its assets, other than by
the Merger Agreement; or
(xiv) agree, whether or not in writing, to take any of the actions
described in clauses (i)-(xiii) above.
COVENANTS OF AMSG AND UWS
The Merger Agreement contains various covenants of AMSG and UWS, including
those covenants hereinafter described. AMSG has agreed: (i) to allow UWS and its
representatives and advisers full and complete access during business hours to
all properties, books, contracts, commitments, records, documents and facilities
of AMSG; (ii) to comply fully with the requirements of applicable state
securities laws, the Securities Act, and the rules and regulations of the
Commission under such laws applicable to the offering and sale of UWS Common
Stock in connection with the Merger and the solicitation of proxies hereunder;
(iii) to call a special meeting of its shareholders for the purpose of
considering and voting upon the approval and adoption of the Merger Agreement;
(iv) to take all actions necessary to obtain regulatory approvals, including
various state Departments of Insurance and the FTC; and (v) along with Messrs.
Hilliard and Weyers, to use its reasonable best efforts to
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cause: (A) AMSIC to transfer to AMSG all of the issued and outstanding capital
stock of American Medical Security Insurance Company of Georgia ("AMSIC --
Georgia") and American Medical Security Insurance Company of Ohio ("AMSIC --
Ohio") and Personal Physician Care, Inc.; (B) AMSIC to transfer to AMSG a
dividend of $10 million; (C) AMSG to pay in full the $10,000,000 Note of AMSG in
favor of Bank One, Green Bay dated February 1, 1996; and (D) AMSG to consent to
the substitution of UWLIC for UWIC as a partner in U&C Real Estate Partnership.
UWS has agreed: (i) to make available to executive officers of AMSG the
officers and certain advisors of UWS to discuss such aspects of UWS as may be
reasonably requested by AMSG; (ii) to comply fully with the requirements of
applicable state securities laws, the Securities Act, and the rules and
regulations of the Commission under such laws applicable to the offering and
sale of UWS Common Stock in connection with the Merger and the solicitation of
proxies hereunder; (iii) to register the shares of UWS Common Stock issuable
upon the exercise of UWS Options on Form S-8 under the Securities Act; (iv) to
call a special meeting of its shareholders for the purpose of considering and
voting upon the approval and adoption of the Merger Agreement and the increase
in the number of shares of UWS Common Stock issuable pursuant to the UWS Equity
Incentive Plan to cover the UWS Options; and (v) to take all actions necessary
to obtain regulatory approvals, including various state Departments of Insurance
and the FTC.
VOTING AGREEMENTS
Messrs. Hilliard and Weyers have agreed with UWS to vote 74,961.67 shares of
AMSG Common Stock which they, collectively, have the power to vote and which
represents approximately 43% of the issued and outstanding shares of AMSG Common
Stock for the approval of the Merger and the Merger Agreement. UWS has agreed to
vote its shares of AMSG Common Stock (representing 12% of the aggregate voting
power with respect to AMSG capital stock) in favor of the Merger. In addition,
BCBSUW, which owns an aggregate of 6,207,075 shares of UWS Common Stock
representing 49% of all outstanding UWS Common Stock, has agreed to vote all of
its shares of UWS Common Stock for approval of the Merger and the Merger
Agreement.
CONDITIONS; WAIVERS
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The respective
obligations of AMSG and UWS to effect the Merger are subject to the satisfaction
or waiver of certain conditions (the "Mutual Conditions"), including the
following: (i) all applicable waiting periods under the HSR Act shall have
expired; (ii) the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part shall have been declared effective and shall not
be subject to a stop order or any threatened stop order by the Commission; (iii)
the Merger Agreement shall have been approved and adopted by the requisite vote
of the holders of the outstanding shares of AMSG Common Stock; (iv) the Merger
Agreement and the increase in the shares of UWS Common Stock issuable pursuant
to the UWS Equity Incentive Plan to cover the UWS Options shall each have been
approved by the requisite vote of the holders of UWS Common Stock; (v) the
shares of UWS Common Stock to be issued in the Merger Agreement and upon
exercise of the UWS Options shall have been approved for listing on the NYSE
subject to notice of issuance; (vi) there shall be no action or proceeding
initiated by any governmental agency or any third party pending which seeks to
restrain, prohibit or invalidate any material transaction contemplated by the
Merger Agreement or the Merger or to recover substantial damages or other
substantial relief with respect thereto and no injunction or restraining order
shall have been issued by any court restraining, prohibiting or invalidating any
such material transaction; and (vii) the Merger Agreement, and all aspects of
the transactions contemplated thereby, shall have received all appropriate and
necessary insurance regulatory consents and approvals.
CONDITIONS TO THE OBLIGATIONS OF UWS. The obligation of UWS to effect the
Merger is subject to the satisfaction or waiver of certain additional conditions
("UWS Conditions"), including the following: (i) the representations and
warranties of AMSG and Messrs. Hilliard and Weyers contained in the Merger
Agreement shall be true and correct as of the Effective Time as though made on
and as of the Effective Time, except for such matters as would not have a
material adverse effect on AMSG and its
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Subsidiaries, taken as a whole; (ii) AMSG and Messrs. Hilliard and Weyers shall
have performed all obligations required to be performed by it or them under the
Merger Agreement prior to the Effective Time; (iii) AMSG shall have obtained any
and all consents or waivers from other parties to loan agreements or other
contracts material to its business for the lawful consummation of the Merger,
and AMSG and UWS shall have obtained any and all permits, authorizations,
consents or approvals of state securities commissions and of any other public
body or authority required for the lawful consummation of the Merger; (iv)
certain "affiliates" of AMSG shall have delivered to UWS a written agreement
with respect to such affiliates' compliance with Rule 145(d) under the
Securities Act; (v) UWS shall have received certain interim financial statements
from AMSG; (vi) Godfrey & Kahn, S.C., counsel for AMSG, shall have furnished to
UWS its opinion, in form and substance satisfactory to UWS; (vii) UWS shall have
received from Michael Best & Friedrich an opinion, in form and substance
reasonably satisfactory to UWS, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion, and based on the
Internal Revenue Code of 1986, as ameded (the "Code") and the regulations and
interpretations thereunder as of the date of such opinion, the Merger will for
federal income tax purposes constitute a reorganization within the meaning of
Section 368 of the Code; (viii) UWS shall have received a certificate signed by
the President of AMSG to the effect that holders representing no more than five
percent (5%) of AMSG Common Stock have filed with AMSG written objections to the
Merger pursuant to Section 267 of the DGCL; (ix) Hilliard and Weyers,
respectively, shall have executed employment agreements with Holdings and AMSG
shall have terminated (at no additional expense to AMSG) the current AMSG
Employment Agreements between AMSG and Hilliard and Weyers, respectively; (x)
the substitution of UWS Options for AMSG Options shall be approved by the AMSG
Board and the UWS Board and the shareholders of UWS shall have approved the
amendment to the UWS Equity Incentive Plan contemplated herein; (xi) Merrill
Lynch shall have confirmed or redelivered the Merrill Lynch Opinion on the date
on which proxy materials are first mailed to UWS Shareholders for the special
meeting of shareholders; and (xii) the stockholders of AMSG shall have deposited
$8,000,000 into the trust account established pursuant to, and Hilliard, as
agent, shall have executed, the Escrow Agreement (as hereinafter defined).
CONDITIONS TO THE OBLIGATIONS OF AMSG. The obligation of AMSG to effect the
Merger is subject to the satisfaction or waiver of certain additional conditions
(the "AMSG Conditions"), including the following: (i) the representations and
warranties of UWS in the Merger Agreement shall be true and correct as of the
Effective Time, except as otherwise contemplated by this Agreement or approved
by AMSG; (ii) UWS shall have performed all obligations required to be performed
by it under the Merger Agreement prior to the Effective Time; (iii) UWS shall
have obtained any and all material permits, authorizations, consents or
approvals of state securities commissions and of any other public body or
authority required for the lawful consummation of the Merger; (iv) Michael Best
& Friedrich, counsel for UWS, shall have furnished its opinion to AMSG as of the
Effective Time, in form and substance reasonably satisfactory to AMSG; (v) AMSG
shall have received from Godfrey & Kahn, S.C., an opinion, in form and substance
reasonably satisfactory to AMSG, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion, and based on the Code
and the regulations and interpretations thereunder as of the date of such
opinion, that the Merger will for federal income tax purposes constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and with respect to certain other tax matters;
and (vi) UWS shall have executed and delivered the Registration Rights and Stock
Restriction Agreement (as defined in the Merger Agreement and discussed below).
TERMINATION; AMENDMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, before or after approval of AMSG and UWS shareholders: (i) by mutual
consent of the UWS and AMSG; (ii) by any of UWS, AMSG, Messrs. Hilliard or
Weyers if the Merger has not been consummated by June 30, 1997; (iii) by UWS in
the event that any Mutual Condition or any UWS Condition fails to occur prior to
the
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Closing (as defined in the Merger Agreement); or (iv) by AMSG in the event that
any Mutual Condition or any AMSG Condition fails to occur prior to the Closing
(as defined in the Merger Agreement).
In the event the Merger Agreement is so terminated: (i) all obligations and
rights of the parties to the Merger Agreement shall cease and the parties shall
have all of the rights and obligations which existed immediately prior to the
execution of the Merger Agreement, including UWS's rights with respect to the
Buyout Option; and (ii) such termination shall be without any liability or
further obligation of any party to another and the obligations and agreements in
the Merger Agreement shall terminate and have no further effect except for
liabilities and obligations based on any intentional failure to perform or
comply with any covenant or agreement in the Merger Agreement or for any
intentional misrepresentation or material breach of any warranty in the Merger
Agreement (and such termination shall not constitute a waiver of any claim with
respect thereto).
Subject to applicable law, the Merger Agreement may be amended, modified or
supplemented only by written agreement of the parties thereto duly authorized by
the respective Board of Directors of UWS or AMSG at any time prior to the
Effective Time; provided, however, that, after the approval and adoption of the
Merger by the stockholders of AMSG, no such amendment, modification or
supplement shall change the amount or the form of the consideration to be
delivered to the holders of AMSG Common Stock or AMSG Options as contemplated by
the Merger.
INDEMNIFICATION AGREEMENTS
Subject to certain limitations contained in the Merger Agreement, the
holders of AMSG Common Stock shall indemnify, defend and hold UWS and its
subsidiaries, directors, officers, employees, agents and shareholders harmless
from and against any damages, liability, loss, cost or deficiency (net of any
tax benefits, insurance proceeds or similar benefits), arising out of, resulting
from or relating to any inaccuracy in or breach of a representation or warranty
of AMSG or any shareholder of AMSG pursuant to the Merger Agreement or any
failure of AMSG or Messrs. Hilliard or Weyers to duly perform or observe any
term, provision, covenant or agreement to be performed or observed by them
pursuant to the Merger Agreement and certain other claims described in the
Merger Agreement. The liability of AMSG shareholders under this indemnity
provision in the Merger Agreement shall in no event exceed $8,000,000, the
amount deposited in escrow for such purpose.
ESCROW AGREEMENT
The Merger Agreement provides that $8,000,000 of the purchase price for the
AMSG Common Stock or approximately $52 per share of AMSG Common Stock (other
than shares as to which dissenters' rights have been properly exercised and
shares held by UWS) will be deposited in escrow as security for the payment of
the AMSG shareholders' obligations to indemnify UWS for breaches of certain
representations, warranties, covenants and other agreements contained in the
Merger Agreement. The $8,000,000 will be delivered to the Escrow Agent pursuant
to that certain Escrow Agreement ("Escrow Agreement") by and among UWS, Wallace
J. Hilliard (the "Agent") and Bank One, Green Bay, NA, as escrow agent (the
"Escrow Agent"). The Escrow Agent is authorized to pay indemnification claims in
accordance with the procedures for claims outlined in the Merger Agreement up to
a maximum of $8,000,000. Nine months from the date of the Merger (if the
Effective Time is on or prior to December 31, 1996) or on June 30, 1997 (if the
Effective Time of the Merger is after December 31, 1996), the Escrow Agent is
authorized to disburse the balance of the escrowed funds to the Agent (the
"Partial Distribution") LESS an amount equal to (i) $1,000,000 PLUS (ii) the
aggregate of all indemnification claims which have been asserted but are
unresolved as of the disbursement date. Upon the expiration of three years from
the Effective Date of the Merger, the escrow will terminate and the remaining
escrowed funds will be disbursed to the Agent, less an amount equal to the
aggregate of all claims which have been asserted prior to the termination date
and which remain unresolved (including any unresolved claims described in clause
(ii) above), such funds to be retained in escrow only until the claims are
resolved. The Agent, in turn, will then disburse such remaining funds to the
previous holders of AMSG Common Stock entitled thereto.
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RESALE OF UWS COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The UWS Common Stock to be issued to AMSG shareholders in connection with
the Merger will be freely transferable under the Securities Act, except for UWS
Common Stock issued to any person deemed to be an affiliate of AMSG for purposes
of Rule 145 under the Securities Act at the Effective Time (the "Affiliates").
Affiliates may not sell their UWS Common Stock acquired in connection with the
Merger except pursuant to an effective registration statement under the
Securities Act covering such shares, or in compliance with Rule 145 promulgated
under the Securities Act or another applicable exemption from the registration
requirements of the Securities Act. AMSG has delivered a disclosure statement to
UWS identifying all persons who may be deemed to be Affiliates. Each Affiliate
listed in that disclosure statement has agreed (i) not to sell, exchange,
transfer or otherwise dispose of any shares of UWS Common Stock which such
Affiliate may acquire in connection with the Merger or any securities which may
be paid as a dividend or otherwise distributed thereon or with respect thereto
or issued or delivered in exchange or substitution therefor (collectively, the
"Restricted Securities"), or any option, right or other interest with respect to
any Restricted Securities, unless such sale, exchange, transfer or disposition
is effected in conformity with the terms of Rule 145(d) or pursuant to an
effective registration statement under the Securities Act (provided that such
Affiliate may make bona fide gifts or other dispositions without consideration
so long as the recipients thereof agree not to sell, exchange, transfer or
otherwise dispose of the UWS Common Stock except as provided herein); and (ii)
that such Affiliate has no present plan or intent, and as of the Effective Date
of the Merger shall have no present plan or intent, to engage in a sale,
exchange, transfer, distribution (including a distribution by a partnership to
its partners, a corporation to its shareholders, or a trust to its
beneficiaries), redemption, pledge or reduction in any way of such Affiliate's
risk of ownership, by short sale or otherwise, or other disposition, directly or
indirectly with respect to any of the UWS Common Stock to be received by the
Affiliate in the Merger.
REGISTRATION OF UWS COMMON STOCK ISSUED IN THE MERGER: REGISTRATION RIGHTS AND
STOCK RESTRICTION AGREEMENT
REGISTRATION RIGHTS. UWS and Wallace J. Hilliard and Ronald A. Weyers
(Messrs. Hilliard and Weyers being collectively, the "Holders") will each enter
into a Registration Rights and Stock Restriction Agreement (the "Registration
Agreement") pursuant to which the Holders will obtain rights to cause UWS to
register their UWS Common Stock received in the Merger under the Securities Act
as follows:
(i) the Holders are entitled to make up to two requests that UWS
register at least 50% of the then outstanding UWS Common Stock held by the
Holders, which UWS 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 UWS's own registration
of UWS Common Stock pertaining to an underwritten public offering; (b) UWS
has already effected two such registrations pursuant to the Holders'
requests; (c) the filing of a registration statement could jeopardize or
delay a material transaction contemplated by UWS or would require the
disclosure of material information that UWS needs to preserve as
confidential; or (d) UWS is unable to comply with the requirements of the
Commission; and
(ii) the Holders are entitled to make up to two requests that UWS
include the Holders' UWS Common Stock in the UWS Common Stock otherwise
being registered upon being notified by UWS that UWS is registering UWS
Common Stock in connection with a public offering for cash on a form that
would also permit the registration of the Holders' stock (which notice UWS
is obligated to give).
These registration rights expire upon the earlier of five years from the
date of the Registration Agreement or upon the date on which the Holders in the
aggregate own less than three percent of the outstanding UWS Common Stock.
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STANDSTILL AND VOTING AGREEMENTS. Pursuant to the Registration Agreement,
the Holders will each agree that, for a period of ten years following
consummation of the Merger, they will not acquire, offer or propose to acquire
(i) any UWS securities (other than pursuant to options in their new Employment
Agreements, as defined below) with the power to vote for the election of
directors of UWS (the "Voting Securities") or (ii) any rights or options to
acquire any Voting Securities, if such acquisitions would require regulatory
approval, application or notification other than as required by the Exchange
Act. In addition, the Holders will each agree that, for a period of three years
following consummation of the Merger, 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 UWS; (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
UWS; or (iii) form, join or participate in a group (within the meaning of
Section 13(d)(3) of the Exchange Act) with respect to UWS securities or seek to
exercise control or influence over management, the UWS Board, or policies of UWS
other than in connection with their employment with UWS or its subsidiaries.
Finally, the Holders will each agree that, for a period of ten years following
consummation of the Merger, they will vote their UWS Common Stock in accordance
with BCBSUW directions on matters relating to or affecting the Blue Cross Blue
Shield Association market conditions or rules and regulations.
LISTING OF UWS COMMON STOCK ON NEW YORK STOCK EXCHANGE
In the Merger Agreement, UWS has agreed to use all reasonable efforts to (i)
register under the Securities Act the shares of UWS Common Stock that are to be
issued pursuant to the Merger Agreement and upon exercise of UWS Options granted
to employees of AMSG and (ii) cause such shares of UWS Common Stock to be listed
on the NYSE.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of AMSG
Common Stock. This section reflects the tax opinion of Godfrey & Kahn, S.C.,
Milwaukee, Wisconsin delivered to AMSG in connection with the Merger, which
opinion is filed as an exhibit to the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part (the "Tax Opinion").
Holders of AMSG Common Stock are urged to read the Tax Opinion and to
recognize the assumptions and limitations set forth therein. The following
summary of the material federal income tax consequences of the Merger to
stockholders of AMSG is subject to such assumptions and limitations and is
qualified in its entirety by the matters specifically addressed in the Tax
Opinion.
The Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code such that no taxable gain or loss will be recognized by
a holder of AMSG Common Stock except with respect to cash paid to such holder
pursuant to the Merger. The gain to be recognized by a holder of AMSG Common
Stock will be the lesser of (i) the amount of cash received and (ii) the excess
of the fair market value of the UWS Common Stock received in the Merger plus the
cash received in the Merger over the basis of the AMSG Common Stock surrendered
in exchange therefor.
The basis of the UWS Common Stock to be received by a holder of AMSG Common
Stock will be the same as his or her basis in the AMSG Common Stock surrendered
in exchange therefor, decreased by the cash received by the holder and increased
by the gain recognized on the exchange. The holding period of the shares of UWS
Common Stock to be received by a holder of AMSG Common Stock will include the
period during which such stockholder held the AMSG Common Stock surrendered in
exchange therefor, provided the surrendered AMSG Common Stock was held by such
stockholder as a capital asset on the date of the Merger.
The receipt of cash pursuant to the exercise of dissenters' rights will be a
taxable transaction. A holder of AMSG Common Stock who exercises dissenters'
rights and consequently receives cash for his or her shares of AMSG Common Stock
will be treated as receiving the cash in redemption of such
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shares. Such a dissenting stockholder ordinarily will recognize gain or loss
equal to the difference between the amount of cash received and such
stockholder's basis in the shares, and such gain or loss generally will be a
capital gain or loss if the shares are held as a capital asset.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER
TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR AMSG SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER
CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES OR A TAX-EXEMPT
ENTITY, NOR DOES IT ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE,
TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND PRACTICE AND
COURT DECISIONS AS OF THE DATE HEREOF, ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE (WHICH CHANGE COULD BE RETROACTIVE) AND ANY SUCH CHANGE COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. AMSG SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER TO THEM.
ACCOUNTING TREATMENT
It is expected that the Merger will be treated as a purchase for accounting
and financial reporting purposes. See "-- Conditions; Waivers" above.
MANAGEMENT AND OPERATIONS OF AMSG AFTER THE MERGER
After the Merger, the articles of incorporation and bylaws of UWS will
continue in effect. AMSG as an entity will cease to exist, and the business of
AMSG will be carried on through Holdings. Following the Merger, the AMSG
business will operate as one of UWS's business units, and UWS currently intends
to maintain AMSG's corporate headquarters in Howard, Wisconsin. After the
Merger, the AMSG business will have access to resources generally available to
UWS's other business units, will participate in appropriate activities with
other UWS business units and will operate under the direction and guidance of
UWS's senior management and the UWS and Holdings Boards of Directors. The
Holdings Board of Directors will initially consist of Wallace J. Hilliard,
Ronald A. Weyers, Samuel V. Miller, Thomas R. Hefty and an independent director,
Eugene A. Menden.
Holdings will serve as the parent for existing subsidiaries and affiliates
of AMSG with the exception of AMSIC -- Ohio which will be retained as a first
tier subsidiary of UWS. Concurrent with the Merger, an existing subsidiary of
UWS, United Wisconsin Capital Corporation, will be contributed to Holdings and
will serve as a holding company for AMSG's interest in HMO ventures. Effective
January 1, 1997, UWS will contribute UWLIC to Holdings as a wholly-owned
subsidiary.
EXPENSES AND FEES
UWS will pay all its own expenses in connection with the Merger. The
stockholders of AMSG will pay all their own expenses and the expenses of AMSG in
the Merger except for accounting fees.
RIGHTS OF DISSENTING SHAREHOLDERS
AMSG STOCKHOLDERS
If the Merger is consummated, stockholders of AMSG are entitled to appraisal
rights under Section 262 of the DGCL, provided that they comply with the
conditions established by Section 262.
SECTION 262 OF THE DGCL IS REPRINTED IN ITS ENTIRETY AS APPENDIX C TO THIS
JOINT PROXY STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS NOT A COMPLETE
STATEMENT OF THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SECTION 262 OF THE DGCL ATTACHED AS APPENDIX C.
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THIS DISCUSSION AND APPENDIX C SHOULD BE REVIEWED CAREFULLY BY ANY STOCKHOLDER
WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO, AS FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR
THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
A record holder of AMSG Common Stock who makes the demand described below
with respect to such AMSG Common Stock, who continuously is the record holder of
such AMSG Common Stock through the Effective Time, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of the
approval and adoption of the Merger Agreement nor consents thereto in writing
will be entitled to receive from AMSG the fair value of such holder's AMSG
Common Stock as determined in an appraisal proceeding conducted by the Delaware
Court of Chancery (the "Delaware Court"). Except as set forth herein,
stockholders of AMSG will not be entitled to appraisal rights in connection with
the Merger.
Under Section 262, if a merger is to be submitted for approval at a meeting
of stockholders, as is the case for the AMSG Special Meeting, not less than 20
days prior to the meeting, a constituent corporation must notify each of the
holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of Section
262. This Joint Proxy Statement/Prospectus constitutes such notice to the record
holders of AMSG Common Stock.
Holders of AMSG Common Stock who desire to exercise appraisal rights must
not vote in favor of approval and adoption of the Merger Agreement and must
deliver a separate written demand for appraisal to AMSG BEFORE the vote by the
stockholders of AMSG on the Merger Agreement. A stockholder who signs and
returns a proxy without expressly directing by checking the applicable boxes on
the reverse side of the proxy card enclosed herewith that his or her AMSG Common
Stock be voted against the proposal or that an abstention be registered with
respect to his or her AMSG Common Stock in connection with the proposal will
have thereby effectively waived his or her appraisal rights because, in the
absence of express contrary instructions, such AMSG Common Stock will be voted
in favor of the proposal. Accordingly, a stockholder who desires to perfect
appraisal rights must either (i) refrain from executing and returning the
enclosed proxy card and from voting in person in favor of the proposal to
approve the Merger Agreement or (ii) check either the "Against" or the "Abstain"
box next to the proposal on such card or attend the AMSG Special Meeting and
either affirmatively vote in person against the proposal or abstain from voting
thereon. A demand for appraisal must be executed by or on behalf of the
stockholder of record and must reasonably inform AMSG of the identity of the
stockholder of record and that such record stockholder intends thereby to demand
appraisal of AMSG Common Stock. A person, such as a Certificate Holder, who has
a beneficial interest in AMSG Common Stock that is held of record in the name of
another person, such as a broker, fiduciary or other nominee, or in the case of
the Certificate Holders, the Trustees, must act promptly to cause the record
holder to follow the steps summarized herein properly and in a timely manner to
perfect whatever appraisal rights are available. If the AMSG Common Stock is
owned of record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian) or other nominee, such
demand must be executed by or for the record owner. If the shares are owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for the stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds AMSG
Common Stock as a nominee for others, may exercise appraisal rights with respect
to the AMSG Common Stock held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares of AMSG Common Stock covered by such
demand. Where the number of shares of AMSG Common Stock is not expressly stated,
the demand will be presumed to cover all shares outstanding in the name of such
record owner.
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A stockholder who elects to exercise appraisal rights should mail or deliver
his or her written demand to American Medical Security Group, Inc., 3100 AMS
Boulevard, Green Bay, Wisconsin, 54313, Attention: Timothy J. Dolata, Corporate
Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of AMSG Common Stock owned, and that the
stockholder is thereby demanding appraisal of his or her AMSG Common Stock. A
proxy or vote against the approval and adoption of the Merger Agreement will not
by itself constitute such a demand. Within ten days after the Effective Time,
the Surviving Corporation must provide notice of the Effective Time to all
stockholders who have complied with Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the Surviving
Corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the AMSG Common Stock of all dissenting
stockholders. There is no present intent on the part of the Surviving
Corporation to file an appraisal petition and stockholders seeking to exercise
appraisal rights should not assume that the Surviving Corporation will file such
a petition or that the Surviving Corporation will initiate any petitions with
respect to the fair value of such AMSG Common Stock. Accordingly, stockholders
who desire to have their AMSG Common Stock appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the time
periods and in the manner prescribed in Section 262. Within 120 days after the
Effective Time, any stockholder who has theretofore complied with the applicable
provisions of Section 262 will be entitled, upon written request, to receive
from the Surviving Corporation a statement setting forth the aggregate number of
shares of AMSG Common Stock not voted in favor of the approval and adoption of
the Merger Agreement and with respect to which demands for appraisal were
received by AMSG and the number of holders of such AMSG Common Stock. Such
statement must be mailed within 10 days after the written request therefor has
been received by the Surviving Corporation.
If a petition for an appraisal is timely filed, at the hearing on such
petition the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their AMSG Common Stock and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; if
any stockholder fails to comply with such direction, the Delaware Court may
dismiss the proceedings as to such stockholder. Where proceedings are not
dismissed, the Delaware Court will appraise the AMSG Common Stock owned by such
stockholders, determining the fair value of such AMSG Common Stock exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining fair value, under current
case law, the Delaware Court is required to take into account all relevant
factors. In WEINBERGER V. UOP INC., the Delaware Supreme Court discussed the
factors that could be considered in determining fair value in an appraisal
proceeding, stating that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered, and that "fair price obviously
requires consideration of all relevant factors involving the value of a
company". The Delaware Supreme Court stated that in making this determination of
fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which would
be ascertained as of the date of the merger which throw light on future
prospects of the merged corporation. In WEINBERGER, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered". Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger".
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Holders of AMSG Common Stock considering seeking appraisal should recognize
that the fair value of their AMSG Common Stock determined under Section 262
could be more than, the same as or less than the consideration they are entitled
to receive pursuant to the Merger Agreement if they do not seek appraisal of
their AMSG Common Stock. The cost of the appraisal proceeding may be determined
by the Delaware Court and charged against the parties as the Delaware Court
deems equitable in the circumstances. Upon application of a dissenting
stockholder of AMSG, the Delaware Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the appraisal
proceeding, including without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all AMSG
Common Stock entitled to appraisal.
Any holder of AMSG Common Stock who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any AMSG Common Stock subject to such demand or to receive
payment of dividends or other distributions on such AMSG Common Stock, except
for dividends or distributions payable to stockholders of record at a date prior
to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder
electing to demand an appraisal of his AMSG Common Stock under Section 262 of
the DGCL will have the right to withdraw such demand for appraisal and to accept
the terms offered in the Merger; after this period, the stockholder may withdraw
such demand for appraisal only with the consent of the Surviving Corporation. If
no petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal will cease, and all
holders of AMSG Common Stock will be entitled to receive the consideration
offered pursuant to the Merger Agreement. Inasmuch as the Surviving Corporation
has no obligation and no present intention to file such a petition, any holder
of AMSG Common Stock who desires such a petition to be filed is advised to file
it on a timely basis. Any stockholder may withdraw such stockholder's demand for
appraisal and accept the consideration contemplated by the Merger Agreement,
except that (i) any such attempt to withdraw made more than 60 days after the
Effective Time will require written approval of the Surviving Corporation and
(ii) no appraisal proceeding in the Delaware Court will be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may be
conditioned upon such terms as the Delaware Court deems just.
The Merger Agreement provides that it may be terminated by UWS in the event
that holders of more than 5% of the total number of shares of AMSG Common Stock
outstanding exercise dissenters' rights.
UWS SHAREHOLDERS
Under the WBCL, shareholders of UWS are not entitled to dissenters' rights
in connection with the Merger.
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CONFLICTS OF INTEREST
GENERAL. In considering the respective recommendations of the UWS Board and
the AMSG Board with respect to the Merger and the recommendation of the UWS
Board with respect to approval of the amendments to the UWS Equity Incentive
Plan, the respective shareholders of UWS and AMSG should be aware that certain
members of the AMSG Board and certain members of the management of UWS have
certain interests respecting the Merger separate from their interests as holders
of AMSG Common Stock and AMSG Options and as holders of UWS Common Stock and UWS
Options, respectively, including those referred to in "-- New Employment
Arrangements," "-- Additional Options to Purchase UWS Stock", "-- Future
Management of AMSG" and "INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED
MATTERS."
FUTURE MANAGEMENT OF AMSG. Following the Merger, UWS will contribute
substantially all the current subsidiaries and other assets of AMSG to Holdings
or a subsidiary of Holdings. Following the Merger, Samuel V. Miller will serve
as President and Chief Executive Officer of Holdings; Wallace J. Hilliard will
serve as Chairman of Holdings for a period of three years; Ronald A. Weyers will
serve as the Vice Chairman of Holdings for a period of three years. Holdings'
headquarters will be at the current headquarters of AMSG in Howard, Wisconsin.
Holdings will be run as a separate and semi-autonomous unit of UWS, subject to
oversight by UWS and the ultimate control of UWS and the UWS Board.
NEW EMPLOYMENT ARRANGEMENTS. Each of Wallace J. Hilliard, the President of
AMSG, and Ronald A. Weyers, the Executive Vice President of AMSG (individually,
an "Employee" and collectively, the "Employees"), will terminate his existing
AMSG Employment Agreement and enter into an Employment Agreement (the "New
Employment Agreements") with Holdings, to serve as the Chairman and Vice
Chairman of the Board of Holdings, respectively. The New Employment Agreements
will have substantially the same terms and provisions. The New Employment
Agreements will provide for employment of a period of up to six years and
provide that each Employee be paid (a) $750,000 in the first year, (b) $500,000
for the shorter of the two years thereafter or until such time as such Employee
is no longer willing or able to devote his services to Holdings on a full-time
basis, and (c) $100,000 for a period of three years thereafter. Under the New
Employment Agreements, each Employee will be granted options to purchase up to
500,000 shares of UWS Common Stock at an exercise price of 125% of the mean
closing price of UWS Common Stock for the ten days prior to the Effective Date
of the Merger, and exercisable for a period of five years. The New Employment
Agreements will provide each Employee with fringe benefits substantially similar
to those provided to such Employees by AMSG prior to the Merger and as are
generally available to all executives of Holdings. In addition, Holdings will
pay 38% of each Employee's health insurance for life. In exchange, each Employee
will agree not to compete with Holdings during the term of the New Employment
Agreement and for a period of three years thereafter, and will agree to maintain
the confidentiality of certain proprietary and confidential information as long
as such information remains unavailable to the public.
In addition, upon becoming the President and Chief Executive Officer of
Holdings, Samuel V. Miller will terminate his existing employment agreement with
UWS and enter into a new employment agreement with UWS or Holdings.
ADDITIONAL OPTIONS TO PURCHASE UWS STOCK. Messrs. Hilliard and Weyers will
be granted options to acquire 500,000 shares of UWS Common Stock each, at an
exercise price of 125% of the mean closing price of UWS Common Stock for the ten
days prior to the Effective Date of the Merger and exercisable at any time
during the period of five years thereafter. See "THE MERGER -- Grant of New UWS
Stock Options." In addition, Samuel V. Miller now holds an option (including
tandem stock appreciation rights) to purchase 7,113 shares of AMSG Common Stock
at an exercise price of $703 per share. Concurrently with the Merger, Mr. Miller
will convert such option into an option to acquire UWS Common Stock, as
described under "THE MERGER -- Conversion of AMSG Stock Options in the Merger."
Mr. Miller was previously granted an option to purchase 198,019 shares of UWS
Com-
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mon Stock at an exercise price of $25.25 per share, exercisable at any time
prior to December 6, 2007. Mr. Miller will receive, pursuant to his employment
contract, an additional option to purchase $4,000,000 worth of UWS Common Stock
on the consummation of the Merger, exercisable for a period of twelve years at
an exercise price equal to the mean closing price of UWS Common Stock for the
ten days immediately following the Effective Date of the Merger.
CERTAIN MATTERS PERTAINING TO BCBSUW. UWS and BCBSUW have entered into a
service agreement (the "Service Agreement") 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
Agreement, the company receiving a service pays the company providing the
service an amount which UWS and BCBSUW believe approximates cost. UWS has
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 UWS. Pursuant to Wisconsin statutory and
regulatory requirements, such reinsurance agreements and the Service Agreement
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
interests of the insurer." In addition, BCBSUW's sales force markets and sells
some of UWS's products. Also, certain of UWS'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 Agreement or stop marketing and selling certain of UWS's products,
UWS's business and operations could be adversely affected. Several of UWS's
executive officers devote portions of their time to the operations of BCBSUW.
Futhermore, nine of the eleven directors of UWS also are directors of BCBSUW.
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BUSINESS OF UWS
UWS is a leading managed care company with (i) the largest HMO membership in
Wisconsin, (ii) significant small group PPO products, and (iii) substantial
operations in specialty managed care and other products, including Dentacare, as
well as life and disability, workers' compensation, mental health and other
businesses. UWS has been successful in consistently growing its revenue and
profits within its existing businesses, as well as by acquisition and other
strategic arrangements. UWS was formed to operate the for-profit managed care
operations of BCBSUW, which will own approximately 37% of UWS's outstanding
Common Stock upon completion of the Merger and after giving effect to UWS's
issuance of shares therein. UWS was incorporated in Wisconsin in 1983.
UWS's HMO products are offered by its wholly owned subsidiaries, Compcare
Health Services Insurance Corporation ("Compcare"), Valley Health Plan, Inc.
("Valley") and Unity Health Plans Insurance Corporation ("Unity"). Compcare,
which serves primarily southeastern Wisconsin, including Milwaukee, was formed
in 1971 and is Wisconsin's oldest and second largest HMO. Valley was acquired by
UWS in 1992 and provides managed care services in western Wisconsin. Unity has a
combined membership of approximately 80,000 individuals located primarily in
southwestern and central Wisconsin. UWS's HMOs provided comprehensive medical
and hospital coverage to approximately 261,000 members and constitute the
largest overall HMO membership in Wisconsin. A significant portion of HMO
medical services is provided through capitated provider contracts, whereby an
established fee is paid monthly to the provider for each member who selects that
provider, as well as other risk sharing arrangements with providers.
UWS offers low cost small group PPO products primarily to employers with 100
or fewer employees through its existing joint venture with AMSG. Currently, 70%
of premium revenue attributable to the AMSG PPO business is concentrated in ten
states. Contractual relationships with various independent PPOs accounted for
85% of the medical benefits paid by AMSG during 1995. These PPOs are able to
provide for the delivery of health care services at lower costs than traditional
health insurance primarily because of favorable provider arrangements. In
addition, AMSG controls the utilization of health care with its staff of managed
care nurses. AMSG's two principals each have approximately 33 years of
experience in the design, pricing, underwriting, marketing and administration of
affordable small group health care products.
UWS offers a broad range of specialty managed care and other products.
Dentacare is the largest dental HMO in Wisconsin and, as of June 30, 1996,
provided comprehensive prepaid dental coverage to approximately 199,000 members.
UWS's managed care workers' compensation activities are performed by United
Heartland, Inc. ("United Heartland"), UWS also offers life, short and long-term
disability and vision products. In addition, UWS operates prescription drug
management and managed care consulting businesses. In 1994, UWS acquired a
majority interest in CNR Health, Inc. ("CNR"), which manages employers' mental
health and provides employee assistance benefits for employees with mental,
behavioral or substance abuse concerns.
BUSINESS OF AMSG
AMSG, a Delaware corporation, was formed in June 1988 and is headquartered
in Green Bay, Wisconsin. AMSG is a holding company for a number of insurance and
insurance-related businesses, including (i) AMS, a wholly-owned third party
insurance administrator, (ii) AMSIC, a wholly-owned insurance company which
reinsures health and life insurance administered by AMS, and (iii) several
partially- or wholly-owned HMOs and related businesses.
AMS, AMSG's principal operating subsidiary, develops, markets and
administers managed care insurance products, specialty group insurance products
and administrative services for small groups through its joint venture with UWS.
Since it began operations in 1988, AMS has grown to become one of the largest
administrators of group health benefits, providing services for over 469,000
employees in 32 states and the District of Columbia as of June 30, 1996. AMS's
strategy has been to maximize membership growth and profitability by offering an
innovative portfolio of employee benefits products
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and services specifically designed to meet the diverse needs of small employers.
Emphasizing choice and flexibility, AMSG has utilized state of the art
information systems and an independent agent distribution system to achieve a
low cost administration position while providing widespread access to its
market.
AMSIC, in turn, reinsures 50% of the health and life insurance products
administered by AMS and underwritten by UWLIC and UWIC, both of which are
subsidiaries of UWS. Finally, through various HMOs with which AMSG has entered
into joint ventures, AMSG has gained access to certain markets that otherwise
would not be available. For example, AMSG has used such HMOs as a tool to access
large employer groups and, in certain locations, the Medicaid population.
AMSG MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AMSG is a leader in the healthcare industry due to its innovative products
and customer-focused service. AMSG has three major sources of revenue: (i)
reinsurance of health and life insurance policies through AMSIC and its
subsidiaries AMSIC -- Georgia and AMSIC -- Ohio; (ii) third-party administrator
operations through AMS; and (iii) various other sources, including HMOs in which
AMSG has invested.
AMSG is a joint venture partner with UWS in the marketing and administration
of low cost health and life insurance primarily to employer groups of 50 or
fewer employees. Under this joint venture, AMSIC assumes via reinsurance 50
percent of the health and life business administered by AMS and underwritten by
UWS subsidiaries UWIC and UWLIC.
These three sources of revenue represent the following percentages of AMSG's
total revenues, excluding investment income, for the periods noted:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1994 1993 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Reinsurance assumed.............................. 66.3% 65.6% 65.4% 66.9% 65.9%
Administrative fees and commissions.............. 32.9 33.6 33.5 31.9 33.0
Loss from unconsolidated subsidiaries and
other........................................... 0.8 0.8 1.1 1.2 1.1
--------- --------- --------- --------- ---------
Total............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
AMSG's revenues are derived primarily from reinsurance assumed by AMSIC,
while health and life benefits constitute the majority of the expenses.
Profitability is directly affected by many factors including 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
TOTAL REVENUES
Total revenues for the six months ended June 30, 1996 increased 19.8% to
$428.6 million from $357.9 million over the same period in 1995. This increase
was due primarily to a 15.0% increase in the number of licensed agents to 44,534
on June 30, 1996 from 38,718 agents on June 30, 1995. The increase in the agent
force lead to an increase in sales of policies. See "Life and Health Premiums"
below for further discussion.
Total revenues in 1995 increased 32.0% to $763.3 million from $578.2 million
in 1994. Total revenues increased 53.6% in 1994 from $376.4 million in 1993. As
was the case for the six months ended June 30, 1996, the increases can also be
attributed to an increase in the agent force. At the end of 1995, AMS had 42,420
licensed agents, compared with 33,530 and 26,018 at the end of 1994 and
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1993, respectively. In addition, AMSG expanded the number of states in which it
markets its products to reach 32 states and the District of Columbia in 1995,
compared with 30 states in 1994 and 27 states in 1993.
LIFE AND HEALTH PREMIUMS. Life and health premiums for the six months ended
June 30, 1996 increased 21.1% to $281.5 million from $232.5 million for the same
period in 1995. The increase was due primarily to growth in the average number
of total medical contracts, from 430,727 at June 30, 1995, to 475,661 at June
30, 1996, a 10.4% increase. Average insured medical premium per contract for the
six months ended June 30, 1996 increased 3.7% from $210 to $218 compared with
the same period in the prior year.
Life and health premiums in 1995 increased 32.6% to $497.0 million from
$374.9 million in 1994, which followed a 54.3% increase over 1993's life and
health premiums of $242.9 million. The average number of total medical contracts
increased 28.3% in 1995 to 452,630 from 352,922 in 1994. The average number of
total medical contracts during 1994 increased 53.7% from 229,554 in 1993. The
average insured medical premium per contract remained relatively steady with an
increase of less than 1.0% from 1993 to 1995. In general, premium rate increases
were offset by customers shifting to products with lower benefit levels and
contract growth in lower cost geographic areas, thus resulting in a steady
amount of premium per contract.
AMSG began implementing more significant rate increases on renewals of its
insured medical products in the third quarter of 1995. For policies sold with
effective dates of September 1995 through August 1996, increases have averaged
approximately 21%. The rate increases take into consideration variations in
group size, geographic area, duration, plan design and family size. These rate
increases take effect as groups renew, and a portion of the business renews each
month. As such, it takes nearly a full year from the effective date of the
renewals to fully reflect the impact of the rate increases in premium revenues.
Therefore, premium revenue per contract is expected to increase during 1996 as
these rate increases continue to cycle through existing customers on their
respective renewal dates and as new groups are sold at higher rates. The impact
of these rate increases will be moderated to the extent the insured selects a
different level of benefits, deductibles, or co-payments.
ADMINISTRATIVE FEES AND COMMISSIONS. Administrative fees and commissions
include the revenues earned by AMS' third party administration of the policies
written through the UWS joint venture plus reimbursement of the commissions paid
by AMS related to such premium. The administrative fee received by AMS from UWS
was 9.5% of premium revenue in 1996, 1995, 1994 and was 10% in 1993.
Administrative fees are also received from self-funded groups and HMOs on a per
employee, per month basis. The average commission received approximated 12.5% of
premiums written in each of the periods.
The administrative fees and commissions for the six months ended June 30,
1996 increased 15.5% to $134.4 million from $116.3 million for the same period
in 1995. The administrative fees and commissions in 1995 increased 28.3% to
$246.5 million from $192.1 million in 1994. Administrative fees and commissions
in 1994 increased 54.7% from $124.1 million in 1993. These increases were due
primarily to increased premiums administered by AMS through the UWS joint
venture.
