<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
Commission File Number 0-19506
UNITED WISCONSIN SERVICES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1431799
(State of Incorporation) (I.R.S. Employer
Indentification No.)
401 West Michigan Street, Milwaukee, Wisconsin 53203-2896
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 226-6900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock outstanding as of April 30, 1996 was
12,599,715.
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
------ -------------- --------------
(In thousands)
<S> <C> <C>
Investments:
Bonds available for sale, at market $ 432,386 $ 461,915
Bonds held to maturity, at amortized cost 9,870 9,850
-------------- --------------
Total bonds 442,256 471,765
Stocks, at market 77,531 71,582
-------------- --------------
Total investments 519,787 543,347
Cash and cash equivalents 35,191 38,290
Receivables:
Due from affiliates 607 14,789
Other receivables 78,709 73,265
-------------- --------------
Total receivables 79,316 88,054
Other assets 52,896 51,598
-------------- --------------
Total assets $ 687,190 $ 721,289
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Interim Consolidated Financial Statements
2
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UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ -------------- --------------
(In thousands)
<S> <C> <C>
Liabilities:
Medical and other benefits payable $ 245,886 $ 245,118
Advance premiums 46,193 41,456
Due to affiliates 49,629 71,508
Funds held on behalf of affiliated reinsurers 50,250 60.041
Other liabilities 45,314 45,857
Subordinated notes 44,888 44,898
-------------- --------------
Total liabilities 482,160 508,878
Shareholders' equity:
Common stock (no par value, $1 stated value,
50,000,000 shares authorized, 12,599,715 shares
issued and outstanding at March 31, 1996 and
December 31, 1995) 12,600 12,600
Paid-in capital 86,902 86,902
Retained earnings 102,141 103,361
Unrealized gians on investments 3,387 9,548
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Total shareholder's equity 205,030 212,411
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Total liabilities and shareholders' equity $ 687,190 $ 721,289
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Interim Consolidated Financial Statements
3
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UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------
1996 1995
-------------- --------------
(In thousands,except per share data)
<S> <C> <C>
Revenues:
Premium revenue $ 261,649 $ 230,234
Other revenue 7,266 6,401
Investment income 7,374 6,295
Realized investment gains 5,115 164
-------------- --------------
Total revenues 281,404 243,094
Expenses:
Medical and other benefits 221,439 186,444
Commission expenses 17,440 15,047
Administrative expenses 32,910 28,857
Premium taxes and other assessments 3,486 2,803
Interest and profit sharing on joint ventures 4,420 2,311
Interest expense on subordinated notes 870 871
Dividends on preferred stock of subsidiary - 204
-------------- --------------
Total expenses 280,565 236,537
-------------- --------------
Income before income tax expense 839 6,557
Income tax expense 547 2,392
-------------- --------------
Net income $ 292 $ 4,165
-------------- --------------
-------------- --------------
Earnings per common share $ 0.02 $ 0.33
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Interim Consolidated Financial Statements
4
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UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------
1996 1995
-------------- --------------
(In thousands)
<S> <C> <C>
Operating activities:
Net income $ 292 $ 4,165
Adjustments to reconcile net income to net cash
provided by operating activities:
Bond and other amortization 299 666
Realized investment gains (5,115) (164)
Deferred income tax (benefit) expense 1,948 (35)
Changes in other operating accounts:
Medical and other benefits payable 768 6,274
Advance premiums 4,737 314
Due to/from affiliates 17,303 16,171
Other receivables (5,444) (18,246)
Funds held on behalf of affiliated reinsurers (5,905) 2,707
Other - net (3,624) (3,033)
--------------- ---------------
Net cash provided by operating activities 5,259 8,819
Investing activities:
Purchases of available for sale investments (167,525) (121,865)
Proceeds from sale of available for sale investments 157,996 79,655
Proceeds from maturity of available for sale investments 25,450 10,624
Purchases of held to maturity investments (114) (941)
Proceeds from maturity of held to maturity investments 140 1,069
Change in investment in unconsolidated affiliates (116) 505
Purchases of other investments (237) (58)
--------------- ---------------
Net cash provided by (used in) investing activities 15,594 (31,011)
Financing activities:
Capital contribution - 716
Cash dividends paid (1,512) (1,626)
Redemption of preferred stock of subsidiary - (30,000)
Redemption of redeemable preferred stock - (2,007)
Common stock issuance - 16,628
Repayment of subordinated notes (10) (5)
Net borrowings under line of credit agreement 2,570 -
Payment on surplus note with affiliate (25,000) -
--------------- ---------------
Net cash used in financing activities (23,952) (16,294)
--------------- ---------------
Cash and cash equivalents:
Decrease during period (3,099) (38,486)
Balance at beginning of year 38,290 84,717
--------------- ---------------
Balance at end of period $ 35,191 $ 46,231
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Interim Consolidated Financial Statements
5
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UNITED WISCONSIN SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying consolidated financial statements
for United Wisconsin Services, Inc. (the Company) have been prepared in
accordance with generally accepted accounting principles. The financial
information included herein has been prepared by management without audit
by independent certified public accountants.