OTHER REVENUE. Other revenues from products and services for the six months
ended June 30, 1996 increased 48.5% to $6.8 million from $4.6 million for the
same period in 1995. This increase can be attributed to the start up of a new
subsidiary, Nurse Healthline, Inc. ("Nurse Healthline"), a 24 hour toll free
service which provides policy holders with telephone access to medical
information. This service began in late 1995.
Other revenue from products and services in 1995 increased 70.7% to $8.0
million from $4.7 million in 1994. Other revenue in 1994 increased 6.4% from
$4.4 million in 1993. AMS Provider Partnerships, Inc., a preferred provider
organization development company founded in January 1995, accounted for $3.2
million of the increase in 1995.
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LOSS FROM UNCONSOLIDATED SUBSIDIARIES. Since 1994, AMSG has started or
purchased several HMOs, of which one is consolidated. The losses from
unconsolidated subsidiaries have increased to $1.9 million for the six months
ended June 30, 1996 from $0.7 million for the same period in 1995. Losses for
the years ended December 31, 1995, 1994 and 1993 were $2.2 million, $0.5 million
and $0.3 million, respectively. These losses can be attributed to the increased
number of start-up operations. Management anticipates that it will take between
24 and 36 months after operations begin for these subsidiaries to reach
break-even.
INVESTMENT INCOME. In connection with the UWS joint venture, UWS holds
funds on behalf of AMSIC. Investment income to AMSIC is based on the average
return of the UWIC and UWLIC portfolios including realized investment gains.
Investment gains are realized in the normal investment process in response to
market opportunities. In addition, during 1995, gains were realized as
appreciated equity securities were sold in the process of rebalancing the
portfolio to its targeted equity exposure. Realized gains in the UWS portfolio
pass through to AMSIC as investment income. Investment income for the six months
ended June 30, 1996 increased 50.6% to $7.7 million from $5.1 million for the
six months ended June, 30, 1995. This increase was due to an increase in
realized gains along with an increased level of invested assets as a result of
growth in premiums assumed from UWIC and UWLIC. Average funds held per the
reinsurance agreement at June 30, 1996 increased $15.4 million to $133.1 million
from $117.7 million at June 30, 1995. Average annual investment yields,
including realized gains, were 10.2% and 7.4% for the six months ended June 30,
1996 and 1995, respectively.
Investment income in 1995 increased 100.9% to $14.1 million from $7.0
million in 1994. Investment income in 1994 increased 32.8% from $5.3 million in
1993. Average funds held per the reinsurance agreement in 1995 increased $22.3
million to $121.9 million from $99.6 million in 1994. Average funds held per the
reinsurance agreement in 1994 increased $35.7 million from $63.9 million in
1993. Average annual investment yields, including realized gains, were 10.2%,
6.1% and 7.4% for 1995, 1994 and 1993, respectively.
TOTAL EXPENSES
LOSS RATIO ON LIFE AND HEALTH BENEFITS. Loss Ratio is calculated as life
and health benefits reflected as a percentage of premium revenues. The Loss
Ratio on life and health benefits for the six months ended June 30, 1996 was
79.9%, compared with 80.2% for the six months ended June 30, 1995.
The Loss Ratio for 1995 was 78.4%, compared with 66.7% in 1994 and 67.4% in
1993. The products sold by AMSG are sensitive to changes in health care costs
and were adversely affected by the recent increase in the rate of health care
inflation, compared with a relatively moderate rate of inflation in prior
periods. The increase in the 1995 ratio was due primarily to higher than
expected incurred claims, beginning in the fourth quarter of 1994 and
accelerating into the first and second quarters of 1995. During 1995, AMSG
estimated that its liability for unpaid insured medical claims at December 31,
1994 had developed a pretax deficiency of approximately $5.4 million. This
deficiency was charged to operations during 1995 when it became known. Since the
second quarter of 1995, the rate of change in health care costs for AMSG's
insured medical products has remained fairly flat at approximately 10%. This
stability in the rate of inflation has allowed AMSG to better estimate health
care costs in the pricing of its products.
The increase in medical costs in 1995 and 1996 has affected other companies
operating in the small group marketplace. AMSG's health products utilize a
variety of provider reimbursement arrangements, many of which are based on, but
do not necessarily control, provider prices. A number of steps have been and are
continuing to be taken in an effort to improve the profitability of the health
business, including (i) selective price increases, (ii) modification of the
design of certain PPO products to adjust to the changed market conditions,
inflation patterns and utilization trends, (iii) a revision of underwriting
practices to improve risk identification, (iv) review and modification of
provider contracting arrangements, including direct contracting with providers
to better control health care costs, and (v) review and modification of claims
processing practices and procedures.
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EXPENSE ALLOWANCE ON REINSURANCE ASSUMED. The expense allowance on
reinsurance assumed (expense allowance) includes commissions, administrative
fees, premium taxes and assessments related to the reinsurance assumed through
the UWS joint venture agreement. See "Life and Health Premiums" above.
The expense allowance for the six months ended June 30, 1996 increased 18.5%
to $66.3 million from $55.9 million for the same period in the prior year. In
1995 the expense allowance increased 28.8% to $119.0 million from $92.4 million
in 1994. The increase in 1994 was 54.5% from $59.8 million in 1993. These
increases were due primarily to increased premium administered through the UWS
joint venture agreement.
COMMISSION EXPENSE. AMSG's products are sold through independent agents who
are compensated through commissions. Commissions are reflected on the
Consolidated Statements of Income both as commission revenue by AMS, the
third-party administrator, as well as an offsetting expense since AMSG is
responsible for the payment of commissions to the respective agents. Since 1993,
the average commission paid has approximated 12.5% of premium administered
through the joint venture agreement with UWS. See "Administrative Fees and
Commissions".
Commission expenses for the six months ended June 30, 1996 increased 12.4%
to $63.5 million from $56.5 million. Commission expense in 1995 increased 25.0%
to $119.1 million from $95.3 million in 1994. Commission expense in 1994
increased 65.6% from $57.5 million in 1993. These increases were due primarily
to increased premium administered through this UWS joint venture.
ADMINISTRATIVE EXPENSES. Administrative expenses, as a percentage of life
and health premium revenues, have remained relatively constant during the
periods as AMSG has added to its workforce and physical facility to support
anticipated future growth.
INCOME TAXES. AMSG's tax rate varies from the federal statutory rate, due
primarily to certain expenses which are not deductible for tax purposes.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Effective January 1, 1995, AMSG
changed its method of accounting for printed and promotional materials by
recording such materials as inventory and expensing the materials as they are
used in order to better match the expenses to the period benefited. Prior to
January 1, 1995, all purchases of such materials were immediately expensed. The
effect of the accounting change was an increase in net income for the first six
months of 1995 of $1.2 million, net of taxes of $0.7 million.
LIQUIDITY AND CAPITAL RESOURCES
AMSG's sources of cash flow consist primarily of premium revenue received,
administrative fees and investment income. The primary uses of cash include
medical and other benefits, commissions and administrative expense payments.
Positive cash flows are invested pending future payments of medical and other
benefits and other operating expenses. AMSG's investment policies, along with
UWS's, are designed to maximize yield, preserve principal and provide liquidity
to meet anticipated payment obligations.
Historically, AMSG has generated positive cash flow from operations. For the
six months ended June 30, 1996, however, net cash provided by (used in)
operating activities amounted to a use of $1.3 million, compared with a use of
$15.9 million for the same period in the prior year. The improvement in the use
of cash in 1996 was due primarily to a reduction in funds held on behalf of
AMSIC by UWS.
Net cash provided by operating activities amounted to $2.7 million in 1995,
compared with $33.5 million in 1994 and $5.2 million in 1993. The decrease in
cash flow from operations in 1995 was due primarily to the reduced level of net
income in 1995. The increase in cash flow from operations in 1994 as compared to
1993 was a result of increased net income in 1994 along with reduced increases
in funds held by UWS and other assets which represent uses of cash.
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In conjunction with the UWS joint venture, UWS holds funds to support policy
reserves and AMSIC's undistributed net profits and UWS credits investment income
to AMSIC on the funds held balance at UWIC and UWLIC's average portfolio rates.
At June 30, 1996 and 1995, UWS held $118.5 million and $122.8 million,
respectively. Of these funds, $30.3 million and $57.5 million were accessible as
of June 30, 1996 and 1995, respectively, upon request without prior approval of
UWS. UWS held $143.7 million and $124.5 million of funds on behalf of AMSIC at
December 31, 1995 and 1994, respectively. Of these funds, $60.3 million and
$57.8 million were accessible as of December 31, 1995 and 1994, respectively,
upon request without prior approval of UWS.
UWS's investment portfolio, which includes these funds, consists primarily
of investment grade bonds and has a limited exposure to equity securities. At
June 30, 1996 and 1995, 86.8% and 85.3%, respectively, of UWS's total investment
portfolio was invested in bonds. At December 31, 1995 and 1994, 86.8% and 88.2%,
respectively, of UWS's total investment portfolio was invested in bonds. The
bond portfolio had an average quality rating of AA- and AA at December 31, 1995
and 1994, respectively, and the majority of the bond portfolio was classified as
available for sale. In accordance with SFAS. No. 115, bonds classified as
available for sale are recorded on the balance sheet at market value. AMSG has
no investments in mortgage loans, non-publicly traded securities (except for
common stock of subsidiaries), real estate held for investment or financial
derivatives.
In February of 1996, AMSG borrowed $10.0 million from a bank. The proceeds
were used to retire $2.2 million of bank debt as well as fund operations. At
June 30, 1996, AMSG was not in compliance with certain covenants relating to
required levels of net income and net worth as defined by the agreement. AMSG
anticipates that it will repay the bank loan in connection with the Merger.
In April of 1995, AMSG borrowed $10.0 million from UWLIC. In August of 1995,
AMSG borrowed an additional $5.0 million from UWLIC. On September 29, 1995, the
$15.0 million debt was converted to $15.0 million of preferred stock in AMSG.
The proceeds from these transactions were used by AMSG for investment and
development of HMO subsidiaries, general corporate needs, as well as additional
capital equipment purchases relating to the expansion of the corporate office.
Management believes that in order to be a long term survivor in the health
care industry it needs to become more involved in managed care. As a result of
this strategic decision, AMSG has invested in several HMOs with partners from
the regions in which the HMOs are located. During the period of January 1, 1994
through June 30, 1996, AMSG has made investments in common stock and loans to
various HMOs of $16.1 million. These funds were used by the HMOs to provide and
maintain minimal levels of statutory capital and surplus as well as for working
capital to fund day to day operations.
The National Association of Insurance Commissioners ("NAIC") has adopted
risk-based capital guidelines for life and health insurers. These guidelines
currently apply only to AMSG's insurance company subsidiaries. Those
subsidiaries exceed the NAIC risk-based capital guidelines. The NAIC is also
developing risk-based capital guidelines for health organizations, which would
apply to other AMSG subsidiaries. In addition, the various state departments of
insurance and other state regulators have the authority to establish capital and
surplus requirements for individual companies and may propose stricter capital
and surplus requirements.
AMSG believes that internal funds and short term borrowings from its joint
venture partner (UWS) will be sufficient to finance planned growth for the
foreseeable future. In the event AMSG seeks additional financing to facilitate
long-term growth, it believes that such financing could be obtained through
other bank borrowings as market conditions may permit or dictate.
INFLATION
Health care costs have been rising and are expected to continue to rise at a
rate that exceeds the consumer price index. AMSG's cost control measures and
premium rate increases are designed to reduce the adverse effect of medical cost
inflation on operations. In addition, AMSG utilizes its ability
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to apply appropriate underwriting criteria in selecting groups and individuals
to control the utilization of health care services. However, there can be no
assurance that AMSG's efforts will fully offset the impact of inflation or that
premium revenue increases will equal or exceed increasing health care costs.
HEALTH CARE REFORM
In recent years, many states, including certain of the principal states in
which AMSG does business, have enacted or are considering various health care
reform statutes. These include small group reform statutes that limit the
ability of insurers to underwrite and rate, and statutes that provide for the
creation of regional purchasing pools. Florida, which accounted for
approximately 18% of AMSG's reinsurance assumed in 1995, has recently enacted a
package of such reforms, which include underwriting and rate restrictions as
well as the creation of purchasing alliances. To date, AMSG has made appropriate
adjustments to maintain a competitive position in Florida, and AMSG does not
believe that there has been a significant adverse impact on the marketability
and profitability of the Florida business. Adoption of such reform measures by a
substantial number of additional states, particularly measures mandating
purchasing pools, could significantly increase competition in the health care
industry.
Enactment by Congress of HR 3103, the Kennedy-Kassenbaum bill, will result
in changes in all of the states where AMSG does business. It may require changes
in rating and plan design to adjust for the small group guarantee-issue,
group-to-individual portability, and pre-existing condition limitation features.
The renewability, portability and health condition rating restrictions apply to
fully insured and self-funded plans. The bill will require many states to
rewrite their laws to conform to the new federal guidelines. Management views
this bill positively as it will result in greater state-by-state consistency.
Overall, the bill will require AMSG to conduct a thorough review of its filings,
plan designs and pricing methods in every state where it does business. This
will be a long-term process, and its completion relies heavily on the actions of
the states and the federal regulations implementing the bill, which are yet to
be issued.
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STOCK OWNED BY AMSG MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of shares of AMSG Common Stock as of , 1996 by (i)
directors and executive officers of AMSG, (ii) directors and executive officers
of AMSG as a group, and (iii) persons who are known to AMSG to beneficially own
more than 5% of AMSG Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
- --------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Wallace J. Hilliard............................................ 53,344.33(2),(4) 30.5%
Ronald A. Weyers............................................... 21,617.33(3),(4) 12.4
Thomas R. Hefty (1)............................................ -- --
All directors and executive officers as a group (3
individuals).................................................. 74,961.67 42.9(4)
United Wisconsin Services, Inc. (1)
401 West Michigan Street
Milwaukee, Wisconsin 53203.................................... 20,967 12.0
</TABLE>
- ------------------------
(1) Mr. Hefty is Chairman of the Board, President and Chief Executive Officer of
UWS.
(2) The number of shares set forth in the above table with respect to Mr.
Hilliard represents shares of AMSG Common Stock owned by Mr. Hilliard
personally. Excluded from such number are 18,322.33 shares of AMSG Common
Stock held in family trusts and 15,000 shares of AMSG Common Stock owned by
Mr. Hilliard's adult children or trusts for their benefit with respect to
which Mr. Hilliard disclaims beneficial ownership.
(3) The number of shares set forth in the above table with respect to Mr. Weyers
represents shares of AMSG Common Stock owned by Mr. Weyers personally.
Excluded from such number are 17,618.67 shares of AMSG Common Stock held in
family trusts and limited partnerships and 764 shares of AMSG Common Stock
owned by Mr. Weyers' wife with respect to which Mr. Weyers disclaims
beneficial ownership.
(4) Excluded from the number of shares set forth opposite Messrs. Hilliard and
Weyers' names is an aggregate of 78,805 shares of AMSG Common Stock held
under the Voting Trust Agreement with respect to which Messrs. Hilliard and
Weyers have shared voting and dispositive power.
APPROVAL OF AMENDMENTS TO UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
The UWS Board has approved, subject to shareholder approval, amendments to
the UWS Equity Incentive Plan (the "Plan") to: (a) increase from 600,000 to
2,750,000 the number of shares of UWS Common Stock to be issued thereunder; (b)
limit the number of shares which may be granted to individual participants in a
three year period; (c) change the requirements for the Committee which
administers the Plan to comply with changes to Exchange Act Rule 16b-3 (relating
to short swing profits) and Treas. Reg. 1.162-27 (relating to compensation in
excess of $1,000,000); and (d) permit the gifting of stock options to an
employee's spouse, children or grandchildren (or trusts for their benefit).
The increase in the number of shares from 600,000 to 2,750,000 is necessary
to permit the following transactions in connection with the Merger: (a) the
substitution of UWS Options for AMSG Options now held by AMS employees; (b) the
issuance of options to purchase 1,000,000 shares of UWS Common Stock granted to
Messrs. Hilliard & Weyers; and (c) the conversion of existing options to
purchase 7,113 shares of AMSG Common Stock into options to purchase UWS Common
Stock and the issuance of options to purchase an additional $4,000,000 worth of
UWS Common Stock granted to Mr. Samuel Miller.
Currently, options with respect to 467,000 shares have been issued pursuant
to the Plan. The options to purchase UWS Common Stock to be issued to Hilliard,
Weyers and to the other AMS
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employees in substitution for their existing AMSG Options will result in the
issuance of approximately 1,305,000 additional options. Approximately 508,000
options would be available for future grants under the Plan.
The following nonqualified options will be issued following the Merger if
the amendments to the UWS Equity Incentive Plan are approved by Shareholders.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
UWS OPTIONS
CURRENTLY
OUTSTANDING VALUE OF UNEXERCISED, IN ADDITIONAL UWS
----------------- THE MONEY OPTIONS AT OPTIONS ISSUED
EXERCISABLE/ --------------------------- IN CONNECTION
NAME AND PRINCIPAL POSITION UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE WITH MERGER
- ---------------------------------------------------------- ----------------- --------------------------- --------------
<S> <C> <C> <C>
Thomas R. Hefty N/A
Chairman of the Board,
President & Chief Executive Officer
Roger Formisano N/A
Executive Vice President &
Chief Operating Officer;
President of Compcare Health
Services Insurance Corporation and
Meridian Resources Corporation
Devon W. Barrix N/A
Vice President and President of
Unity Health Plans Insurance Corporation
C. Edward Mordy N/A
Vice President and Chief Financial Officer
Mark H. Granoff N/A
Vice President and President of
United Wisconsin Insurance Company and
United Wisconsin Life
Insurance Company
Total Executive Group (1) (1) (1)
Shares Reserved for Future Grant (1) (1) (1)
</TABLE>
- ------------------------
(1) The number of additional shares issued to the Total Executive Group and the
Shares Reserved for Future Grant cannot be determined as the number is based
on the Fair Market Value of UWS Stock at the time of the Merger. Additional
Options will be issued to other Messrs. Hilliard, Weyers and Miller (See
"CONFLICT OF INTEREST -- Additional Options to Purchase UWS Stock") and to
certain executives of AMSG in substitution for existing AMSG Options (See
"THE MERGER -- Conversion of AMSG Common Stock Options in Merger").
The dollar value of the proposed option awards in the table above will be
equal to the difference between the Fair Market Value of the Common Stock
underlying the Options and the exercise price. As the exercise price has not
been fixed for the Options issued in connection with the Merger at this
time, the dollar value of the Options cannot be determined.
Shareholder approval of the authorization for the additional options is
required by the terms of the Plan. Shareholder approval of the authorization for
the additional options is a condition to the consummation of the Merger.
The Plan will also be amended to limit the number of shares which may be
granted to individual participants during a three year period. This amendment
has been made to allow options issued
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pursuant to the Plan to be considered performance based compensation within the
meaning of Treas. Reg. 1.162-27. Performance based compensation is not subject
to the $1,000,000 limit on compensation which is deductible contained in Code
Section 162(m). Under the amendment the maximum number of shares with respect to
which grants may be made is 100,000 in any three year period, except that grants
with respect to 850,000 shares may be made in the three year period ended March
31, 1997. The 850,000 share limit for the period ended March 31, 1997 was
intended to permit the issuance of options as provided in Mr. Miller's
employment agreement.
The change in the committee which administers the Plan is intended to permit
options issued pursuant to the Plan to continue to be exempt from the short
swing profit recapture rules of Section 16 of the Exchange Act and to be
considered performance based compensation which would not be subject to the
limit on deductible compensation contained in Code Section 162(m).
The change permitting the gifting of nonstatutory options is made to allow
the employees to take advantage of certain estate planning opportunities. Recent
IRS private letter rulings have clarified the tax treatment of gifted options
and recent changes in Exchange Act Rule 16b-3 have permitted the gifting of
options.
The following is a summary of the basic terms and provisions of the Plan.
The Plan permits the grant to full-time employees ("Participants") of
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights
("SARs"), Restricted Stock, Performance Units and Performance Shares (all as
defined in the Plan).
The purpose of the Plan is to promote the success and enhance the value of
UWS by linking the personal interests of the Participants with an incentive for
outstanding performance. The Plan further is intended to provide flexibility to
UWS 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. The Plan is administered by the Management Review
Committee (the "Committee") of the Board of Directors. The Committee is
authorized to determine the size and types of awards under the Plan, the
Participants 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.
The term of any Incentive Stock Option or Nonqualified Stock Option granted
pursuant to the Plan shall not exceed ten or twelve years, respectively (five
years in the case of a 10% shareholder granted Incentive Stock Options), and the
option price per share therefor shall not be less than the fair market value of
the Common Stock on the date the option is granted (110% of the fair market
value in the case of a 10% shareholder granted Incentive Stock Options). Options
are not exercisable in any event prior to six months following the date of
grant.
SARs shall have a grant price at least equal to 100% of the fair market
value of the 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 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 participants in such amounts as the
Committee shall determine subject to the terms and provisions of the 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 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 Stock. Restricted Stock shall not vest in any event prior to six
months following the date of grant.
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The number and/or value of Performance Units or Performance Shares that will
be paid to Participants shall be based on the extent to which performance goals,
as determined by the Committee, have been met. The performance goals must 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 Committee and
each Performance Share shall have an initial value equal to the fair market
value of the Common Stock on the date of grant.
As of August 15, 1996, nonqualified stock options with respect to
approximately 467,000 shares have been issued pursuant to the Plan. Awards shall
immediately vest and/or be exercisable upon the occurrence of death, disability
or retirement, or a Change in Control (as defined in the Plan). Subject to the
terms of the 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 death (by the Participant's personal
representative, legatees or heirs) if employed by UWS at such date, within one
year after a Participant's employment with UWS is terminated by disability, and
within three years after a Participant retires (as defined in UWS's "tax
qualified pension plan"). The Committee may permit a Participant to defer such
Participant's receipt of the payment of cash or the delivery of shares of Common
Stock that would otherwise be due. The Committee may terminate, amend or modify
the Plan with the approval of the UWS Board. Any termination, amendment or
modification, however, which materially (i) increases the total number of shares
of UWS Common Stock which may be issued under the Plan; (ii) modifies the
eligibility requirements to add a class of person ("Insiders") subject to
Section 16 of the Exchange Act (iii) increases the benefits accruing to Insiders
under the Plan, must be approved by the shareholders of UWS.
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
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 UWS 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 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 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 UWS.
THE UWS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
The proposal must be approved by the affirmative vote of holders of a majority
of the shares of UWS Common Stock represented at the UWS Special Meeting.
Abstentions and broker non-votes are treated as "no" votes in determining
whether the proposal is approved. The proxies will be voted for or against the
proposal, or as an abstention, in accordance with the instructions specified on
the proxy form. If no instructions are given, proxies will be voted for approval
of the amendment to the UWS Equity Incentive Plan.
DESCRIPTION OF UWS CAPITAL STOCK
UWS's authorized capital stock consists of 50,000,000 shares of its Common
Stock, no par value per share, and 500,000 shares of UWS Preferred Stock, no par
value per share.
COMMON STOCK
Subject to Section 180.1150(2) of the WBCL (described below under "--
Certain Statutory Provisions"), holders of UWS Common Stock are entitled to one
vote for each share of UWS Common Stock held by them on all matters properly
presented to shareholders. Holders of UWS Common Stock are not entitled to
cumulative voting rights. Subject to the prior rights of the holders of any
shares of Preferred Stock that are outstanding, the UWS Board of Directors may
in its discretion declare and pay dividends on the UWS Common Stock out of
earnings or assets of UWS legally available for the payment therefor. Subject to
the prior rights of the holders of any shares of Preferred Stock that are
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<PAGE>
outstanding, in the event UWS is liquidated, any amounts remaining after the
discharge of outstanding indebtedness will be paid pro rata to the holders of
UWS Common Stock. Holders of UWS Common Stock are not entitled to any
preemptive, subscription or conversion rights. The outstanding shares of UWS
Common Stock are, and the UWS Common Stock to be issued in the Merger will be,
legally issued, fully paid and nonassessable, except for certain statutory
liabilities which may be imposed by Section 180.0622 as judicially interpreted
of the WBCL for unpaid employee wages.
PREFERRED STOCK
The UWS Board of Directors is authorized to issue from time to time, without
shareholder authorization, in one or more designated series, shares of Preferred
Stock with such dividend, redemption, conversion and exchange provisions as are
provided in the particular series. No dividends or other distributions are
payable on the UWS Common Stock unless dividends are paid in full on the
Preferred Stock and all sinking fund obligations for the Preferred Stock, if
any, are fully funded. In the event of a liquidation or dissolution of UWS, the
outstanding shares of Preferred Stock would have priority over the UWS Common
Stock to receive the amount specified in each particular series out of the
remaining assets of UWS.
CERTAIN CHARTER AND BYLAW PROVISIONS
Article II of UWS's Bylaws provides procedures by which shareholders may
raise matters at annual meetings and may call special meetings. These provisions
also establish the procedure for fixing a record date for special meetings
called by shareholders. The affirmative vote of either (i) holders of a majority
of the voting power of shares entitled to vote in the election of directors or
(ii) a majority of the directors then in office is required to amend, repeal or
adopt any provision inconsistent with the foregoing Bylaw provisions. Under
UWS's Restated and Amended Articles of Incorporation, the UWS Board of Directors
is divided into three classes as nearly equal in number as possible. One class
is elected each year for a three-year term. In addition, a director may be
removed from office only by the affirmative vote of at least 80% of the
outstanding shares entitled to vote for the election of such director, and any
vacancy so created may be filled by the affirmative vote of at least 80% of such
shares. The staggered board provisions and the provision regarding the 80% vote
required for removal of a director may only be amended by the affirmative vote
of shareholders possessing at least 75% of the outstanding shares entitled to
vote.
CERTAIN STATUTORY PROVISIONS
Section 180.1150(2) of the WBCL provides that the voting power of shares of
an "issuing public corporation," such as UWS, which are held by any persons
holding in excess of 20% of the voting power of the issuing public corporation's
shares, shall be limited to such 20% of the voting power plus 10% of the voting
power of such excess shares. This statutory voting restriction is not applicable
to shares acquired directly from UWS, shares as to which the shareholders of UWS
vote to restore the full power and under certain other circumstances more fully
described in Section 180.1150(3). This statutory voting restriction is not
applicable to the shares of UWS Common Stock held by BCBSUW as of the date of
this Joint Proxy Statement/Prospectus.
Sections 180.1130 to 180.1134 of the WBCL provide that certain business
combinations not meeting specified adequacy-of-price standards must be approved
by the vote of at least 80% of the votes entitled to be cast by shareholders and
by two-thirds of the votes entitled to be cast by shareholders other than a
significant shareholder who is a party to the transaction. The term "business
combination" is defined to include, subject to certain exceptions, a merger or
consolidation of an issuing public corporation, such as UWS (or any subsidiary
thereof), with, or the sale or other disposition of substantially all assets of
the issuing public corporation to, any significant shareholder or affiliate
thereof. "Significant shareholder" is defined generally to include a person that
is the beneficial owner of 10% or more of the voting power of the shares of the
issuing public corporation.
Sections 180.1140 to 180.1145 of the WBCL provide that a "resident domestic
corporation," such as UWS, may not engage in a "business combination" with an
"interested stockholder" (a person beneficially owning 10% or more of the
aggregate voting power of the stock of such corporation) for
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three years after the date (the "stock acquisition date") the interested
stockholder acquired his or her 10% or greater interest, unless the business
combination (or the acquisition of the 10% or greater interest) was approved
before the stock acquisition date by such corporation's board of directors.
After the three-year period, a business combination that was not so approved may
be consummated only if it is approved by a majority of the outstanding voting
shares not held by the interested stockholder or is made at a specified formula
price intended to provide a fair price for the shares held by noninterested
stockholders. These provisions are not applicable to the shares of Common Stock
held by BCBSUW as of the date of this Joint Proxy Statement/Prospectus because
the Board of Directors of BCBSUW approved the Merger at a meeting on July 31,
1996.
Because UWS is an insurance holding company and various of its subsidiaries
are Wisconsin insurance companies, the Wisconsin Statutes and administrative
rules regulate, among other things, certain transactions in UWS Common Stock.
The Wisconsin Statutes provide that the acquisition of 10% or more of the voting
securities of the company creates a rebuttable presumption that "control" of
UWS's insurance company subsidiaries is being acquired in the transaction,
unless the OCI, upon application, determines otherwise. Thus, any person
attempting to acquire "control" of UWS must, prior to such acquisition, file a
registration statement and other documents with the OCI and obtain the OCI's
prior approval of such acquisition.
These statutory and administrative restrictions may have the effect of
discouraging or making it more difficult for a person to acquire a substantial
equity interest in UWS and may otherwise restrict the market for the purchase or
sale of a significant number of the shares of UWS Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Firstar Trust
Company, Milwaukee, Wisconsin.
COMPARATIVE RIGHTS OF AMSG STOCKHOLDERS AND UWS SHAREHOLDERS
COMPARISON OF SHAREHOLDER RIGHTS
AMSG is incorporated under the laws of the State of Delaware, and UWS is
incorporated under the laws of the State of Wisconsin. Stockholders of AMSG
whose rights are governed by AMSG's Certificate of Incorporation and Bylaws and
by the DGCL, will, on consummation of the Merger, become shareholders of UWS.
Their rights as UWS shareholders will then be governed by UWS's Restated and
Amended Articles of Incorporation and Bylaws and by the WBCL. The following is a
summary of the material differences between the rights of stockholders of AMSG
and the rights of shareholders of UWS. This summary is not intended to be relied
upon as an exhaustive list or detailed description of the provisions discussed
and is qualified entirely by the DGCL, the WBCL, AMSG's Certificate of
Incorporation and Bylaws and UWS's Restated and Amended Articles of
Incorporation and Bylaws.
CAPITAL STOCK. The Certificate of Incorporation of AMSG authorizes the
Board of Directors of AMSG to issue up to 600,000 shares of common stock, $1.00
par value, and 15,000 shares of Series A Preferred Stock, $1.00 par value (the
"AMSG Preferred"). As of July 31, 1996, 174,733.67 shares of AMSG Common Stock
were outstanding and 15,000 shares of AMSG Preferred were outstanding. The Board
of Directors may establish the relative rights and preferences of preferred
stock issued in the future without stockholder action and issue such stock in
series.
AMSG common stockholders have no preemptive rights. The outstanding shares
of AMSG Common Stock are fully paid and nonassessable. AMSG common stockholders
are entitled to one vote for each share held on each matter submitted to a vote
of the holders of AMSG Common Stock. Cumulative voting for the election of
directors is not permitted. Subject to the preferential dividend rights of any
issued and outstanding AMSG Preferred, AMSG's common stockholders are entitled
to receive dividends as and when declared by the Board of Directors of AMSG.
Under Delaware law, AMSG may declare and pay dividends out of surplus or, if
there is not surplus, out of net profits for the fiscal year
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in which the dividend is declared and/or the preceding year. No dividends may be
declared, however, if the capital of AMSG has been diminished by depreciation,
losses or otherwise to an amount less than the aggregate amount of capital
represented by any issued and outstanding capital stock having a preference on
distribution.
If AMSG were liquidated, the holders of AMSG Common Stock would be entitled
to receive, pro rata, all assets available for distribution to them after full
satisfaction of AMSG's liabilities and any payment applicable to any AMSG
Preferred then outstanding.
The Restated and Amended Articles of Incorporation of UWS authorize the
Board of Directors of UWS to issue up to 50,000,000 shares of UWS Common Stock,
no par value, and up to 500,000 shares of preferred stock, no par value. The
Board of Directors may establish the relative rights and preferences of
preferred stock issued in the future without shareholder action and issue such
stock in series. As of July 31, 1996, 12,599,715 shares of UWS Common Stock were
outstanding. No shares of UWS preferred stock were outstanding as of such date.
APPRAISAL RIGHTS AND DISSENTERS' RIGHTS. Under the DGCL, stockholders of a
corporation who dissent from a merger or consolidation of the corporation in the
manner provided by Delaware law are entitled to receive payment of the fair
value of their stock, as determined by the Delaware Court of Chancery. However,
such right is not available to stockholders (i) whose shares are listed on a
national securities exchange, quoted on The Nasdaq Stock Market or held of
record by more than 2,000 stockholders, or (ii) where the vote of such
stockholders of the corporation surviving or resulting from the merger or
consolidation was not required for approval thereof, unless the stockholders are
required to accept in the merger or consolidation anything except certain types
of stock (including UWS Common Stock) or cash in lieu of fractional shares of
such stock. AMSG Common Stock is not listed on a national securities exchange,
quoted on The Nasdaq Stock Market or held of record by more than 2,000
stockholders.
Delaware law does not provide appraisal rights to stockholders who dissent
from the sale of all or substantially all of the corporation's assets unless the
corporation's certificate of incorporation provides otherwise. AMSG's
Certificate of Incorporation does not provide for appraisal rights in the
context of a sale of all or substantially all of AMSG's assets.
Under the WBCL, a shareholder of a corporation is generally entitled to
receive payment of the fair value of such shareholder's stock if such
shareholder dissents from a proposed merger or share exchange or a sale or
exchange of all or substantially all of the property and assets of the
corporation. However, dissenter's rights are not available to holders of shares,
such as shares of UWS Common Stock, which are registered on a national
securities exchange or quoted on The Nasdaq Stock Market on the record date
fixed to determine shareholders entitled to notice of the meeting at which
shareholders are to vote on the proposed corporation action. UWS Common Stock is
listed on the NYSE.
ASSESSABILITY; POTENTIAL LIABILITY FOR WAGES. UWS Common Stock is subject
to possible assessment in certain circumstances. Section 180.0622(2)(b) of the
WBCL provides that shareholders of Wisconsin corporations are personally liable
to an amount equal to the par value of shares owned by them (and to the
consideration for which shares without par value were issued) for debts owing to
employees of the corporation for services performed for such corporation, but
not exceeding six months' service in any one case. The liability imposed by the
predecessor to this statute was interpreted in a trial court decision to extend
to the original issue price for shares, rather than the stated par value.
Although affirmed by the Wisconsin Supreme Court, the case offers no
precedential value due to the fact that the decision was affirmed by an equally
divided court. UWSG Common Stock is not otherwise subject to call or assessment.
Shares of stock of Delaware corporations are nonassessable under the DGCL. The
DGCL does not impose personal liability on holders of AMSG Common Stock for
debts owing to employees or otherwise.
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TAKEOVER STATUTES
Wisconsin law regulates a broad range of "business combinations" between a
Wisconsin corporation and an "interested stockholder." Wisconsin law defines a
"business combination" as including a merger or a share exchange, sale of
assets, issuance of stock or rights to purchase stock and certain related party
transactions. An "interested stockholder" is defined as a person who
beneficially owns, directly and indirectly, 10% of the outstanding voting stock
of a corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting stock within the last three years. In
certain cases, Wisconsin law prohibits a corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date on which the person became an interested stockholder, unless (i) the
board of directors approved the business combination or the acquisition of the
stock prior to the acquisition date, (ii) the business combination is approved
by a majority of the outstanding voting stock not owned by the interested
stockholder, (iii) the consideration to be received by stockholders meets
certain requirements of the statute with respect to form and amount or (iv) the
business combination is of a type specifically excluded from the coverage of the
statute.
Section 180.1150 of the WBCL provides that in particular circumstances the
voting of shares of a Wisconsin "issuing public corporation" (a Wisconsin
corporation which has at least 100 Wisconsin resident stockholders, 500 or more
stockholders of record and total assets exceeding $1 million) held by any person
in excess of 20% of the voting power is limited to 10% of the full voting power
of such excess shares. Full voting power may be restored under Section 180.1150
if a majority of the voting power of shares represented at a meeting, including
those held by the party seeking restoration, are voted in favor of such
restoration.
In addition, the WBCL sets forth certain fair price provisions which govern
mergers and share exchanges with, or sales of substantially all a Wisconsin
issuing public corporation's assets to, a 10% shareholder, mandating that any
such transaction meet one or two requirements. The first requirement is that the
transaction be approved by 80% of all shareholders and two-thirds of
"disinterested" shareholders, which generally exclude the 10% shareholder. The
second requirement is the payment of a statutory fair price, which is intended
to insure that shareholders in the second step merger, share exchange or asset
sale receive at least what shareholders received in the first step.
Further, the WBCL requires shareholder approval for certain transactions in
the context of a tender offer or similar action for in excess of 5% of a
Wisconsin corporation's stock. Shareholder approval is required for the
acquisition of more than 5% of the corporation's stock at a price above market
value, unless the corporation makes an equal offer to acquire all shares.
Shareholder approval is also required for the sale or option of assets which
amount to at least 10% of the market value of the corporation, but this
requirement does not apply if the corporation meets certain minimum outside
director standards.
DGCL Section 203 (the "Delaware Business Combination Statute") applies to
certain business combinations involving a Delaware corporation and certain of
its stockholders. The Delaware Business Combination Statute prevents an
"interested stockholder" (defined generally as a person with 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (defined to include a variety of transactions, including the sale
of assets, mergers and almost any related party transaction) with a Delaware
corporation for three years following the date such person became an interested
stockholder, unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction which resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by certain employee stock
ownership plans), or (iii) following the transaction in which such person became
an interested stockholder, the business combination is approved by the board of
67
<PAGE>
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
A corporation may elect in its certificate of incorporation not to be
governed by Section 203, and the restrictions imposed on interested stockholders
under Section 203 do not apply under certain limited circumstances set forth
therein, including certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors.
Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an interested stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
interested stockholder or any affiliate or associate thereof, including, without
limitation, (i) any merger or consolidation of the corporation or a direct or
indirect majority-owned subsidiary of the corporation with (A) the interested
stockholder, or (B) with any other corporation if the merger or consolidation is
caused by the interested stockholder and as a result of such merger or
consolidation the above limitations of Section 203 are not applicable to the
surviving corporation; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (except proportionately as a stockholder of the
corporation) to or with the interested stockholder of assets having an aggregate
market value equal to 10% or more of the aggregate market value of all assets of
the corporation determined on a consolidated basis or the aggregate market value
of all the outstanding stock of a corporation; (iii) any transaction which
results in the issuance or transfer by the corporation or by any majority owned
subsidiary thereof of any stock of the corporation or such subsidiary to the
interested stockholder, except, among other things, pursuant to a transaction
which effects a pro rata distribution to all stockholders of the corporation;
(iv) any transaction involving the corporation or any majority owned subsidiary
thereof which has the effect of increasing the proportionate share of the stock
of any class or series, or securities convertible into the stock of any class or
series, of the corporation or any such subsidiary which is owned by the
interested stockholder (except, among other things, as a result of immaterial
changes due to fractional share adjustments); or (v) any receipt by the
interested stockholder of the benefit (except proportionately as a stockholder
of such corporation) of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation. The Merger is not a
"business combination" as defined in Section 203 and therefore, Section 203 is
not applicable to the transactions contemplated by the Merger Agreement.
DIRECTORS
The Board of Directors of AMSG consists of a single class of directors, each
of whom serves a term of one year. Holders of AMSG Common Stock elect all of the
directors at each annual meeting of AMSG's stockholders. Any director may be
removed either for or without cause at any time by the affirmative vote of the
holders of a majority of stockholders called for that purpose. The Board of
Directors of UWS is divided into three classes as nearly equal in number as
possible, with the directors in each class serving staggered three-year terms.
At each annual meeting of UWS's shareholders, the successors to the class of
directors whose term expires at the time of such meeting are elected by a
majority of the votes cast, assuming a quorum is present. A director of UWS may
be removed, with or without cause, only by the affirmative vote of not less than
80% of the then issued and outstanding shares taken at a special meeting of
shareholders called for that purpose.
LIABILITY OF DIRECTORS; INDEMNIFICATION. AMSG has provided in its
Certificate of Incorporation that it will indemnify its directors and officers
pursuant to the terms as set forth in Article Eleven of such Certificate. Under
Article Eleven of AMSG's Certificate of Incorporation, such indemnification
would apply if the indemnified individual is or was a director or officer and
the individual acted in good faith, reasonably believed his or her conduct was
in AMSG's best interests (or not opposed to AMSG's best interests) and, in the
case of any criminal proceeding, the individual had no reasonable cause to
68
<PAGE>
believe the individual's conduct was unlawful. However, AMSG will not indemnify
a director or officer in connection with a proceeding by or in the right of the
corporation in which the director or officer was adjudged liable to AMSG for
negligence or misconduct in the performance of his duty to the corporation
unless a court of competent jurisdiction determines that such person is entitled
to indemnification despite the adjudication of liability. Under UWS's bylaws and
the WBCL, UWS indemnifies its directors and officers against liability incurred
by the director or officer in a proceeding to which the indemnified person was a
party because he or she is a director or officer, unless liability was incurred
because a director or officer breached or failed to perform a duty that he or
she owes to the corporation and the breach or failure constitutes a willful
failure to deal fairly with the corporation or its shareholders in connection
with a matter in which the director or officer has a material conflict of
interest, a violation of criminal law (unless the director or officer had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful), a transaction from which
the director or officer derived an improper personal benefit or willful
misconduct. In addition, under the WBCL, a director of UWS is not liable to the
corporation, its shareholders or any person asserting rights on behalf of the
corporation or its shareholders for liabilities arising from a breach of, or
failure to perform, any duty resulting solely from his or her status as a
director, unless the person asserting liability proves that the breach or
failure to perform constitutes any of the circumstances under which
indemnification would not be provided.
ACTION WITHOUT A MEETING
Under the DGCL and AMSG's Bylaws, any action required or permitted to be
taken at a meeting of stockholders may be taken without a meeting if a consent
in writing, setting forth the action taken, is signed by holders of not less
than the minimum number of shares necessary to authorize or approve such action.
Under the WBCL, such action without a meeting is allowed only if the consent is
signed by all of the shareholders entitled to vote with respect to the subject
matter.
AMENDMENT OF CORPORATE CHARTER
Under the WBCL, the Board of Directors can establish conditions for the
amendment of the Articles of Incorporation (e.g., super-majority vote, no more
than a given percentage dissent, etc.). The WBCL provides that certain
significant amendments to articles of incorporation, but not all amendments,
must be approved by the shareholders in addition to approval by the Board of
Directors. The vote of shareholders needed to approve an amendment depends in
part on the voting groups entitled to vote separately on the amendment.
Generally, the WBCL provides that, if a quorum exists, action on a matter other
than the election of directors is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the WBCL require a greater number of affirmative
votes. UWS's Restated and Amended Articles of Incorporation require the
affirmative vote of not less than 75% of the outstanding shares entitled to vote
for directors to amend provisions of the Restated and Amended Articles relating
to the Board of Directors.
Delaware law requires the vote of a simple majority of the outstanding
voting stock of a corporation, and the vote of a simple majority of the
outstanding stock of each class entitled to vote as a class, to amend the
certificate of incorporation, in addition to approval by the corporation's board
of directors.
STOCKHOLDER DERIVATIVE PROCEEDINGS
Under Delaware law and the WBCL, before a stockholder may bring an action by
or on behalf of the corporation (a "derivative action"), a stockholder must make
a demand on the corporation's Board of Directors to remedy the situation about
which the stockholder complains. Under Delaware law, the demand requirement may
be excused if the stockholder can show that such demand would be futile because
the alleged wrongdoers comprised or controlled a majority of the Board of
Directors. Under the WBCL, the futility exception to the demand requirement has
been eliminated. Therefore, a stockholder bringing a derivative action on behalf
of a Wisconsin corporation will be required in all instances to make a demand on
the corporation's Board of Directors.
69
<PAGE>
LEGAL OPINION
The legality of the UWS Common Stock to be issued in connection with the
Merger is being passed upon for UWS by Michael Best & Friedrich, Milwaukee,
Wisconsin.
AMSG will receive the opinion of Godfrey & Kahn, S.C. substantially to the
effect that the Merger will qualify as a "reorganization" under Section 368(a)
of the Code. See "THE MERGER -- Certain Federal Income Tax Considerations."
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposal intended for inclusion in the proxy statement and
form of proxy relating to UWS's 1997 annual meeting of shareholders must be
received by UWS not later than March 31, 1997, pursuant to the proxy soliciting
regulations of the Commission. Nothing in this paragraph shall be deemed to
require UWS to include in its proxy statement and form of proxy for such meeting
any shareholder proposal which does not meet the requirements of the Commission
in effect at the time.
EXPERTS
The consolidated financial statements of UWS appearing in the United
Wisconsin Services, Inc. Annual Report on Form 10-K for the year ended December
31, 1995, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance on such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of AMSG at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, appearing
in this Joint Proxy Statement/ Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
70
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN MEDICAL SECURITY GROUP, INC.
<TABLE>
<CAPTION>
Report of Independent Auditors........................................................ F-2
<S> <C>
Consolidated Balance Sheets at December 31, 1995 and 1994 and June 30, 1996
(Unaudited).......................................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1995, 1994, 1993
and the six months ended June 30, 1996 and 1995 (Unaudited).......................... F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995,
1994, 1993 and the six months ended June 30, 1996 (Unaudited)........................ F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994,
1993 and the six months ended June 30, 1996 and 1995 (Unaudited)..................... F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Medical Security Group, Inc.
We have audited the accompanying consolidated balance sheets of American
Medical Security Group, Inc. (the Company) as of December 31, 1995, and 1994,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
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 consolidated financial position of American
Medical Security Group, Inc. at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
made certain accounting changes in 1995 and 1994.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
April 5, 1996
F-2
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ JUNE 30
1995 1994 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Investments:
Bonds available for sale, at fair value................................. $ 8,464 $ 4,086 $ 8,450
Bonds held to maturity, at amortized cost............................... 1,880 1,880 1,880
Other invested assets................................................... 5,433 3,940 6,404
Investments in unconsolidated affiliates................................ 3,706 1,792 2,498
----------- ----------- -----------
19,483 11,698 19,232
Cash and cash equivalents................................................. 18,929 28,262 16,839
Property and equipment:
Furniture and equipment................................................. 12,621 8,335 14,706
Computer equipment and software......................................... 32,576 21,822 36,030
Leasehold improvements.................................................. 1,836 1,547 1,876
Less allowance for depreciation......................................... (22,156) (12,447) (28,550 )
----------- ----------- -----------
24,877 19,257 24,062
Deferred income taxes..................................................... 1,892 4,514 5,296
Receivables and other assets:
Funds held by insurance companies....................................... 144,390 110,263 129,349
Advance to affiliates................................................... 12,000 12,000 --
Premiums................................................................ 4,353 1,700 3,468
Interest................................................................ 565 413 238
Related party receivables............................................... 6,035 5,293 9,290
Commission advances..................................................... 2,347 1,586 1,941
Income tax receivable................................................... 1,205 -- 2,768
Prepaid expenses and other.............................................. 6,902 805 8,002
----------- ----------- -----------
177,797 132,060 155,056
----------- ----------- -----------
Total assets........................................................ $ 242,978 $ 195,791 $ 220,485
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ JUNE 30
1995 1994 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
Health insurance claim reserves........................................... $ 82,223 $ 53,292 $ 75,662
Life claim reserves....................................................... 2,615 1,467 3,156
Unearned premium reserves................................................. 11,106 9,670 12,122
Notes payable............................................................. 2,229 3,693 11,936
Other liabilities:
Premiums payable........................................................ 28,985 39,147 13,553
Self-funded deposits.................................................... 11,279 4,337 10,460
Accounts payable........................................................ 2,188 2,065 4,781
Commissions payable..................................................... 5,065 2,598 4,561
Deferred administrative fees............................................ 6,580 5,280 6,880
Employee compensation, payroll taxes and amounts withheld............... 6,695 4,920 7,090
Income taxes payable.................................................... -- 666 --
Other................................................................... 3,287 3,069 1,489
Minority interest in subsidiary......................................... 231 455 165
----------- ----------- -----------
Total liabilities..................................................... 162,483 130,659 151,855
Commitments and contingencies (Note 13)
Shareholders' equity:
Common stock, par value $1 per share:
Authorized shares -- 600,000
Issued and outstanding shares -- 174,584 in 1994 and 174,734 in 1995
and 1996 (unaudited)................................................. 175 175 175
Preferred stock, par value $1 per share and $1,000 stated value per
share:
Authorized shares -- 15,000
Issued and outstanding shares -- 15,000............................... 15,000 -- 15,000
Additional paid-in capital.............................................. 3,816 3,786 3,816
Retained earnings....................................................... 57,898 64,747 50,030
Unrealized gain (loss) on debt securities............................... 3,606 (3,576) (391 )
----------- ----------- -----------
Total shareholders' equity............................................ 80,495 65,132 68,630
----------- ----------- -----------
Total liabilities and shareholders' equity.......................... $ 242,978 $ 195,791 $ 220,485
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
------------------------------------- ------------------------
1995 1994 1993 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Revenue:
Life and health premiums...................... $ 496,989 $ 374,875 $ 242,896 $ 281,513 $ 232,486
Administrative fees and commissions........... 246,458 192,109 124,148 134,385 116,310
Investment income............................. 14,102 7,020 5,288 7,735 5,135
Loss from unconsolidated subsidiaries......... (2,170) (472) (300) (1,903) (655)
Other......................................... 7,958 4,663 4,381 6,848 4,613
----------- ----------- ----------- ----------- -----------
Total revenue............................... 763,337 578,195 376,413 428,578 357,889
Expenses:
Life and health benefits...................... 389,498 249,992 163,642 224,899 186,457
Expense allowance on reinsurance assumed...... 118,996 92,405 59,821 66,261 55,898
Commissions................................... 119,137 95,299 57,545 63,490 56,472
Administrative expenses....................... 145,748 102,452 68,329 84,071 69,022
----------- ----------- ----------- ----------- -----------
Total expenses.............................. 773,379 540,148 349,337 438,721 367,849
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest, income
taxes and cumulative effect of change in
accounting principle........................... (10,042) 38,047 27,076 (10,143) (9,960)
Minority interest in net loss of subsidiary..... 244 42 -- 88 119
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and cumulative
effect of change in accounting principle....... (9,798) 38,089 27,076 (10,055) (9,841)
Income taxes (benefit).......................... (1,947) 14,250 9,991 (2,628) (2,482)
----------- ----------- ----------- ----------- -----------
Income (loss) before cumulative effect of change
in accounting principle........................ (7,851) 23,839 17,085 (7,427) (7,359)
Cumulative effect of change in accounting
principle, net of tax.......................... 1,236 -- -- -- 1,236
----------- ----------- ----------- ----------- -----------
Net income (loss)......................... $ (6,615) $ 23,839 $ 17,085 $ (7,427) $ (6,123)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL GAIN (LOSS) TOTAL
COMMON PREFERRED PAID-IN RETAINED ON DEBT SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS SECURITIES EQUITY
----------- --------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at January 1, 1993......................... $ 170 $ -- $ 2,801 $ 23,823 $ -- $ 26,794
Net income....................................... -- -- -- 17,085 -- 17,085
Common stock issued.............................. 5 -- 985 -- -- 990
----- --------- ----------- --------- ----------- -------------
Balance at December 31, 1993....................... 175 -- 3,786 40,908 -- 44,869
Net income....................................... -- -- -- 23,839 -- 23,839
Adjustment for change in accounting method, net
of deferred taxes............................... -- -- -- -- 1,305 1,305
Unrealized depreciation on available-for-sale
securities, net of deferred taxes............... -- -- -- -- (4,881) (4,881)
----- --------- ----------- --------- ----------- -------------
Balance at December 31, 1994....................... 175 -- 3,786 64,747 (3,576) 65,132
Preferred stock issued........................... -- 15,000 -- -- -- 15,000
Exercised stock options.......................... -- -- 30 -- -- 30
Dividends paid on preferred stock................ (234) (234)
Net loss......................................... -- -- -- (6,615) -- (6,615)
Unrealized appreciation on available-for-sale
securities, net of deferred taxes............... -- -- -- -- 7,182 7,182
----- --------- ----------- --------- ----------- -------------
Balance at December 31, 1995....................... 175 15,000 3,816 57,898 3,606 80,495
(UNAUDITED)
Dividends paid on preferred stock................ -- -- -- (441) -- (441)
Net loss......................................... -- -- -- (7,427) -- (7,427)
Unrealized depreciation on available-for-sale
securities, net of deferred taxes............... -- -- -- -- (3,997) (3,997)
----- --------- ----------- --------- ----------- -------------
Balance at June 30, 1996........................... $ 175 $ 15,000 $ 3,816 $ 50,030 $ (391) $ 68,630
----- --------- ----------- --------- ----------- -------------
----- --------- ----------- --------- ----------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31 JUNE 30
------------------------------- --------------------
1995 1994 1993 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)........................................... $ (6,615) $ 23,839 $ 17,085 $ (7,427) $ (6,123)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for depreciation and amortization............. 10,450 7,369 3,660 6,588 4,524
Gain on sale of property and equipment.................. (8) (234) 228 -- (13)
Equity in loss of unconsolidated affiliates............. 2,170 472 300 1,903 813
Deferred income taxes (benefit)......................... (1,245) 675 (933) (1,254) (303)
Contribution of common stock to profit sharing plan..... -- -- 990 -- --
Changes in operating accounts:
Receivables and other assets.......................... (34,882) (37,915) (55,334) 18,696 (6,425)
Unearned premium reserves............................. 1,436 2,699 4,548 2,386 (374)
Insurance claim reserves.............................. 30,079 15,851 23,535 (4,995) 8,017
Other liabilities..................................... 1,313 20,746 11,134 (17,199) (16,054)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities......... 2,698 33,502 5,213 (1,302) (15,938)
INVESTING ACTIVITIES
Purchase of other invested assets........................... (1,493) (465) (2,250) (12) (422)
Purchase of investment securities........................... (5,025) (1,706) (3,481) (196) (3,418)
Maturity of investment securities........................... 950 100 551 43 375
Investments in subsidiaries................................. (4,084) (3,514) -- (4,307) (2,467)
Proceeds from sale of property and equipment................ 770 1,900 238 12 778
Purchase of property and equipment.......................... (16,480) (10,945) (11,559) (5,594) (9,835)
--------- --------- --------- --------- ---------
Net cash used in investing activities....................... (25,362) (14,630) (16,501) (10,054) (14,989)
FINANCING ACTIVITIES
Payments on notes payable................................... (16,465) (1,220) (556) (2,229) (1,443)
Proceeds from issuance of notes payable..................... 15,000 -- 3,500 11,936 10,484
Exercised stock options..................................... 30 -- -- -- 30
Issuance of preferred stock................................. 15,000 -- -- -- --
Dividends paid on preferred stock........................... (234) -- -- (441) (158)
Principal payments on capital lease obligations............. -- -- (22) -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities......... 13,331 (1,220) 2,922 9,266 8,913
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (9,333) 17,652 (8,366) (2,090) (22,014)
Cash and cash equivalents at beginning of year.............. 28,262 10,610 18,976 18,929 28,262
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year.................... $ 18,929 $ 28,262 $ 10,610 $ 16,839 $ 6,248
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-7
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ACCOUNTING POLICIES
ORGANIZATION
American Medical Security Group, Inc. (AMSG) is a holding company for
various subsidiaries involved primarily in the health insurance industry. Third
party administrator (TPA) operations market and administer primarily group life
and health insurance in 32 states. Insurance operations consist of insurance
business primarily assumed from a group of affiliated insurance companies. These
insurance risks are administered by AMSG's TPA subsidiaries. Other consolidated
and unconsolidated subsidiaries are involved in managed care activities, such as
health maintenance organizations and preferred provider organizations.
The consolidated financial statements include the accounts of AMSG and its
subsidiaries:
- American Medical Security, Inc. (AMS), a third-party administrator
- American Medical Security Insurance Company (AMSIC), a life insurance
company
- American Medical Security Company of Ohio (AMSICO), a subsidiary of AMSIC
- American Medical Security Insurance Company of Georgia (AMSICGA), a
subsidiary of AMSIC
- Accountable Health Plans of Texas (AHP), a preferred provider organization
- American Medical Security Provider Partnerships (PPI), a preferred
provider organization
development company, formed January 1, 1995
- Continental Plan Services, Inc. (CPSI), a third party administrator
- Unity HMO of Illinois (Unity), a 90% owned health maintenance organization
Effective January 1, 1995, American Medical Security, Inc. changed its name
to AMSG Inc. and contributed all assets, except for its investments in
subsidiaries to American Medical Security, Inc., a newly formed subsidiary of
AMSG.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP). Significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVESTMENTS
Debt securities (bonds) that AMSG has both the positive intent and ability
to hold to maturity are classified as held to maturity and stated at amortized
cost. Debt securities not classified as held to maturity are classified as
available for sale and stated at fair value. Unrealized holding gains and losses
on securities classified as available for sale are stated as a separate
component of shareholders' equity, net of applicable deferred taxes.
Amortization and accretion on bonds are calculated using an effective
interest method. Realized gains and losses on disposals of investments are
determined by specific identification of investments sold. Other invested assets
represent an investment in a real estate partnership (see Note 9), which is
valued at AMSG's share of net equity in the partnership.
Investment in unconsolidated subsidiaries are carried under the equity
method at AMSG's proportionate share of ownership in the subsidiary.
F-8
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated over the
estimated useful lives of the assets using the straight-line method for
financial reporting purposes and accelerated methods for income tax purposes.
FUNDS HELD BY INSURANCE COMPANIES
Funds held by insurance companies represent amounts on deposit with insurers
related to reinsurance agreements. See Note 6 for further discussion.
INSURANCE CLAIM RESERVES
Insurance claim reserves represent the liabilities arising from life and
health benefits provided under the respective policies. These reserves include
claims in process of adjudication and unreported claims. This liability
represents management's best estimate of the ultimate net cost of all reported
and unreported claims which are not paid at year end. The estimates are
continually reviewed and, as adjustments to these reserves become necessary,
such adjustments are reflected in current operations.
PREMIUMS, ADMINISTRATIVE FEES AND COMMISSIONS
Life and health premiums are recognized as revenue over the periods for
which insurance protection is provided. Administrative fees are recognized as
income as administrative services are provided. Commissions revenue and
commissions expense are recognized on the effective dates of the related
policies.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
carrying value of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes. The differences relate primarily to
unrealized gains and losses on available for sale investments, tax basis
discounting of loss reserves, capitalization of deferred acquisition costs for
tax purposes and the deferral of certain administration fees for financial
statement purposes.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments with remaining maturities of
three months or less at the date of acquisition to be cash equivalents.
RECLASSIFICATIONS
Certain 1994 and 1993 financial statement amounts have been reclassified to
conform with the 1995 presentation.
2. CHANGE IN ACCOUNTING METHOD
During 1995, AMSG changed the method of accounting for printed and
promotional materials by recording such materials as inventory and expensing the
materials as they are used in order to better match the expenses to the periods
benefited. Prior to January 1, 1995, all purchases of such materials were
immediately expensed. The effect of the change in accounting was an increase to
1995 net income of $1,236,000, net of taxes of $665,000.
Effective January 1, 1994, AMSG adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Debt securities (bonds) that AMSG has both the positive intent and
ability to hold to maturity are stated at amortized cost. Debt securities that
AMSG does not have the positive intent and ability to hold to maturity and all
marketable equity securities are classified as available for sale and stated at
market value. Unrealized holding gains and losses on securities classified as
available for sale are stated as a separate component of shareholders' equity.
Prior to January 1, 1994, investments in bonds were stated at amortized
F-9
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. CHANGE IN ACCOUNTING METHOD (CONTINUED)
cost. The effect of adopting SFAS No. 115 on January 1, 1994, was to increase
shareholders' equity by $1,305,000, resulting from unrealized gains on bonds
available for sale and funds held by insurance companies of $2,007,000, net of
deferred taxes of $702,000. See Note 6 for discussion of funds held balances.
3. INVESTMENTS
The amortized cost and fair values of bonds are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1995:
Available for sale --
U.S. Treasury securities $ 8,318 $ 152 $ 6 $ 8,464
----------- ----- ----- ---------
----------- ----- ----- ---------
Held to maturity --
U.S. Treasury securities $ 1,880 $ 18 $ -- $ 1,898
----------- ----- ----- ---------
----------- ----- ----- ---------
At December 31, 1994:
Available for sale --
U.S. Treasury securities $ 4,260 $ -- $ 174 $ 4,086
----------- ----- ----- ---------
----------- ----- ----- ---------
Held to maturity --
U.S. Treasury securities $ 1,880 $ -- $ 33 $ 1,847
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
The amortized cost and estimated fair values of bonds at December 31, 1995,
by contractual maturity are shown below:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Bonds available for sale:
Due in one year or less............................................... $ 1,223 $ 1,234
Due after one through five years...................................... 6,251 6,370
Due after five through ten years...................................... 844 860
----------- ---------
$ 8,318 $ 8,464
----------- ---------
----------- ---------
Bonds held to maturity:
Due in one year or less............................................... $ 600 $ 605
Due in one through five years......................................... 1,280 1,293
----------- ---------
$ 1,880 $ 1,898
----------- ---------
----------- ---------
</TABLE>
No bond sales occurred during 1995 or 1994. Proceeds from sales of bonds
during 1993 were $77,000. Gross losses of $45 were realized on these bond sales.
Fair values represent quoted market prices for securities traded in the
public marketplace. The fair values of AMSG's other financial instruments
approximates their carrying value.
At December 31, 1994, AMSG's funds held balance was decreased by $5,328,000
and shareholders' equity decreased by $3,463,000, net of deferred taxes of
$1,865,000 related to AMSG's share of net unrealized losses on
available-for-sale investments backing the funds held balance. At December 31,
F-10
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
1995, AMSG's funds held balance was increased by $5,401,000 and shareholders'
equity increased by $3,511,000, net of deferred taxes of $1,890,000 related to
AMSG's share of net unrealized gains on available-for-sale investments backing
the funds held balance.
Net investment income is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds........................................................ $ 422 $ 166 $ 125
Cash equivalents............................................. 880 532 290
Funds held................................................... 12,436 6,123 4,728
Other investments............................................ 297 193 164
Notes receivable............................................. 422 263 103
--------- --------- ---------
14,457 7,277 5,410
Investment expenses.......................................... (355) (257) (122)
--------- --------- ---------
Investment income............................................ $ 14,102 $ 7,020 $ 5,288
--------- --------- ---------
--------- --------- ---------
</TABLE>
Unrealized gains (losses) is comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds available for sale:
Gross unrealized gains..................................... $ 152 $ -- $ --
Gross unrealized losses.................................... (6) (174) --
Funds held................................................... 5,401 (5,328) --
Deferred income taxes........................................ (1,941) 1,926 --
--------- --------- ---------
Net unrealized gains (losses)................................ $ 3,606 $ (3,576) $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
4. SHAREHOLDERS' EQUITY
On September 29, 1995, AMSG issued preferred stock to United Wisconsin Life
Insurance Company (UWLIC). Holders of the preferred stock have preferential
rights in regard to dividends and payment upon liquidation. There are no voting
rights associated with the stock, with the exception of the occurrence of
certain events, as outlined in the stock agreement. The stock is redeemable at
the discretion of AMSG, or at the occurrence of certain events as defined by the
stock agreement.
Preferred stock dividends are cumulative and paid on a quarterly basis.
During the first five years the stock is outstanding, the dividend rate will be
adjusted quarterly equal to 2.5% below Bank One Milwaukee's reference rate on
the last day of the previous quarter. After five years, the dividend rate will
be adjusted to 125% of the applicable treasury rate.
At December 31, 1995, consolidated retained earnings included $2,942,000 of
undistributed losses of AMSG's 50% or less owned investees accounted for using
the equity method.
F-11
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INSURANCE CLAIM RESERVES
Activity in the liability for health insurance claim reserves is summarized
below:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1................................... $ 53,292 $ 37,757 $ 15,179
Plus --
Incurred related to:
Current year....................................... 376,337 250,691 162,801
Prior year......................................... 5,395 (5,478) (2,743)
----------- ----------- -----------
Total incurred................................... 381,732 245,213 160,058
Less --
Paid related to:
Current year....................................... 294,441 197,399 125,044
Prior year......................................... 58,687 32,279 12,436
----------- ----------- -----------
Total paid....................................... 353,128 229,678 137,480
----------- ----------- -----------
Balance at December 31................................. $ 81,896 $ 53,292 $ 37,757
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Liabilities for health insurance claim reserves are based upon actuarial
projections applied to historical claim data. As a result of significant growth
in AMSG's health insurance business, AMSG has experienced variability in the
ultimate settlement of health insurance claim reserves. Actuarial projections of
health insurance claim reserves are continually reviewed and adjusted as
necessary as experience develops and new information becomes available.
6. REINSURANCE
AMSG administers a block of group life and health insurance business for
UWLIC and United Wisconsin Insurance Company (UWIC) through an administrative
services agreement. The agreement includes maintaining membership records, claim
processing and payment, coordination of benefits and billing/cash collection
processing, underwriting and marketing. In 1995, 1994 and 1993, AMSG earned
administrative fees and commissions of $216,946,000, $170,287,000 and
$109,311,000, respectively under the agreement. UWIC and UWLIC ceded 50% of
their respective life and health insurance risk to AMSIC, a subsidiary of AMSG,
through reinsurance agreements.
During 1992 UWIC ceded 30 percent of its insurance risk to AMSIC. The
reinsurance agreement contained a profit-sharing provision which required the
underwriting gains or losses on the underlying business to be allocated 50
percent to AMSIC. A contingent commission of $1,760,000 was recorded in 1993 in
conjunction with this reinsurance agreement. UWIC and UWLIC generally hold funds
on behalf of AMSIC equivalent to the claim reserves, the accumulated net
underwriting profits and accumulated investment earnings. UWIC and UWLIC pay
interest to AMSIC on the funds held balance at their average portfolio yields.
F-12
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. REINSURANCE (CONTINUED)
A summary of financial balances which represent amounts assumed by AMSIC as
a result of the reinsurance agreements with UWIC and UWLIC is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Funds held by insurance companies...................... $ 142,328 $ 110,263
Unearned premium reserves.............................. 9,736 9,670
Health insurance claim reserves........................ 80,636 53,292
Life claim reserves.................................... 2,229 1,467
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Life and health premiums............................... $ 494,107 $ 374,875 $ 242,896
Investment income...................................... 12,436 6,123 4,728
Life and health benefits............................... 386,900 250,034 163,642
Expense allowance on reinsurance assumed:
Commissions.......................................... $ 61,485 $ 49,481 $ 30,369
Administrative fees.................................. 46,987 35,663 24,287
Premium taxes........................................ 8,671 6,632 4,431
Miscellaneous fees................................... 1,139 629 734
----------- ----------- -----------
Total expense allowance on reinsurance assumed..... $ 118,282 $ 92,405 $ 59,821
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
7. STATUTORY REPORTING
AMSG's life insurance subsidiaries and Unity report to their respective
state departments of insurance in conformity with statutory reporting practices.
The recorded and minimum surplus of these subsidiaries, in accordance with
statutory reporting practices, were as follows at December 31, 1995:
<TABLE>
<CAPTION>
MINIMUM
STATUTORY STATUTORY
SURPLUS SURPLUS
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus at December 31:
AMSIC.................................................... $ 61,332 $ 500
AMSICO................................................... 3,489 2,500
AMSICGA.................................................. 4,230 3,000
Unity.................................................... 1,716 1,500
</TABLE>
Net income (loss) for these subsidiaries, in accordance with statutory
reporting practices, was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
AMSIC...................................................... $ 247 $ 24,171 $ 15,443
AMSICO..................................................... 123 126 159
AMSICGA.................................................... 194 (39) (74)
Unity...................................................... (1,512) (215) --
</TABLE>
F-13
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. STATUTORY REPORTING (CONTINUED)
The payment of dividends by AMSG's life insurance subsidiaries and Unity is
limited and generally cannot be made except from earned profits and, in certain
circumstances, without the prior approval of the respective state departments of
insurance.
8. INCOME TAXES
AMSG and its eligible non-life insurance subsidiaries file a consolidated
federal income tax return. Under a written tax sharing agreement, AMSG collects
from or refunds to the subsidiaries the amount of taxes or benefits determined
as if AMSG and subsidiaries filed separate returns.
AMSG's recorded income taxes before cumulative effect of change in
accounting principle varies from income taxes computed at the federal statutory
rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax (benefit) at federal statutory rate................................ $ (3,429) $ 13,331 $ 9,477
Nondeductible expenses................................................. 1,014 884 137
State income and franchise taxes, net of federal benefit............... 90 195 136
Goodwill amortization.................................................. 6 -- --
Unconsolidated life insurance company income........................... 95 -- --
Small life company deduction........................................... (48) -- --
Other.................................................................. 325 (160) 241
--------- --------- ---------
Income taxes (benefit) before cumulative effect of change in accounting
principle............................................................. $ (1,947) $ 14,250 $ 9,991
--------- --------- ---------
--------- --------- ---------
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................................ $ (174) $ 14,630 $ 10,714
State.............................................................. 138 300 210
--------- --------- ---------
(36) 14,930 10,924
Deferred (benefit)................................................... (1,246) (680) (933)
--------- --------- ---------
$ (1,282) $ 14,250 $ 9,991
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Significant components of the deferred tax liabilities and assets as of
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred administrative fees..................................................... $ 2,303 $ 1,848
Tax-basis reserve adjustment..................................................... 944 730
Tax-basis unearned premium reserve adjustment.................................... 566 352
Tax-basis deferred acquisition costs............................................. 318 184
Accrued compensation............................................................. 503 233
Losses from unconsolidated subsidiaries.......................................... 907 270
Unrealized investment losses..................................................... -- 1,926
Start-up and organization costs.................................................. 319 --
Other -- net..................................................................... 715 76
--------- ---------
Deferred tax assets............................................................ 6,575 5,619
Valuation allowance................................................................ (907) (270)
--------- ---------
Deferred tax assets, net of valuation allowance.................................... 5,668 5,349
Deferred tax liabilities:
Unrealized investment gains...................................................... 1,941 --
Capitalized supply inventory..................................................... 668 --
Tax over book depreciation....................................................... 372 728
Other -- net..................................................................... 795 107
--------- ---------
Deferred tax liabilities....................................................... 3,776 835
--------- ---------
Net deferred tax assets............................................................ $ 1,892 $ 4,514
--------- ---------
--------- ---------
</TABLE>
The nature of AMSG's deferred tax assets and liabilities are such that the
reversal pattern for those temporary differences should generally result in
realization of the deferred assets. AMSG establishes a valuation allowance for
any portion of the deferred tax asset that management believes may not be
realized. AMSG established a valuation allowance in 1995 and 1994 relating to
undistributed losses from investments in unconsolidated affiliates.
AMSG paid federal income taxes of $1,766,000, $14,768,000 and $10,198,000 in
1995, 1994 and 1993, respectively.
9. LEASES
AMSG leases office space and certain equipment under operating leases.
Future minimum lease payments by year and in aggregate under noncancelable
operating leases consisted of the following at December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996.............................................. $ 5,234
1997.............................................. 5,110
1998.............................................. 5,019
1999.............................................. 4,938
2000.............................................. 4,734
Thereafter........................................ 19,717
---------
Total minimum lease payments...................... $ 44,752
---------
---------
</TABLE>
F-15
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LEASES (CONTINUED)
Operating lease rent totaled $3,867,000, $2,997,000 and $2,287,000 during
1995, 1994 and 1993, respectively.
AMSG leases office space from U&C Real Estate Partnership (U&C) under an
agreement which expires September 30, 2005. U&C is jointly owned by AMSIC and
UWIC. Under this agreement, monthly lease payments for 1995 were $159,000 per
month from January to July and $344,000 per month from August to December. Under
the terms of the agreement, AMSG paid $2,833,000, $1,908,000 and $517,000 during
1995, 1994 and 1993, respectively.
AMSG leases office space under an agreement with certain officers and
shareholders which expires September 30, 2000, with an option to renew the lease
for an additional five years. This agreement requires annual lease payments of
$768,000. Additionally, all sublease rental revenue, property taxes and
operating expenses are the responsibility of AMSG. AMSG received sublease
revenue of $406,000, $422,000 and $426,000 in 1995, 1994 and 1993, respectively.
Under the terms of this lease, AMSG must pay a penalty of $1,800,000 to the bank
if the lease is not renewed in 2000. Future minimum rental income on
noncancelable subleases, by year and in aggregate, consists of the following at
December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996................................................. $ 374
1997................................................. 191
1998................................................. 198
1999................................................. 204
---------
Total minimum rental income.......................... $ 967
---------
---------
</TABLE>
10. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Note payable, Bank One -- Green Bay, .5% in excess of prime, adjusted monthly,
payable in monthly installments of $53,735, including principal and interest, with
final payment made in October 1995................................................ $ -- $ 528
Note payable, Bank One -- Green Bay, prime, adjusted monthly, payable in monthly
installments of $71,995, including principal and interest, with final payment due
February 1996..................................................................... 2,229 2,865
Other notes payable................................................................ -- 300
--------- ---------
$ 2,229 $ 3,693
--------- ---------
--------- ---------
</TABLE>
Interest paid on debt and lease obligations during 1995, 1994 and 1993 was
$247,000, $293,000 and $91,000 respectively.
The notes payable are secured by AMSG's assets and personal guarantees of
certain officers and shareholders.
AMSG has a line of credit from a bank of $750,000 available at December 31,
1995 and 1994. The unused portion was $15,000 and $350,000 at December 31, 1995
and 1994, respectively.
F-16
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLANS
The employees of AMSG are included in a contributory defined contribution
profit sharing plan covering all eligible salaried and hourly employees who meet
minimum service requirements. Contributions are determined by AMSG's Board of
Directors and amounted to $1,675,000, $2,490,000 and $1,899,000 for 1995, 1994
and 1993, respectively.
AMSG has a Nonqualified Stock Option Plan covering certain key employees as
defined by the Board of Directors. The plan expires on December 1, 1996, except
as to options then outstanding. A maximum of 10,000 shares of common stock may
be issued under the plan.
Options to purchase 8,000 shares of common stock at an exercise price of
$198.00 per share were granted in 1993. The grantee's rights vest ratably over
four years and expire 10 years after the date of grant. Options for 150 shares
were exercised in 1995. During 1995, 650 outstanding options lapsed. No options
were exercised in 1994 or 1993.
12. RELATED PARTY TRANSACTIONS
United Wisconsin Services, Inc. (UWS), a subsidiary of Blue Cross & Blue
Shield United of Wisconsin (BCBSUW), owns 11.9% of the outstanding common stock
of AMSG. UWS is the parent company of UWLIC and UWIC.
AMSG has employment contracts with the two primary founders of AMSG. Under
the terms of the contracts, either party may terminate the contract upon three
years prior written notice. As of December 31, 1995, notice of termination of
the contract had not been given by either party.
AMSG has advanced UWIC $12,000,000 of accumulated premium deposits, in order
to take advantage of higher portfolio interest rates earned on the UWIC
investment portfolio. UWIC pays interest to AMSIC on the advance at its average
portfolio yield.
AMSG has interests in several unconsolidated health maintenance
organizations (HMO's). In addition to capital investments in these
organizations, AMSG recognized its share of the organizations' income (loss) for
the year and recorded receivables due from these organizations. In addition,
administrative fees paid to AMS, the TPA, were recognized as revenue.
During 1995, these related party transactions were, in aggregate: capital
investments of $4,084,000, AMSG's share of net losses of $2,170,000, receivables
due to AMSG of $1,204,000 as of December 31 and administrative fees to AMS of
$19,000. The majority of these receivables are long term, bear interest at the
prime rate plus one percent, and are secured by a general business security
agreement.
AMSG has advanced money to several sales managers and key home office
employees. Receivables amounted to $2,590,000 at December 31, 1995.
13. COMMITMENTS AND CONTINGENCIES
AMSG and its subsidiaries are involved in various legal actions occurring in
the normal course of business. In the opinion of management, adequate provisions
have 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 consolidated financial statements.
During 1993, U&C entered into a mortgage on an office building located in
the Village of Howard, Wisconsin, which is occupied by AMSG under a lease with
an initial term of twelve years. Another mortgage was entered into during 1995
to finance additions made to the home office building. The partners have each
signed a guarantee for 50% of the principal of the phase 1 and phase 2
mortgages, with balances of $5,041,000 and $6,050,000, respectively at December
31, 1995. AMSG's investment in U&C is included in other invested assets on the
consolidated balance sheets.
F-17
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
AMSG and its two primary founders are parties to a joint venture agreement
with UWS, UWLIC and UWIC which continues until December 31, 1996, subject to
annual renewal for subsequent one year terms upon mutual agreement of the
parties. The joint venture may not be terminated by either party without cause.
UWS has the option, exercisable on December 31, 1996, to purchase all the
outstanding capital stock of AMSG at a price based on AMSG's premium revenue,
book value and after tax earnings.
AMSG guarantees a line of credit of $1,460,000 for an unrelated corporation
as of December 31, 1995. The amount drawn under the line of credit was
$1,365,000 at December 31, 1995.
14. SUBSEQUENT EVENTS
On January 2, 1996, AMSIC acquired a 20% ownership interest in Personal
Physicians Care, Inc. (PPC), a health maintenance organization, for $3,500,000.
The purchase agreement specifies that AMSIC agrees to purchase an additional 1%
of PPC's outstanding shares of stock in 1997. The purchase of the additional
shares is at the option of PPC and is determined by a formula defined in the
purchase agreement.
On February 1, 1996, AMSG secured a loan for $10,000,000 through Bank One,
with an interest rate at prime, adjusted monthly. Payments are interest only the
first year. Subsequent to securing the loan, AMSG was not in compliance with
certain covenants relating to required levels of net income and net worth as
defined by the agreement.
F-18
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF
MERGER
BETWEEN
UNITED WISCONSIN SERVICES, INC.,
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
AMERICAN MEDICAL SECURITY GROUP, INC.,
WALLACE J. HILLIARD
AND
RONALD A. WEYERS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I................................................................................................... A-2
The Merger.............................................................................................. A-2
1.01 THE MERGER........................................................................... A-2
1.02 CLOSING.............................................................................. A-2
ARTICLE II.................................................................................................. A-2
Representations and Warranties of the Company and the Principal Shareholders............................ A-2
2.01 ORGANIZATION AND AUTHORITY........................................................... A-2
2.02 SUBSIDIARIES AND AFFILIATES.......................................................... A-2
2.03 CAPITALIZATION OF THE COMPANY........................................................ A-3
2.04 AUTHORIZATION........................................................................ A-3
2.05 FINANCIAL STATEMENTS................................................................. A-4
2.06 INSURANCE COMPANY FINANCIAL STATEMENTS............................................... A-4
2.07 RECEIVABLES.......................................................................... A-5
2.08 ABSENCE OF CERTAIN CHANGES........................................................... A-5
2.09 LITIGATION AND OTHER PROCEEDINGS..................................................... A-6
2.10 COMPLIANCE WITH LAWS................................................................. A-6
2.11 TAXES................................................................................ A-6
2.12 TITLE TO PROPERTIES.................................................................. A-7
2.13 CONTRACTS AND COMMITMENTS............................................................ A-7
2.14 EMPLOYEE RELATIONS................................................................... A-7
2.15 EMPLOYEE BENEFIT PLANS............................................................... A-8
2.16 INTELLECTUAL PROPERTY................................................................ A-8
2.17 ENVIRONMENTAL MATTERS................................................................ A-9
2.18 CONTINGENT OR UNDISCLOSED LIABILITIES................................................ A-9
2.19 INSURANCE............................................................................ A-9
2.20 RELATED PARTY TRANSACTIONS........................................................... A-9
2.21 REGISTRATION STATEMENT, ETC.......................................................... A-10
2.22 BROKERS AND FINDERS.................................................................. A-10
2.23 DISCLOSURE........................................................................... A-10
ARTICLE III................................................................................................. A-10
Representations and Warranties of UWSI.................................................................. A-10
3.01 ORGANIZATION AND AUTHORITY........................................................... A-10
3.02 CAPITALIZATION....................................................................... A-10
3.03 AUTHORIZATION........................................................................ A-11
3.04 REGISTRATION STATEMENT, ETC.......................................................... A-11
3.05 BROKERS AND FINDERS.................................................................. A-11
3.06 DISCLOSURE........................................................................... A-11
3.07 SEC REPORTS.......................................................................... A-12
ARTICLE IV.................................................................................................. A-12
Conduct of Business Prior to the Effective Time......................................................... A-12
4.01 CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE EFFECTIVE TIME........................ A-12
ARTICLE V................................................................................................... A-12
Additional Agreements................................................................................... A-12
5.01 ACCESS AND INFORMATION............................................................... A-12
5.02 REGISTRATION STATEMENT AND PROXY STATEMENT........................................... A-12
5.03 COMPANY SHAREHOLDERS' APPROVAL....................................................... A-13
5.04 UWSI SHAREHOLDERS APPROVAL........................................................... A-13
5.05 MISCELLANEOUS AGREEMENTS AND CONSENTS................................................ A-13
5.06 INTERIM FINANCIAL STATEMENTS......................................................... A-14
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C> <C>
5.07 INSURANCE REGULATORY APPROVALS....................................................... A-14
5.08 HART-SCOTT-RODINO COMPLIANCE......................................................... A-14
5.09 CERTAIN NOTIFICATIONS................................................................ A-14
5.10 VOTING AGREEMENT..................................................................... A-14
5.11 BEST EFFORTS......................................................................... A-14
5.12 PRESS RELEASES....................................................................... A-14
5.13 EXPENSES............................................................................. A-14
5.14 CERTAIN AGREEMENTS................................................................... A-15
5.15 UWSI CAPITALIZATION.................................................................. A-15
ARTICLE VI.................................................................................................. A-15
Conditions.............................................................................................. A-15
6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE MERGER...................... A-15
6.02 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS TO CONSUMMATE
THE MERGER.......................................................................... A-16
6.03 CONDITIONS TO OBLIGATIONS OF UWSI TO CONSUMMATE THE MERGER........................... A-17
ARTICLE VII................................................................................................. A-18
Termination, Amendment.................................................................................. A-18
7.01 TERMINATION.......................................................................... A-18
7.02 AMENDMENT............................................................................ A-18
ARTICLE VIII................................................................................................ A-18
Indemnification......................................................................................... A-18
8.01 INDEMNIFICATION BY SHAREHOLDERS...................................................... A-18
8.02 LIMITATIONS.......................................................................... A-19
8.03 PROCEDURE............................................................................ A-19
8.04 INDEMNIFICATION BY UWSI.............................................................. A-20
8.05 PROCEDURE............................................................................ A-20
ARTICLE IX.................................................................................................. A-21
General Provisions...................................................................................... A-21
9.01 NOTICES.............................................................................. A-21
9.02 MISCELLANEOUS........................................................................ A-22
9.03 WAIVER: REMEDIES..................................................................... A-22
9.04 SEVERABILITY......................................................................... A-23
9.05 GOVERNING LAW........................................................................ A-23
9.06 "KNOWLEDGE".......................................................................... A-23
9.07 ARBITRATION.......................................................................... A-23
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Plan of Merger
Exhibit B Registration Rights and Stock Restriction Agreement
Exhibit C Agreements of Affiliates
Exhibit D Escrow Agreement
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into this 31st day of July, 1996 by and among UNITED WISCONSIN SERVICES, INC., a
Wisconsin corporation ("UWSI"), AMERICAN MEDICAL SECURITY GROUP, INC., a
Delaware corporation (the "Company"), BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN ("BCBSUW"), and WALLACE J. HILLIARD ("Hilliard"), individually and as
trustee under the Voting Trust Agreement hereinafter defined, and RONALD A.
WEYERS ("Weyers"), individually and as successor trustee under the Voting Trust
Agreement (Hilliard, individually, and Weyers, individually, are referred to
collectively as the "Principal Shareholders").
RECITALS:
WHEREAS, all of the shareholders of the Company are parties to that certain
Voting Trust Agreement, dated as of February 3, 1989 (the "Voting Trust
Agreement"), pursuant to which Voting Trust Agreement Hilliard has been
appointed Trustee and to which Weyers has been appointed successor Trustee;
WHEREAS, the Principal Shareholders own, in the aggregate, approximately 43
percent of the outstanding shares of capital stock of the Company;
WHEREAS, the parties hereto are party to that certain Joint Venture
Agreement, effective October 1, 1988, as amended (the "Joint Venture Agreement")
and to that certain Stock Restriction Agreement, dated February 3, 1989 (the
"Stock Restriction Agreement");
WHEREAS, on April 29, 1996, UWSI gave notice of intent to exercise the
option under Paragraphs 5.4 and 5.5 of Article V of the Joint Venture Agreement
and Paragraph 3 of Article III of the Stock Restriction Agreement;
WHEREAS, the parties hereto desire to amend and restructure the exercise of
such option in accordance with the terms hereof.
WHEREAS, the respective Boards of Directors of UWSI and the Company have
approved the transactions provided for by this Agreement, pursuant to which the
Company is to be merged into UWSI in accordance with the applicable provisions
of the Delaware General Corporation Law (the "DGCL") and the Wisconsin Business
Corporation Law (the "WBCL"), which merger is intended to qualify as a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, in exchange for all of the issued and outstanding shares of common
stock, $1.00 par value per share, of the Company (the "Company Common Stock")
and in settlement of all of the outstanding options to acquire shares of Company
Common Stock (the "Options"), UWSI has agreed to pay to the holders of the
Company Common Stock (other than UWSI) and the Options, in the aggregate and in
such proportions as may be determined by the holders thereof (other than UWSI),
(i) 4,000,000 shares of common stock, no par value per share, of UWSI ("UWSI
Common Stock"), as adjusted as set forth in the Plan of Merger attached hereto
as Exhibit A (the "Plan of Merger"), and (ii) $67,010,000, less expenses
attributable to the Shareholders as provided herein, each subject to the
provisions of this Agreement and the Plan of Merger, all upon the terms and
conditions hereinafter set forth;
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NOW, THEREFORE, in order to consummate the transactions set forth above and
in consideration of the mutual covenants, agreements, representations and
warranties herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER. Subject to the terms and conditions of this Agreement and
the Plan of Merger: the Company shall be merged with and into UWSI (the
"Merger") in accordance with Section 252 of the DGCL and Section 180.1101 of the
WBCL; the separate corporate existence of the Company shall cease; and UWSI
shall be the surviving corporation . The Plan of Merger sets forth (i) the terms
of the Merger and the mode of carrying the same into effect, (ii) the manner of
converting the outstanding shares of Company Common Stock (other than Company
Common Stock held by UWSI) into a combination of shares of UWSI Common Stock and
cash, and (iii) the manner of converting the outstanding Options into options to
acquire shares of UWSI Common Stock. The Merger shall be consummated following
the Closing provided for in Section 1.02 hereof when properly executed Articles
of Merger are executed and filed with the Secretary of State of Delaware in
accordance with the DGCL and the Department of Financial Institutions of the
State of Wisconsin in accordance with the WBCL and when the Plan of Merger is
received and accepted as filed by the Delaware Secretary of State and the
Department of Financial Institutions of the State of Wisconsin (the "Effective
Time").