The unaudited financial statements include all adjustments and accruals
consisting only of normal recurring accrual adjustments which are, in the
opinion of management, necessary for a fair presentation of the
consolidated financial position and results of operations for the interim
periods. The results of operations for any interim period are not
necessarily indicative of results for the full year. The unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1995, included in the Company's Form 10-K, as filed with the
Securities and Exchange Commission.
EARNINGS PER COMMON SHARE - Earnings per common share are computed by
dividing net income, after reduction for dividends and discounts on
redeemable preferred stock, by the weighted average number of common shares
outstanding. Weighted average common shares outstanding were 12,599,715
and 12,400,532 for the three months ended March 31, 1996 and 1995,
respectively.
RECLASSIFICATIONS - Certain reclassifications have been made to the
consolidated financial statements for 1995 to conform with the 1996
presentation.
6
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
United Wisconsin Services, Inc. (the Company) is a leading provider of
managed health care services and employee benefit products. The Company's three
primary product lines are (i) Health Maintenance Organization (HMO) products,
including Compcare Health Services Insurance Corporation (Compcare), Valley
Health Plan, Inc. (Valley), Unity Health Plans Insurance Corporation (Unity) and
certain point-of-service (POS) and other related products managed by Compcare
and Valley; (ii) small group preferred provider organization (PPO) products and
other non-PPO products sold through American Medical Security Group, Inc. (AMS),
the Company's joint venture partner in the marketing and administration of
low-cost health insurance primarily to employer groups of 100 or fewer employees
on behalf of the Company; and (iii) specialty managed care products and
services, including dental, life, disability and workers' compensation products,
managed care consulting, electronic claim submission, pharmaceutical management
and managed mental health services. These three product groups represented the
following percentages of the Company's premium and other revenue and the
following amounts of income (loss) before income tax expense for the periods
noted.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1996 1995
---- ----
(As a percentage of the total)
Premium and Other Revenue
-------------------------
<S> <C> <C>
HMO products 38.9% 42.0%
Small group PPO products 48.8 45.7
Specialty managed care
products and services 13.1 13.1
Intercompany eliminations (0.8) (0.8)
----- -----
Total 100.0% 100.0%
----- -----
----- -----
<CAPTION>
Income (loss) before (In millions of dollars)
income tax expense
--------------------
<S> <C> <C>
HMO products $ 1.0 $ 2.2
Small group PPO products (6.1) 0.8
Specialty managed care
products and services 6.7 4.5
Holding company expenses (0.8) (0.9)
----- -----
Total $ 0.8 $ 6.6
----- -----
----- -----
</TABLE>
7
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The Company's revenues are derived primarily from premiums, while medical
benefits constitute the majority of 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 three months ended March 31, 1996 increased 15.8%
to $281.4 million from $243.1 million for the three months ended March 31,
1995, due primarily to an increase in premium revenue of $31.4 million and an
increase in realized gains of $5.0 million.
PREMIUM AND OTHER REVENUE -- HMO premiums for the three months ended
March 31, 1996 increased 5.2% to $104.6 million from $99.4 million for the
same period in the prior year. Average HMO medical premium per member
increased by 3.5% from the first quarter of 1995 to the first quarter of
1996. The average number of HMO medical members for the three months ended
March 31, 1996 increased 2.6% to 260,205 from 253,539 for the same period in
the prior year.
Small group PPO premiums for the three months ended March 31, 1996
increased 21.4% to $131.3 million from $108.2 million for the same period in
the prior year, due primarily to growth in the average number of medical
contracts outstanding, which increased 19.5% to 322,486 for the first quarter
of 1996 from 269,868 for the first quarter of 1995. Average small group PPO
insured medical premium per insured medical contract increased by 2.6% from
the first quarter of 1995 to the first quarter of 1996. See "Expense Ratios -
Medical Loss Ratio" for a further discussion of pricing action on small group
PPO products.
Premium and other revenue from specialty managed care products and
services for the three months ended March 31, 1996 increased 13.7% to $35.1
million from $30.9 million for the same period in the prior year. This
increase is due primarily to an increase in life premiums of $2.4 million and
disability premiums of $0.5 million, driven by an increase in contracts, and
a $1.0 million increase in other revenue from CNR Health, Inc.
8
<PAGE>
INVESTMENT INCOME AND REALIZED GAINS -- Investment income for the three
months ended March 31, 1996 increased 17.1% to $7.4 million from $6.3 million
for the three months ended March 31, 1995, due primarily to an increased
level of invested assets due to growth in premiums and funds held on behalf
of AMS and recent capital raising activities, including $16.6 million from a
public offering of the Company's common stock in February 1995 and $65.0
million from Blue Cross & Blue Shield United of Wisconsin (BCBSUW) to United
Wisconsin Insurance Company (UWIC) under a Surplus Note Agreement, which is
guaranteed by the Company. See "Liquidity and Capital Resources".
Investment income on the proceeds of the Surplus Note is offset by the
related interest expense on the Surplus Note, which is net against investment
income on the Company's Statement of income for the first quarter of 1996.