1.02 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") and the Plan of Merger shall take place at the offices
of Michael Best & Friedrich, 100 East Wisconsin Avenue, Milwaukee, Wisconsin,
immediately following the meeting of UWSI's shareholders referred to in Section
5.04 or at such other time and place as UWSI and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS
The Company and the Principal Shareholders (on behalf of all the
Shareholders of the Company, other than UWSI) hereby make the following
representations and warranties to UWSI. The "Disclosure Schedule" shall mean the
disclosure schedule relating to each section of this Article II which has
previously been delivered to UWSI. Disclosure of any information in any one
section or schedule of the Disclosure Schedule shall be deemed to be disclosure
in any other section or schedule thereof.
2.01 ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted, is qualified in the jurisdictions set forth on the Disclosure
Schedule, and is not otherwise required to be qualified in any other
jurisdiction, except where the failure to do so would not have a Material
Adverse Effect. For purposes of this Agreement unless otherwise specified,
"Material Adverse Effect" shall mean a material adverse effect on the Company
and its subsidiaries, taken as a whole. Copies of the articles or certificate of
incorporation and by-laws of each of the Company and each Controlled Subsidiary
and Noncontrolled Subsidiary (as such terms are hereinafter defined) that have
been heretofore delivered and/or made available to UWSI are complete and correct
as of the date hereof.
2.02 SUBSIDIARIES AND AFFILIATES. Except as set forth on the Disclosure
Schedule, the corporations, partnerships or other entities in which the Company
has a greater than 50 percent equity interest (the "Controlled Subsidiaries")
and the corporations, partnerships or other entities in which the Company's
equity interest is not a controlling interest (the "Noncontrolled Subsidiaries")
are set forth on the Disclosure Schedule. The Company is, directly or
indirectly, the record and beneficial owner of the percentage of the outstanding
shares of capital stock of each of the Controlled and
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Noncontrolled Subsidiaries shown on the Disclosure Schedule and the
capitalization of each such subsidiary is set forth on the Disclosure Schedule.
Except as set forth on the Disclosure Schedule, no equity securities of any of
the Controlled Subsidiaries are, or may become, required to be issued by reason
of any options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into,
shares of capital stock of any Controlled
Subsidiaries, and there are no contracts, commitments, understandings or
arrangements by which any Controlled Subsidiary is bound to issue additional
shares of its capital stock, or options, warrants, or rights to purchase or
acquire any additional shares of its capital stock. Except as set forth on the
Disclosure Schedule, all of such equity interests are owned by the Company free
and clear of any claim, lien, encumbrance or agreement with respect thereto.
2.03 CAPITALIZATION OF THE COMPANY. The authorized capital stock of the
Company consists of (a) 600,000 shares of common stock, $1.00 par value per
share, of which 174,733 2/3 shares of Company Common Stock are issued and
outstanding as of the date of this Agreement, and (b) 15,000 shares of Series A
Preferred Stock, $1.00 par value, with a stated value of $1,000 per share, of
which 15,000 shares are issued and outstanding as of the date of this Agreement.
The Disclosure Schedule sets forth a list of all of the holders of Company
Common Stock and the number of shares owned by each such holder. All of the
outstanding shares of Company Common Stock have been issued pursuant to and in
accordance with valid exemptions from registration under the Securities Act of
1933, as amended and the rules and regulations promulgated thereunder
(collectively the "1933 Act"), and any applicable state securities laws and
rules and regulations under such laws. All of the outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and nonassessable,
with no liability attaching to the ownership thereof except as provided in
Section 180.0622 of the WBCL and judicial interpretations thereof, and all such
shares are free of pre-emptive rights. The Disclosure Schedule sets forth a list
of all Options, the number of shares acquirable upon exercise of the Options,
the exercise price, the expiration date and the beneficial owner of each such
Option. Except as set forth on the Disclosure Schedule, there are no other
shares of capital stock or other equity securities (or debt securities with any
voting rights or convertible into securities with any voting rights) of the
Company or any Controlled Subsidiary outstanding and no other outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
shares of capital stock of the Company or any Controlled Subsidiary.
2.04 AUTHORIZATION. The Company has full corporate power and corporate
authority to enter into this Agreement and the Plan of Merger and to carry out
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Plan of Merger and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Company's Board
of Directors and, except for the approval of the Plan of Merger by its
shareholders, no other corporate proceedings on the part of the Company or any
Controlled Subsidiary are necessary to authorize this Agreement, the Plan of
Merger and the transactions contemplated hereby and thereby. This Agreement and
the Plan of Merger have each been duly executed and delivered by the Company.
This Agreement and the Plan of Merger are, and subject to approval by the
shareholders of the Company will be, the legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their respective
terms except to the extent limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by general
equitable principles. This Agreement has been duly executed and delivered by the
Principal Shareholders and is the legal, valid and binding obligation of the
Principal Shareholders enforceable against each of the Principal Shareholders in
accordance with its terms except to the extent limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles. Except as set forth on the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the Plan of Merger by the Company, nor the execution and delivery of this
Agreement by the Principal Shareholders, nor the consummation of the
transactions contemplated hereby and thereby, nor compliance by the Company or
the Principal Shareholders with any of the provisions hereof or thereof will (i)
violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a
A-3
<PAGE>
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration, or result in
the creation of any lien, security interest, charge or encumbrance upon, except
for Permitted Encumbrances (as hereinafter defined), any of the properties or
assets of the Company or any Controlled Subsidiary, under any of the terms,
conditions or provisions of (x) their respective certificates of incorporation
or by-laws, or (y) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company, any
Controlled Subsidiary or any of the Principal Shareholders is a party, or by
which any property or assets of the foregoing may be subject, or (ii) violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any Controlled Subsidiary or any of the
Principal Shareholders or any of their respective properties or assets, except
where such a violation, breach, default, termination or lien of any of the
foregoing would not have a Material Adverse Effect. Other than in connection
with or in compliance with the provisions of the DGCL, the 1933 Act, the
securities laws of the various states, Section 7A of the Clayton Act and the
rules and regulations thereunder (the "Hart-Scott-Rodino Act"), no notice or
report to, filing with, or authorization, consent or approval of, any public
body or authority (other than the insurance regulatory authorities listed on the
Disclosure Schedule) is necessary for the execution, delivery and performance by
the Company or any Controlled Subsidiary and the Principal Shareholders of this
Agreement or the Plan of Merger.
2.05 FINANCIAL STATEMENTS. Attached on the Disclosure Schedule are (i) the
audited consolidated financial statements (including balance sheet and
statements of stockholders' equity, income and cash flow) of the Company for its
fiscal years ended December 31, 1993 through December 31, 1995, including in
each case the related footnotes thereto, together with the applicable reports of
the Company's independent auditors Ernst & Young LLP, and (ii) the unaudited
consolidated financial statements (including balance sheet and statement of
income) as of June 30, 1996 (collectively, the "Financial Statements") (the
balance sheet as of June 30, 1996 being herein referred to as the "Company
Balance Sheet"). The Company's books and records of accounts accurately reflect
all of the assets, liabilities, transactions and results of operations of the
Company, except where any inaccuracy would not have a Material Adverse Effect,
and the Financial Statements have been prepared based upon and in conformity
therewith. The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") maintained and applied on a
consistent basis throughout the indicated periods, and fairly present the
financial condition and results of operation of the Company at the dates and for
the relevant periods indicated in accordance with GAAP. True and correct copies
of all written reports submitted to the Company or the Principal Shareholders by
the Company's auditors since January 1, 1994 relating to the findings of audits
or examination of the books and records of the Company or any Controlled
Subsidiary have been delivered to UWSI.
2.06 INSURANCE COMPANY FINANCIAL STATEMENTS. Except as set forth on the
Disclosure Schedule, each Controlled Subsidiary that is an insurance company or
a health maintenance organization has delivered to UWSI complete and correct
copies of the Annual Statements for the years ended December 31, 1995, 1994 and
1993, and the Quarterly Statement for the quarter ended March 31, 1996, together
with all Exhibits and Schedules thereto (the "Statements"); provided, however,
that any such Controlled Subsidiary was licensed to operate as an insurance
company or health maintenance organization during said fiscal years
("Insurers"). The Statements have been prepared in accordance with Statutory
Accounting Practices throughout the periods involved and in accordance with the
books and records of said Insurers, except as expressly set forth or disclosed
in the notes, Exhibits or Schedules thereto. The Statements fairly and
accurately present the assets, liabilities and capital and surplus of said
Insurers as of the respective dates thereof in accordance with Statutory
Accounting Practices consistently applied, and do not omit to state or reflect
any material fact concerning said Insurers required to be stated or reflected
therein or necessary to make the statements made therein not misleading in light
of the circumstances under which made. As used in this Agreement, "Statutory
Accounting Practices" means the accounting procedures and methods prescribed or
permitted by the National Association of Insurance Commissioners as modified by
the Department of Insurance for the state of domicile of each Insurer.
A-4
<PAGE>
(a) Except as disclosed on the Disclosure Schedule, as of March 31, 1996, no
Insurer had any material liability, whether accrued, absolute, fixed, contingent
or otherwise, of a nature required to be reflected on the balance sheet of said
Insurer prepared in accordance with Statutory Accounting Practices, which
liability is not fully and correctly reflected or reserved against in the
balance sheet forming a part of the Insurers Statements for the quarter ended
March 31, 1996. Except as set forth on the Disclosure Schedule, since March 31,
1996, no Insurer has incurred any liabilities or obligations (absolute, accrued,
fixed, contingent, liquidated, unliquidated or otherwise) except liabilities
incurred in the ordinary course of business consistent with past practice.
(b) Each Insurer's reserves met, as of December 31, 1995 and April 1, 1996,
and will meet as of the Closing Date, the requirements of the state of domicile
and were and will be at least as great as the minimum aggregate amount required
by each state in which each Insurer was and will be licensed to do direct
business.
2.07 RECEIVABLES. Except as set forth on the Disclosure Schedule, all
accounts, notes and other receivables of the Company, whether reflected in the
Financial Statements or otherwise, represent sales in the ordinary course of
business.
2.08 ABSENCE OF CERTAIN CHANGES.
(a) Since June 25, 1996 through the date of this Agreement, the Company has
conducted its business only in the ordinary course thereof and has not
experienced any changes in its condition (financial or otherwise), assets,
liabilities, business, prospects or operations which individually or in the
aggregate had or could have a material adverse effect. For purposes of this
Section 2.08 only, an item shall be deemed "material" if the dollar amount or
value associated with such item exceeds $25,000. Without limiting the generality
of the foregoing sentence, since June 25, 1996, neither the Company nor any
Controlled Subsidiary has, except as set forth on the Disclosure Schedule:
(i) in a single transaction or a series of related transactions, sold
(including by sale-leaseback), leased, licensed, pledged, disposed of or
encumbered any assets which individually or in the aggregate, have a fair
market value in excess of $50,000;
(ii) incurred or became contingently liable with respect to any
indebtedness for borrowed money or guaranteed any such indebtedness, where
the aggregate amount of indebtedness so incurred or guaranteed exceeded
$10,000 or redeemed, purchased, acquired or offered to purchase or acquire
any long-term debt;
(iii) acquired or agreed to acquire by merging with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership,
association or other business entity, in a transaction or series of related
transactions;
(iv) changed any of its accounting practices or procedures;
(v) amended or proposed to amend its charter or bylaws; or split,
combined or reclassified its outstanding capital stock, or declared, set
aside or paid any dividend or distribution in respect of any capital stock;
(vi) entered into, amended or became obligated under any employment,
severance, bonus, profit sharing or other employee benefit arrangement;
(vii) issued, purchased or redeemed any shares of capital stock of the
Company or any Controlled Subsidiary (including any security convertible or
exchangeable into capital stock) other than: the issuance of shares of
Company Common Stock upon exercise of options outstanding on, and in
accordance with their terms as of, June 25, 1996, or issued, granted or
otherwise created any portion or right to acquire any such capital stock;
(viii) prepaid any material expenses, indebtedness or other obligations;
A-5
<PAGE>
(ix) entered into or amended any contract, agreement or commitment, or
engaged in any transaction, in each case which was material to the Company
and which was not in the usual and ordinary course of business;
(x) entered into any contract, agreement or commitment or engaged in any
transaction (other than transactions pursuant to agreements in existence on
June 25, 1996 which on such date had been previously disclosed in writing to
UWSI) with any affiliate of Hilliard, Weyers or any officer of the Company
or any Controlled Subsidiary;
(xi) settled any material claim (including without limitations, any tax
claim), action or lawsuit involving the Company or any of its Controlled
Subsidiaries pending as of or arising on or after June 25, 1996, or amended
any tax return in any respect;
(xii) released, waived or terminated any material obligation of any third
party to the Company or any Controlled Subsidiary;
(xiii) solicited or encouraged any inquiries or proposals regarding, or
offers for, or entered into or continued any discussions with, or provided
any information to, any third party concerning any sale or transfer of the
Company or any of its assets or entered into or consummated any agreement or
understanding providing for a sale or transfer of the Company or any of its
assets, other than as contemplated herein; or
(xiv) agreed, whether or not in writing, to take any of the actions
described in clauses (i)-(xiii) above.
2.09 LITIGATION AND OTHER PROCEEDINGS. Except as set forth on the
Disclosure Schedule, none of the Company, any Controlled Subsidiary or either
Principal Shareholder is currently a party to any pending or, to the Company's
and each Principal Shareholder's knowledge, threatened, claim (other than
benefit claims in the ordinary course of business), action, suit, investigation
or proceeding or is a party to any order, judgment or decree relating to or
affecting the Company, any Controlled Subsidiary or, with respect to the
Principal Shareholders, relating to or affecting their shares of Company Common
Stock or their positions with the Company. Except as set forth on the Disclosure
Schedule, since January 1, 1993, neither the Company nor any Controlled
Subsidiary has been a party to any such claim, action, suit, investigation or
proceeding. Except as described on the Disclosure Schedule, there is no
outstanding order, decree or stipulation issued by any federal, state or local
authority to which the Company or any Controlled Subsidiary is a party or
subject and which has or is reasonably likely to have a Material Adverse Effect.
2.10 COMPLIANCE WITH LAWS. Except as set forth on the Disclosure Schedule,
to the knowledge of the Company and each Principal Shareholder, the Company and
each Controlled Subsidiary is conducting its business in compliance with all
applicable laws and regulations in each jurisdiction in which it conducts
business, including any insurance or insurance-related laws, regulations or
rules, except where a failure to comply would not have a Material Adverse
Effect. The Disclosure Schedule lists all licenses, registrations and permits,
and applications with respect to the business and operations of each of the
Company and the Controlled Subsidiaries. Except as set forth on the Disclosure
Schedule, to the knowledge of the Company and each Principal Shareholder, the
Company and each of the Controlled Subsidiaries currently has all governmental
approvals, consents, licenses, registrations, and permits necessary to carry on
its business as presently conducted (collectively, "Licenses"), except where the
failure to have any such License would not have a Material Adverse Effect, and
neither the Company nor any Principal Shareholder has received notice of
violation of any laws or notice of any proposed regulations or changes in the
requirement of such approvals, consents, licenses, registrations, or permits
which notice has not previously been disclosed to UWSI in writing.
2.11 TAXES. To the knowledge of the Company and each Principal
Shareholder, and except as set forth in the Disclosure Schedule: (i) the Company
has duly filed all material reports and returns and extensions ("Tax Returns")
required to be filed by it relating to all taxes imposed by any jurisdiction
("Taxes"); (ii) all material liabilities for Taxes which are due from the
Company with
A-6
<PAGE>
respect to periods ending on or before the Closing Date for which a statute of
limitations has not barred the assessment of deficiencies have been paid or
provision therefor has been made on the Company Balance Sheet; and (iii) the Tax
Returns reflect all Taxes due and payable with respect to the periods covered
thereby and there are no other tax liabilities, deficiencies, interest or
penalties payable or asserted with respect to such periods. Except as set forth
on the Disclosure Schedule, there are no actions, suits, proceedings,
investigations or claims pending with respect to tax matters. Except as set
forth on the Disclosure Schedule, there are no pending audits by any federal,
state, local or foreign taxing authority of any payment, return or report made
or filed by the Company.
2.12 TITLE TO PROPERTIES.
(a) Except as set forth on the Disclosure Schedule, the Company has good and
marketable title to all of the properties and assets recorded on the Company
Balance Sheet free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except for (i) such properties and assets
as may have been sold in the ordinary course of business since the date of the
Company Balance Sheet, or (ii) Permitted Encumbrances. As used herein "Permitted
Encumbrances" means municipal and zoning ordinances, recorded easements,
covenants and restrictions provided the same do not prohibit or materially
interfere with the present use, or materially affect the present value, of the
real property owned by the Company or any Controlled Subsidiary. All properties
and assets owned and currently used by the Company in the Company's business are
in good condition and repair, normal wear and tear excepted. Surveys of all real
property owned by the Company, true and correct copies of which have been
furnished to UWSI, are listed on the Disclosure Schedule.
(b) The Disclosure Schedule sets forth: (i) a true and complete list of all
real property leases of the Company and all personal property leases to which
the Company is a party as lessee as of the date hereof involving an annual lease
payment of more than $20,000, including an identification of the parties, the
property, the term of the lease and the rent or lease payments thereunder; and
(ii) a true and complete list of all real property owned by the Company as of
the date hereof, including an identification of the property, the record owner
and the principal structures on it.
2.13 CONTRACTS AND COMMITMENTS. Except as set forth on the Disclosure
Schedule, neither the Company nor any Controlled Subsidiary has any written or
oral contract, commitment, or other agreement or arrangement, including any
note, loan agreement, guarantee or other evidence of indebtedness of the
Company, which involves an annual aggregate consideration with a value in excess
of $100,000 (excluding any agreements with insureds or plan sponsors), or any
contracts, commitments, or other agreements or arrangements with any Related
Party individually in excess of $60,000. All of such contracts, commitments, or
other agreements or arrangements to which the Company or any Controlled
Subsidiary is a party or by which any of its assets or properties are bound or
affected are in full force and effect and no event or condition has occurred or
exists or has been threatened in writing by any of the other parties thereto to
have occurred or exist, which constitutes or with lapse of time or giving of
notice would constitute a default or basis for acceleration under any such
contract, commitment, arrangement or other agreement. Except as set forth on the
Disclosure Schedule, neither the Company nor any Controlled Subsidiary has given
any revocable or irrevocable power of attorney to any person, firm or
corporation for any purpose whatsoever. Set forth on the Disclosure Schedule are
written descriptions of all such contracts, commitments, agreements or
arrangements that are oral. The Company is not bound by any covenant not to
compete or otherwise restricted by any agreement to which it is a party from
carrying on or engaging in any business anywhere in the world.
2.14 EMPLOYEE RELATIONS. Neither the Company nor any Controlled Subsidiary
is a party to any collective bargaining agreement covering or relating to any of
its employees and has not recognized, is not required to recognize and during
the past five years has not received a demand for recognition by any collective
bargaining representative or experienced any strikes or work stoppages or
slowdowns. Each of the Company and its Controlled Subsidiaries is in compliance
with all applicable laws, rules and regulations relating to employment or
employment practices, including
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those relating to wages, hours, collective bargaining and the withholding and
payment of taxes and contributions, and the Company is in compliance with the
Occupational Safety and Health Act and applicable Federal Civil Rights laws
except where the failure to so comply would not have a Material Adverse Effect.
2.15 EMPLOYEE BENEFIT PLANS.
(a) Listed in the Disclosure Schedule are all written employment agreements
presently in effect between the Company and its employees, all collective
bargaining agreements between Company and its employees, and all benefit plans
in effect for employees of the Company, including with-out limitation all bonus,
pension and retirement, deferred compensation, vacation, and severance pay
plans.
(b) The Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to so comply would not have a Material
Adverse Effect on the Company. There is no labor strike, dispute, slowdown,
representation campaign or work stoppage actually pending with respect to the
Company's employees.
(c) Since June 25, 1996, there has not been (i) any increase in the rate or
terms of compensation payable by the Company to, or any increase in the rate or
terms of any bonus, insurance, pension, or other employee benefit plan on behalf
of, its officers, except increases occurring in the ordinary course of business
in accordance with its customary practices (which shall include normal period
performance reviews and related compensation and benefit increases), or (ii) any
general or uniform increase in the compensation or benefits of employees of the
Company.
(d) There are no "employee pension benefit plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), subject to Title IV of ERISA, in which the Company's employees are
participants. Each employee pension benefit plan listed on the Disclosure
Schedule is in compliance in all material respects with the applicable
provisions of the Code and ERISA, including the fiduciary and prohibited
transaction rules and funding requirements. Except as required by law, the
Company has made no commitment to provide retiree health coverage to any
employee. The consummation of the transactions contemplated by this Agreement
will not trigger any severance payments.
(e) Except as set forth on the Disclosure Schedule, there are no pending
claims, lawsuits or arbitrations which have been asserted or instituted against
the Company with respect to any laws respecting employment and employment
practices of the Company.
(f) The Company is not a party to any collective bargaining agreement and no
such contract is being negotiated with the Company. No representation question
exists or has been raised respecting the employees of the Company, nor are there
any campaigns being conducted to solicit cards from the employees of the Company
to authorize representation by any labor organization.
(g) The Company has (i) timely filed with the United States Department
of Labor and the Internal Revenue Service, all reports required to be filed
by it (including, without limitation, all Forms 5500), and (ii) attached to
the Disclosure Schedule all determination letters from the Internal Revenue
Service which are currently applicable to any benefit plan of the Company.
2.16 INTELLECTUAL PROPERTY. The Disclosure Schedule sets forth a correct
and complete list of all letters patent, patent applications, trade names,
trademarks, service marks, trademark registrations and applications, copyrights
and copyright registrations and applications, both domestic and foreign,
presently owned, possessed, used or held by the Company or any Controlled
Subsidiary (the "Intellectual Property") which are material to the conduct of
the business of the Company and the Controlled Subsidiaries taken as a whole. To
the Company's and each Principal Shareholder's knowledge, the Company and each
Controlled Subsidiary owns the entire right, title and interest in and to all
Intellectual Property. The Disclosure Schedule sets forth a correct and complete
list of all licenses
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granted to the Company and each Controlled Subsidiary by others which are
material to the conduct of the business of the Company and each Controlled
Subsidiary as now conducted, taken as a whole and to others by the Company or
any Controlled Subsidiary. Except as set forth on the Disclosure Schedule,
neither the conduct of the Company's or any Controlled Subsidiary's business nor
any of the products it sells or services it provides infringes upon the rights
of any other person and, the conduct of any other person's business or any of
the products it sells or services it provides does not infringe upon any of the
Company's or any Controlled Subsidiary's rights. Neither the Company nor any
Controlled Subsidiary has any liability for or has given any indemnification for
patent, trademark or copyright infringement as to any products used or sold by
it or with respect to services rendered by it. The Intellectual Property
constitutes all of the intellectual property that is used in or necessary for
the conduct of the Company's or any Controlled Subsidiary's business, as
presently conducted. Except as set forth on the Disclosure Schedule, neither the
Company nor any Controlled Subsidiary has licensed any third party to use any of
the Intellectual Property.
2.17 ENVIRONMENTAL MATTERS. There are no actions pending or, to the
Company's and Principal Shareholders' knowledge, threatened, and no conditions
which could give rise to such an action against the Company which assert or
allege (a) the Company, any Controlled Subsidiary or U&C Real Estate Partnership
or their respective businesses has violated or any of their respective owned
real property is in violation of any environmental laws or is in default with
respect to any order, writ, judgment, variance, award or decree applicable to
the Company, any Controlled Subsidiary or U&C Real Estate Partnership of any
governmental authority relating to environmental laws (an "Environmental Law");
(b) the Company, any Controlled Subsidiary or U&C Real Estate Partnership is
required to clean up or take any investigation, remedial or other response
action under any Environmental Law; or (c) the Company, any Controlled
Subsidiary or U&C Real Estate Partnership is required to contribute to the cost
of any past, present or future cleanup or remedial or other response action
which arises under any Environmental Law.
2.18 CONTINGENT OR UNDISCLOSED LIABILITIES. Except as set forth on the
Disclosure Schedule, neither the Company nor any Controlled Subsidiary has any
debts, liabilities or obligations due or to become due (which debts, liabilities
or obligations are not the subject of any other representation or warranty made
in this Article II), and there are no claims or causes of action that may be
asserted against the Company or any Controlled Subsidiary by any governmental
authority or third party (which claims or causes of action are not the subject
of any other representation or warranty made in this Article II) which arise
with respect to or relate to any period or periods on or prior to the date
hereof, regardless of whether such obligations, liabilities or claims are known
or unknown, absolute, accrued, contingent or otherwise, except as and to the
extent set forth on the Company Balance Sheet, except for liabilities incurred
since June 25, 1996 in the ordinary course of business consistent with past
practice or except to the extent that any such liability would not have a
Material Adverse Effect.
2.19 INSURANCE. The Company has in full force and effect the policies of
insurance listed in the amounts described on the Disclosure Schedule, and all
premiums due thereon have been paid. The Company does not have any interest in
any other insurance policy.
2.20 RELATED PARTY TRANSACTIONS. Except as described on the Disclosure
Schedule attached hereto, the Company and each Controlled Subsidiary: (a) has
not had any financial transactions or arrangements (other than payment of
regular salary to Related Parties who are employees) with an annual aggregate
amount in excess of $10,000 with any Related Party since June 25, 1996, and (b)
except as contemplated hereby has not and will not have any present or future
binding obligation to enter into any transaction or arrangement with any Related
Party. For purposes hereof, the term "Related Party", shall mean: (i) any five
percent or greater shareholder of the Company (other than UWSI) (ii) any officer
or director of the Company or any Controlled Subsidiary, (iii) any spouse,
in-law or descendant of any Related Party, and (iv) any person who, directly or
indirectly, controls the Company. For purposes of this definition, "person"
shall mean an individual, partnership, corporation, trust, unincorporated
organization or other entity; and "control," as used with respect to any person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of
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the management and policies of such person, whether through the ownership of
voting securities, by contract or otherwise. Except as described on the
Disclosure Schedule, to the knowledge of the Company and Principal Shareholders,
no Related Party owns, directly or indirectly, or is a director, member, officer
or employee of, or consultant to, any business organization which is a
competitor, or supplier, having business dealings with the Company or any
Controlled Subsidiary, nor does any Related Party own any material assets or
properties which are used in the Company's or any Controlled Subsidiary's
business.
2.21 REGISTRATION STATEMENT, ETC. None of the information to be supplied
by the Company or the Principal Shareholders insofar as such information relates
to the Company or the Principal Shareholders and such information is furnished
in writing by or on behalf of the Company or the Principal Shareholders
expressly for use in (i) a Registration Statement to be filed with the
Securities and Exchange Commission (the "Commission") by UWSI for the purpose of
registering the shares of UWSI Common Stock to be exchanged for shares of the
Company Common Stock pursuant to the provisions of the Plan of Merger (the
"Registration Statement"), (ii) the proxy statement to be mailed to the
shareholders of the Company and UWSI (the "Proxy Statement") in connection with
the meeting of shareholders to be called to consider and vote upon the Merger,
and (iii) any other documents to be filed with the Commission in connection with
the transactions contemplated hereby, at the respective times such documents are
filed with the Commission and, in the case of the Registration Statement, when
it becomes effective, and with respect to the Proxy Statement, when mailed,
shall be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein not
misleading. In the case of the Proxy Statement or any amendment thereof, none of
such information at the time of the meeting of shareholders referred to in
Section 5.03 hereof shall be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for such
meeting.
2.22 BROKERS AND FINDERS. Except as set forth in the Disclosure Schedule,
neither the Company or any of its officers, directors or employees nor the
Principal Shareholders has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finders' fees, and no broker or finder has acted directly or indirectly for the
Company or the Principal Shareholders in connection with this Agreement, the
Plan of Merger or the transactions contemplated hereby and thereby.
2.23 DISCLOSURE. No representation, warranty or other statement by the
Company or any of the Principal Shareholders herein or in the Disclosure
Schedules hereto, or in any other document entered into in connection with this
Agreement, contains or will contain an untrue statement of material fact, or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UWSI
UWSI represents and warrants to the Company and the Shareholders that:
3.01 ORGANIZATION AND AUTHORITY. UWSI is a corporation validly existing
and in good standing under the laws of Wisconsin, with all requisite corporate
power and corporate authority to own its property and to carry on its business
as now being conducted.
3.02 CAPITALIZATION. The authorized capital stock of UWSI consists of (a)
50,000,000 shares of common stock, no par value per share, of which 12,599,715
shares are issued and outstanding, and (b) 500,000 shares of preferred stock, no
par value per share, of which no shares are issued and are outstanding. The UWSI
Common Stock to be issued in the Merger will be validly issued, fully paid and
nonassessable subject to Section 180.0622(2)(b) of the WBCL and judicial
interpretations thereof. All
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of the outstanding shares of UWSI Common Stock have been issued pursuant to and
in accordance with the 1933 Act and applicable state securities laws and rules
and regulations under such laws, or valid exemptions therefrom.
3.03 AUTHORIZATION. UWSI has full power and authority to enter into this
Agreement and the Plan of Merger and to carry out its obligations hereunder and
thereunder. The transactions contemplated hereby and thereby have been duly
authorized by its Board of Directors, and no other corporate proceedings on the
part of UWSI are necessary to authorize this Agreement, the Plan of Merger and
the transactions contemplated hereby and thereby, except for the approval of
UWSI shareholders. Subject to the approval of UWSI's shareholders, this
Agreement and the Plan of Merger are valid and binding obligations of UWSI,
enforceable against it in accordance with their terms, except insofar as
enforcement may be limited by bankruptcy, insolvency or similar laws affecting
the enforcement of creditors rights generally and by principles of equity.
Neither the execution and delivery of this Agreement nor the Plan of Merger by
UWSI nor the consummation of the transactions contemplated hereby and thereby,
nor compliance with any of the provisions hereof or thereof will (i) violate,
conflict with, or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration,
under any of the terms, conditions or provisions of (x) its articles of
incorporation or by-laws, or (y) any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which UWSI
is a party, or by which any property or assets of the foregoing may be subject,
or (ii) violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to UWSI or any of its properties or assets, except
where such violations would not materially impair the ability of UWSI to
consummate the transactions contemplated herein. Other than in connection with
or in compliance with the provisions of the DGCL, the WBCL, the 1933 Act, the
securities laws of the various states, the insurance laws of various states and
the Hart-Scott-Rodino Act, no notice to, filing with, or authorization, consent
or approval of, any public body or authority is necessary for the consummation
by UWSI of the transactions contemplated by this Agreement and the Plan of
Merger.
3.04 REGISTRATION STATEMENT, ETC. None of the information to be supplied
by UWSI insofar as such information relates to UWSI for inclusion in (i) the
Registration Statement, (ii) the Proxy Statement, or (iii) any other document to
be filed with the Commission in connection with the transactions contemplated
hereby, at the respective times such are filed with the Commission and, in the
case of the Registration Statement, when it becomes effective, and in the case
of the Proxy Statement, when mailed, shall be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not misleading. In the case of the Proxy Statement
or any amendment thereof or supplement thereto, none of such information
supplied by UWSI at the time of the meeting of shareholders referred to in
Section 5.03 hereof shall be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for such
meeting. All documents filed by UWSI with the Commission in connection with the
Merger will comply in all material respects with the provisions of applicable
federal and state securities laws.
3.05 BROKERS AND FINDERS. Other than fees payable to Merrill Lynch & Co.,
neither UWSI nor any of its officers, directors or employees has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commission or finders' fees, and no broker or finder has acted
directly or indirectly for UWSI in connection with this Agreement or the Plan of
Merger or the transactions contemplated hereby and thereby.
3.06 DISCLOSURE. No representation, warranty or other statement by UWSI
herein or in any other document made in connection with this Agreement, contains
or will contain an untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein misleading.
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3.07 SEC REPORTS. Each report filed by UWSI under the Securities Exchange
Act of 1934, as amended and the rules and regulations promulgated thereunder
(collectively, the "1934 Act") since June 30, 1995 did not, on the date of such
report contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All financial statements included in the reports referred to in the
preceding sentence were prepared in accordance with GAAP except as noted
therein, and fairly present the information purported to be shown therein
(subject only to normal, recurring adjustments in the case of any unaudited
statements, none of which is material).
ARTICLE IV
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
4.01 CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE EFFECTIVE TIME. During
the period from the date of this Agreement to the Effective Time, the Company
and the Controlled Subsidiaries shall conduct their respective operations
according to the ordinary and usual course of business consistent with past and
current practices and use their reasonable best efforts to maintain and preserve
their business organization, prospects, employees and advantageous business
relationships and shall not, without the prior written consent of the President
of UWSI, take any action or permit to occur any event set forth in Section 2.08.
ARTICLE V
ADDITIONAL AGREEMENTS
5.01 ACCESS AND INFORMATION. (a) Prior to the Effective Time, the Company
shall on reasonable notice to the Company allow UWSI, and its accountants,
counsel and other representatives and advisers full and complete access during
reasonable business hours to all properties, books, contracts, commitments,
records, documents and facilities of the Company, the Company shall furnish
promptly to UWSI all other information concerning the business, properties and
personnel of the Company and the Controlled Subsidiaries as UWSI may reasonably
request, and the Company will make the officers, employees, agents, independent
accountants and actuaries of the Company and Controlled Subsidiaries available
to discuss such aspects of the Company and the Controlled Subsidiaries as may be
reasonably requested by UWSI.
(b) UWSI shall make available to executive officers of the Company, its
accountants, counsel and the executive officers of UWSI to discuss such aspects
of UWSI as may be reasonably requested by the Company.
(c) Each of the Company and UWSI acknowledge that the access provided for in
this Section 5.01 is provided for the sole reason of allowing each of UWSI and
the Company to complete the due diligence necessary to allow their respective
Boards of Directors to make informed decisions regarding approval of this
Agreement and the preparation of the Registration Statement and Proxy Statement.
Each of the Company and UWSI acknowledges the securities laws applicable to the
use of material non-public information it may obtain pursuant to this Section
5.01, and each of the Company and UWSI shall inform its respective directors,
officers, employees, and agents of such securities laws.
5.02 REGISTRATION STATEMENT AND PROXY STATEMENT. As soon as reasonably
practicable after the date hereof, UWSI shall prepare the Proxy Statement and
UWSI shall prepare and file with the Commission and diligently pursue to
effectiveness the Registration Statement, of which the Proxy Statement shall be
a part. In connection with the foregoing, (a) UWSI and the Company will comply
fully with the requirements of applicable state securities laws, the 1933 Act,
and the rules and regulations of the Commission under such laws applicable to
the offering and sale of UWSI Common Stock in connection with the Merger and the
solicitation of proxies for the meeting of the shareholders of the Company
described below and (b) the Company shall furnish to UWSI such information
relating to the Company and its affiliates and the transactions contemplated by
this Agreement and the Plan
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of Merger and such further and supplemental information as may be necessary or
as may be reasonably requested by UWSI to ensure that the statements regarding
the parties hereto and their affiliates and such transactions contained in the
Proxy Statement will not on the effective date of the Registration Statement or
the date of such meeting of the shareholders of the Company or UWSI or at the
Effective Time include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading. UWSI shall also take any action required to
be taken under any applicable state securities laws in connection with the
issuance of the shares of UWSI Common Stock to be issued as set forth in the
Plan of Merger, and the Company shall furnish all information concerning the
Company and the holders of the Company Common Stock and other assistance as UWSI
may reasonably request in connection with any such action. Following the
Effective Time, UWSI will register the shares of UWSI Common Stock underlying
the Options on Form S-8.
5.03 COMPANY SHAREHOLDERS' APPROVAL. The Company shall call a special
meeting of its shareholders to be held no later than 20 days following
effectiveness of the Registration Statement for the purpose of considering and
voting upon the approval and adoption of the Plan of Merger. The Company shall
comply fully with the applicable provisions of the DGCL relating to the call and
holding of such meeting of its shareholders.
5.04 UWSI SHAREHOLDERS APPROVAL. UWSI shall call a special meeting of its
shareholders to be held no later than 35 days following effectiveness of the
Registration Statement for the purpose of considering and voting upon (i) the
approval and adoption of the Plan of Merger and (ii) the increase in the number
of shares of UWSI Common Stock issuable pursuant to the UWSI Equity Incentive
Plan to cover the options on UWSI Common Stock being granted pursuant to the
Employment Agreements referred to in Section 6.03(i). UWSI shall comply fully
with the applicable provisions of the WBCL and the 1934 Act in connection with
such shareholder approval.
5.05 MISCELLANEOUS AGREEMENTS AND CONSENTS. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Plan of Merger, including, without limitation, using
reasonable efforts to satisfy the conditions contained in Article VI hereof. The
Company and UWSI will use their best efforts to obtain consents of all third
parties and governmental bodies necessary or, in the reasonable opinion of UWSI,
desirable for the consummation of the transactions contemplated by this
Agreement and the Plan of Merger. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement and the Plan of Merger, the proper officers and/or directors of the
Company or UWSI, as the case may be, shall take all such necessary action. Prior
to the Effective Time, each Principal Shareholder shall (i) own, of record and
beneficially, all right, title and interest to the shares of Company Common
Stock owned by him as of the date hereof, free and clear of all security
interests, liens, claims, pledges, escrows, options, warrants, rights of
purchase, equities, charges, encumbrances, proxies, voting trusts and
restrictions on voting rights whatsoever, and (ii) not enter into any contract,
agreement, understanding or restriction of any kind relating to any shares of
Company Common Stock. Subject to the provisions of Section 5.05, or without
UWSI's prior written consent, during the period from the date of this Agreement
to the Effective Time, or such earlier termination of the Agreement pursuant to
Article VII hereof, the Principal Shareholders shall not and the Company shall
not and shall cause its directors, officers, agents and employees not to
solicit, authorize the solicitation of or enter into any discussion (or continue
any discussion) with any third party (including the provision of any information
to a third party regarding the Company) concerning any offer or possible offer
from any such third party (i) to purchase any Company Common Stock, any option
or warrant to purchase Company Common Stock, or any securities convertible into
Company Common Stock or any other security of the Company, (ii) to purchase,
lease or otherwise acquire all or a substantial portion of the assets of the
Company or (iii) to merge, consolidate or otherwise combine with the Company.
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5.06 INTERIM FINANCIAL STATEMENTS. During the period prior to the
Effective Time, the Company shall deliver to UWSI monthly an unaudited balance
sheet and income statement as of the end of such month (the "Interim Financial
Statements"). The Interim Financial Statements shall be correct and complete and
shall fairly present the financial condition, stockholders' equity, and results
of operations of the Company as of the respective dates, and the Interim
Financial Statements shall be prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved.
5.07 INSURANCE REGULATORY APPROVALS. As soon as practicable in conjunction
with the execution and delivery of this Agreement, UWSI will file with the
Department of Insurance of each state listed on the Disclosure Schedule, a Form
A or similar document seeking approval of the Merger, and UWSI and the Company
each hereby agrees that it will in good faith take, or cause to be taken, all
actions and do, or cause to be done, all things necessary, proper or advisable
to obtain the necessary consents, authorizations, orders, approvals and
clearances of governmental authorities, including, without limitation, approval
of the Departments of Insurance listed on the Disclosure Schedule.
5.08 HART-SCOTT-RODINO COMPLIANCE. UWSI, the Company and any other party
required by law shall as soon as practicable file Notification and Report Forms
under the Hart-Scott-Rodino Act with the Federal Trade Commission ("FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and shall use reasonable efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation. UWSI, the Company and any other parties required
by law, will take all such action as may be necessary under any laws applicable
to or necessary for, and will file and, if appropriate, use their reasonable
efforts to have declared effective or approved, all documents and notifications
with such governmental or regulatory bodies which they deem necessary or
appropriate for the consummation of the Merger and the transactions contemplated
hereby, and each party shall give the other information reasonably requested by
such other party pertaining to it and its subsidiaries and affiliates reasonably
necessary to enable such other party to take such actions.
5.09 CERTAIN NOTIFICATIONS. At all times until the Effective Time, each
party shall promptly notify the other in writing of the occurrence of any event
which will or may result in the failure to satisfy any of the conditions
specified in Article VI hereof.
5.10 VOTING AGREEMENT. The Principal Shareholders shall vote their shares
of Company Common Stock and BCBSUW shall vote its shares in UWSI in favor of the
Plan of Merger.
5.11 BEST EFFORTS. Each of UWSI, the Company and the Principal
Shareholders agree to use its or his best efforts to take all necessary actions
to cause the Merger to be consummated.
5.12 PRESS RELEASES. The parties agree that, except as otherwise provided
by law, no press release or other public announcement with respect to this
Agreement or the transactions contemplated hereby shall be made without the
prior consultation and approval of all parties hereto.
5.13 EXPENSES. UWSI shall be responsible for its expenses incurred in
connection with this Agreement and the transactions contemplated hereby. The
Company shall be responsible for $150,000 of the fees and expenses of Godfrey &
Kahn, S.C. incurred in connection with the transactions contemplated by this
Agreement on behalf of the Company. The Shareholders shall be responsible for
the remaining expenses of Godfrey & Kahn, S.C. since June 1, 1996, and all fees
and expenses of any financial advisors engaged by the Company, any Controlled
Subsidiary or the Principal Shareholders incurred in connection with this
Agreement and the transaction contemplated hereby. Any Shareholders required by
law to make filings under the Hart-Scott-Rodino Act as acquiring persons (as
defined thereunder) shall be responsible for the expenses of any filing fees
therefor. The Company shall be responsible for any remaining expenses incurred
by the Company or the Principal Shareholders in the normal course of completing
the transactions contemplated hereby.
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5.14 CERTAIN AGREEMENTS. The Company and the Principal Shareholders shall
use their reasonable best efforts to cause:
(i) American Medical Security Insurance Company ("AMSIC") to transfer to
the Company all of the issued and outstanding capital stock of American
Medical Security Insurance Company of Georgia, American Medical Security
Insurance Company of Ohio and Personal Physicians Care, Inc.;
(ii) AMSIC to transfer to the Company a dividend of $10 million;
(iii) the Company to pay in full that Note of the Company in favor of
Bank One, Green Bay dated February 1, 1996; and
(iv) the Company to consent to the substitution of United Wisconsin Life
Insurance Company for United Wisconsin Insurance Company as a partner in U&C
Real Estate Partnership.
5.15 UWSI CAPITALIZATION. The number of shares of UWSI Common Stock (i) to
be received by the Shareholders in the Merger (ii) issuable upon exercise of the
Options shall be adjusted for any stock split, stock dividend, recapitalization
or similar event affecting UWSI Common Stock prior to the Effective Time.
ARTICLE VI
CONDITIONS
6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE MERGER. The
respective obligations of each party to consummate the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) HSR WAITING PERIOD. All applicable waiting periods under the
Hart-Scott-Rodino Act shall have expired.
(b) REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any
threatened stop order. The Registration Statement, in the form in which it
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective, shall comply in all material
respects with the provisions of the 1933 Act and shall not at any such time
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) COMPANY AUTHORIZATION. The Plan of Merger shall have been approved
and adopted by the requisite vote of the holders of the outstanding shares
of Company Common Stock.
(d) UWSI AUTHORIZATIONS. The Plan of Merger and the increase in the
shares of UWSI Common Stock issuable pursuant to the UWSI Equity Incentive
Plan to cover the options on UWSI Common Stock being granted pursuant to the
Employment Agreements referred to in Section 6.03(i) hereof shall each have
been approved by the requisite vote of the holders of UWSI Common Stock.
(e) LISTING. The shares of UWSI Common Stock to be issued in the Plan
of Merger and upon exercise of the Options, shall have been approved for
listing on the New York Stock Exchange subject to notice of issuance.
(f) PROCEEDINGS. At the Effective Time there shall be no action or
proceeding initiated by any governmental agency or any third party pending
which seeks to restrain, prohibit or invalidate any material transaction
contemplated by this Agreement or the Plan of Merger or to recover
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substantial damages or other substantial relief with respect thereto and no
injunction or restraining order shall have been issued by any court
restraining, prohibiting or invalidating any such material transaction.
(g) INSURANCE REGULATORY APPROVALS.
(i) This Agreement, and all aspects of the transactions contemplated
hereby, shall have received all appropriate and necessary insurance
regulatory consents and approvals ("Approvals") as contemplated in
Section 5.06, which Approvals shall be in full force and effect;
(ii) any conditions and directions contained in the Approvals shall
have been fully complied with in all material respects; and
(iii) the Approvals shall not modify the terms and conditions of this
Agreement, and the transactions contemplated herein, in any material
respect.
6.02 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS TO CONSUMMATE THE MERGER. The obligations of the Company and the
Principal Shareholders to consummate the Merger shall be subject to the
fulfillment (or waiver by the Company and the Principal Shareholders) at or
prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of UWSI set forth in Article III hereof shall be true and correct as of the
date of this Agreement and as of the Effective Time as though made on and as
of the Effective Time, except as otherwise contemplated by this Agreement or
approved by the Company, and the Company shall have received a certificate
signed by the Chief Executive Officer, the President or an Executive Vice
President of UWSI to that effect.
(b) PERFORMANCE OF OBLIGATIONS. UWSI shall have performed all
obligations required to be performed by it under this Agreement prior to the
Effective Time, and the Company shall have received a certificate signed by
the Chairman of the Board, the President or an Executive Vice President of
UWSI to that effect.
(c) PERMITS, AUTHORIZATIONS, ETC. UWSI shall have obtained any and all
material permits, authorizations, consents or approvals of state securities
commissions and of any other public body or authority required for the
lawful consummation of the Merger.
(d) OPINION OF COUNSEL. Michael Best & Friedrich, counsel for UWSI,
shall have furnished its opinion to the Company as of the Effective Time in
form and substance reasonably satisfactory to the Company.
(e) OPINION OF TAX COUNSEL. The Company shall have received from
Godfrey & Kahn an opinion, in form and substance reasonably satisfactory to
the Company, to the effect that, on the basis of the facts, representations
and assumptions set forth in such opinion, and based on the Code and the
regulations and interpretations thereunder as of the date of such opinion,
that (a) the Merger will for federal income tax purposes constitute a
reorganization within the meaning of Section 368 of the Code, (b) no gain or
loss will be recognized by the Company Shareholders to the extent that they
receive UWSI Common Stock solely in exchange for shares of Company Common
Stock; (c) the gain, if any, to be realized by Company Shareholders who
exchange their Company Common Stock for UWSI Common Stock and cash will be
the excess of (i) the amount of cash plus the fair market value at the
Effective Time of the UWSI Common Stock received over (ii) the basis of the
Company Common Stock to be surrendered in exchange thereof and such gain
will be recognized on the exchange, but in an amount not in excess of the
cash to be received; (d) the basis of the shares of UWSI Common Stock to be
received by the Company Shareholders will be the same as the basis of the
Company Common Stock surrendered in exchange therefor, adjusted as provided
in Section 358(a) of the Code in the event that any cash is received; and
(e) the holding period of UWSI Common Stock received by the Company
Shareholders will include the holding period of the Company Common Stock
surrendered in exchange therefor,
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provided that the Company Shareholders held and will hold the Company Common
Stock and UWSI Common Stock as capital assets. In rendering such opinion,
Godfrey & Kahn may rely upon representations contained in certificates of
officers of UWSI, the Company and others.
(f) REGISTRATION RIGHTS AND STOCK RESTRICTION AGREEMENT. UWSI shall
have executed and delivered the Registration Rights and Stock Restriction
Agreement (the "Registration Rights Agreement") in substantially the form of
Exhibit B hereto.
6.03 CONDITIONS TO OBLIGATIONS OF UWSI TO CONSUMMATE THE MERGER. The
obligations of UWSI to consummate the Merger shall be subject to the fulfillment
(or waiver by UWSI) at or prior to the Effective Time of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company and the Principal Shareholders set forth in Article II hereof
shall be true and correct as of the date of this Agreement and as of the
Effective Time as though made on and as of the Effective Time, except for
such matters as would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole, and UWSI shall have received a
certificate signed by the Principal Shareholders and by the President of the
Company to that effect.
(b) PERFORMANCE OF OBLIGATIONS. The Company and the Principal
Shareholders shall have performed all obligations required to be performed
by it or them under this Agreement prior to the Effective Time, and UWSI
shall have received a certificate signed by the Principal Shareholders and
by the President of the Company to that effect.
(c) PERMITS, AUTHORIZATIONS, ETC. The Company shall have obtained any
and all consents or waivers from other parties to loan agreements or other
contracts material to the Company's business for the lawful consummation of
the Merger, and the Company and UWSI shall have obtained any and all
permits, authorizations, consents or approvals of state securities
commissions and of any other public body or authority required for the
lawful consummation of the Merger.
(d) AGREEMENTS OF AFFILIATES. Each person who is identified on the
Disclosure Schedule pursuant to Section 2.03 hereof as an "affiliate" shall
have delivered to UWSI a written agreement in the form of Exhibit C hereto.
(e) FINANCIAL STATEMENTS. UWSI shall have received the Interim
Financial Statements.
(f) OPINION OF COUNSEL. Godfrey & Kahn, counsel for the Company, shall
have furnished to UWSI its opinion as of the Closing in form and substance
satisfactory to UWSI.
(g) OPINION OF TAX COUNSEL. UWSI shall have received from Michael Best
& Friedrich an opinion, in form and substance reasonably satisfactory to
UWSI, to the effect that, on the basis of the facts, representations and
assumptions set forth in such opinion, and based on the Code and the
regulations and interpretations thereunder as of the date of such opinion,
the Merger will for federal income tax purposes constitute a reorganization
within the meaning of Section 368 of the Code. In rendering such opinion,
Michael Best & Friedrich may rely upon representations contained in
certificates of officers of UWSI, the Company and others.
(h) DISSENTING SHAREHOLDERS. UWSI shall have received a certificate
signed by the President of the Company to the effect that shareholders of
the Company owning no more than five percent of the Company's Common Stock
have filed with the Company written objections to the Merger under Section
262 of the DGCL.
(i) EMPLOYMENT AGREEMENTS. Hilliard and Weyers, respectively, shall
have executed the Employment Agreements in the form previously agreed to.
(j) TERMINATION OF EXISTING EMPLOYMENT AGREEMENTS. The Company shall
have terminated (at no additional expense to the Company) the current
Employment Agreements between the Company and Hilliard and Weyers,
respectively.
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(k) OPTIONS. The substitution of UWSI Options (as such term is defined
in the Plan of Merger) for Options shall be approved by the Boards of
Directors of the Company and UWSI. The shareholders of UWSI shall have
approved the option plan amendment contemplated by Section 2.2(b) of the
Plan of Merger. The Management Review Committee which administers such
option plan shall have approved the substitution of options contemplated by
Section 2.2(b) of the Plan of Merger and the issuance of UWSI Options to the
Principal Shareholders, as contemplated in their respective Employment
Agreements.
(l) BRING DOWN OF FAIRNESS OPINION. Merrill Lynch & Co. shall have
confirmed or redelivered its opinion previously delivered to UWSI concerning
the fairness, from a financial point of view, of the Merger to the
shareholders of UWSI. Such confirmation or redelivery shall be dated the
date on which proxy materials are first mailed to UWSI Shareholders for the
special meeting of shareholders referred to in Section 5.04 hereof.
(m) ESCROW AGREEMENT. The Shareholders shall have deposited the Escrow
Amount into, and Hilliard, as Agent, shall have executed, an Escrow
Agreement in the form attached hereto as Exhibit D (the "Escrow Agreement").
ARTICLE VII
TERMINATION, AMENDMENT
7.01 TERMINATION.
(a) This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of the Company:
(i) by mutual consent of the Company and UWSI;
(ii) by any of the Company, the Principal Shareholders or UWSI if the
Merger has not taken place by June 30, 1997;
(iii) by UWSI if any of the conditions contained in Sections 6.01 and
6.03 have not been satisfied prior to the Closing; or
(iv) by the Company if any of the conditions contained in Sections 6.01
or 6.02 have not been satisfied prior to the Closing.
(b) In the event this Agreement is terminated pursuant to Section 7.01: (i)
all obligations and rights of the parties hereunder shall cease and the parties
shall have all of the rights and obligations which existed immediately prior to
the execution of this Agreement; and (ii) such termination shall be without any
liability or further obligation of any party to another and the obligations and
agreements in this Agreement shall terminate and have no further effect except
for liabilities and obligations based on any intentional failure to perform or
comply with any covenant or agreement herein or for any intentional
misrepresentation or material breach of any warranty herein (and such
termination shall not constitute a waiver of any claim with respect thereto).
7.02 AMENDMENT. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of the parties hereto duly
authorized by the respective Board of Directors at any time prior to the
Effective Time; provided, however, that, after the approval and adoption of the
Plan of Merger by the shareholders of the Company, no such amendment,
modification or supplement shall change the amount or the form of the
consideration to be delivered to the holders of Company Common Stock or Options
as contemplated by this Agreement and the Plan of Merger.
ARTICLE VIII
INDEMNIFICATION
8.01 INDEMNIFICATION BY SHAREHOLDERS. As UWSI's sole and exclusive remedy
for breach of this Agreement from and after the Effective Time, the Shareholders
of the Company other than UWSI (the
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"Shareholders"), shall indemnify, defend and hold UWSI and its subsidiaries,
directors, officers, employees, agents and shareholders (collectively, "UWSI" as
used in this Article VIII) harmless from and against any damages, liability,
loss, cost or deficiency (including, but not limited to, reasonable attorneys'
fees ) net of any tax benefits, insurance proceeds or similar benefits, arising
out of, resulting from or relating to:
(a) any inaccuracy in or breach of a representation or warranty of the
Company or the Shareholders pursuant to this Agreement or any failure of the
Company or the Principal Shareholders to duly perform or observe any term,
provision, covenant or agreement to be performed or observed by them
pursuant to this Agreement.
(b) the Employee Claim (as defined in the letter from the Company to
UWSI of even date herewith) (collectively, "UWSI Damages").
8.02 LIMITATIONS.
(a) UWSI DAMAGES. No indemnification shall be payable by the Shareholders
to UWSI with respect to an Indemnified Claim (as hereinafter defined) for UWSI
Damages pursuant to Section 8.01(a) unless the Agent (as such term is defined in
the Escrow Agreement) shall have received notice thereof on or before June 30,
1997 or, if the Effective Time is after December 31, 1996, on or before nine
months after the Effective Time; Further, no claim pursuant to Section 8.01(a)
shall be made until UWSI's Damages for all Indemnified Claims pursuant to
Section 8.01(a), in the aggregate, exceed Seven Hundred Fifty Thousand Dollars
($750,000) (the "Basket Amount"). For the purposes of determining whether a
breach or inaccuracy of a representation, warranty or covenant contained in this
Agreement has occurred, which can give rise to an Indemnified Claim and for the
purposes of calculating the amount of any Indemnified Claim, such determination
shall be made by considering each of such representations, warranties or
covenants as if the terms "material", "materially" or "Material Adverse Effect"
did not appear therein. At such time that UWSI's Damages under Section 8.01(a)
exceed the Basket Amount the Shareholders shall be liable to UWSI only for the
portion of such UWSI's Damages that exceed the Basket Amount.
(b) EMPLOYEE CLAIM. No indemnification shall be payable by the
Shareholders to UWSI with respect to an Indemnified Claim pursuant to Section
8.01(b) unless the Agent shall have received notice thereof on or before three
years after the Effective Time. Further, no claim hereunder shall be made until
UWSI's Damages for all Indemnified Claims under Section 8.01(b) in the
aggregate, exceed Seven Hundred Fifty Thousand Dollars ($750,000) (the "Employee
Basket Amount"). At such time that UWSI's Damages under Section 8.01(b) exceed
the Employee Basket Amount, the Shareholders shall be liable to UWSI for only
fifty percent (50%) of the portion of such UWSI's Damages for Section 8.01(b)
which exceed the Employee Basket Amount.
(c) MAXIMUM AMOUNT. In no event shall the Shareholders' liability with
respect to the Employee Claim exceed One Million Dollars ($1,000,000), and in no
event shall the Shareholders' liability with respect to all Indemnified Claims,
in the aggregate, including the Employee Claim, exceed Eight Million Dollars
($8,000,000) (the "Escrow Amount") which sum shall be deposited into escrow
concurrently with the Effective Time pursuant to the Escrow Agreement.
8.03 PROCEDURE.
(a) NOTICE OF CLAIMS. UWSI shall provide the Agent quarterly with a list
of all Indemnified Claims (each of which shall be in a minimum amount of
$10,000) that UWSI is applying to the Basket Amount. Once the Indemnified Claims
exceed the Basket Amount, UWSI shall simultaneously give the Agent and the
Escrow Agent (as such term is defined in the Escrow Agreement) prompt notice of
any claim, demand, assessment, action, suit or proceeding to which UWSI believes
the indemnity set forth in section 8.01 applies each of which shall be in the
minimum amount of $10,000 (an "Indemnified Claim"); provided however that no
Indemnified Claim shall be made for a breach or inaccuracy of
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any representation or warranty, if Joseph Decker, Gail L. Hanson, Samuel V.
Miller or C. Edward Mordy had knowledge of such a breach or inaccuracy at the
time it was made. Such notice shall provide in reasonable detail such
information as UWSI may have with respect to such Indemnified Claim (including,
without limitation, copies of any summons, complaints or other pleadings which
may have been served on UWSI or its agents and any written claim, demand,
invoice, billing or other document evidencing the same). If such Indemnified
Claim is evidenced by a court pleading, UWSI shall give such notice within five
(5) days of receipt of such pleading. If such Indemnified Claim is evidenced by
some other writing from a third party, UWSI shall give such notice within ten
(10) days of the date it receives such writing. If the Agent shall object to
such notice of claim, the Agent shall simultaneously deliver a written notice of
objection to UWSI and the Escrow Agent within fifteen (15) days after UWSI's
delivery of the notice of claim. Such notice of objection shall set forth the
grounds upon which the objection is based and state whether the Agent objects to
all or only a portion of the matter described in the notice of claim. If the
notice of objection shall not have been so delivered within such fifteen (15)
day period, all Shareholders (as defined in the Escrow Agreement) shall be
conclusively deemed to have acknowledged the correctness of the claim or claims
specified in the notice of claim for the full amount thereof, and the UWSI's
Damages set forth in the notice of claim shall be promptly paid to UWSI from the
Escrow by the Escrow Agent, without the necessity of further action, as provided
in the Escrow Agreement to the full extent of the amount of funds held in the
Escrow. If the Agent shall make timely objection to a claim or claims set forth
in any notice of claim, and if such claim or claims shall not have been resolved
or compromised within sixty (60) days from the date of delivery of the notice of
objection, then such claims shall be settled by arbitration pursuant to Section
9.07 hereof. The arbitrator shall promptly obtain such information regarding the
matter the arbitrator deems necessary and shall decide the matter and render a
written award which shall be delivered to UWSI, the Agent and the Escrow Agent.
Any award shall be a conclusive determination of the matter and shall be binding
upon UWSI and the Shareholders. If, by arbitration, it shall be determined that
UWSI shall be entitled to any UWSI's Damages by reason of its claim or claims,
the UWSI's Damages so determined shall be paid to UWSI by the Escrow Agent in
the same manner as if the Agent had not delivered a notice of objection.
(b) CONTROL OF DEFENSE OF CLAIMS. If UWSI's request for indemnification
arises from the claim of a third party, (i) UWSI may assume control of the
defense of such Indemnified Claim or any litigation resulting from such
Indemnified Claim at its own expense by giving the Principal Shareholders notice
of UWSI's decision to do so or (ii) UWSI may allow the Agent to assume control
of such defense by giving written notice to the Agent. If the Agent elects to
assume such defense after written notice by UWSI, or if within ten (10) days
after delivery of such notice the Agent has not notified UWSI in writing of its
intent to assume such defense, such defense shall be conducted at the
Shareholders' sole expense. Notwithstanding UWSI's assumption of the defense of
an Indemnified Claim pursuant to Section 8.03(b)(i) hereof, the Principal
Shareholders shall have the right to participate in the defense of such
Indemnified Claim at their own expense.
8.04 INDEMNIFICATION BY UWSI. As the Shareholders' sole and exclusive
remedy for breach of this Agreement from and after the Effective Time, UWSI
agrees to indemnify, defend and hold the Shareholders, harmless from and against
any damage, liability, loss, cost or deficiency (including, but not limited to,
reasonable attorneys' fees) arising out of, resulting from or relating to:
(a) any inaccuracy in or breach of representation or warranty of UWSI
pursuant to this Agreement; and
(b) any failure to duly perform or observe any term, provision or
covenant to be performed or observed by UWSI pursuant to this Agreement.
8.05 PROCEDURE. The Principal Shareholders, acting on behalf of the
Shareholders, shall give UWSI prompt notice of any claim, demand, assessment,
action, suit or proceeding to which the Principal Shareholders believe the
indemnity set forth in section 8.04 applies (for purposes of this
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<PAGE>
Section 8.05, an "Indemnified Claim"). Such notice shall provide in reasonable
detail such information as the Principal Shareholders may have with respect to
such Indemnified Claim (including, without limitation, copies of any summons,
complaints or other pleadings which may have been served on Shareholders or
their respective agents and any written claim, demand, invoice, billing or other
document evidencing the same). If such Indemnified Claim is evidenced by a court
pleading, UWSI shall be given such notice within five (5) days of receipt of
such pleading. If such Indemnified Claim is evidenced by some other writing from
a third party, UWSI shall be given such notice within ten (10) days of the date
it receives such writing. If UWSI shall object to such notice of claim, the UWSI
shall deliver a written notice of objection to the Principal Shareholders within
fifteen (15) days after delivery of the notice of claim. Such notice of
objection shall set forth the grounds upon which the objection is based and
state whether UWSI objects to all or only a portion of the matter described in
the notice of claim. If the notice of objection shall not have been so delivered
within such fifteen (15) day period, UWSI shall be conclusively deemed to have
acknowledged the correctness of the claim or claims specified in the notice of
claim for the full amount thereof, and the damages set forth in the notice of
claim shall be promptly paid to Principal Shareholders (on behalf of all
Shareholders), in cash. If UWSI shall make timely objection to a claim or claims
set forth in any notice of claim, and if such claim or claims shall not have
been resolved or compromised within sixty (60) days from the date of delivery of
the notice of objection, then such claims shall be settled by arbitration
pursuant to Section 9.07 hereof. The arbitrator shall promptly obtain such
information regarding the matter the arbitrator deems necessary and shall decide
the matter and render a written award which shall be delivered to UWSI and the
Principal Shareholders. Any award shall be a conclusive determination of the
matter and shall be binding upon UWSI and the Shareholders.
ARTICLE IX
GENERAL PROVISIONS
9.01 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given (i) when delivered personally; (ii) the second
business day after being deposited in the United States mail registered or
certified (return receipt requested); (iii) the first business day after being
deposited with Federal Express or any other recognized national overnight
courier service or (iv) on the business day on which it is sent and received by
facsimile, in each case to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to UWSI or BCBSUW:
401 West Michigan Street
Milwaukee, WI 53203
Attention: Thomas R. Hefty
With copies to:
Geoffrey R. Morgan
Michael Best & Friedrich
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(b) If to the Company or the Principal Shareholders:
American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, WI 54313
Attention: President
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American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, WI 54313
Attention: General Counsel
American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, WI 54313
Attention: Wallace J. Hilliard
American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, WI 54313
Attention: Ronald A. Weyers
to Principal Shareholders:
Wallace J. Hilliard
4443 Indian Trails
Green Bay, WI 54313
Ronald A. Weyers
2643 Good Sheperd Lane
Green Bay, WI 54313
with copies to:
Benjamin W. Laird
Godfrey & Kahn, S.C.
333 Main Street, Suite 600
Green Bay, WI 54307-3067
Randall J. Erickson
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
9.02 MISCELLANEOUS. This Agreement (including the exhibits, documents and
instruments referred to herein or therein):
(i) constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof;
(ii) is not intended to confer upon any other person any rights or
remedies hereunder; and
(iii) shall not be assigned by operation of law or otherwise; and
(iv) may be executed in two or more counterparts which together shall
constitute a single agreement.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, heirs, next of kin, distributees,
executors, administrators and personal representatives.
9.03 WAIVER: REMEDIES. No delay or failure on the part of any party hereto
to exercise any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power, or privilege hereunder operate as a waiver of any other right,
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power, or privilege hereunder, nor shall any single or partial exercise of any
right, power, or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege hereunder.
9.04 SEVERABILITY. If any provision of this Agreement shall be held by any
court of competent jurisdiction to be illegal, invalid or unenforceable, such
provision shall be construed and enforced as if it had been more narrowly drawn
so as not to be illegal, invalid or unenforceable, and such illegality,
invalidity or unenforceability shall have no effect upon and shall not impair
the enforceability of any other provision of this Agreement.
9.05 GOVERNING LAW. This Agreement shall be construed in accordance with
the DGCL, to the extent applicable, and the law of the State of Wisconsin
(without regard to principles of conflicts of laws) applicable to contracts made
and to be performed within such State.
9.06 "KNOWLEDGE". As used herein, any reference to the "knowledge" of the
Company or the Shareholders, or the like, shall include the knowledge of (i)
with respect to the Company, those persons listed on the Disclosure Schedule
after reasonable inquiry, and (ii) the Principal Shareholders, respectively,
each after making reasonable inquiry of those persons listed on Section 9.06 of
the Disclosure Schedule and, if any such person fails to make such inquiry,
shall include constructive knowledge of such facts as would have been learned
had such reasonable inquiry been made; provided however, that such persons shall
not have any duty to make any inquiry of third parties who are not officers,
directors, employees or agents (including, without limitation, attorneys and
accountants) of the Company or a Controlled Subsidiary.
9.07 ARBITRATION. Any controversy or dispute arising out of or relating to
the payment of Indemnified Claims of either UWSI or Shareholders shall be
settled by a single arbitrator in arbitration conducted in Chicago, Illinois in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitrator's decision
shall be in writing and shall be final and nonappealable. The arbitrator also
shall make a determination regarding which party's legal position in any such
controversy or claim is the more substantially correct (the "Prevailing Party")
and the arbitrator may require the other party to pay the reasonable legal and
other professional fees and costs incurred by the Prevailing Party in connection
with such arbitration proceeding and any necessary court action.
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IN WITNESS WHEREOF, UWSI and the Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized, and the Principal
Shareholders have executed this Agreement, all as of the date first written
above.
UNITED WISCONSIN SERVICES, INC.
By: /S/ THOMAS R. HEFTY
Its: Chairman, President and Chief
Executive Officer
AMERICAN MEDICAL SECURITY GROUP, INC.
By: /S/ WALLACE J. HILLIARD
Its: President
/S/ WALLACE J. HILLIARD
WALLACE J. HILLIARD, individually and
as
Trustee under the Voting Trust
Agreement
/S/ RONALD A. WEYERS
RONALD A. WEYERS, individually and as
successor Trustee under the Voting
Trust Agreement
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN (solely for
purposes of Section 5.10 hereof)
By: /S/ THOMAS R. HEFTY
Its: President
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APPENDIX B
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
July 31, 1996
Board of Directors
United Wisconsin Services, Inc.
401 West Michigan, 10th Floor
Milwaukee, Wisconsin 53202
Attention: Thomas R. Hefty
Chairman, President and Chief Executive Officer
Gentlemen:
United Wisconsin Services, Inc. (the "Company"), a wholly owned subsidiary
of the Company (the "Purchaser"), and American Medical Security Group, Inc. (the
"Subject Company") propose to enter into an agreement (the "Agreement") pursuant
to which the Subject Company will be merged with the Purchaser in a transaction
(the "Merger") in which all outstanding shares of common stock, par value $1.00
per share ("Subject Company Common Stock"), other than 20,967 shares of Subject
Company common stock (representing approximately 12% of the total number
outstanding) which are held by the Company, and all outstanding common stock
options of the Subject Company will be converted into the right to receive, in
aggregate, $67.2 million cash and four million shares of the common stock, no
par value, of the Company ("Company Common Stock"). The Merger is expected to be
considered by the shareholders of the Company and the Subject Company at a
special shareholders' meetings to be held on or about November, 1996 and
consummated on or shortly after the date of such meeting.
You have asked us whether, in our opinion, the proposed consideration to be
paid by the Company pursuant to the Merger, taken as a whole, is fair to the
shareholders of the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Subject Company's Annual Reports and related financial
information for the five fiscal years ended December 1995 and the Subject
Company's related unaudited financial information for the monthly periods
ending June 1996;
(2) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 1995 and the
Company's Form 10-Q and the related unaudited financial information for
the quarterly period ending March 31, 1996;
(3) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Subject
Company and the Company, furnished to us by the Subject Company and the
Company;
(4) Conducted discussions with members of senior management of the Subject
Company and the Company concerning the Subject Company's and the
Company's businesses and prospects;
(5) Compared the results of operations of the Subject Company and the
Company with those of certain companies which we deemed to be reasonably
similar to the Subject Company and the Company, respectively;
(6) Reviewed the historical market prices and trading activity for Company
Common Stock;
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<PAGE>
(7) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(8) Considered the pro forma effect of the Merger on the Company's
capitalization ratios and earnings, cash flow and book value per share;
(9) Considered the terms of the Joint Venture Agreement effective October 1,
1988, as amended, and the Stock Restriction Agreement made February 3,
1989, as amended;
(10) Reviewed a draft of the Agreement dated July 31, 1996; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Subject
Company and the Company, and we have not independently verified such information
or undertaken an independent appraisal of the assets of the Subject Company or
the Companyfmth respect to the financial forecasts furnished by the Subject
Company and the Company, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the Subject
Company's or the Company's management as to the expected future financial
performance of the Subject Company or the Company, as the case may be.
Our opinion necessarily is based on economic, monetary and market conditions
prevailing, and other circumstances and conditions existing on the date of this
letter. Nothing contained in this opinion shall be construed as creating or
imposing upon us any understanding or obligation to advise any person of any
change in any fact or matter affecting our opinion of which we become aware
after the date hereof.
In the ordinary cause of our business, we and our affiliates may actively
trade Company Common Stock for our or their own accounts and for the accounts of
our customers and, accordingly may at any time hold a long or short position in
such common stock. We have, in the past, provided financial advisory and
financing services to the Company and have received fees for the rendering of
such services.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration to be paid by the Company pursuant to the Merger,
taken as a whole, is fair to the shareholders of the Company from a financial
point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By ___________________________________
Title:
Investment Banking Group
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<PAGE>
APPENDIX C
DISSENTERS' RIGHTS
APPRAISAL RIGHTS UNDER SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to the provisions of subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with the provisions of subsection (d) of this Section and who
has neither voted in favor of the merger or consolidation nor consented thereto
in writing pursuant to Section228 of this Chapter shall be entitled to an
appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this Section. As
used in this Section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a non-stock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a non-stock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 164 of this
Chapter;
(1) provided, however, that no appraisal rights under this Section shall
be available for the shares of any class or series of stock which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this Section,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this Chapter to
accept for such stock anything except (i) shares of stock of the corporation
surviving or resulting from such merger or consolidation, or depository
receipts in respect thereof; (ii) shares of stock of any other corporation
or depository receipts in respect thereof, which shares of stock or
depository receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated as a
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
holders; (iii) cash in lieu of fractional shares or fractional depository
receipts described in the foregoing clauses (i) and (ii); or (iv) any
combination of the shares of stock, depository receipts and cash in lieu of
fractional shares, or fractional depository receipts described in the
foregoing clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this Chapter is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this Section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such provision,
the procedures of this Section, including those set forth in subsections (d) and
(e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this Section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this Section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with the provisions of this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this Chapter, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
Section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
the provisions of subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
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(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholder who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by one or more publications at least one week before the day
of the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publications as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this Section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an
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appraisal shall be filed within the time provided in subsection (e) of this
Section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this Section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
UWS is incorporated under the Wisconsin business Corporation Law ("WBCL").
Under Section 180.0851(1) of the WBCL, UWS is required to indemnify a director
or officer, to the extent such person is successful on the merits or otherwise
in the defense of a proceeding, for all reasonable expenses incurred in the
proceeding if such person was a party because he or she was a director or
officer of UWS. In all other cases, UWS is required by Section 180.0851(2) to
indemnify a director or officer against liability incurred in a proceeding to
which such a person was a party because he or she was a director or officer of
UWS, unless it is determined that he or she breached or failed to perform a duty
owed to UWS and the breach or failure to perform constitutes: (i) a willful
failure to deal fairly with UWS or its shareholders in connection with a matter
in which the director or officer has 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 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. Section
180.0858(1) provides that, subject to certain limitations, the mandatory
indemnification provisions do not preclude any additional right to
indemnification or allowance of expenses that a director or officer may have
under UWS's articles of incorporation, bylaws, a written agreement or a
resolution of the Board of Directors or shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of the
state of Wisconsin to require or permit indemnification, allowance of expenses
and insurance to the extent required or permitted under Sections 180.0850 to
180.0858 of the WBCL, for any liability incurred in connection with a proceeding
involving a federal or state statute, rule or regulation regulating the offer,
sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for damages,
settlements, fees, fines, penalties or other monetary liabilities arising from a
breach of, or failure to perform, any duty resulting solely from his or status
as a director, unless the person asserting liability proves that the breach or
failure to perform constitutes any of the four exceptions to mandatory
indemnification under Section 180.0851(2) referred to above.
Under Article VI of UWS's Bylaws, directors and officers are indemnified
against liability, in both derivative and nonderivative suits, which they may
incur in their capacities as such, subject to certain determinations by the
Board of Directors, independent legal counsel or the shareholders that the
applicable standards of conduct have been met. The scope of such indemnification
is substantially the same as permitted and described in Sections 180.0850 to
180.0858 of the WBCL.
Under Section 180.0833 of the WBCL, directors of UWS against whom claims are
asserted with respect to the declaration of improper dividends or distributions
to shareholders or certain other improper acts which they approved are entitled
to contribution from other directors who approved such actions and from
shareholders who knowingly accepted an improper dividend or distribution, as
provided therein.
The directors and officers of UWS and its subsidiaries are included in the
directors' and officers' liability insurance policy applicable to BCBSUW. UWS
has not obtained substitute directors' and officers' liability coverage; the
officers and directors of UWS and its subsidiaries will continue to be included
in BCBSUW's policy. BCBSUW's insurance policy provides that, subject to the
applicable liability limits and retention amounts, the insurer will reimburse
directors and officers of BCBSUW and its subsidiaries, including UWS, for a
"loss" (as defined in the policy) sustained by a director of officer resulting
from any "claim" (as defined in the policy) made against them for a "wrongful
act" (as defined in the policy), except for such a loss against which BCBSUW or
its subsidiaries, including UWS, indemnifies (or is required or permitted to
indemnify) the director of officer. The policy also
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provides that, subject the applicable liability limits and retention amounts,
the insurer will reimburse BCBSUW and its subsidiaries, including UWS, for a
loss for which BCBSUW or its subsidiaries, including UWS, has lawfully
indemnified (or is required or permitted by law to indemnify) a director or
officer resulting from any such claim. Subject to certain exclusions set forth
in the policy, "wrongful act" is defined in the policy to mean any negligent
act, error, omission, misstatement, misleading statement, or breach of duty by
BCBSUW or its subsidiaries, including UWS's directors or officers in the
discharge of their duties solely in their capacities as such directors or
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
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NUMBER DESCRIPTION
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2.1 Agreement and Plan of Merger dated as of July 31, 1996 among United Wisconsin Services, Inc.,
American Medical Security Group, Inc., Wallace J. Hilliard and Ronald A. Weyers.
3.1 (a) Restated and Amended Articles of Incorporation of Registrant, dated July 31, 1991 (1).
3.1 (b) Articles of Amendment to the Restated and Amended Articles of Incorporation of the Registrant, dated
December 11, 1991 (2).
3.1 (c) Articles of Amendment to the Restated and Amended Articles of Incorporation of the Registrant, dated
August 26, 1992 (3).
3.2 Restated and Amended Bylaws of Registrant (15).
4.1 Specimen Common Stock Certificate (9).
4.2 Form of Indenture between Registrant and Firstar Trust Company (5).
4.3 Form of Subordinated Note issued pursuant to the above-referenced Indenture (5).
4.4 Registration Rights and Stock Restriction Agreement dated , 1996 among Registrant,
Wallace J. Hilliard and Ronald A. Weyers.
4.5 Form of Letter Agreement dated , 1996 between Registrant and each Affiliate of American
Medical Security Group, Inc. relating to resale of stock of Registrant.
5.1 Opinion of Michael Best & Friedrich.**
8.1 Opinion of Godfrey & Kahn, S.C.**
10.1 United Wisconsin Insurance Company ("UWIC"), United Wisconsin Life Insurance Company ("UWLIC"),
American Medical Security, Inc. ("AMSG"), American Medical Security Insurance Company (f/k/a Old
Northwest Life Insurance Company) "AMSIC"), Wallace J. Hilliard and Ronald A. Weyers (as amended)
(1).
10.2 Voting Trust Agreement among owners and holders of shares of the capital stock of AMSG and Wallace J.
Hilliard (1).
10.3 Stock Restriction Agreement among the Registrant, AMSG and the owners and holders of the shares of
capital stock of AMSG (as amended). As amended by Agreement dated August 2, 1993 (7). As amended by
Agreements dated October 9, 1991, October 29, 1991 and October 29, 1991 (8).
10.4 Administrative Services Agreement among UWIC, UWLIC, AMSG and AMSIC dated January 1, 1994 (12).
10.5 Reinsurance Agreement between UWIC and AMSIC (1). As amended by Amendments to Reinsurance Agreement,
dated January 1, 1992 and January 1, 1993 (5).
</TABLE>
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NUMBER DESCRIPTION
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10.6 Reinsurance Agreement between UWLIC and AMSIC (f/k/a) Old Northwest Life Insurance Company) (1) (as
amended by Amendment to Reinsurance Agreement dated January 1, 1992) (5).
10.7 Employment Contract between AMSG and Wallace J. Hilliard (1). As superseded by Employment Agreement
between and Wallace J. Hilliard.
10.8 Employment Contract between AMSG and Ronald A. Weyers (1). As superseded by Employment Agreement
between and Ronald A. Weyers.
10.9 Joint Venture and Shareholders Agreement among Aon Corporation (subsequently assigned to Aon Captive
Management, Inc.), BCBSUW (subsequently assigned to the Registrant) and United Heartland, Inc. (1).
As amended by Amendment dated October 1, 1991 (5). As subsequently amended by Amendment dated
December 31, 1994 (12).
10.10 Underwriting Management Agreement between United Heartland, Inc. and UWIC (1).
10.11 Underwriting Management Agreement between United Heartland, Inc. and Virginia Surety Company, Inc.
(1).
10.12 Agreement for Electronic Date Processing Services between BCBSUW and EDS Federal Corporation (as
amended) (1). As amended by Settlement Agreement and Amendment No. 5, dated October 19, 1992 (5).
10.13 Consolidated Federal Income Tax Agreement among BCBSUW, UWIC, the Registrant, United Wisconsin
Proservices, Inc., Leasing Unlimited, Inc., UWLIC, Compcare Health Services Insurance Corporation
("Compcare"), ProHealth, Inc. and Take Control, Inc. (1) As amended by Amendment dated August 6,
1993 (6). As subsequently amended by Amendment dated May 9, 1994 (12).
10.14 Comprehensive Tax Allocation Agreement dated July 1, 1994 among BCBSUW, the Registrant and various
subsidiaries thereof (12).
10.15 Federal Income Tax Allocation Agreement for the period starting July 1, 1994 among the Registrant and
certain affiliates thereof (9). As modified by Agreements effective October 1, 1994 and January 1,
1995 (12).
10.16 Federal Income Tax Allocation Agreement between BCBSUW, the Registrant, UWIC, UWLIC, United Wisconsin
Proservices, Inc., Compcare, Take Control, Inc., Meridian Resource Corporation, Valley Health Plan,
Inc. and United Wisconsin Capital Corporation for the period commencing January 1, 1993 (6). As
amended by Amendment dated May 9, 1994 (12).
10.17 BCBSUW Deferred Compensation Plan for Directors (1).*
10.18 UWSI/BCBSUW 401(k) Plan (formerly the United Wisconsin Services Pre-Tax Savings Plan) effective
January 1, 1992 (the "Plan") (5). As amended by the first amendment to the Plan effective January 1,
1993 (7). As subsequently amended by the second, third and fourth amendments to the Plan (10).*
10.19 BCBSUW Voluntary Deferred Compensation Plan (1).*
10.20 BCBSUW Voluntary Deferred Compensation Trust Agreement (1).*
10.21 Executive Reimbursement Group Insurance Policy (1).*
10.22 BCBSUW Salaried Employees Retirement Plan effective January 1, 1993 (5).*
10.23 BCBSUW Supplemental Executive Retirement Plan (1).*
10.24 1992 Stock Appreciation Rights Plan and Form of Grant of Stock Appreciation Rights (2). As amended
February 15, 1995 (12).*
</TABLE>
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NUMBER DESCRIPTION
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10.25 Purchase and Sale Agreement of Midelfort Health Plan, Inc. between Registrant and Midelfort Clinic,
Ltd. (4).
10.26 Joint Venture Agreement between BCBSUW, Registrant, Midelfort Health Plan, Inc. and Midelfort Clinic,
Ltd. (4).
10.27 Service Agreement between BCBSUW and Registrant, effective January 1, 1996 (15).
10.28 Service Agreement between BCBSUW and Registrant, effective January 1, 1995 (12).
10.29 General Services Agreement between United Heartland and BCBSUW, effective January 1, 1991 (11).
10.30 Service Agreement between BCBSUW and Meridian Managed Care, Inc. (f/k/a Take Control, Inc.),
effective January 1, 1991 (11).
10.31 Service Agreement between BCBSUW and Valley health Plan, Inc., effective January 1, 1993 (11).
10.32 Partnership Agreement between UWIC and AMSIC (5).
10.33 Stock Purchase Agreement by and among the Registrant, Ralph P. Cavaiani, Dianne M. Kiehl, Adam Kiehl
and The Milwaukee Foundation Corporation dated May 26, 1994 (11).
10.34 Joint Acquisition Agreement by and between Compcare and St. Mary's Hospital of Milwaukee dated
December 20, 1993 (7).
10.35 Service Agreement between the Registrant and Community Health Systems, LLC dated November 1, 1994
(9).
10.36 Amended and Restated Joint Venture Agreement among BCBSUW, the Registrant, UHC, U-Care, HPI and HPW
dated October 31, 1994 (9).
10.37 Service Agreement between the Registrant and HPI dated November 1, 1994 (9).
10.38 License Agreement between the Registrant and U-Care dated November 1, 1994 (9).
10.39 Assumption Reinsurance Agreement between U-Care and HMOW (9).
10.40 Registrant's and BCBSUW's 1996 Management Incentive Plan (15).*
10.41 Registrant's and BCBSUW's 1995 Management Incentive Plan (12).*
10.42 Registrant's and BCBSUW's 1996 Profit Sharing Plan (15).*
10.43 Registrant's and BCBSUW's 1995 Profit Sharing Plan (12).*
10.44 BCBSUW 1995-1997 Long Term Executive Incentive Plan (15).*
10.45 BCBSUW 1994 Long Term Executive Incentive Plan (12).*
10.46 Registrant's Equity Incentive Plan as amended by the 1996 amendments through August 15, 1996.
10.47 Registrant's and BCBSUW's Supplemental Benefit Restoration Plan as Amended and Restated Effective
January 1, 1994 (7)*
10.49 Employment Agreement between the Company and Samuel V. Miller dated October 30, 1995 (15)*. As
superseded by the Employment Agreement dated , 1996.
10.50 1995 Director Stock Option Plan (14).*
10.51 1996 Profit Sharing Plan between Registrant and Unity Health Plans Insurance Corporation (15).*
10.52 Registrant's Voluntary Deferred Compensation Plan (15).
10.53 Trust under Registrant's Voluntary Deferred Compensation Plan (15).
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NUMBER DESCRIPTION
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10.54 Registrant's Deferred Compensation Plan for Directors (15).
10.55 Escrow Agreement dated , 1996 among Registrant, Wallace J. Hilliard and Bank One, Green
Bay, N.A.
11 Statement regarding computation of per share earnings. (See Note 1 of Notes to Consolidated Financial
Statements) (15).
13. 1995 Annual Report to Shareholders (15).
21. Subsidiaries of the Registrant (15).
23.1 Consent of Godfrey & Kahn, S.C. (included in legal opinion filed as Exhibit 8.1)**
23.2 Consent of Michael Best & Friedrich (included in legal opinion filed as Exhibit 5.1)**
23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23.4 Consent of Ernst & Young LLP -- United Wisconsin Services, Inc.
23.5 Consent of Ernst & Young LLP -- American Medical Security Group, Inc.
24.1 Powers of Attorney (set forth on signature page).
99.1 Form of Proxy for UWS Special Meeting.
99.2 Form of Proxy for AMSG Special Meeting.
99.4 Letter to Certificate Holders.**
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(1) Incorporated by reference to exhibits filed with Registrant's Form S-1
Registration Statement declared effective on October 24, 1991 (Registration
Number 33-42571).
(2) Incorporated by reference to exhibits filed with Registrant's Form 8-K
filed on December 12, 1991.
(3) Incorporated by reference to exhibits filed with Registrant's Form 8-K
filed on September 2, 1992.
(4) Incorporated by reference to exhibits filed with Registrant's Form 8-K
filed on March 27, 1992.
(5) Incorporated by reference to exhibits filed with Registrant's Form S-1
Registration Statement declared effective on July 13, 1993 (Registration
Number 33-59798).
(6) Incorporated by reference to exhibits filed with Registrant's Form 10-Q for
the period ended September 30, 1993.
(7) Incorporated by reference to exhibits filed with Registrant's Form 10-K for
the period ended December 31, 1993.
(8) Incorporated by reference to exhibits filed with Registrant's Form 10-Q for
the period ended March 31, 1994.
(9) Incorporated by reference to exhibits filed with Registrant's Form 10-Q for
the period ended September 30, 1994.
(10) Incorporated by reference to exhibits filed with Registrant's Form S-8
Registration Statement filed with the Securities and Exchange Commission
on December 30, 1994 (Registration Number 33-88110).
(11) Incorporated by reference to exhibits filed with Registrant's Form S-1
Registration Statement declared effective on June 30, 1994 (Registration
Number 33-76768).
(12) Incorporated by reference to exhibits filed with the Registrant's Form
10-K for the year ended December 31, 1994.
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(13) Incorporated by reference to exhibits filed with the Registrant's Form
10-Q for the period ended March 31, 1995.
(14) Incorporated by reference to exhibits filed with Registrant's Form 10-Q
for the period ended June 30, 1995.
(15) Incorporated by reference to exhibits filed with Registrant's Form 10-K
for the year ended December 31, 1995.
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*Management contract or compensatory plan.
**To be filed by amendment.
(b) Financial Statement Schedules.
None.
(c) Reports, Opinions or Appraisals.
All included in Appendix B to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period, in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, provided that, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and (iii)
to include any material information with respect to the plan of distribution
not previously disclosed in the Registration Statement or any material
change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-
II-6
<PAGE>
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milwaukee, State of
Wisconsin, on the 27th day of August, 1996.
UNITED WISCONSIN SERVICES, INC.
By: /S/ THOMAS R. HEFTY
-----------------------------------
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature below
constitutes and appoints Thomas R. Hefty and C. Edward Mordy, or either of them,
his or her true and lawful attorneys-in-fact and agents, for him or her and in
his or her name, place and stead in any and all capacities, to sign any and all
amendments (including pre- and post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and any
state of the United States, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents may lawfully do or cause
to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ------------------
Chairman of the Board
/s/ THOMAS R. HEFTY (Principal Executive
- ----------------------------------- Officer), President, August 27, 1996
Thomas R. Hefty Chief Executive Officer
and Director
/s/ C. EDWARD MORDY Vice President (Principal
- ----------------------------------- Financial and Accounting August 27, 1996
C. Edward Mordy Officer)
/s/ RICHARD A. ABDOO
- ----------------------------------- Director August 27, 1996
Richard A. Abdoo
/s/ THOMAS A. BAUSCH
- ----------------------------------- Director August 27, 1996
Thomas A. Bausch
/s/ JANE T. COLEMAN
- ----------------------------------- Director August 27, 1996
Jane T. Coleman
</TABLE>
II-8
<PAGE>
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ------------------
/s/ JAMES L. FORBES
- ----------------------------------- Director August 27, 1996
James L. Forbes
/s/ JAMES C. HICKMAN
- ----------------------------------- Director August 27, 1996
James C. Hickman
/s/ WILLIAM R. JOHNSON
- ----------------------------------- Director August 27, 1996
William R. Johnson
/s/ EUGENE A. MENDEN
- ----------------------------------- Director August 27, 1996
Eugene A. Menden
/s/ DONALD P. MUENCH
- ----------------------------------- Director August 27, 1996
Donald P. Muench
/s/ ARTHUR W. NESBITT
- ----------------------------------- Director August 27, 1996
Arthur W. Nesbitt
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NO.
- ------------ ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of July 31, 1996 among United Wisconsin Services,
Inc., American Medical Security Group, Inc., Wallace J. Hilliard and Ronald A. Weyers.
3.1 (a) Restated and Amended Articles of Incorporation of Registrant, dated July 31, 1991 (1).
3.1 (b) Articles of Amendment to the Restated and Amended Articles of Incorporation of the
Registrant, dated December 11, 1991 (2).
3.1 (c) Articles of Amendment to the Restated and Amended Articles of Incorporation of the
Registrant, dated August 26, 1992 (3).
3.2 Restated and Amended Bylaws of Registrant (15).
4.1 Specimen Common Stock Certificate (9).
4.2 Form of Indenture between Registrant and Firstar Trust Company (5).
4.3 Form of Subordinated Note issued pursuant to the above-referenced Indenture (5).
4.4 Registration Rights and Stock Restriction Agreement dated , 1996 among
Registrant, Wallace J. Hilliard and Ronald A. Weyers.
4.5 Form of Letter Agreement dated , 1996 between Registrant and each Affiliate of
American Medical Security Group, Inc. relating to resale of stock of Registrant.
5.1 Opinion of Michael Best & Friedrich.**
8.1 Opinion of Godfrey & Kahn, S.C.**
10.1 United Wisconsin Insurance Company ("UWIC"), United Wisconsin Life Insurance Company
("UWLIC"), American Medical Security, Inc. ("AMSG"), American Medical Security Insurance
Company (f/k/a Old Northwest Life Insurance Company) "AMSIC"), Wallace J. Hilliard and
Ronald A. Weyers (as amended) (1).
10.2 Voting Trust Agreement among owners and holders of shares of the capital stock of AMSG and
Wallace J. Hilliard (1).
10.3 Stock Restriction Agreement among the Registrant, AMSG and the owners and holders of the
shares of capital stock of AMSG (as amended). As amended by Agreement dated August 2, 1993
(7). As amended by Agreements dated October 9, 1991, October 29, 1991 and October 29, 1991
(8).
10.4 Administrative Services Agreement among UWIC, UWLIC, AMSG and AMSIC dated January 1, 1994
(12).
10.5 Reinsurance Agreement between UWIC and AMSIC (1). As amended by Amendments to Reinsurance
Agreement, dated January 1, 1992 and January 1, 1993 (5).
10.6 Reinsurance Agreement between UWLIC and AMSIC (f/k/a) Old Northwest Life Insurance Company)
(1) (as amended by Amendment to Reinsurance Agreement dated January 1, 1992) (5).
10.7 Employment Contract between AMSG and Wallace J. Hilliard (1). As superseded by Employment
Agreement between and Wallace J. Hilliard.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NO.
- ------------ ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.8 Employment Contract between AMSG and Ronald A. Weyers (1). As superseded by Employment
Agreement between and Ronald A. Weyers.
10.9 Joint Venture and Shareholders Agreement among Aon Corporation (subsequently assigned to
Aon Captive Management, Inc.), BCBSUW (subsequently assigned to the Registrant) and United
Heartland, Inc. (1). As amended by Amendment dated October 1, 1991 (5). As subsequently
amended by Amendment dated December 31, 1994 (12).
10.10 Underwriting Management Agreement between United Heartland, Inc. and UWIC (1).
10.11 Underwriting Management Agreement between United Heartland, Inc. and Virginia Surety
Company, Inc. (1).
10.12 Agreement for Electronic Date Processing Services between BCBSUW and EDS Federal
Corporation (as amended) (1). As amended by Settlement Agreement and Amendment No. 5,
dated October 19, 1992 (5).
10.13 Consolidated Federal Income Tax Agreement among BCBSUW, UWIC, the Registrant, United
Wisconsin Proservices, Inc., Leasing Unlimited, Inc., UWLIC, Compcare Health Services
Insurance Corporation ("Compcare"), ProHealth, Inc. and Take Control, Inc. (1) As amended
by Amendment dated August 6, 1993 (6). As subsequently amended by Amendment dated May 9,
1994 (12).
10.14 Comprehensive Tax Allocation Agreement dated July 1, 1994 among BCBSUW, the Registrant and
various subsidiaries thereof (12).
10.15 Federal Income Tax Allocation Agreement for the period starting July 1, 1994 among the
Registrant and certain affiliates thereof (9). As modified by Agreements effective October
1, 1994 and January 1, 1995 (12).
10.16 Federal Income Tax Allocation Agreement between BCBSUW, the Registrant, UWIC, UWLIC, United
Wisconsin Proservices, Inc., Compcare, Take Control, Inc., Meridian Resource Corporation,
Valley Health Plan, Inc. and United Wisconsin Capital Corporation for the period
commencing January 1, 1993 (6). As amended by Amendment dated May 9, 1994 (12).
10.17 BCBSUW Deferred Compensation Plan for Directors (1).*
10.18 UWSI/BCBSUW 401(k) Plan (formerly the United Wisconsin Services Pre-Tax Savings Plan)
effective January 1, 1992 (the "Plan") (5). As amended by the first amendment to the Plan
effective January 1, 1993 (7). As subsequently amended by the second, third and fourth
amendments to the Plan (10).*
10.19 BCBSUW Voluntary Deferred Compensation Plan (1).*
10.20 BCBSUW Voluntary Deferred Compensation Trust Agreement (1).*
10.21 Executive Reimbursement Group Insurance Policy (1).*
10.22 BCBSUW Salaried Employees Retirement Plan effective January 1, 1993 (5).*
10.23 BCBSUW Supplemental Executive Retirement Plan (1).*
10.24 1992 Stock Appreciation Rights Plan and Form of Grant of Stock Appreciation Rights (2). As
amended February 15, 1995 (12).*
10.25 Purchase and Sale Agreement of Midelfort Health Plan, Inc. between Registrant and Midelfort
Clinic, Ltd. (4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NO.
- ------------ ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.26 Joint Venture Agreement between BCBSUW, Registrant, Midelfort Health Plan, Inc. and
Midelfort Clinic, Ltd. (4).
10.27 Service Agreement between BCBSUW and Registrant, effective January 1, 1996 (15).
10.28 Service Agreement between BCBSUW and Registrant, effective January 1, 1995 (12).
10.29 General Services Agreement between United Heartland and BCBSUW, effective January 1, 1991
(11).
10.30 Service Agreement between BCBSUW and Meridian Managed Care, Inc. (f/k/ a Take Control,
Inc.), effective January 1, 1991 (11).
10.31 Service Agreement between BCBSUW and Valley health Plan, Inc., effective January 1, 1993
(11).
10.32 Partnership Agreement between UWIC and AMSIC (5).
10.33 Stock Purchase Agreement by and among the Registrant, Ralph P. Cavaiani, Dianne M. Kiehl,
Adam Kiehl and The Milwaukee Foundation Corporation dated May 26, 1994 (11).
10.34 Joint Acquisition Agreement by and between Compcare and St. Mary's Hospital of Milwaukee
dated December 20, 1993 (7).
10.35 Service Agreement between the Registrant and Community Health Systems, LLC dated November
1, 1994 (9).
10.36 Amended and Restated Joint Venture Agreement among BCBSUW, the Registrant, UHC, U-Care, HPI
and HPW dated October 31, 1994 (9).
10.37 Service Agreement between the Registrant and HPI dated November 1, 1994 (9).
10.38 License Agreement between the Registrant and U-Care dated November 1, 1994 (9).
10.39 Assumption Reinsurance Agreement between U-Care and HMOW (9).
10.40 Registrant's and BCBSUW's 1996 Management Incentive Plan (15).*
10.41 Registrant's and BCBSUW's 1995 Management Incentive Plan (12).*
10.42 Registrant's and BCBSUW's 1996 Profit Sharing Plan (15).*
10.43 Registrant's and BCBSUW's 1995 Profit Sharing Plan (12).*
10.44 BCBSUW 1995-1997 Long Term Executive Incentive Plan (15).*
10.45 BCBSUW 1994 Long Term Executive Incentive Plan (12).*
10.46 Registrant's Equity Incentive Plan as amended by the 1996 amendments through August 15,
1996.
10.47 Registrant's and BCBSUW's Supplemental Benefit Restoration Plan as Amended and Restated
Effective January 1, 1994 (7)*
10.49 Employment Agreement between the Company and Samuel V. Miller dated October 30, 1995 (15)*.
As superseded by the Employment Agreement dated , 1996.
10.50 1995 Director Stock Option Plan (14).*
10.51 1996 Profit Sharing Plan between Registrant and Unity Health Plans Insurance Corporation
(15).*
10.52 Registrant's Voluntary Deferred Compensation Plan (15).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NO.
- ------------ ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.53 Trust under Registrant's Voluntary Deferred Compensation Plan (15).
10.54 Registrant's Deferred Compensation Plan for Directors (15).
10.55 Escrow Agreement dated , 1996 among Registrant, Wallace J. Hilliard and Bank
One, Green Bay, N.A.
11 Statement regarding computation of per share earnings. (See Note 1 of Notes to Consolidated
Financial Statements) (15).
13. 1995 Annual Report to Shareholders (15).
21. Subsidiaries of the Registrant (15).
23.1 Consent of Godfrey & Kahn, S.C. (included in legal opinion filed as Exhibit 8.1)**
23.2 Consent of Michael Best & Friedrich (included in legal opinion filed as Exhibit 5.1)**
23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23.4 Consent of Ernst & Young LLP -- United Wisconsin Services, Inc.
23.5 Consent of Ernst & Young LLP -- American Medical Security Group, Inc.
24.1 Powers of Attorney (set forth on signature page).
99.1 Form of Proxy for UWS Special Meeting.
99.2 Form of Proxy for AMSG Special Meeting.
99.4 Letter to Certificate Holders.**
</TABLE>
- ------------------------
(1) Incorporated by reference to exhibits filed with Registrant's Form S-1
Registration Statement declared effective on October 24, 1991 (Registration
Number 33-42571).
(2) Incorporated by reference to exhibits filed with Registrant's Form 8-K
filed on December 12, 1991.
(3) Incorporated by reference to exhibits filed with Registrant's Form 8-K
filed on September 2, 1992.
(4) Incorporated by reference to exhibits filed with Registrant's Form 8-K
filed on March 27, 1992.
(5) Incorporated by reference to exhibits filed with Registrant's Form S-1
Registration Statement declared effective on July 13, 1993 (Registration
Number 33-59798).
(6) Incorporated by reference to exhibits filed with Registrant's Form 10-Q for
the period ended September 30, 1993.
(7) Incorporated by reference to exhibits filed with Registrant's Form 10-K for
the period ended December 31, 1993.
(8) Incorporated by reference to exhibits filed with Registrant's Form 10-Q for
the period ended March 31, 1994.
(9) Incorporated by reference to exhibits filed with Registrant's Form 10-Q for
the period ended September 30, 1994.
(10) Incorporated by reference to exhibits filed with Registrant's Form S-8
Registration Statement filed with the Securities and Exchange Commission
on December 30, 1994 (Registration Number 33-88110).
(11) Incorporated by reference to exhibits filed with Registrant's Form S-1
Registration Statement declared effective on June 30, 1994 (Registration
Number 33-76768).
<PAGE>
(12) Incorporated by reference to exhibits filed with the Registrant's Form
10-K for the year ended December 31, 1994.
(13) Incorporated by reference to exhibits filed with the Registrant's Form
10-Q for the period ended March 31, 1995.
(14) Incorporated by reference to exhibits filed with Registrant's Form 10-Q
for the period ended June 30, 1995.
(15) Incorporated by reference to exhibits filed with Registrant's Form 10-K
for the year ended December 31, 1995.
- ------------------------
*Management contract or compensatory plan.
**To be filed by amendment.
(b) Financial Statement Schedules.
None.
(c) Reports, Opinions or Appraisals.
All included in Appendix B to the Joint Proxy Statement/Prospectus.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF
MERGER
BETWEEN
UNITED WISCONSIN SERVICES, INC.,
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
AMERICAN MEDICAL SECURITY GROUP, INC.,
WALLACE J. HILLIARD
AND
RONALD A. WEYERS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I................................................................................................... A-2
The Merger.............................................................................................. A-2
1.01 THE MERGER........................................................................... A-2
1.02 CLOSING.............................................................................. A-2
ARTICLE II.................................................................................................. A-2
Representations and Warranties of the Company and the Principal Shareholders............................ A-2
2.01 ORGANIZATION AND AUTHORITY........................................................... A-2
2.02 SUBSIDIARIES AND AFFILIATES.......................................................... A-2
2.03 CAPITALIZATION OF THE COMPANY........................................................ A-3
2.04 AUTHORIZATION........................................................................ A-3
2.05 FINANCIAL STATEMENTS................................................................. A-4
2.06 INSURANCE COMPANY FINANCIAL STATEMENTS............................................... A-4
2.07 RECEIVABLES.......................................................................... A-5
2.08 ABSENCE OF CERTAIN CHANGES........................................................... A-5
2.09 LITIGATION AND OTHER PROCEEDINGS..................................................... A-6
2.10 COMPLIANCE WITH LAWS................................................................. A-6
2.11 TAXES................................................................................ A-6
2.12 TITLE TO PROPERTIES.................................................................. A-7
2.13 CONTRACTS AND COMMITMENTS............................................................ A-7
2.14 EMPLOYEE RELATIONS................................................................... A-7
2.15 EMPLOYEE BENEFIT PLANS............................................................... A-8
2.16 INTELLECTUAL PROPERTY................................................................ A-8
2.17 ENVIRONMENTAL MATTERS................................................................ A-9
2.18 CONTINGENT OR UNDISCLOSED LIABILITIES................................................ A-9
2.19 INSURANCE............................................................................ A-9
2.20 RELATED PARTY TRANSACTIONS........................................................... A-9
2.21 REGISTRATION STATEMENT, ETC.......................................................... A-10
2.22 BROKERS AND FINDERS.................................................................. A-10
2.23 DISCLOSURE........................................................................... A-10
ARTICLE III................................................................................................. A-10
Representations and Warranties of UWSI.................................................................. A-10
3.01 ORGANIZATION AND AUTHORITY........................................................... A-10
3.02 CAPITALIZATION....................................................................... A-10
3.03 AUTHORIZATION........................................................................ A-11
3.04 REGISTRATION STATEMENT, ETC.......................................................... A-11
3.05 BROKERS AND FINDERS.................................................................. A-11
3.06 DISCLOSURE........................................................................... A-11
3.07 SEC REPORTS.......................................................................... A-12
ARTICLE IV.................................................................................................. A-12
Conduct of Business Prior to the Effective Time......................................................... A-12
4.01 CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE EFFECTIVE TIME........................ A-12
ARTICLE V................................................................................................... A-12
Additional Agreements................................................................................... A-12
5.01 ACCESS AND INFORMATION............................................................... A-12
5.02 REGISTRATION STATEMENT AND PROXY STATEMENT........................................... A-12
5.03 COMPANY SHAREHOLDERS' APPROVAL....................................................... A-13
5.04 UWSI SHAREHOLDERS APPROVAL........................................................... A-13
5.05 MISCELLANEOUS AGREEMENTS AND CONSENTS................................................ A-13
5.06 INTERIM FINANCIAL STATEMENTS......................................................... A-14
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C> <C>
5.07 INSURANCE REGULATORY APPROVALS....................................................... A-14
5.08 HART-SCOTT-RODINO COMPLIANCE......................................................... A-14
5.09 CERTAIN NOTIFICATIONS................................................................ A-14
5.10 VOTING AGREEMENT..................................................................... A-14
5.11 BEST EFFORTS......................................................................... A-14
5.12 PRESS RELEASES....................................................................... A-14
5.13 EXPENSES............................................................................. A-14
5.14 CERTAIN AGREEMENTS................................................................... A-15
5.15 UWSI CAPITALIZATION.................................................................. A-15
ARTICLE VI.................................................................................................. A-15
Conditions.............................................................................................. A-15
6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE MERGER...................... A-15
6.02 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS TO CONSUMMATE
THE MERGER.......................................................................... A-16
6.03 CONDITIONS TO OBLIGATIONS OF UWSI TO CONSUMMATE THE MERGER........................... A-17
ARTICLE VII................................................................................................. A-18
Termination, Amendment.................................................................................. A-18
7.01 TERMINATION.......................................................................... A-18
7.02 AMENDMENT............................................................................ A-18
ARTICLE VIII................................................................................................ A-18
Indemnification......................................................................................... A-18
8.01 INDEMNIFICATION BY SHAREHOLDERS...................................................... A-18
8.02 LIMITATIONS.......................................................................... A-19
8.03 PROCEDURE............................................................................ A-19
8.04 INDEMNIFICATION BY UWSI.............................................................. A-20
8.05 PROCEDURE............................................................................ A-20
ARTICLE IX.................................................................................................. A-21
General Provisions...................................................................................... A-21
9.01 NOTICES.............................................................................. A-21
9.02 MISCELLANEOUS........................................................................ A-22
9.03 WAIVER: REMEDIES..................................................................... A-22
9.04 SEVERABILITY......................................................................... A-23
9.05 GOVERNING LAW........................................................................ A-23
9.06 "KNOWLEDGE".......................................................................... A-23
9.07 ARBITRATION.......................................................................... A-23
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Plan of Merger
Exhibit B Registration Rights and Stock Restriction Agreement
Exhibit C Agreements of Affiliates
Exhibit D Escrow Agreement
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into this 31st day of July, 1996 by and among UNITED WISCONSIN SERVICES, INC., a
Wisconsin corporation ("UWSI"), AMERICAN MEDICAL SECURITY GROUP, INC., a
Delaware corporation (the "Company"), BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN ("BCBSUW"), and WALLACE J. HILLIARD ("Hilliard"), individually and as
trustee under the Voting Trust Agreement hereinafter defined, and RONALD A.
WEYERS ("Weyers"), individually and as successor trustee under the Voting Trust
Agreement (Hilliard, individually, and Weyers, individually, are referred to
collectively as the "Principal Shareholders").
RECITALS:
WHEREAS, all of the shareholders of the Company are parties to that certain
Voting Trust Agreement, dated as of February 3, 1989 (the "Voting Trust
Agreement"), pursuant to which Voting Trust Agreement Hilliard has been
appointed Trustee and to which Weyers has been appointed successor Trustee;
WHEREAS, the Principal Shareholders own, in the aggregate, approximately 43
percent of the outstanding shares of capital stock of the Company;
WHEREAS, the parties hereto are party to that certain Joint Venture
Agreement, effective October 1, 1988, as amended (the "Joint Venture Agreement")
and to that certain Stock Restriction Agreement, dated February 3, 1989 (the
"Stock Restriction Agreement");
WHEREAS, on April 29, 1996, UWSI gave notice of intent to exercise the
option under Paragraphs 5.4 and 5.5 of Article V of the Joint Venture Agreement
and Paragraph 3 of Article III of the Stock Restriction Agreement;
WHEREAS, the parties hereto desire to amend and restructure the exercise of
such option in accordance with the terms hereof.
WHEREAS, the respective Boards of Directors of UWSI and the Company have
approved the transactions provided for by this Agreement, pursuant to which the
Company is to be merged into UWSI in accordance with the applicable provisions
of the Delaware General Corporation Law (the "DGCL") and the Wisconsin Business
Corporation Law (the "WBCL"), which merger is intended to qualify as a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, in exchange for all of the issued and outstanding shares of common
stock, $1.00 par value per share, of the Company (the "Company Common Stock")
and in settlement of all of the outstanding options to acquire shares of Company
Common Stock (the "Options"), UWSI has agreed to pay to the holders of the
Company Common Stock (other than UWSI) and the Options, in the aggregate and in
such proportions as may be determined by the holders thereof (other than UWSI),
(i) 4,000,000 shares of common stock, no par value per share, of UWSI ("UWSI
Common Stock"), as adjusted as set forth in the Plan of Merger attached hereto
as Exhibit A (the "Plan of Merger"), and (ii) $67,010,000, less expenses
attributable to the Shareholders as provided herein, each subject to the
provisions of this Agreement and the Plan of Merger, all upon the terms and
conditions hereinafter set forth;
A-1
<PAGE>
NOW, THEREFORE, in order to consummate the transactions set forth above and
in consideration of the mutual covenants, agreements, representations and
warranties herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER. Subject to the terms and conditions of this Agreement and
the Plan of Merger: the Company shall be merged with and into UWSI (the
"Merger") in accordance with Section 252 of the DGCL and Section 180.1101 of the
WBCL; the separate corporate existence of the Company shall cease; and UWSI
shall be the surviving corporation . The Plan of Merger sets forth (i) the terms
of the Merger and the mode of carrying the same into effect, (ii) the manner of
converting the outstanding shares of Company Common Stock (other than Company
Common Stock held by UWSI) into a combination of shares of UWSI Common Stock and
cash, and (iii) the manner of converting the outstanding Options into options to
acquire shares of UWSI Common Stock. The Merger shall be consummated following
the Closing provided for in Section 1.02 hereof when properly executed Articles
of Merger are executed and filed with the Secretary of State of Delaware in
accordance with the DGCL and the Department of Financial Institutions of the
State of Wisconsin in accordance with the WBCL and when the Plan of Merger is
received and accepted as filed by the Delaware Secretary of State and the
Department of Financial Institutions of the State of Wisconsin (the "Effective
Time").
1.02 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") and the Plan of Merger shall take place at the offices
of Michael Best & Friedrich, 100 East Wisconsin Avenue, Milwaukee, Wisconsin,
immediately following the meeting of UWSI's shareholders referred to in Section
5.04 or at such other time and place as UWSI and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS
The Company and the Principal Shareholders (on behalf of all the
Shareholders of the Company, other than UWSI) hereby make the following
representations and warranties to UWSI. The "Disclosure Schedule" shall mean the
disclosure schedule relating to each section of this Article II which has
previously been delivered to UWSI. Disclosure of any information in any one
section or schedule of the Disclosure Schedule shall be deemed to be disclosure
in any other section or schedule thereof.
2.01 ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted, is qualified in the jurisdictions set forth on the Disclosure
Schedule, and is not otherwise required to be qualified in any other
jurisdiction, except where the failure to do so would not have a Material
Adverse Effect. For purposes of this Agreement unless otherwise specified,
"Material Adverse Effect" shall mean a material adverse effect on the Company
and its subsidiaries, taken as a whole. Copies of the articles or certificate of
incorporation and by-laws of each of the Company and each Controlled Subsidiary
and Noncontrolled Subsidiary (as such terms are hereinafter defined) that have
been heretofore delivered and/or made available to UWSI are complete and correct
as of the date hereof.
2.02 SUBSIDIARIES AND AFFILIATES. Except as set forth on the Disclosure
Schedule, the corporations, partnerships or other entities in which the Company
has a greater than 50 percent equity interest (the "Controlled Subsidiaries")
and the corporations, partnerships or other entities in which the Company's
equity interest is not a controlling interest (the "Noncontrolled Subsidiaries")
are set forth on the Disclosure Schedule. The Company is, directly or
indirectly, the record and beneficial owner of the percentage of the outstanding
shares of capital stock of each of the Controlled and
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Noncontrolled Subsidiaries shown on the Disclosure Schedule and the
capitalization of each such subsidiary is set forth on the Disclosure Schedule.
Except as set forth on the Disclosure Schedule, no equity securities of any of
the Controlled Subsidiaries are, or may become, required to be issued by reason
of any options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into,
shares of capital stock of any Controlled
Subsidiaries, and there are no contracts, commitments, understandings or
arrangements by which any Controlled Subsidiary is bound to issue additional
shares of its capital stock, or options, warrants, or rights to purchase or
acquire any additional shares of its capital stock. Except as set forth on the
Disclosure Schedule, all of such equity interests are owned by the Company free
and clear of any claim, lien, encumbrance or agreement with respect thereto.
2.03 CAPITALIZATION OF THE COMPANY. The authorized capital stock of the
Company consists of (a) 600,000 shares of common stock, $1.00 par value per
share, of which 174,733 2/3 shares of Company Common Stock are issued and
outstanding as of the date of this Agreement, and (b) 15,000 shares of Series A
Preferred Stock, $1.00 par value, with a stated value of $1,000 per share, of
which 15,000 shares are issued and outstanding as of the date of this Agreement.
The Disclosure Schedule sets forth a list of all of the holders of Company
Common Stock and the number of shares owned by each such holder. All of the
outstanding shares of Company Common Stock have been issued pursuant to and in
accordance with valid exemptions from registration under the Securities Act of
1933, as amended and the rules and regulations promulgated thereunder
(collectively the "1933 Act"), and any applicable state securities laws and
rules and regulations under such laws. All of the outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and nonassessable,
with no liability attaching to the ownership thereof except as provided in
Section 180.0622 of the WBCL and judicial interpretations thereof, and all such
shares are free of pre-emptive rights. The Disclosure Schedule sets forth a list
of all Options, the number of shares acquirable upon exercise of the Options,
the exercise price, the expiration date and the beneficial owner of each such
Option. Except as set forth on the Disclosure Schedule, there are no other
shares of capital stock or other equity securities (or debt securities with any
voting rights or convertible into securities with any voting rights) of the
Company or any Controlled Subsidiary outstanding and no other outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
shares of capital stock of the Company or any Controlled Subsidiary.
2.04 AUTHORIZATION. The Company has full corporate power and corporate
authority to enter into this Agreement and the Plan of Merger and to carry out
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Plan of Merger and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Company's Board
of Directors and, except for the approval of the Plan of Merger by its
shareholders, no other corporate proceedings on the part of the Company or any
Controlled Subsidiary are necessary to authorize this Agreement, the Plan of
Merger and the transactions contemplated hereby and thereby. This Agreement and
the Plan of Merger have each been duly executed and delivered by the Company.
This Agreement and the Plan of Merger are, and subject to approval by the
shareholders of the Company will be, the legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their respective
terms except to the extent limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by general
equitable principles. This Agreement has been duly executed and delivered by the
Principal Shareholders and is the legal, valid and binding obligation of the
Principal Shareholders enforceable against each of the Principal Shareholders in
accordance with its terms except to the extent limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles. Except as set forth on the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the Plan of Merger by the Company, nor the execution and delivery of this
Agreement by the Principal Shareholders, nor the consummation of the
transactions contemplated hereby and thereby, nor compliance by the Company or
the Principal Shareholders with any of the provisions hereof or thereof will (i)
violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a
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default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration, or result in
the creation of any lien, security interest, charge or encumbrance upon, except
for Permitted Encumbrances (as hereinafter defined), any of the properties or
assets of the Company or any Controlled Subsidiary, under any of the terms,
conditions or provisions of (x) their respective certificates of incorporation
or by-laws, or (y) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company, any
Controlled Subsidiary or any of the Principal Shareholders is a party, or by
which any property or assets of the foregoing may be subject, or (ii) violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any Controlled Subsidiary or any of the
Principal Shareholders or any of their respective properties or assets, except
where such a violation, breach, default, termination or lien of any of the
foregoing would not have a Material Adverse Effect. Other than in connection
with or in compliance with the provisions of the DGCL, the 1933 Act, the
securities laws of the various states, Section 7A of the Clayton Act and the
rules and regulations thereunder (the "Hart-Scott-Rodino Act"), no notice or
report to, filing with, or authorization, consent or approval of, any public
body or authority (other than the insurance regulatory authorities listed on the
Disclosure Schedule) is necessary for the execution, delivery and performance by
the Company or any Controlled Subsidiary and the Principal Shareholders of this
Agreement or the Plan of Merger.
2.05 FINANCIAL STATEMENTS. Attached on the Disclosure Schedule are (i) the
audited consolidated financial statements (including balance sheet and
statements of stockholders' equity, income and cash flow) of the Company for its
fiscal years ended December 31, 1993 through December 31, 1995, including in
each case the related footnotes thereto, together with the applicable reports of
the Company's independent auditors Ernst & Young LLP, and (ii) the unaudited
consolidated financial statements (including balance sheet and statement of
income) as of June 30, 1996 (collectively, the "Financial Statements") (the
balance sheet as of June 30, 1996 being herein referred to as the "Company
Balance Sheet"). The Company's books and records of accounts accurately reflect
all of the assets, liabilities, transactions and results of operations of the
Company, except where any inaccuracy would not have a Material Adverse Effect,
and the Financial Statements have been prepared based upon and in conformity
therewith. The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") maintained and applied on a
consistent basis throughout the indicated periods, and fairly present the
financial condition and results of operation of the Company at the dates and for
the relevant periods indicated in accordance with GAAP. True and correct copies
of all written reports submitted to the Company or the Principal Shareholders by
the Company's auditors since January 1, 1994 relating to the findings of audits
or examination of the books and records of the Company or any Controlled
Subsidiary have been delivered to UWSI.
2.06 INSURANCE COMPANY FINANCIAL STATEMENTS. Except as set forth on the
Disclosure Schedule, each Controlled Subsidiary that is an insurance company or
a health maintenance organization has delivered to UWSI complete and correct
copies of the Annual Statements for the years ended December 31, 1995, 1994 and
1993, and the Quarterly Statement for the quarter ended March 31, 1996, together
with all Exhibits and Schedules thereto (the "Statements"); provided, however,
that any such Controlled Subsidiary was licensed to operate as an insurance
company or health maintenance organization during said fiscal years
("Insurers"). The Statements have been prepared in accordance with Statutory
Accounting Practices throughout the periods involved and in accordance with the
books and records of said Insurers, except as expressly set forth or disclosed
in the notes, Exhibits or Schedules thereto. The Statements fairly and
accurately present the assets, liabilities and capital and surplus of said
Insurers as of the respective dates thereof in accordance with Statutory
Accounting Practices consistently applied, and do not omit to state or reflect
any material fact concerning said Insurers required to be stated or reflected
therein or necessary to make the statements made therein not misleading in light
of the circumstances under which made. As used in this Agreement, "Statutory
Accounting Practices" means the accounting procedures and methods prescribed or
permitted by the National Association of Insurance Commissioners as modified by
the Department of Insurance for the state of domicile of each Insurer.
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(a) Except as disclosed on the Disclosure Schedule, as of March 31, 1996, no
Insurer had any material liability, whether accrued, absolute, fixed, contingent
or otherwise, of a nature required to be reflected on the balance sheet of said
Insurer prepared in accordance with Statutory Accounting Practices, which
liability is not fully and correctly reflected or reserved against in the
balance sheet forming a part of the Insurers Statements for the quarter ended
March 31, 1996. Except as set forth on the Disclosure Schedule, since March 31,
1996, no Insurer has incurred any liabilities or obligations (absolute, accrued,
fixed, contingent, liquidated, unliquidated or otherwise) except liabilities
incurred in the ordinary course of business consistent with past practice.
(b) Each Insurer's reserves met, as of December 31, 1995 and April 1, 1996,
and will meet as of the Closing Date, the requirements of the state of domicile
and were and will be at least as great as the minimum aggregate amount required
by each state in which each Insurer was and will be licensed to do direct
business.
2.07 RECEIVABLES. Except as set forth on the Disclosure Schedule, all
accounts, notes and other receivables of the Company, whether reflected in the
Financial Statements or otherwise, represent sales in the ordinary course of
business.
2.08 ABSENCE OF CERTAIN CHANGES.
(a) Since June 25, 1996 through the date of this Agreement, the Company has
conducted its business only in the ordinary course thereof and has not
experienced any changes in its condition (financial or otherwise), assets,
liabilities, business, prospects or operations which individually or in the
aggregate had or could have a material adverse effect. For purposes of this
Section 2.08 only, an item shall be deemed "material" if the dollar amount or
value associated with such item exceeds $25,000. Without limiting the generality
of the foregoing sentence, since June 25, 1996, neither the Company nor any
Controlled Subsidiary has, except as set forth on the Disclosure Schedule:
(i) in a single transaction or a series of related transactions, sold
(including by sale-leaseback), leased, licensed, pledged, disposed of or
encumbered any assets which individually or in the aggregate, have a fair
market value in excess of $50,000;
(ii) incurred or became contingently liable with respect to any
indebtedness for borrowed money or guaranteed any such indebtedness, where
the aggregate amount of indebtedness so incurred or guaranteed exceeded
$10,000 or redeemed, purchased, acquired or offered to purchase or acquire
any long-term debt;
(iii) acquired or agreed to acquire by merging with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership,
association or other business entity, in a transaction or series of related
transactions;
(iv) changed any of its accounting practices or procedures;
(v) amended or proposed to amend its charter or bylaws; or split,
combined or reclassified its outstanding capital stock, or declared, set
aside or paid any dividend or distribution in respect of any capital stock;
(vi) entered into, amended or became obligated under any employment,
severance, bonus, profit sharing or other employee benefit arrangement;
(vii) issued, purchased or redeemed any shares of capital stock of the
Company or any Controlled Subsidiary (including any security convertible or
exchangeable into capital stock) other than: the issuance of shares of
Company Common Stock upon exercise of options outstanding on, and in
accordance with their terms as of, June 25, 1996, or issued, granted or
otherwise created any portion or right to acquire any such capital stock;
(viii) prepaid any material expenses, indebtedness or other obligations;
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(ix) entered into or amended any contract, agreement or commitment, or
engaged in any transaction, in each case which was material to the Company
and which was not in the usual and ordinary course of business;
(x) entered into any contract, agreement or commitment or engaged in any
transaction (other than transactions pursuant to agreements in existence on
June 25, 1996 which on such date had been previously disclosed in writing to
UWSI) with any affiliate of Hilliard, Weyers or any officer of the Company
or any Controlled Subsidiary;
(xi) settled any material claim (including without limitations, any tax
claim), action or lawsuit involving the Company or any of its Controlled
Subsidiaries pending as of or arising on or after June 25, 1996, or amended
any tax return in any respect;
(xii) released, waived or terminated any material obligation of any third
party to the Company or any Controlled Subsidiary;
(xiii) solicited or encouraged any inquiries or proposals regarding, or
offers for, or entered into or continued any discussions with, or provided
any information to, any third party concerning any sale or transfer of the
Company or any of its assets or entered into or consummated any agreement or
understanding providing for a sale or transfer of the Company or any of its
assets, other than as contemplated herein; or
(xiv) agreed, whether or not in writing, to take any of the actions
described in clauses (i)-(xiii) above.
2.09 LITIGATION AND OTHER PROCEEDINGS. Except as set forth on the
Disclosure Schedule, none of the Company, any Controlled Subsidiary or either
Principal Shareholder is currently a party to any pending or, to the Company's
and each Principal Shareholder's knowledge, threatened, claim (other than
benefit claims in the ordinary course of business), action, suit, investigation
or proceeding or is a party to any order, judgment or decree relating to or
affecting the Company, any Controlled Subsidiary or, with respect to the
Principal Shareholders, relating to or affecting their shares of Company Common
Stock or their positions with the Company. Except as set forth on the Disclosure
Schedule, since January 1, 1993, neither the Company nor any Controlled
Subsidiary has been a party to any such claim, action, suit, investigation or
proceeding. Except as described on the Disclosure Schedule, there is no
outstanding order, decree or stipulation issued by any federal, state or local
authority to which the Company or any Controlled Subsidiary is a party or
subject and which has or is reasonably likely to have a Material Adverse Effect.
2.10 COMPLIANCE WITH LAWS. Except as set forth on the Disclosure Schedule,
to the knowledge of the Company and each Principal Shareholder, the Company and
each Controlled Subsidiary is conducting its business in compliance with all
applicable laws and regulations in each jurisdiction in which it conducts
business, including any insurance or insurance-related laws, regulations or
rules, except where a failure to comply would not have a Material Adverse
Effect. The Disclosure Schedule lists all licenses, registrations and permits,
and applications with respect to the business and operations of each of the
Company and the Controlled Subsidiaries. Except as set forth on the Disclosure
Schedule, to the knowledge of the Company and each Principal Shareholder, the
Company and each of the Controlled Subsidiaries currently has all governmental
approvals, consents, licenses, registrations, and permits necessary to carry on
its business as presently conducted (collectively, "Licenses"), except where the
failure to have any such License would not have a Material Adverse Effect, and
neither the Company nor any Principal Shareholder has received notice of
violation of any laws or notice of any proposed regulations or changes in the
requirement of such approvals, consents, licenses, registrations, or permits
which notice has not previously been disclosed to UWSI in writing.
2.11 TAXES. To the knowledge of the Company and each Principal
Shareholder, and except as set forth in the Disclosure Schedule: (i) the Company
has duly filed all material reports and returns and extensions ("Tax Returns")
required to be filed by it relating to all taxes imposed by any jurisdiction
("Taxes"); (ii) all material liabilities for Taxes which are due from the
Company with
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respect to periods ending on or before the Closing Date for which a statute of
limitations has not barred the assessment of deficiencies have been paid or
provision therefor has been made on the Company Balance Sheet; and (iii) the Tax
Returns reflect all Taxes due and payable with respect to the periods covered
thereby and there are no other tax liabilities, deficiencies, interest or
penalties payable or asserted with respect to such periods. Except as set forth
on the Disclosure Schedule, there are no actions, suits, proceedings,
investigations or claims pending with respect to tax matters. Except as set
forth on the Disclosure Schedule, there are no pending audits by any federal,
state, local or foreign taxing authority of any payment, return or report made
or filed by the Company.
2.12 TITLE TO PROPERTIES.
(a) Except as set forth on the Disclosure Schedule, the Company has good and
marketable title to all of the properties and assets recorded on the Company
Balance Sheet free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except for (i) such properties and assets
as may have been sold in the ordinary course of business since the date of the
Company Balance Sheet, or (ii) Permitted Encumbrances. As used herein "Permitted
Encumbrances" means municipal and zoning ordinances, recorded easements,
covenants and restrictions provided the same do not prohibit or materially
interfere with the present use, or materially affect the present value, of the
real property owned by the Company or any Controlled Subsidiary. All properties
and assets owned and currently used by the Company in the Company's business are
in good condition and repair, normal wear and tear excepted. Surveys of all real
property owned by the Company, true and correct copies of which have been
furnished to UWSI, are listed on the Disclosure Schedule.
(b) The Disclosure Schedule sets forth: (i) a true and complete list of all
real property leases of the Company and all personal property leases to which
the Company is a party as lessee as of the date hereof involving an annual lease
payment of more than $20,000, including an identification of the parties, the
property, the term of the lease and the rent or lease payments thereunder; and
(ii) a true and complete list of all real property owned by the Company as of
the date hereof, including an identification of the property, the record owner
and the principal structures on it.
2.13 CONTRACTS AND COMMITMENTS. Except as set forth on the Disclosure
Schedule, neither the Company nor any Controlled Subsidiary has any written or
oral contract, commitment, or other agreement or arrangement, including any
note, loan agreement, guarantee or other evidence of indebtedness of the
Company, which involves an annual aggregate consideration with a value in excess
of $100,000 (excluding any agreements with insureds or plan sponsors), or any
contracts, commitments, or other agreements or arrangements with any Related
Party individually in excess of $60,000. All of such contracts, commitments, or
other agreements or arrangements to which the Company or any Controlled
Subsidiary is a party or by which any of its assets or properties are bound or
affected are in full force and effect and no event or condition has occurred or
exists or has been threatened in writing by any of the other parties thereto to
have occurred or exist, which constitutes or with lapse of time or giving of
notice would constitute a default or basis for acceleration under any such
contract, commitment, arrangement or other agreement. Except as set forth on the
Disclosure Schedule, neither the Company nor any Controlled Subsidiary has given
any revocable or irrevocable power of attorney to any person, firm or
corporation for any purpose whatsoever. Set forth on the Disclosure Schedule are
written descriptions of all such contracts, commitments, agreements or
arrangements that are oral. The Company is not bound by any covenant not to
compete or otherwise restricted by any agreement to which it is a party from
carrying on or engaging in any business anywhere in the world.
2.14 EMPLOYEE RELATIONS. Neither the Company nor any Controlled Subsidiary
is a party to any collective bargaining agreement covering or relating to any of
its employees and has not recognized, is not required to recognize and during
the past five years has not received a demand for recognition by any collective
bargaining representative or experienced any strikes or work stoppages or
slowdowns. Each of the Company and its Controlled Subsidiaries is in compliance
with all applicable laws, rules and regulations relating to employment or
employment practices, including
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those relating to wages, hours, collective bargaining and the withholding and
payment of taxes and contributions, and the Company is in compliance with the
Occupational Safety and Health Act and applicable Federal Civil Rights laws
except where the failure to so comply would not have a Material Adverse Effect.
2.15 EMPLOYEE BENEFIT PLANS.
(a) Listed in the Disclosure Schedule are all written employment agreements
presently in effect between the Company and its employees, all collective
bargaining agreements between Company and its employees, and all benefit plans
in effect for employees of the Company, including with-out limitation all bonus,
pension and retirement, deferred compensation, vacation, and severance pay
plans.
(b) The Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to so comply would not have a Material
Adverse Effect on the Company. There is no labor strike, dispute, slowdown,
representation campaign or work stoppage actually pending with respect to the
Company's employees.
(c) Since June 25, 1996, there has not been (i) any increase in the rate or
terms of compensation payable by the Company to, or any increase in the rate or
terms of any bonus, insurance, pension, or other employee benefit plan on behalf
of, its officers, except increases occurring in the ordinary course of business
in accordance with its customary practices (which shall include normal period
performance reviews and related compensation and benefit increases), or (ii) any
general or uniform increase in the compensation or benefits of employees of the
Company.
(d) There are no "employee pension benefit plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), subject to Title IV of ERISA, in which the Company's employees are
participants. Each employee pension benefit plan listed on the Disclosure
Schedule is in compliance in all material respects with the applicable
provisions of the Code and ERISA, including the fiduciary and prohibited
transaction rules and funding requirements. Except as required by law, the
Company has made no commitment to provide retiree health coverage to any
employee. The consummation of the transactions contemplated by this Agreement
will not trigger any severance payments.
(e) Except as set forth on the Disclosure Schedule, there are no pending
claims, lawsuits or arbitrations which have been asserted or instituted against
the Company with respect to any laws respecting employment and employment
practices of the Company.
(f) The Company is not a party to any collective bargaining agreement and no
such contract is being negotiated with the Company. No representation question
exists or has been raised respecting the employees of the Company, nor are there
any campaigns being conducted to solicit cards from the employees of the Company
to authorize representation by any labor organization.
(g) The Company has (i) timely filed with the United States Department
of Labor and the Internal Revenue Service, all reports required to be filed
by it (including, without limitation, all Forms 5500), and (ii) attached to
the Disclosure Schedule all determination letters from the Internal Revenue
Service which are currently applicable to any benefit plan of the Company.
2.16 INTELLECTUAL PROPERTY. The Disclosure Schedule sets forth a correct
and complete list of all letters patent, patent applications, trade names,
trademarks, service marks, trademark registrations and applications, copyrights
and copyright registrations and applications, both domestic and foreign,
presently owned, possessed, used or held by the Company or any Controlled
Subsidiary (the "Intellectual Property") which are material to the conduct of
the business of the Company and the Controlled Subsidiaries taken as a whole. To
the Company's and each Principal Shareholder's knowledge, the Company and each
Controlled Subsidiary owns the entire right, title and interest in and to all
Intellectual Property. The Disclosure Schedule sets forth a correct and complete
list of all licenses
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REGISTRATION RIGHTS AND STOCK
RESTRICTION AGREEMENT
This Agreement, ("Agreement") is made and entered into as of this ____ day
of ______________, 1996 by and among United Wisconsin Services, Inc., a
Wisconsin corporation (the "Company"), Wallace J. Hilliard and Ronald A. Weyers
(individually a "Holder" and collectively the "Holders").
RECITALS
WHEREAS, the Company, Blue Cross & Blue Shield United of Wisconsin
("BCBSUW"), American Medical Security Group, Inc., a Delaware corporation
("AMSG"), and the Holders are parties to an Agreement and Plan of Merger dated
as of July 31, 1996 (the "Merger Agreement") pursuant to which, among other
things, the Holders are acquiring shares of common stock, no par value, of the
Company ("UWSI Common Stock") and in connection with employment agreements being
entered into with American Medical Security Holdings, Inc., a Nevada corporation
and wholly owned subsidiary of UWSI ("Holdings"), are acquiring options to
purchase shares of UWSI Common Stock ("Options").
WHEREAS, pursuant to the Merger Agreement, AMSG was merged into UWSI and
the assets previously held by AMSG were transferred by operation of law to UWSI,
and the parties hereto anticipate that UWSI will transfer substantially all of
such assets to Holdings.
WHEREAS, in connection with the transactions contemplated by the Merger
Agreement, the Holders desire to obtain certain registration rights with respect
to UWSI Common Stock to be received in the Merger and the Options, and UWSI
desires to enter into the agreements with the Holders as set forth below.
NOW THEREFORE, the parties agree as follows:
ARTICLE I
REGISTRATION RIGHTS
Section 1.01 GENERAL. For purposes of Article I: (i) the terms
"register", "registered" and "registration" refer to a registration effected by
preparing and filing a registration statement (a "registration statement") in
compliance with the Securities Act of 1933, as amended (the "1933 Act"), and the
declaration or ordering of effectiveness of such registration statement; and
(ii) the term "Registrable Securities" means the ______ shares of UWSI Common
Stock to be received by the Holders in the Merger and any shares of UWSI common
stock acquired by the Holders through the exercise of Options or any securities
issued in exchange therefor in the event of a recapitalization, stock split,
merger, consolidation or other combination or exchange of shares. Capitalized
terms used herein and not defined shall have the meanings set forth in the
Merger Agreement.
Section 1.02 REQUEST FOR REGISTRATION. Subject to Section 1.07(a)
hereof, at any time on or after the date hereof if the Company shall receive a
written request (specifying that it is being made pursuant to this Section 1.02)
from both Holders that the Company register at least fifty percent (50%) of the
then outstanding Registrable Securities, then the Company shall use its best
efforts to cause to be registered all Registrable Securities that the Holders
have requested be registered. Notwithstanding the foregoing, the Company shall
not be obligated to effect a registration pursuant to this Section 1.02 during
the period starting with the date forty-five (45) days prior to the Company's
estimated date of filing of, and ending on a date one-hundred-eighty (180) days
following the effective date of, a registration statement pertaining to an
underwritten public offering of UWSI Common Stock for the account of the
Company. The Company shall be obligated to effect not more than two (2)
registrations pursuant to this Section 1.02. Any request for registration under
this Section must be for a firmly underwritten public offering in accordance
with terms agreed upon between the
<PAGE>
underwriter or underwriters and the Holders to be managed by an underwriter or
underwriters designated by the Holders and reasonably acceptable to the Company.
Notwithstanding anything else in this Agreement to the contrary, all of the
Company's obligations under this Section shall expire on the earlier of the
fifth anniversary of the date hereof or the date on which the Holders own in the
aggregate less than three percent of the outstanding UWSI Common Stock.
Subject to the provisions of Section 1.07(a) hereof, the Company shall be
permitted to cause to be registered additional shares of UWSI Common Stock
(whether previously unissued or owned by a person or entity designated by UWSI)
in connection with any registration effected pursuant to this Section 1.02. If,
while a registration request is pending pursuant to this Section 1.02, the
Company has determined in good faith that (A) the filing of a registration
statement could jeopardize or delay any contemplated material transaction other
than a financing plan involving the Company or would require the disclosure of
material information that the Company had a bona fide business purpose for
preserving as confidential; or (B) the Company then is unable to comply with
requirements of the Securities and Exchange Commission ("SEC") applicable to the
requested registration (notwithstanding its best efforts to so comply), the
Company shall not be required to effect a registration pursuant to this Section
1.02 until the earlier of (1) the date upon which such contemplated transaction
is completed or abandoned or such material information is otherwise disclosed to
the public or ceases to be material or the Company is able to so comply with
applicable SEC requirements, as the case may be, and (2) 45 days after the
Company makes such good-faith determination.
Section 1.03 COMPANY REGISTRATION. Subject to Section 1.07(b)
hereof, if at any time the Company determines to register any UWSI Common Stock
under the 1933 Act in connection with the public offering of such securities
solely for cash on a form that would also permit the registration of any of the
Registrable Securities, the Company shall promptly give the Holders written
notice of such determination. Upon the written request of any Holder received
by the Company within thirty (30) days after the giving of any such notice by
the Company, the Company shall use its best efforts to cause to be registered
all of the Registrable Securities that the Holders have requested be registered
together with the registration of the UWSI Common Stock otherwise being
registered by the Company. Notwithstanding anything else in this Agreement to
the contrary, all of the Company's obligations under this Section shall expire
on the earlier of the fifth anniversary of the date hereof or the date on which
the Holders own in the aggregate less than three percent of the outstanding UWSI
Common Stock. The Company shall be obligated to include Registerable Securities
in not more than two (2) registrations pursuant to this Section 1.03. The
Company may, for any reason or for no reason, elect to either not file or
withdraw the filing of any registration statement relating to a registration
described in this Section 1.03 at any time prior to the effectiveness thereof
and in such case the request by the Holders to be included in such registration
will not be deemed to have been the exercise of one registration right under
this Section 1.03.
Section 1.04 OBLIGATIONS OF THE COMPANY. Whenever the Company shall
be required under Sections 1.02 or 1.03 hereof to use its best efforts to effect
the registration of any Registrable Securities, the Company shall:
(a) as expeditiously as reasonable possible, prepare and file with
the Securities and Exchange Commission ("SEC," which term includes any successor
agency) a registration statement with respect to such Registrable Securities and
use its reasonable efforts to cause such registration statement to become and
remain effective under the 1933 Act, except that the Company shall in no event
be obligated to cause any such registration to remain effective for more than
three months;
(b) as expeditiously as reasonably possible, prepare and file with
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement;
(c) as expeditiously as reasonably possible, furnish to the Holders
such numbers of copies of a prospectus, including a preliminary prospectus, and
such other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them;
<PAGE>
(d) as expeditiously as reasonably possible, use its reasonable
efforts to register and qualify the securities covered by such registration
statement under such securities or Blue Sky laws of such jurisdictions as shall
be reasonably appropriate or requested by the Holders, except that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such jurisdiction;
(e) advise each Holder, promptly after it shall receive notice or
obtain knowledge thereof, of (i) the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose, and (ii) any similar action by
any regulatory agency of competent jurisdiction under the securities or Blue Sky
laws of any jurisdiction, and in any such case promptly use its reasonable best
efforts to prevent the issuance of any stop order or the taking of any such
similar action or to obtain its withdrawal if such stop order should be issued
or any such similar action shall be taken; and
(f) furnish to each Holder of Registrable Securities covered by such
registration statement copies of all documents proposed to be filed with respect
to any amendment or supplement to such registration statement or prospectus at a
reasonable time prior to such filing.
Section 1.05 FURNISH INFORMATION. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Article I
that the Holders shall furnish to the Company such information regarding them,
the Registrable Securities held by them, and the intended method of disposition
of such securities and such other matters as may be required by the 1933 Act and
other applicable law and regulation as the Company shall request and as shall be
required in connection with the action to be taken by the Company.
Section 1.06 EXPENSES OF REGISTRATION. In connection with a
registration pursuant to Section 1.02, all underwriter's discounts and
commissions, all registration and qualification fees, printers' and any
extraordinary accounting fees, required as a result of the Holders'
registration, shall be borne by the Holders and, all such expenses incurred in
connection with a registration pursuant to Section 1.03 shall be borne by the
Company, the Holders and any other sellers pro rata in relation to the number of
shares of UWSI Common Stock being registered by each such party. For any
registrations pursuant to Sections 1.02 or Section 1.03, all parties shall pay
all of their own respective attorneys' fees.
Section 1.07 UNDERWRITING REQUIREMENTS.
(a) In connection with any registration requested by Holders under
Section 1.02, the Company shall not be required under Section 1.02 to register
any Registrable Securities of any Holder unless such Holder accepts the terms of
the underwriting required by Section 1.02, and then only in such quantity as
will not, in the written opinion of the managing underwriters, exceed the
maximum number of shares that can be marketed at a price reasonably related to
the then current market price for such shares, or otherwise materially and
adversely affect such offering or the trading market for such shares (the
"Maximum Feasible Quantity"). All securities sold to cover any over-allotment
shall be apportioned among the Holders and the Company in proportion to the
total number of shares being sold by each, provided, however, that any such
over-allotment shall first be allocated to the Holders to the extent any of the
Registrable Securities of the Holders were not included in such registration
because the total number of Registrable Securities requested to be registered by
the Holders exceeded the Maximum Feasible Quantity for such registration, and
shall thereafter be allocated to the Company to the extent that the shares
requested to be registered by the Company were not included in such registration
because such shares, when added to the shares being registered by the Holders,
exceeded the Maximum Feasible Quantity for such registration.
(b) In connection with any registration in which Registerable
Securities are included pursuant to Section 1.03 hereof, the Company shall not
be required to include any of the Holders' Registrable Securities in such
registration unless the Holders accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it, and then only in
such quantity as will not, when added to the
<PAGE>
shares otherwise being registered by the Company, in the written opinion of the
managing underwriters, exceed the Maximum Feasible Quantity for such
registration. All securities sold to cover any over-allotment shall be
apportioned among the Holders and the Company in proportion to the total number
of shares being sold by each; provided, however, that any such over-allotment
shall first be allocated to the Company to the extent any of the securities of
the Company were not included in such registration because the total number of
Registrable Securities included in such registration by the Holders, when added
to the shares otherwise being registered by the Company, exceeded the Maximum
Feasible Quantity for such registration, and shall thereafter be allocated to
the Holders to the extent that the Registrable Securities requested to be
registered by the Holders were not included in such registration because such
shares when added to the shares being requested by the Company, included the
Maximum Feasible Quantity for such registration.
ARTICLE II
STANDSTILL
Section 2.01 PURCHASES OF VOTING SECURITIES. Hilliard and Weyers
each agrees that, for a period of ten years from the date of this Agreement,
without the prior written consent of the Company, he will not acquire, offer or
propose to acquire, directly or indirectly, by purchase or otherwise, any
securities of the Company, other than pursuant to the Options, with the power to
vote with respect to the election of directors generally ("Voting Securities"),
or direct or indirect rights or options to acquire (through purchase, exchange,
conversion or otherwise) any Voting Securities, if any such acquisitions would
require any regulatory approval, application or notification other than as
required by the 1934 Act.
Section 2.02. OTHER STANDSTILL PROVISIONS. Hilliard and Weyers each
agrees that for a period of three years from the date of this Agreement, without
the prior written consent of the Company, he will not:
(a) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" (as such terms are defined in Rule 14a-1 under
the 1934 Act) to vote any Voting Securities, initiate or propose any
shareholder proposal or induce or attempt to induce any other person to
initiate any shareholder proposal;
(b) make any proposal, whether written or oral, to the Board of
Directors of the Company, or to any director or officer of the Company, or
otherwise make any public announcement or proposal whatsoever with respect
to a merger or other business combination, sale or transfer of assets,
liquidation or other extraordinary corporate transaction with the Company;
(c) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the 1934 Act) with respect to any securities
of the Company or otherwise act, alone or in concert with others, to seek
to exercise any control or influence over the management, Board of
Directors or policies of the Company other than pursuant to his employment
with the Company or any of its subsidiaries.
Section 2.03. NO PUBLIC REQUESTS. Hilliard and Weyers each agrees that he
will not make a public request to the Company (or its directors, officers,
shareholders, employees or agents) to amend or waive any provisions of this
Article III, including without limitation any public request to permit him or
any other person to take any other action referred to in Sections 3.01 and 3.02
hereof.
ARTICLE III
VOTING AGREEMENT
Hilliard and Weyers each agree for a period of ten years from the date
hereof, to vote all shares of UWSI Common Stock owned or held by them
respectively, (or over which they have or share voting power) in accordance with
BCBSUW directions on any matters relating to or affecting the Blue Cross Blue
Shield
<PAGE>
Association market conditions or rules and regulations, as may be determined in
good faith by the BCBSUW Board of Directors.
ARTICLE IV
GENERAL PROVISIONS
Section 4.01 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given (i) when delivered
personally; (ii) the second business day after being deposited in the United
States mail registered or certified (return receipt requested); (iii) the first
business day after being deposited with Federal Express or any other recognized
national overnight courier service or (iv) on the business day on which it is
sent and received by facsimile, in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to the Company:
United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, WI 53203
Attention: Thomas R. Hefty, President
With a copy to:
Michael Best & Friedrich
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Geoffrey R. Morgan, Esq.
<PAGE>
(b) If to the Holders:
Wallace J. Hilliard
4443 Indian Trails
Green Bay, WI 54313
Ronald A. Weyers
2643 Good Sheperd Lane
Green Bay, WI 54313
With a copy to:
Godfrey & Kahn, S.C.
333 Main Street, Suite 600
Green Bay, WI 54307-3067
Attention: Benjamin W. Laird, Esq.
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
Attention: Randall J. Erickson, Esq.
Section 4.02 MISCELLANEOUS. This Agreement (including the exhibits,
documents and instruments referred to herein or therein):
(a) constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof;
(b) is not intended to confer upon any person which is not a party
hereto any rights or remedies hereunder;
(c) shall not be assigned by operation of law or otherwise; and
(d) may be executed in two or more counterparts which together shall
constitute a single agreement.
Section 4.03 WAIVER: REMEDIES. No delay or failure on the part of
any party hereto to exercise any right, power, or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any right, power, or privilege hereunder operate as a waiver of any
other right, power, or privilege hereunder, nor shall any single or partial
exercise of any right, power, or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power, or privilege
hereunder.
Section 4.04 SEVERABILITY. If any provision of this Agreement shall
be held by any court of competent jurisdiction to be illegal, invalid or
unenforceable, such provision shall be construed and enforced as if it had been
more narrowly drawn so as not to be illegal, invalid or unenforceable, and such
illegality, invalidity or unenforceability shall have no effect upon and shall
not impair the enforceability of any other provision of this Agreement.
Section 4.05 GOVERNING LAW. This Agreement shall be construed in
accordance with the law of the State of Wisconsin (without regard to principles
of conflicts of laws) applicable to contracts made and to be performed within
such State.
<PAGE>
United Wisconsin Services, Inc.
By:__________________________________
_____________________________________
Wallace J. Hilliard
_____________________________________
Ronald A. Weyers
<PAGE>
AFFILIATE AGREEMENT
United Wisconsin Services, Inc.
401 West Michigan Avenue
Milwaukee, WI 53203
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger (the "Agreement
and Plan of Merger") dated as of July 31, 1996, by and among United Wisconsin
Services, Inc., a Wisconsin corporation ("UWSI"), Blue Cross & Blue Shield
United of Wisconsin, American Medical Security Group, Inc., a Delaware
corporation (the "Company") and Wallace J. Hilliard (individually and as
trustee) and Ronald A. Weyers (individually and as successor trustee), which
provides that the Company will be merged with and into UWSI (the "Merger") and
the outstanding shares of common stock of the Company ("Company Common Stock")
will be converted into a combination of shares of common stock of UWSI ("UWSI
Common Stock") and cash.
The undersigned has been advised that the issuance of shares of UWSI
Common Stock to the undersigned in connection with the Merger has been
registered with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), on a Registration
Statement on Form S-4 and that such registration does not cover any resale or
other disposition of UWSI Common Stock. The undersigned also has been advised
that the undersigned may be deemed to be an affiliate of the Company within the
meaning of Rule 145 of the rules and regulations of the SEC under the Securities
Act and that the shares of UWSI Common Stock acquired by the undersigned in
connection with the Merger may only be disposed of in conformity with the
provisions hereof.
The undersigned represents and warrants to and agrees with UWSI as
follows:
(a) The undersigned has full power to execute this Agreement and to
make the representations, warranties and agreements herein, and to perform the
obligations of the undersigned hereunder.
(b) The undersigned will not sell, exchange, transfer or otherwise
dispose of any shares of UWSI Common Stock which the undersigned may acquire in
connection with the Merger or any securities which may be paid as a dividend or
otherwise distributed thereon or with respect thereto or issued or delivered in
exchange or substitution therefor (all such shares and other securities being
herein sometimes collectively referred to as "Restricted Securities"), or any
option, right or other interest with respect
<PAGE>
to any Restricted Securities, unless such sale, exchange, transfer or
disposition is effected (i) in conformity with the terms of Rule 145(d) or (ii)
pursuant to an effective registration statement under the Securities Act
(provided that the undersigned may make bona fide gifts or other dispositions
without consideration so long as the recipients thereof agree not to sell,
exchange, transfer or otherwise dispose of the UWSI Common Stock except as
provided herein). If UWSI or its counsel reasonably believes that the
provisions of Rule 145 have not been or would not be complied with, or if
requested by UWSI or its counsel in connection with a proposed disposition other
than pursuant to Rule 145 or in a registered offering, the undersigned shall
furnish to UWSI a copy of a "no action" letter or other communication from the
staff of the SEC, or an opinion of counsel in form and substance reasonably
satisfactory to UWSI and its counsel, to the effect that the applicable
provisions of paragraphs (c), (e), (f) and (g) of Rule 144 under the Securities
Act (which provisions are incorporated into Rule 145(d)) have been complied with
or that the disposition may be otherwise effected in the manner proposed in
compliance with the Securities Act.
(c) The undersigned has no present plan or intent, and as of the
effective date of the Merger shall have no present plan or intent, to engage in
a sale, exchange, transfer, distribution (including a distribution by a
partnership to its partners, a corporation to its shareholders, or a trust to
its beneficiaries), redemption, pledge or reduction in any way of the
undersigned's risk of ownership, by short sale or otherwise, or other
disposition, directly or indirectly (collectively, a "Sale") with respect to any
of the UWSI Common Stock to be received by the undersigned in the Merger. The
undersigned is not aware of, or participating in any plan or intent on the part
of any of the shareholders (a "Plan") to engage in any Sale of the UWSI Common
Stock to be issued in the Merger. A Sale of UWSI Common Stock shall be
considered to have occurred pursuant to a Plan if, for example, such Sale occurs
in a transaction that is in contemplation of, or related to, the Merger (a
"Related Transaction"). In addition, Company shares (i) with respect to which
dissenters' rights are exercised and (ii) with respect to which a pre-Merger
Sale occurs in a Related Transaction, shall be considered to be shares that are
exchanged for UWSI Common Stock which are disposed of pursuant to a Plan.
The undersigned understands that stop transfer instructions will be
given to UWSI's transfer agent with respect to the Restricted Securities and
agrees that no transfers of the Restricted Securities will be made by UWSI
unless and until the undersigned has complied with the provisions of this
Agreement. The undersigned also understands that there will be placed on the
certificates for the Restricted Securities, or any substitutions therefor, a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145, PROMULGATED UNDER THE
<PAGE>
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), APPLIES AND MAY ONLY BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN ACCORDANCE WITH THE TERMS OF
AN AGREEMENT BETWEEN THE REGISTERED HOLDER HEREOF AND UWSI CO., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF UWSI CO."
UWSI agrees that such stop transfer instructions and legend will be
promptly removed upon the sale, exchange, transfer or other disposition of
Restricted Securities in full compliance with the provisions of this Agreement.
This Agreement shall be binding upon, and enforceable against
administrators, executors, personal representatives, heirs, legatees and
devisees of the undersigned and any pledgee holding the Restricted Securities as
collateral.
Very truly yours,
--------------------------------
Signature
--------------------------------
Print Name
Agreed to and accepted this
_____ day of _________, 1996
UNITED WISCONSIN SERVICES, INC.
By:
---------------------------
Title:
------------------------
<PAGE>
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is executed as of this ____ day of _______, 1996, by and
between AMS HOLDINGS, INC., a Nevada corporation (the "COMPANY"), and a wholly
owned subsidiary of United Wisconsin Services, Inc., a Wisconsin corporation
("UWSI"), and WALLACE J. HILLIARD, an individual ("EMPLOYEE").
RECITALS
Pursuant to that certain Agreement and Plan of Merger, dated as of July
___, 1996, among the Company, UWSI, American Medical Security Group, Inc.
("AMS"), Ronald A. Weyers and Employee (the "Merger Agreement"), UWSI has agreed
to acquire AMS by a merger of AMS into the Company, which shall be the surviving
corporation (the "Merger"). The parties further contemplate that, following the
Merger, UWSI will transfer substantially all of the assets received in the
Merger to the Company. UWSI, the Company and AMS anticipate that the Merger
will become effective as of the date hereof.
Employee is a knowledgeable and experienced executive familiar with the
business conducted by the Company. The Company desires to employ Employee, and
Employee desires to be employed by the Company, on the terms and conditions set
forth herein. The parties also believe it is in their best interests to make
provision for certain aspects of their relationship during and after the period
in which Employee is employed by the Company.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by the Company and
Employee,
IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I
EMPLOYMENT
1.1 TERM OF EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company, for the period commencing on the date
hereof and ending on the sixth anniversary of the date hereof, subject to
earlier termination as hereinafter set forth in Article III (the "EMPLOYMENT
TERM").
1.2 POSITION AND DUTIES. Employee shall be employed in the position of
______________, shall have such duties as may be set forth by the _____________
consistent with his status and shall be subject to the authority of, and shall
report to, the Company's Board of Directors. Except as provided in Section 2.1
below, Employee shall be available to devote Employee's entire business time,
attention and energies exclusively to the business interests of
<PAGE>
the Company while employed by the Company during the first three (3) years of
the Employment Term, except as otherwise specifically provided for herein by
reason of illness, vacation or otherwise or approved by or on behalf of the
Board of Directors. The Company shall provide such secretarial assistance and
office space to Employee as may be reasonably requested by Employee; provided,
that the Company shall only be required to provide secretarial assistance and
office space to the extent consistent with past practice.
ARTICLE II
COMPENSATION AND OTHER BENEFITS
2.1 BASE SALARY. The Company shall pay Employee an annual salary as
follows: (i) $750,000 per year during the first year; (ii) $500,000 per year
thereafter for the shorter of two years or such time as Employee is not
available to devote Employee's entire business time, attention and energies
exclusively to the business of the Company (as such determination is made by the
Board of Directors including by reason of "disability" as set forth in Section
3.1(c) hereof); and (iii) $100,000 per year thereafter for a period of three
years ("BASE SALARY"), payable in accordance with the normal payroll practices
of the Company.
2.2 COMPENSATORY STOCK OPTIONS. In addition to Base Salary and subject to
the provisions of Article III hereof, Employee has been granted, by the
Management Review Committee of UWSI an option (THE "OPTION") to purchase up to
_______________ shares of common stock, no par value per share, of UWSI ("UWSI
COMMON STOCK") at an exercise price per share equal to 125% of the average
closing price of UWSI Common Stock on the New York Stock Exchange for the ten
trading days immediately preceding the date the Merger becomes effective, all in
accordance with the United Wisconsin Services, Inc. Equity Incentive Plan and
pursuant to a stock option agreement in the form attached hereto as EXHIBIT A.
2.3 BENEFIT PLANS. The Company will establish and maintain welfare
benefit plans substantially identical to those maintained by AMS prior to the
Merger. Employee will be eligible to participate in the Company's other welfare
benefit plans as are generally applicable to all executives of the Company, in
accordance with the terms and conditions thereof. Notwithstanding anything to
the contrary contained in Section 3.2 hereof, the Company will also pay 38% of
the premium due under the Employers Health Insurance Company health policy
covering Employee until Employee's death.
2.4 EXPENSES. The Company shall reimburse Employee for all reasonable
expenses incurred in the course of the performance of Employee's duties and
responsibilities pursuant to this Agreement and consistent with the Company's
policies with respect to travel, entertainment and miscellaneous expenses, and
the Company's requirements with respect to the reporting of such expenses.
2.5 VACATION. The Company shall maintain vacation policies substantially
identical to those maintained by AMS prior to the Merger. Employee shall be
entitled to a
2
<PAGE>
maximum of eight (8) weeks of non-cumulative vacation in any calendar year in
accordance with the Company's general vacation policies.
ARTICLE III
TERMINATION
3.1 RIGHT TO TERMINATE; AUTOMATIC TERMINATION.
(a) TERMINATION WITHOUT CAUSE. Subject to Section 3.2, the Company
may terminate Employee's employment at any time and for any reason.
(b) TERMINATION FOR CAUSE. Subject to Section 3.2, the Company may
terminate Employee's employment and all of the Company's obligations under this
Agreement at any time "FOR CAUSE" (as defined below) by giving notice
to Employee stating the basis for such termination, effective immediately upon
giving such notice or at such other time thereafter as the Company may
designate. A termination For Cause is a termination evidenced by a resolution
adopted in good faith by a majority of the Board of Directors of the Company
that Employee (i) willfully failed to substantially perform his duties under
Section 1.2, above, (other than a failure resulting from Employee's incapacity
due to physical or mental illness or injury), (ii) committed acts of fraud,
embezzlement, theft or dishonesty, as determined by a final judgment or order of
a court of competent jurisdiction, (iii) committed acts which constitute a
felony as determined by a final judgment or order of a court of competent
jurisdiction and which, in a reasonable opinion of the Board of Directors of the
Company, involve moral turpitude and have caused material embarrassment to the
Company, or (iv) Employee has attempted to obtain a personal profit from any
transaction in which the Company has an interest and which constitutes a
corporate opportunity of the Company or is adverse to the interests of the
Company, unless the transaction was approved in writing by the Company's Board
of Directors after full disclosure of all details relating to such transaction;
PROVIDED, HOWEVER, that no termination of Employee's employment shall be For
Cause as set forth in (i), above, until (a) Employee shall have had at least
forty-five (45) days to cure any conduct or act alleged to provide Cause for
termination after a written notice of demand has been delivered to Employee
specifying in detail in the manner in which Employee's conduct violates this
Agreement, and (b) Employee shall have been provided an opportunity to be heard
by the Board of Directors (with the assistance of Employee's counsel if Employee
so desires). No act, or failure to act, on Employee's part, shall be considered
"willful" unless he has acted or failed to act without reasonable belief that
his action or failure to act was in the best interest of the Company.
(c) TERMINATION BY DEATH OR DISABILITY. Subject to Section 3.2,
Employee's employment and the Company's obligations under this Agreement shall
terminate automatically, effective immediately and without any notice being
necessary, upon Employee's death or a determination of disability of Employee.
For purposes of this Agreement, "DISABILITY" means the inability of Employee,
due to a physical or mental impairment, for 180 consecutive days or 210 days
during any period of 360 days to perform the duties and functions
3
<PAGE>
contemplated by this Agreement. A determination of disability shall be made by
a physician chosen by the President of the Medical Society of Brown County,
Wisconsin, and Employee shall cooperate with the efforts to make such
determination. Any such determination shall be conclusive and binding on the
parties. Any determination of total disability under this Section 3.1(c) is not
intended to alter any benefits any party may be entitled to receive under any
long-term disability insurance policy carried by either the Company or Employee
with respect to Employee, which benefits shall be governed solely by the terms
of any such insurance policy.
(d) TERMINATION BY EMPLOYEE. Notwithstanding anything to the
contrary contained herein, Employee may terminate this Agreement and his
employment hereunder upon sixty (60) days written notice to the Company.
(e) TERMINATION FOR GOOD REASON. Notwithstanding anything to the
contrary contained in this Agreement, Employee, by written notice to the Board
of Directors, shall have the right to terminate his employment for Good Reason.
(f) DEFINITION OF GOOD REASON. For purposes of this Agreement, the
term "Good Reason" shall mean the occurrence, without Employee's written consent
thereto, of any of the following:
(i) the reasonable good faith determination by an arbitrator
mutually acceptable to the Company and the Employee that there has been a
material adverse change in Employee's status, title, position or
responsibilities (including reporting responsibilities); the assignment to
Employee of any duties or responsibilities which, in Employee's reasonable
judgment, are inconsistent with his status, title, position or responsibilities
in effect immediately prior to such assignment; or any removal of Employee from
or failure to reappoint or reelect him to any position, except in connection
with the termination of his employment for Disability, Cause, as a result of his
death or by Employee other than for Good Reason;
(ii) any breach by the Company of any material provision of this
Agreement or other agreements between Employee and the Company regarding
Employee's policy-making responsibilities with the Company;
(iii) any purported termination of Employee's employment For
Cause by the Company which does not comply with the terms of Section 3.1(b) of
this Agreement;
(iv) requirement that Employee relocate his office to a location
more than 50 miles from its location on the date hereof; or
(v) the failure by the Company or any of its subsidiaries or
affiliated companies to continue to provide Employee with employee benefits at
least as favorable in the aggregate to those enjoyed by Employee as the date
hereof except to the extent any such changes are made effective for all
executives of the Company.
4
<PAGE>
3.2 RIGHTS UPON TERMINATION.
(a) SECTION 3.1(a), (c) AND (e) TERMINATIONS. If Employee's
employment is terminated pursuant to Section 3.1(a), (c) or (e) hereof, the
Company shall pay to Employee, or in the case of Employee's death, to Employee's
estate, (i) any unpaid Base Salary with respect to the period prior to the
effective date of termination, (ii) severance payments equal to the Base Salary
in effect for each year remaining in the Employment Term (prorated to account
for a partial year in the case of the year during which termination occurs),
payable in accordance with Section 2.1 hereof and the normal payroll practices
of the Company, (iii) upon payment of the exercise price, shares of UWSI Common
Stock issuable upon exercise of the Option (iv) reimbursement of expenses to
which Employee is entitled under Section 2.4 hereof and (v) to the extent
permitted by law, the Company shall continue the employee benefits which the
Employee was eligible for during the Employment Term until the sixth anniversary
of the date hereof.
(b) SECTION 3.1(b) AND (d) TERMINATIONS. If Employee's employment is
terminated pursuant to Section 3.1(b) or (d), Employee shall have no further
rights against the Company hereunder, except for the right to receive (i) any
unpaid Base Salary with respect to the period prior to the effective date of
termination and (ii) reimbursement of expenses to which Employee is entitled
under Section 2.4 hereof.
(c) Nothing contained in this Agreement shall affect the rights and
obligations of Employee under any of the Company's employee benefit plans in
effect from time to time, and such rights and obligations shall be determined
solely by reference to such employee benefit plan documents.
ARTICLE IV
CONFIDENTIALITY; NONCOMPETITION
4.1 CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY.
(a) CONFIDENTIAL INFORMATION. Employee acknowledges that Employee
will be required to use his personal intellectual skills on behalf of the
Company and that it is reasonable and fair that the fruits of such skills should
inure to the sole benefit of the Company. Employee further acknowledges that
Employee already has and will acquire information of a confidential nature
relating to the operation, finances, business relationships and trade secrets of
the Company. During Employee's employment and for a period of three years
following termination thereof, within the geographical area in which such use,
publication or disclosure would harm the Company's existing or potential
business interests, Employee will not use (except for use in the course of the
Employee's regular authorized duties on behalf of the Company), publish,
disclose or authorize anyone else to use, publish or disclose, without the prior
written consent of the Company, any confidential information pertaining to the
Company or its affiliated entities, including, without limitation, any
information relating to existing or
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potential business, customers, trade or industrial practices, plans, costs,
processes, technical or engineering data, or trade secrets; PROVIDED, HOWEVER,
that following termination of Employee's employment, Employee shall be
prohibited from using, publishing, disclosing or authorizing anyone else to use,
publish or disclose, any confidential information which constitutes a trade
secret under applicable law. Employee shall not remove or retain any figures,
calculations, formulae, letters, papers, software, abstracts, summaries,
drawings, blueprints, diskettes or any other material, or copies thereof, which
contain or embody any confidential information of the Company, except for use in
the course of Employee's regular authorized duties on behalf of the Company or
with the prior written consent of the Company. The foregoing notwithstanding,
Employee has no obligation to refrain from using, publishing or disclosing any
such confidential information which is or hereafter shall become available to
the public otherwise than by use, publication or disclosure by Employee.
This prohibition also does not prohibit Employee's use of general skills and
know-how acquired during and prior to employment, as long as such use does not
involve the use, publication or disclosure of the Company's confidential
information.
(b) AGREEMENT TO TRANSFER. Employee shall without further payment,
assign, transfer and set over, and does hereby assign, transfer and set over, to
the Company, its successors and assigns, all Employee's right, title and
interest in and to all trade secrets, secret processes, inventions,
improvements, patents, patent applications, trademarks, trademark applications,
copyrights and any and all intellectual property rights which Employee solely or
jointly with others has conceived, made, acquired or suggested at any time
during employment or within a one-year period after termination of employment
and which relate to the existing or potential products, processes, work,
research or other activities of the Company.
4.2 NONCOMPETITION. During Employee's employment and for a three-year
period following the termination thereof, Employee shall not, without the prior
written consent of the Company, engage, directly or indirectly, as an employee,
officer, director, partner, consultant, owner (other than a minority shareholder
interest of not more than 1% of a company whose equity interests are publicly
traded on a nationally recognized stock exchange or over-the-counter) or in any
other capacity, in any competition with the Company in any geographical area in
which the Company conducts its business or promotes its products and services or
in any geographical area the Company has plans, existing at the time that
Employee's employment is terminated, to enter.
4.3 NON-SOLICITATION. For a period of three years after termination of
Employee's employment, Employee will not solicit, or assist any person or entity
to solicit, any employee, customer, supplier or other person having business
relations with the Company to terminate such employee's employment or terminate
or curtail such customer's, supplier's or other person's business relationship
with the Company.
4.4 RETURN OF DOCUMENTS. Immediately upon termination of employment,
Employee will return to the Company, and so certify in writing to the Company,
that Employee has returned to the Company all the Company's papers, documents
and things, including
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information stored for use in or with computers and software applicable to
the Company's business (and all copies thereof), which are in Employee's
possession or under Employee's control, regardless whether such papers,
documents or things contain confidential information or trade secrets.
4.5 NOTICE; DISCLOSURE. For a period of three years after the termination
of Employee's employment hereunder, Employee shall keep the Company promptly and
fully informed of any person or persons, partnerships, associations, limited
liability companies or corporations by whom Employee may be employed.
4.6 NO CONFLICTS. Employee represents and warrants that Employee has not
previously assumed any obligations inconsistent with those of this Agreement and
that employment by the Company does not conflict with any prior obligations to
third parties.
4.7 AGREEMENT ON FAIRNESS. Employee acknowledges that: (i) this
Agreement has been specifically bargained between the parties and reviewed by
Employee, (ii) Employee has had an opportunity to obtain legal counsel to review
this Agreement, and (iii) the covenants made by and duties imposed upon Employee
hereby are fair, reasonable and minimally necessary to protect the legitimate
business interests of the Company, and such covenants and duties will not place
an undue burden upon Employee's livelihood in the event of termination of
Employee's employment by the Company and the strict enforcement of the covenants
contained herein.
4.8 EQUITABLE RELIEF. Employee acknowledges that any breach of this
Agreement will cause substantial and irreparable harm to the Company for which
money damages would be an inadequate remedy. Accordingly, the Company shall in
any such event be entitled to obtain injunctive and other forms of equitable
relief to prevent such breach and to recover from Employee the Company's costs
(including without limitation reasonable attorneys' fees) incurred in connection
with enforcing this Agreement, in addition to any other rights or remedies
available at law, in equity or by statute.
ARTICLE V
GENERAL PROVISIONS
5.1 NOTICES. Any and all notices, consents, documents or communications
provided for in this Agreement shall be given in the manner, and to the persons,
specified in Section 9.01 of the Merger Agreement.
5.2 ENTIRE AGREEMENT. This Agreement contains the entire understanding
and the full and complete agreement of the parties and supersedes and replaces
any prior understandings and agreements between the parties with respect to the
subject matter hereof and supersedes and replaces the employment agreement
between Employee and AMS.
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5.3 AMENDMENT. This Agreement may be altered, amended or modified only in
a writing, signed by both of the parties hereto. Headings included in this
Agreement are for convenience only and are not intended to limit or expand the
rights of the parties hereto. References to Sections herein shall mean sections
of the text of this Agreement, unless otherwise indicated.
5.4 ASSIGNABILITY. This Agreement and the rights and duties set forth
herein may not be assigned by Employee or the Company, in whole or in part.
This Agreement shall be binding on and inure to the benefit of each party and
such party's respective heirs, legal representatives, successors and assigns.
5.5 SEVERABILITY. If any court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then such
invalidity or unenforceability shall have no effect on the other provisions
hereof, which shall remain valid, binding and enforceable and in full force and
effect, and such invalid or unenforceable provision shall be construed in a
manner so as to give the maximum valid and enforceable effect to the intent of
the parties expressed therein.
5.6 WAIVER OF BREACH. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
5.7 GOVERNING LAW; CONSTRUCTION. This Agreement shall be governed by the
internal laws of the State of Wisconsin, without regard to any rules of
construction concerning the draftsman hereof.
5.8 ATTORNEY'S FEES. If any case of action is brought before any court to
enforce any provision of this Agreement, the Company shall reimburse Employee
for reasonable costs incurred (including reasonable attorney's fees) by Employee
if Employee prevails to any extent in any such action.
5.9 NO MITIGATION. If Employee's employment hereunder is terminated by
the Company without Cause because of Employee's Disability or by Employee for
Good Reason, Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee
hereunder.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written above.
COMPANY:
AMS HOLDINGS, INC.
By:_____________________________
______________, _____________
EMPLOYEE:
________________________________
Wallace J. Hilliard
IN WITNESS WHEREOF, United Wisconsin Services, Inc. has executed this
Agreement as of the day and year written above for the purpose of granting the
stock option contemplated in Section 2.2 hereof.
UNITED WISCONSIN SERVICES, INC.
By:_____________________________
______________, _____________
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<PAGE>
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is executed as of this ____ day of _______, 1996, by and
between AMS HOLDINGS, INC., a Nevada corporation (the "COMPANY"), and a wholly
owned subsidiary of United Wisconsin Services, Inc., a Wisconsin corporation
("UWSI"), and RONALD A. WEYERS, an individual ("EMPLOYEE").
RECITALS
Pursuant to that certain Agreement and Plan of Merger, dated as of July
___, 1996, among the Company, UWSI, American Medical Security Group, Inc.
("AMS"), Wallace J. Hilliard and Employee (the "Merger Agreement"), UWSI has
agreed to acquire AMS by a merger of AMS into the Company, which shall be the
surviving corporation (the "Merger"). The parties further contemplate that,
following the Merger, UWSI will transfer substantially all of the assets
received in the Merger to the Company. UWSI, the Company and AMS anticipate
that the Merger will become effective as of the date hereof.
Employee is a knowledgeable and experienced executive familiar with the
business conducted by the Company. The Company desires to employ Employee, and
Employee desires to be employed by the Company, on the terms and conditions set
forth herein. The parties also believe it is in their best interests to make
provision for certain aspects of their relationship during and after the period
in which Employee is employed by the Company.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by the Company and
Employee,
IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I
EMPLOYMENT
1.1 TERM OF EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company, for the period commencing on the date
hereof and ending on the sixth anniversary of the date hereof, subject to
earlier termination as hereinafter set forth in Article III (the "EMPLOYMENT
TERM").
1.2 POSITION AND DUTIES. Employee shall be employed in the position of
Vice Chairman of the Board and ______________, shall have such duties as may be
set forth by the President consistent with his status and shall be subject to
the authority of, and shall report to, the Company's Board of Directors. Except
as provided in Section 2.1 below, Employee shall be available to devote
Employee's entire business time, attention and energies exclusively to the
business interests of the Company while employed by the Company during the first
three (3) years of the Employment Term, except as otherwise specifically
provided for herein by reason of illness, vacation or otherwise or approved by
or on behalf of the Board of Directors. The Company shall provide such
secretarial assistance and office space to Employee as may be reasonably
requested by Employee; provided, that the Company shall only be required to
provide secretarial assistance and office space to the extent consistent with
past practice.
ARTICLE II
COMPENSATION AND OTHER BENEFITS
<PAGE>
2.1 BASE SALARY. The Company shall pay Employee an annual salary as
follows: (i) $750,000 per year during the first year; (ii) $500,000 per year
thereafter for the shorter of two years or such time as Employee is not
available to devote Employee's entire business time, attention and energies
exclusively to the business of the Company (as such determination is made by the
Board of Directors including by reason of "disability" as set forth in Section
3.1(c) hereof); and (iii) $100,000 per year thereafter for a period of three
years ("BASE SALARY"), payable in accordance with the normal payroll practices
of the Company.
2.2 COMPENSATORY STOCK OPTIONS. In addition to Base Salary and subject to
the provisions of Article III hereof, Employee has been granted, by the
Management Review Committee of UWSI an option (THE "OPTION") to purchase up to
_______________ shares of common stock, no par value per share, of UWSI ("UWSI
COMMON STOCK") at an exercise price per share equal to 125% of the average
closing price of UWSI Common Stock on the New York Stock Exchange for the ten
trading days immediately preceding the date the Merger becomes effective, all in
accordance with the United Wisconsin Services, Inc. Equity Incentive Plan and
pursuant to a stock option agreement in the form attached hereto as EXHIBIT A.
2.3 BENEFIT PLANS. The Company will establish and maintain welfare
benefit plans substantially identical to those maintained by AMS prior to the
Merger. Employee will be eligible to participate in the Company's other welfare
benefit plans as are generally applicable to all executives of the Company, in
accordance with the terms and conditions thereof. Notwithstanding anything to
the contrary contained in Section 3.2 hereof, the Company will also pay 38% of
the premium due under the Employers Health Insurance Company health policy
covering Employee until Employee's death.
2.4 EXPENSES. The Company shall reimburse Employee for all reasonable
expenses incurred in the course of the performance of Employee's duties and
responsibilities pursuant to this Agreement and consistent with the Company's
policies with respect to travel, entertainment and miscellaneous expenses, and
the Company's requirements with respect to the reporting of such expenses.
2.5 VACATION. The Company shall maintain vacation policies substantially
identical to those maintained by AMS prior to the Merger. Employee shall be
entitled to a maximum of eight (8) weeks of non-cumulative vacation in any
calendar year in accordance with the Company's general vacation policies.
ARTICLE III
TERMINATION
3.1 RIGHT TO TERMINATE; AUTOMATIC TERMINATION.
(a) TERMINATION WITHOUT CAUSE. Subject to Section 3.2, the Company
may terminate Employee's employment at any time and for any reason.
(b) TERMINATION FOR CAUSE. Subject to Section 3.2, the Company may
terminate Employee's employment and all of the Company's obligations under this
Agreement at any time "FOR CAUSE" (as defined below) by giving notice to
Employee stating the basis for such termination, effective immediately upon
giving such notice or at such other time thereafter as the Company may
designate. A termination For Cause is a termination evidenced by a resolution
adopted in good faith by a majority of the Board of Directors of the Company
that Employee (i) willfully failed to substantially perform his duties under
Section 1.2, above, (other than a failure resulting from Employee's incapacity
due to physical or mental illness or injury), (ii) committed acts of fraud,
embezzlement, theft or dishonesty, as determined by a final judgment or order of
a court of competent jurisdiction, (iii) committed acts which constitute a
felony as determined by a final judgment or order of a court of competent
jurisdiction and which, in a reasonable opinion of the Board of Directors of the
Company, involve moral turpitude and have caused material embarrassment to the
Company, or (iv) Employee has attempted to obtain a personal profit from any
transaction in which the Company has an
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interest and which constitutes a corporate opportunity of the Company or is
adverse to the interests of the Company, unless the transaction was approved in
writing by the Company's Board of Directors after full disclosure of all details
relating to such transaction; PROVIDED, HOWEVER, that no termination of
Employee's employment shall be For Cause as set forth in (i), above, until (a)
Employee shall have had at least forty-five (45) days to cure any conduct or act
alleged to provide Cause for termination after a written notice of demand has
been delivered to Employee specifying in detail in the manner in which
Employee's conduct violates this Agreement, and (b) Employee shall have been
provided an opportunity to be heard by the Board of Directors (with the
assistance of Employee's counsel if Employee so desires). No act, or failure to
act, on Employee's part, shall be considered "willful" unless he has acted or
failed to act without reasonable belief that his action or failure to act was in
the best interest of the Company.
(c) TERMINATION BY DEATH OR DISABILITY. Subject to Section 3.2,
Employee's employment and the Company's obligations under this Agreement shall
terminate automatically, effective immediately and without any notice being
necessary, upon Employee's death or a determination of disability of Employee.
For purposes of this Agreement, "DISABILITY" means the inability of Employee,
due to a physical or mental impairment, for 180 consecutive days or 210 days
during any period of 360 days to perform the duties and functions contemplated
by this Agreement. A determination of disability shall be made by a physician
chosen by the President of the Medical Society of Brown County, Wisconsin, and
Employee shall cooperate with the efforts to make such determination. Any such
determination shall be conclusive and binding on the parties. Any determination
of total disability under this Section 3.1(c) is not intended to alter any
benefits any party may be entitled to receive under any long-term disability
insurance policy carried by either the Company or Employee with respect to
Employee, which benefits shall be governed solely by the terms of any such
insurance policy.
(d) TERMINATION BY EMPLOYEE. Notwithstanding anything to the
contrary contained herein, Employee may terminate this Agreement and his
employment hereunder upon sixty (60) days written notice to the Company.
(e) TERMINATION FOR GOOD REASON. Notwithstanding anything to the
contrary contained in this Agreement, Employee, by written notice to the Board
of Directors, shall have the right to terminate his employment for Good Reason.
(f) DEFINITION OF GOOD REASON. For purposes of this Agreement, the
term "Good Reason" shall mean the occurrence, without Employee's written consent
thereto, of any of the following:
(i) the reasonable good faith determination by an arbitrator
mutually acceptable to the Company and the Employee that there has been a
material adverse change in Employee's status, title, position or
responsibilities (including reporting responsibilities); the assignment to
Employee of any duties or responsibilities which, in Employee's reasonable
judgment, are inconsistent with his status, title, position or responsibilities
in effect immediately prior to such assignment; or any removal of Employee from
or failure to reappoint or reelect him to any position, except in connection
with the termination of his employment for Disability, Cause, as a result of his
death or by Employee other than for Good Reason;
(ii) any breach by the Company of any material provision of this
Agreement or other agreements between Employee and the Company regarding
Employee's policy-making responsibilities with the Company;
(iii) any purported termination of Employee's employment For
Cause by the Company which does not comply with the terms of Section 3.1(b) of
this Agreement;
(iv) requirement that Employee relocate his office to a location
more than 50 miles from its location on the date hereof; or
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<PAGE>
(v) the failure by the Company or any of its subsidiaries or
affiliated companies to continue to provide Employee with employee benefits at
least as favorable in the aggregate to those enjoyed by Employee as the date
hereof except to the extent any such changes are made effective for all
executives of the Company.
3.2 RIGHTS UPON TERMINATION.
(a) SECTION 3.1(a), (c) AND (e) TERMINATIONS. If Employee's
employment is terminated pursuant to Section 3.1(a), (c) or (e) hereof, the
Company shall pay to Employee, or in the case of Employee's death, to Employee's
estate, (i) any unpaid Base Salary with respect to the period prior to the
effective date of termination, (ii) severance payments equal to the Base Salary
in effect for each year remaining in the Employment Term (prorated to account
for a partial year in the case of the year during which termination occurs),
payable in accordance with Section 2.1 hereof and the normal payroll practices
of the Company, (iii) upon payment of the exercise price, shares of UWSI Common
Stock issuable upon exercise of the Option (iv) reimbursement of expenses to
which Employee is entitled under Section 2.4 hereof and (v) to the extent
permitted by law, the Company shall continue the employee benefits which the
Employee was eligible for during the Employment Term until the sixth anniversary
of the date hereof.
(b) SECTION 3.1(b) AND (d) TERMINATIONS. If Employee's employment is
terminated pursuant to Section 3.1(b) or (d), Employee shall have no further
rights against the Company hereunder, except for the right to receive (i) any
unpaid Base Salary with respect to the period prior to the effective date of
termination and (ii) reimbursement of expenses to which Employee is entitled
under Section 2.4 hereof.
(c) Nothing contained in this Agreement shall affect the rights and
obligations of Employee under any of the Company's employee benefit plans in
effect from time to time, and such rights and obligations shall be determined
solely by reference to such employee benefit plan documents.
ARTICLE IV
CONFIDENTIALITY; NONCOMPETITION
4.1 CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY.
(a) CONFIDENTIAL INFORMATION. Employee acknowledges that Employee
will be required to use his personal intellectual skills on behalf of the
Company and that it is reasonable and fair that the fruits of such skills should
inure to the sole benefit of the Company. Employee further acknowledges that
Employee already has and will acquire information of a confidential nature
relating to the operation, finances, business relationships and trade secrets of
the Company. During Employee's employment and for a period of three years
following termination thereof, within the geographical area in which such use,
publication or disclosure would harm the Company's existing or potential
business interests, Employee will not use (except for use in the course of the
Employee's regular authorized duties on behalf of the Company), publish,
disclose or authorize anyone else to use, publish or disclose, without the prior
written consent of the Company, any confidential information pertaining to the
Company or its affiliated entities, including, without limitation, any
information relating to existing or potential business, customers, trade or
industrial practices, plans, costs, processes, technical or engineering data, or
trade secrets; PROVIDED, HOWEVER, that following termination of Employee's
employment, Employee shall be prohibited from using, publishing, disclosing or
authorizing anyone else to use, publish or disclose, any confidential
information which constitutes a trade secret under applicable law. Employee
shall not remove or retain any figures, calculations, formulae, letters, papers,
software, abstracts, summaries, drawings, blueprints, diskettes or any other
material, or copies thereof, which contain or embody any confidential
information of the Company, except for use in the course of Employee's regular
authorized duties on behalf of the Company or with the prior written consent of
the Company. The foregoing notwithstanding, Employee has no obligation to
refrain from using, publishing or disclosing any such confidential information
which is or
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<PAGE>
hereafter shall become available to the public otherwise than by use,
publication or disclosure by Employee. This prohibition also does not prohibit
Employee's use of general skills and know-how acquired during and prior to
employment, as long as such use does not involve the use, publication or
disclosure of the Company's confidential information.
(b) AGREEMENT TO TRANSFER. Employee shall without further payment,
assign, transfer and set over, and does hereby assign, transfer and set over, to
the Company, its successors and assigns, all Employee's right, title and
interest in and to all trade secrets, secret processes, inventions,
improvements, patents, patent applications, trademarks, trademark applications,
copyrights and any and all intellectual property rights which Employee solely or
jointly with others has conceived, made, acquired or suggested at any time
during employment or within a one-year period after termination of employment
and which relate to the existing or potential products, processes, work,
research or other activities of the Company.
4.2 NONCOMPETITION. During Employee's employment and for a three-year
period following the termination thereof, Employee shall not, without the prior
written consent of the Company, engage, directly or indirectly, as an employee,
officer, director, partner, consultant, owner (other than a minority shareholder
interest of not more than 1% of a company whose equity interests are publicly
traded on a nationally recognized stock exchange or over-the-counter) or in any
other capacity, in any competition with the Company in any geographical area in
which the Company conducts its business or promotes its products and services or
in any geographical area the Company has plans, existing at the time that
Employee's employment is terminated, to enter.
4.3 NON-SOLICITATION. For a period of three years after termination of
Employee's employment, Employee will not solicit, or assist any person or entity
to solicit, any employee, customer, supplier or other person having business
relations with the Company to terminate such employee's employment or terminate
or curtail such customer's, supplier's or other person's business relationship
with the Company.
4.4 RETURN OF DOCUMENTS. Immediately upon termination of employment,
Employee will return to the Company, and so certify in writing to the Company,
that Employee has returned to the Company all the Company's papers, documents
and things, including information stored for use in or with computers and
software applicable to the Company's business (and all copies thereof), which
are in Employee's possession or under Employee's control, regardless whether
such papers, documents or things contain confidential information or trade
secrets.
4.5 NOTICE; DISCLOSURE. For a period of three years after the termination
of Employee's employment hereunder, Employee shall keep the Company promptly and
fully informed of any person or persons, partnerships, associations, limited
liability companies or corporations by whom Employee may be employed.
4.6 NO CONFLICTS. Employee represents and warrants that Employee has not
previously assumed any obligations inconsistent with those of this Agreement and
that employment by the Company does not conflict with any prior obligations to
third parties.
4.7 AGREEMENT ON FAIRNESS. Employee acknowledges that: (i) this
Agreement has been specifically bargained between the parties and reviewed by
Employee, (ii) Employee has had an opportunity to obtain legal counsel to review
this Agreement, and (iii) the covenants made by and duties imposed upon Employee
hereby are fair, reasonable and minimally necessary to protect the legitimate
business interests of the Company, and such covenants and duties will not place
an undue burden upon Employee's livelihood in the event of termination of
Employee's employment by the Company and the strict enforcement of the covenants
contained herein.
5
<PAGE>
4.8 EQUITABLE RELIEF. Employee acknowledges that any breach of this
Agreement will cause substantial and irreparable harm to the Company for which
money damages would be an inadequate remedy. Accordingly, the Company shall in
any such event be entitled to obtain injunctive and other forms of equitable
relief to prevent such breach and to recover from Employee the Company's costs
(including without limitation reasonable attorneys' fees) incurred in connection
with enforcing this Agreement, in addition to any other rights or remedies
available at law, in equity or by statute.
ARTICLE V
GENERAL PROVISIONS
5.1 NOTICES. Any and all notices, consents, documents or communications
provided for in this Agreement shall be given in the manner, and to the persons,
specified in Section 9.01 of the Merger Agreement.
5.2 ENTIRE AGREEMENT. This Agreement contains the entire understanding
and the full and complete agreement of the parties and supersedes and replaces
any prior understandings and agreements between the parties with respect to the
subject matter hereof and supersedes and replaces the employment agreement
between Employee and AMS.
5.3 AMENDMENT. This Agreement may be altered, amended or modified only in
a writing, signed by both of the parties hereto. Headings included in this
Agreement are for convenience only and are not intended to limit or expand the
rights of the parties hereto. References to Sections herein shall mean sections
of the text of this Agreement, unless otherwise indicated.
5.4 ASSIGNABILITY. This Agreement and the rights and duties set forth
herein may not be assigned by Employee or the Company, in whole or in part.
This Agreement shall be binding on and inure to the benefit of each party and
such party's respective heirs, legal representatives, successors and assigns.
5.5 SEVERABILITY. If any court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then such
invalidity or unenforceability shall have no effect on the other provisions
hereof, which shall remain valid, binding and enforceable and in full force and
effect, and such invalid or unenforceable provision shall be construed in a
manner so as to give the maximum valid and enforceable effect to the intent of
the parties expressed therein.
5.6 WAIVER OF BREACH. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
5.7 GOVERNING LAW; CONSTRUCTION. This Agreement shall be governed by the
internal laws of the State of Wisconsin, without regard to any rules of
construction concerning the draftsman hereof.
5.8 ATTORNEY'S FEES. If any case of action is brought before any court to
enforce any provision of this Agreement, the Company shall reimburse Employee
for reasonable costs incurred (including reasonable attorney's fees) by Employee
if Employee prevails to any extent in any such action.
5.9 NO MITIGATION. If Employee's employment hereunder is terminated by
the Company without Cause because of Employee's Disability or by Employee for
Good Reason, Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee
hereunder.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written above.
COMPANY:
AMS HOLDINGS, INC.
By:
-----------------------------
-----------------------------
EMPLOYEE:
--------------------------------
Ronald A. Weyers
IN WITNESS WHEREOF, United Wisconsin Services, Inc. has executed this
Agreement as of the day and year written above for the purpose of granting the
stock option contemplated in Section 2.2 hereof.
UNITED WISCONSIN SERVICES, INC.
By:
-----------------------------
-----------------------------
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EQUITY INCENTIVE PLAN
UNITED WISCONSIN SERVICES, INC.
FEBRUARY 1993
<PAGE>
UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
(REFLECTS ALL AMENDMENTS THROUGH AUGUST 15, 1996)
TABLE OF CONTENTS
ARTICLE SECTION PAGE
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
3 ADMINISTRATION
3.1 The Committee 7
3.2 Authority of the Committee 7
3.3 Decisions Binding 7
4 SHARES SUBJECT TO THE PLAN
4.1 Number of Shares 8
4.2 Lapsed Awards 9
4.3 Adjustments in Authorized Shares 9
5 ELIGIBILITY AND PARTICIPATION
5.1 Eligibility 10
5.2 Actual Participation 10
6 STOCK OPTIONS
6.1 Grant of Options 10
6.2 Option Award Agreement 10
6.3 Option Price 10
6.4 Duration of Options 11
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6.5 Exercise of Options 11
6.6 Payment 11
6.7 Restrictions on Share Transferability 12
6.8 Termination of Employment Due to Death, 12
Disability or Retirement
6.9 Termination of Employment for Other Reasons 13
6.10 Restrictions on Transferability 13
7 STOCK APPRECIATION RIGHTS
7.1 Grant of SARs 14
7.2 Exercise of Tandem SARs 14
7.3 Exercise of Affiliated SARs 15
7.4 Exercise of Freestanding SARs 15
7.5 SAR Agreement 15
7.6 Term of SARs 15
7.7 Payment of SAR Amount 15
7.8 Rule 16b(3 Requirements) 16
7.9 Termination of Employment Due to Death, 16
Disability or Retirement
7.10 Termination of Employment for Other Reasons 17
7.11 Non-transferability of SARs 17
8 RESTRICTED STOCK
8.1 Grant of Restricted Stock 18
8.2 Restricted Stock Agreement 18
8.3 Transferability 18
8.4 Other Restrictions 18
8.5 Certificate Legend 19
8.6 Removal of Restrictions 19
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8.7 Voting Rights 19
8.8 Dividends and Other Distributions 19
8.9 Termination of Employment Due to Death, 20
Disability or Retirement
8.10 Termination of Employment for Other Reasons 20
9 PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 Grant of Performance Units/Shares 21
9.2 Value of Performance Units/Shares 21
9.3 Earning of Performance Units/Shares 21
9.4 Form and Timing of Payment of Performance 21
Units/Shares
9.5 Termination of Employment Due to Death, 22
Disability, Retirement or Involuntary
Termination (Without Cause)
9.6 Termination of Employment for Other Reasons 22
9.7 Non-transferability 22
10 BENEFICIARY DESIGNATION 23
11 DEFERRALS 23
12 RIGHTS OF EMPLOYEES
12.1 Employment 23
12.2 Participation 24
13 CHANGE IN CONTROL 24
14 AMENDMENT, MODIFICATION AND TERMINATION
14.1 Amendment, Modification and Termination 25
14.2 Awards Previously Granted 25
15 WITHHOLDING
15.1 Tax Withholding 25
15.2 Share Withholding 25
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16 INDEMNIFICATION 26
17 SUCCESSORS 27
18 LEGAL CONSTRUCTION
18.1 Gender and Number 27
18.2 Severability 27
18.3 Requirements of Law 28
18.4 Securities Law Compliance 28
18.5 Governing Law 28
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UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
(REFLECTS ALL AMENDMENTS THROUGH AUGUST 15, 1996)
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. United Wisconsin Services, 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 Non-qualified
Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance
Units, and Performance Shares.
Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of a majority of Shares at an annual
shareholders' meeting of the Company, the Plan shall become effective as of
February 24, 1993 (the "Effective Date"), and shall remain in effect as
provided in Section 1.3 herein. Awards may be granted prior to shareholder
ratification of the Plan; provided, however, that in the event shareholder
approval of the Plan is not obtained, all outstanding Awards shall become null
and void.
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.
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.
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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
on or after February 24, 2003.
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 United Wisconsin
Services, Inc. such as United Heartland and American Medical
Security, or such other company as the Board may designate.
"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.
(b) "Award" means, individually or collectively, a grant under
this Plan of Non-qualified Stock Options, Incentive Stock
Options, SARs, Restricted Stock, Performance Units, or
Performance Shares.
(c) "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.
(d) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.
(e) "Board" or "Board of Directors" means the Board of Directors
of the Company.
(f) "Cause" means:
(i) willful and gross misconduct on the part of a
Participant that is
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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.
(g) "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
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 Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting
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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 non-employee continuing Directors).
(h) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(i) "Committee" means the Management Review Committee, as
specified in Article 3, appointed by the Board to
administer the Plan with respect to grants of Awards.
(j) "Company" means United Wisconsin Services, Inc., a
Wisconsin corporation or any successor thereto as
provided in Article 17 herein.
(k) "Director" means any individual who is a member of the
Board of Directors of the Company.
(l) "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.
(m) "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
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Employees under this Plan.
(n) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor
Act thereto.
(o) "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.
(p) "Freestanding SAR" means a SAR that is granted
independently of any Options.
(q) "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.
(r) "Insider" shall mean an Employee who is, on the
relevant date, an officer, director of the Company, as
defined in Rule 16 under the Exchange Act.
(s) "Non-qualified 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.
(t) "Option" means an Incentive Stock Option or a Non-
qualified Stock Option.
(u) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(v) "Participant" means an Employee of the Company who has
outstanding an Award granted under the Plan.
(w) "Performance Unit" means an Award granted to an
Employee, as described in Article 9 herein.
(x) "Performance Share" means an Award granted to an
Employee, as described in Article 9 herein.
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(y) "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.
(z) "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).
(aa) "Restricted Stock" means an Award granted to a
Participant pursuant to Article 8 herein.
(bb) "Retirement" shall have the meaning ascribed to it in
the tax-qualified defined benefit retirement plan of
the Company.
(cc) "Shares" means the shares of common stock of the
Company.
(dd) "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.
(ee) "Stock Appreciation Right" or "SAR" means an Award,
granted alone or in connection with a related Option,
designated as an SAR, pursuant to the terms of Article
7 herein.
(ff) "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).
(gg) "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 twelfth (12th) business 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.
The Committee shall be comprised solely of Directors who are both: (i)
Non-Employee Directors, as defined in Rule 16b-3 under the Exchange Act; and
(ii) Outside Directors, 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 By-laws of the
Company, and subject to the provisions herein, to determine the size and types
of Awards; to determine the terms and conditions of such 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
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
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stockholders, Employees, 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 2,750,000. These 2,750,000 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 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).
The maximum number of Shares with respect to which Awards may be made to
any
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Employee during any three (3) year period shall not exceed 100,000 shares.
Notwithstanding the foregoing, if the Employee receives the Award prior to March
31, 1997 in connection with the Employee's initial employment by the Company or
in connection with a merger or acquisition by the Company, the maximum number of
Shares with respect to which Awards may be made during the three (3) year period
ended March 31, 1997 shall be 850,000 Shares.
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. However, in the event that prior to the Award's
cancellation, termination, expiration, or lapse, the holder of the Award at any
time received one or more "benefits of ownership" pursuant to such Award (as
defined by the Securities and Exchange Commission, pursuant to any rule or
interpretation promulgated under Section 16 of the Exchange Act), the shares
subject to such Award shall not be made available for regrant under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, 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 of 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;
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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
full-time, active Employees of the Company and its Subsidiaries, as determined
by the Committee, including Employees who are members of the Board, but
excluding Directors who are not Employees.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, whose to
whom Awards shall be granted and shall determine the nature and amount of each
award.
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 Participant.
The Committee may grant ISOs, NQSOs, or a combination thereof.
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 shall be
determined by the Committee; provided that the Option Price shall not be less
than one hundred percent
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(100%) of the Fair Market Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option 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.
6.5 EXERCISE OF OPTIONS. Options granted 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 Participant. However, in no event may any Option granted
under this Plan 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 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,
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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 a
Participant is terminated by reason of death, all outstanding
Options granted to that Participant 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 Participant's
beneficiary, or by such persons that have acquired the
Participant'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 a
Participant is terminated by reason of Disability, all
outstanding Options granted to that Participant 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 a
Participant 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 a
Participant's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such
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termination the Participant 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 have been named as the Participant's
beneficiary, or by such persons who have acquired the
Participant'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 a
Participant 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 Participant
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 Participant within the period beginning on the effective
date of employment termination, and ending six (6) months after such date.
If the employment of a Participant 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 Option.
6.10 RESTRICTIONS ON TRANSFERABILITY. No Option granted under the Plan may
be sold,
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transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution, and shall be
exercisable by a Participant during his or her lifetime only by the Participant
except that NQSOs may be transferred by a Participant to the Participant's
spouse, children or grandchildren or to a trust for the benefit of such spouse,
children or grandchildren.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, a 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 Participant (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
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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 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, a Participant 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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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 a
Participant is terminated by reason of death, all outstanding
SARs granted to that Participant 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 Participant's
beneficiary, or by such persons that have acquired the
Participant's rights under the SAR by will or by the laws of
descent and distribution.
(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all
outstanding SARs granted to that Participant 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 a
Participant is terminated by reason of Retirement, the Committee
shall
16
<PAGE>
retain discretion over the treatment of SARs.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that a
Participant's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such termination, the Participant 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
Participant's beneficiary, or by such persons who have acquired
the Participant's rights under the SAR by will or by the laws of
descent and distribution.
7.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant 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 Participant 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 Participant within the period beginning on the effective
date of employment termination, and ending six (6) months after such date.
If the employment of a Participant shall be terminated by the Company for
Cause, all outstanding SARs 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 SARs.
7.11 NON-TRANSFERABILITY 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
17
<PAGE>
the laws of descent and distribution. Further, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime
only by such Participant.
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 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 a Participant prior to six (6) months following the date of its
grant. All rights with respect to the Restricted Stock granted to a Participant
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
18
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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 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 Participant after the last day
of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant 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, Participants 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,
Participants 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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In the event that any dividend constitutes a "derivative security" or an
"equity security" pursuant to Rule 16(a) under the Exchange Act, such diffident
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 (6) 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 a Participant 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 non-
transferability 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 a
Participant shall terminate for any reason other than those specifically set
forth in Section 8.9 herein, all Shares of Restricted Stock held by the
Participant 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 of Restricted Stock
20
<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 Participant.
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 Participants. 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
Participant 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 in a single lump sum, within
forty-five (45) calendar
21
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 a
Participant is terminated by reason of death or Disability or involuntary
termination without Cause during a Performance Period, the Participant 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 Participant
held the Performance Units/Shares during the Performance Period, and shall
further be adjusted based on the achievement of the pre-established 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 a
Participant'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 Participant to the Company, and shall once again be available for grant
under the Plan.
9.7 NON-TRANSFERABILITY. Performance Units/Shares may not be sold,
transferred,
22
<PAGE>
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. Further a Participant's rights under
the Plan shall be exercisable during the Participant's lifetime only by the
Participant or the Participant'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 the 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 the 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 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
23
<PAGE>
Participant's employment at any time, nor confer upon any Participant 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 Parent
(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;
(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.
24
<PAGE>
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. However, without the approval of the shareholders of the
Company (as may be required by the Code, by the insider trading rules of Section
16 of the Exchange Act, by any national securities exchange or system on which
the Shares are then listed or reported, or by a regulatory body having
jurisdiction with respect hereto), no such termination, amendment or
modification may:
(a) Materially increase the total number of Shares which may be
issued under this Plan, except as provided in Section 4.3 herein;
or
(b) Materially modify the eligibility requirements to add a class of
Insiders; or
(c) Materially increase the benefits accruing to Insiders under 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, 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
25
<PAGE>
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:
(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
26
<PAGE>
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 shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or By-laws, 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.
27
<PAGE>
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 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.
28
<PAGE>
ESCROW AGREEMENT
This ESCROW AGREEMENT is made this day of , 1996, by and
among UNITED WISCONSIN SERVICES, INC., a Wisconsin corporation ("UWSI"), WALLACE
J. HILLIARD ("Agent") and , a (the
"Escrow Agent").
RECITALS:
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated July
31, 1996 (the "Merger Agreement"), by and among UWSI, Blue Cross & Blue Shield
United of Wisconsin, American Medical Security Group, Inc., a Delaware
corporation ("AMSG"), Agent (individually and as trustee under the Voting Trust
Agreement, as defined in the Merger Agreement) and Ronald A. Weyers
(individually and as successor trustee under the Voting Trust Agreement), and
pursuant to the Plan of Merger of even date herewith between UWSI and AMSG, AMSG
has been merged with and into UWSI, which is the surviving corporation;
WHEREAS, the former shareholders of AMSG (the "Shareholders") irrevocably
have appointed the Agent as their agent and attorney-in-fact to act on the
Shareholders' behalf with respect to this Agreement;
WHEREAS, pursuant to the Merger Agreement, UWSI has deposited with the
Escrow Agent the sum of $8,000,000 in cash to be held in escrow and disbursed by
the Escrow Agent, subject to the terms, provisions and conditions hereinafter
set forth, as security for payment to UWSI of the Shareholders' obligations to
indemnify UWSI pursuant to Article VIII of the Merger Agreement for breaches of
certain Shareholders' and the Company's representations, warranties covenants
and other agreements contained in the Merger Agreement;
NOW, THEREFORE, in satisfaction of a condition of the consummation of the
transactions contemplated by the Merger Agreement,
IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT:
1. ACCEPTANCE OF ESCROW. The Escrow Agent hereby agrees to act as Escrow
Agent hereunder and confirms receipt from UWSI of the sum of $8,000,000. Such
sum and any income and proceeds therefrom which are not distributed in
accordance with the terms hereof as
<PAGE>
shall be held from time to time by the Escrow Agent hereunder are hereinafter
referred to as the "Escrowed Funds."
2. INVESTMENT OF ESCROWED FUNDS. The Escrow Agent shall invest and
reinvest the Escrowed Funds as the Agent may from time to time direct in any
Permitted Investments consistent with the duration, term and provisions of this
Escrow Agreement. The term "Permitted Investments" shall mean:
(a) Commercial paper of any United States issuer rated "Prime-1" or
greater by Moody's Investors Service, Inc. or rated "A-1" or greater by Standard
& Poor's Corporation;
(b) Direct obligations of the United States of America or any agency
thereof, or any state;
(c) Certificates of deposit of any commercial bank which is a member
of the Federal Reserve System and which has capital, surplus and undivided
profits (as shown upon its most recently published statement of condition)
aggregating not less than $100,000,000; and
(d) Such other investments as may be mutually agreed in writing upon
by UWSI and the Agent and communicated to the Escrow Agent.
3. COMPENSATION, COSTS AND EXPENSES OF ESCROW AGENT. The Escrow Agent
shall be entitled to a reasonable fee for its services, and shall be reimbursed
for out-of-pocket costs and expenses, including reasonable attorneys' fees,
incurred by it in rendering its services hereunder. Half of such fees and
expenses shall be borne by each of UWSI and the Shareholders (pro-rata in
accordance with their respective ownership of AMSG common stock immediately
prior to the Effective Time, as defined in the Merger Agreement). UWSI shall
pay such fees and expenses within ten (10) days of receipt of an invoice from
the Escrow Agent. The Shareholders' share of such fees shall be deducted from
the Escrowed Funds. Such fees and expenses shall not exceed the fees and
expenses charged by the Escrow Agent for comparable services to others.
4. DISBURSEMENTS OF ESCROWED FUNDS; TERMINATION.
(a) INCOME. All income received on the Escrowed Funds shall be
retained by the Escrow Agent, and shall be added to and considered a part of the
Escrowed Funds, until the termination of this Escrow Agreement as provided in
Section 4(d) hereof. Income generated by the Escrowed Funds shall not be
available for indemnification payments pursuant to Article VIII of the Merger
Agreement to the extent that such payments would exceed $8,000,000 in the
aggregate.
-2-
<PAGE>
(b) PRINCIPAL.
(i) SECURITY FOR SHAREHOLDERS' INDEMNIFICATION. If the Escrow
Agent receives a notice of claim pursuant to Section 8.03(a) of the Merger
Agreement, seeking the payment of (A) a claim pursuant to Section 8.01(a) of the
Merger Agreement, or (B) a claim pursuant to Section 8.01(b) of the Merger
Agreement (an "Escrow Claim"), and if the Agent has not delivered to the Escrow
Agent the notice of objection described in Section 8.03(a) of the Merger
Agreement, within fifteen (15) days after delivery of the notice of claim, the
Escrow Agent shall promptly pay and disburse to UWSI from the Escrowed Funds an
amount equal to the amount of such Escrow Claim. If, however, the Agent within
said 15-day time period delivers to the Escrow Agent such notice of objection,
objecting to the payment of all or a portion of the Escrow Claim so made by
UWSI, the Escrow Agent shall continue to hold the Escrowed Funds and shall not
make a payment or disbursement to UWSI (unless, and to the extent, that the
Agent does not object in its notice of objection to a portion of the Escrow
Claim -- in which event the Escrow Agent shall promptly pay and disburse to UWSI
from the Escrowed Funds an amount equal to such portion of the Escrow Claim with
respect to which no objection was made) pending receipt of written instructions
signed by UWSI and Agent directing the disposition of the Escrow Claim or, in
the absence of such written instructions, receipt of a written copy of the
arbitrator's determination of such Escrow Claim as provided in Section 9.07 of
the Merger Agreement. Upon receipt of such written instructions or arbitrator's
determination, the Escrow Agent promptly shall pay and disburse to UWSI from the
Escrowed Funds the amount of the Escrow Claim, if any, so indicated as payable
to UWSI.
(ii) PARTIAL RELEASE. [UPON THE EXPIRATION OF NINE (9) MONTHS
FROM THE DATE HEREOF (IF THE EFFECTIVE TIME IS ON OR PRIOR TO DECEMBER 31,
1996)][ON JUNE 30, 1997 (IF THE EFFECTIVE TIME IS AFTER DECEMBER 31, 1996)], the
Escrow Agent shall disburse to the Agent the balance of the Escrowed Funds then
held by the Escrow Agent hereunder, LESS an amount equal to (A) $1,000,000, PLUS
(B) the aggregate of all claims which have been asserted by UWSI pursuant to
Section 4(b)(i)(A) hereof prior to said date and which remain unresolved between
UWSI and the Agent on that date ("Class A Unresolved Claims"). All amounts
relating to Class A Unresolved Claims shall continue to be held in escrow only
until resolved and disposed of in accordance with this Agreement.
(iii) TERMINATION OF ESCROW. Upon the expiration of three (3)
years from the date hereof (the "Termination Date"), the Escrow Agent shall
disburse to the Agent the balance of the Escrowed Funds then held by the Escrow
Agent hereunder, less an amount equal to the aggregate (A) all Class A
Unresolved Claims which remain unresolved as of the Termination Date, and (B)
all claims which have been asserted by UWSI pursuant to Section
-3-
<PAGE>
4(b)(i)(B) hereof prior to the Termination Date which remain unresolved between
UWSI and the Agent on the Termination Date ("Class B Unresolved Claims"). All
amounts relating to Class B Unresolved Claims shall continue to be held in
escrow only until resolved and disposed of in accordance with this Agreement.
(c) JOINT WRITTEN INSTRUCTIONS. Notwithstanding anything to the
contrary contained herein, the Escrow Agent shall pay and disburse the Escrowed
Funds upon receipt of written instructions concerning the disposition thereof
signed by UWSI and the Agent.
(d) TERMINATION. The Escrow Agreement shall terminate and the Escrow
Agent shall be discharged of all responsibility hereunder at such time as the
Escrow Agent shall have completed its duties hereunder.
5. COORDINATION WITH MERGER AGREEMENT. The provisions of this Agreement
are intended to be in PARI MATERIA with the provisions of the Merger Agreement
governing the payment of the Escrowed Funds upon an occurrence of a claim for
indemnification. In the event of any inconsistency between this Agreement and
the Merger Agreement concerning the making of an Escrow Claim, the procedure for
the resolution thereof, the determination of the amount of money payable in
satisfaction of such Escrow Claim, the limitations and restrictions upon the
payment of an Escrow Claim, or any other matters affecting the Shareholders'
obligations to make indemnification payments to UWSI, the same shall be subject
to, and governed by, the applicable provisions contained in the Merger
Agreement.
6. REPORTS AND ACCOUNTINGS. As soon as possible after the end of each
calendar quarter, and at such other times as UWSI or the Agent may reasonably
request, the Escrow Agent shall provide UWSI and the Agent with a full
accounting of all investments of the Escrowed Funds and a report of all
transactions with respect to the Escrowed Funds (including receipts, investments
and disbursements) not previously reported.
7. RESPONSIBILITY OF ESCROW AGENT. The Escrow Agent shall be entitled to
rely upon written notices and instructions of UWSI and of the Agent pursuant to
this agreement and shall have no liability for any action taken in such reliance
or upon reliance on the sufficiency or adequacy of the notices, except in the
event of bad faith, negligence or wilful misconduct. The Escrow Agent is hereby
expressly authorized and directed to disregard any and all notices or warnings,
other than notices, instructions or directions herein expressly provided for,
whether given by the parties hereto or by any other person, firm or corporation,
excepting only the orders or processes of courts with proper jurisdiction. It
is agreed by the parties hereto that the Escrow Agent assumes no
-4-
<PAGE>
responsibility to UWSI, the Agent, the Shareholders, or to any other person
other than to hold, invest by direction and disburse the Escrowed Funds pursuant
to the terms of this Escrow Agreement. The Escrow Agent shall not be liable as
such for any investment losses arising out of the investment of the Escrowed
Funds in accordance herewith. UWSI and the Shareholders jointly and severally
agree to indemnify and hold the Escrow Agent harmless with respect to any loss
or liability or cost and expense reasonably incurred by it arising out of
anything done by it in good faith in accordance with the terms hereof. The
Escrow Agent may consult with legal counsel in the event of any dispute or
question as to the construction of any of the provisions herein or its duties
hereunder, and it shall incur no liability and shall be fully protected in
acting in accordance with the opinion and instruction of such counsel.
8. NOTICES. All notices required or permitted to be given shall be given
in the manner, and with the effect, described in Section 9.01 of the Merger
Agreement. Notices to the Escrow Agent shall be delivered to:
_____________________________
_____________________________
_____________________________
_____________________________
9. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Wisconsin (regardless of such
State's conflict of laws principles), and without reference to any rules of
construction regarding the party responsible for the drafting hereof.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
UNITED WISCONSIN SERVICES, INC.
By:
-------------------------------------
Its:
-----------------------------------
----------------------------------------
WALLACE J. HILLIARD, Agent
ESCROW AGENT:
----------------------------------------
By:
-------------------------------------
Authorized Officer
-6-
<PAGE>
EXHIBIT 23.3
CONSENT OF MERRILL LYNCH & CO., INC.
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of United Wisconsin Services, Inc. ("UWS") of
our opinion dated July 31, 1996 relating to the fairness to UWS, from a
financial point of view, of the consideration to be paid to the holders of
capital stock of American Medical Security Group, Inc. We also hereby consent to
the reference to our firm under the sections captioned "Summary" and "Background
of and Reasons for the Merger."
Merrill Lynch & Co., Inc.
Chicago, Illinois
August 27, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data", and "Experts" in the Registration Statement on
Form S-4 and related prospectus of United Wisconsin Services, Inc. for the
registration of 4,000,000 shares of its common stock and to the incorporation by
reference therein of our reports dated February 9, 1996, with respect to the
consolidated financial statements of United Wisconsin Services, Inc.
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1995 and the related financial statement schedules included
therein, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
August 27, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data", and "Experts" in the Registration Statement on
Form S-4 and related prospectus of United Wisconsin Services, Inc. for the
registration of 4,000,000 shares of its common stock and to the use of our
report dated April 5, 1996, with respect to the consolidated financial
statements of American Medical Security Group, Inc.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
August 27, 1996
<PAGE>
UNITED WISCONSIN SERVICES, INC.
401 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53203
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. Hefty and C. Edward Mordy, and
each of them, proxies of the undersigned with power of substitution, to vote all
shares of the common stock the undersigned is entitled to vote at the Special
Meeting of the Shareholders of United Wisconsin Services, Inc. (the "Company")
to be held on , 1996 at 11:00 a.m., and at any adjournments thereof,
as indicated below:
1. On the proposal to approve the merger (the "Merger") of the American Medical
Security Group, Inc., with and into the Company pursuant to an Agreement and
Plan of Merger dated July 31, 1996, as described in the accompanying
statement.
/ / FOR the Merger / / AGAINST the Merger / / ABSTAIN
2. On the proposal to approve the amendments (the "Amendments") to the United
Wisconsin Services, Inc. Equity Incentive Plan, as described in the
accompanying proxy statement.
/ / FOR the Amendments / / AGAINST the Amendments / / ABSTAIN
3. With discretionary power upon any and all other businesses that may properly
come before the meeting and upon matters incident to the conduct of the
meeting.
The Board of Directors recommends a vote FOR the Merger and FOR the Amendments.
(Continued and to be signed on reverse side.)
<PAGE>
PROXY NO. NO. OF SHARES
The shares of common stock represented by this proxy will be voted as
directed. If no direction is specified, the shares of common stock will be voted
FOR Item 1 and FOR Item 2.
Dated:
---------------------------------------------------------------------------,
1996
----------------------------
----------------------------
Shareholder(s) Sign Here
Please sign exactly as your
name appears on this proxy
giving your full title if
signing as attorney of
fiduciary. If shares are
held jointly, each joint
owner should sign. If a
corporation, please sign in
full corporate name, by duly
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE U.S.
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
Please sign and return immediately
I, the undersigned stockholder of American Medical Security Group, Inc.
("AMSG"), Green Bay, Wisconsin, revoke any previous proxy I may have given and
appoint Wallace J. Hilliard and Ronald A. Weyers as my attorneys, with full
power of substitution, to vote all of the stock of AMSG in my name (on its
books) at the special meeting of stockholders at 11:00 a.m. on , 1996,
or any adjournment, as follows:
AGREEMENT AND PLAN OF MERGER
Proposal to approve the Agreement and Plan of Merger dated July 31, 1996 by
and between AMSG, United Wisconsin Services, Inc., Blue Cross and Blue
Shield United of Wisconsin, Wallace J. Hilliard and Ronald A. Weyers.
<TABLE>
<S> <C> <C>
VOTE FOR VOTE AGAINST ABSTAIN
/ / / / / /
</TABLE>
The above item is proposed by the Board of Directors, and it recommends a
vote in favor of such item.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL.
I confer discretionary authority on the above-named individuals with respect
to any other matters which properly come before the meeting, which approval
shall not constitute ratification of actions taken at that meeting.
IN EXERCISING DISCRETIONARY AUTHORITY, SHARES WILL BE VOTED ACCORDING TO THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
<TABLE>
<S> <C>
Dated: ----------------- , 199 -- ---------------------------------------------
(please fill in date) (Signature of Stockholder)
---------------------------------------------
(Signature of Stockholder)
</TABLE>
(WHEN SIGNING AS PERSONAL REPRESENTATIVE, TRUSTEE, GUARDIAN, ETC., PLEASE GIVE
YOUR FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN, UNLESS ANY ONE
PERSON IS AUTHORIZED TO ACT. IF SHARES ARE HELD IN JOINT NAMES, EITHER OR BOTH
MAY SIGN.)