Average invested assets, excluding the proceeds of the Surplus Note, for
the three months ended March 31, 1996 increased 16.3% to $536.1 million from
$461.0 million for the three months ended March 31, 1995. The average annual
investment yield, excluding net realized gains, was 6.2% for the three months
ended March 31, 1996, compared with 5.5% for the same period in the prior
year.
Net realized investment gains for the first quarter of 1996 showed a
gain of $5.1 million, compared with a gain of $0.2 million for the first
quarter of 1995. Investment gains are realized in the normal investment
process in response to market opportunities. In addition, during the first
quarter of 1996 securities were sold as funds were transferred from UWIC to
United Wisconsin Life Insurance Company (UWLIC) as AMS reserves ran off at
UWIC and built up at UWLIC. In connection with the AMS joint venture, the
Company holds funds on behalf of affiliated reinsurers. Investment income
and realized gains attributable to those funds are included in their
respective captions on the statements of income and are offset by amounts
reported as interest and profit sharing on joint ventures on the Company's
statements of income.
EXPENSE RATIOS
MEDICAL LOSS RATIO -- The combined medical loss ratio for HMO and small
group PPO products for the three months ended March 31, 1996 increased to 86.6%
from 82.1% for the same period in the prior year, due to increases in both the
HMO and small group PPO component loss ratios.
The medical loss ratio for HMO products for the three months ended March
31, 1996 was 90.3%, compared with 88.9% for the same period in the prior
year. The increase is attributed to the competitive market conditions in
southeastern Wisconsin, where pricing pressures coupled with increased
utilization have had an adverse impact on Compcare's loss ratio. The Company
has taken and continues to take steps to improve the medical loss ratio for
HMO products, including, among other actions, negotiation of more favorable
provider contracts, selectively increasing premium rates, review of
underwriting practices, review of managed care procedures, and selective
product design changes.
9
<PAGE>
The medical loss ratio for small group PPO products for the three months
ended March 31, 1996 increased to 83.7% from 75.8% for the same period in the
prior year. Products sold by AMS, which are more sensitive to changes in
health care costs than the Company's other products, have been adversely
affected since the first quarter of 1995 by an unexpected increase in the
rate of health care inflation. The rate of change for health care costs for
the small group PPO products on a per contract basis experienced a
significant increase in late 1994 and early 1995 and has continued at a high
level since then. Insured medical incurred claims cost per contract (on a
retrospectively adjusted basis per current actuarial estimates) increased
13.3% in the first quarter of 1996 compared with the first quarter of 1995,
while insured medical premium per contract increased 2.6% during the same
time period.
The increase in medical costs in 1995 and 1996 has affected other companies
operating in the small group PPO marketplace. The small group PPO products
utilize a variety of provider reimbursement arrangements, many of which are
based on, but do not necessarily control, physician prices. A number of steps
have been and are continuing to be taken in an effort to improve the
profitability of the small group PPO 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)
changes in the agent commission structure to enhance their incentive to sell the
policies at the increased prices, (iv) a review of underwriting practices to
improve risk identification, and (v) review and modification of provider
contracting arrangements, including direct contracting with providers to better
control health care costs.
AMS has implemented rate increases on renewals of its small group PPO
insured medical products with effective dates of August 1995 through May 1996
averaging approximately 20%. 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 of renewals to fully reflect the impact of the rate
increases in premium revenues. In addition, there is a lag in effective
dates of these increased rates due to regulatory requirements of the various
states. Therefore, premium revenue per contract is expected to increase
during 1996 as these rate increases continue to cycle through existing small
group PPO 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. Such selections, however, should also have a corresponding
impact on the medical costs incurred by the Company.
10
<PAGE>
COMMISSION EXPENSE RATIO -- The combined commission expense ratio for
HMO products and small group PPO products for the three months ended March
31, 1996 increased to 6.8% from 6.6% for the same period in the prior year.
The increasing trend in this ratio was due primarily to the change in the
Company's mix of business due to the strong sales growth of small group PPO
products. The commission ratio for small group PPO products for the three
months ended March 31, 1996 was 11.8%, compared with 12.3% for the same
period in the prior year. The commission ratio for HMO products was 0.5% for
the three months ended March 31, 1996 and 1995. Small group PPO products are
sold exclusively through independent agents who are compensated through
commissions, while the Company's HMO products are primarily sold directly by
the Company's sales force. The costs of the Company's sales force are
included in administrative expenses and are, therefore, not reflected in the
commission expense ratio.
ADMINISTRATIVE EXPENSE RATIO -- The combined administrative expense
ratio for HMO products and small group PPO products for the three months
ended March 31, 1996 remained the same at 9.2%, compared with the same
quarter in the prior year. When the component ratios are viewed separately,
the administrative expense ratio for small group PPO products has remained
steady at 10.0% in the first quarter of 1996, compared with the same quarter
in the prior year, while the ratio for HMO products decreased to 8.3% from
8.4% for the first quarter of 1995.
OTHER EXPENSES
Premium taxes and other assessments for the three months ended March 31,
1996 increased to $3.5 million from $2.8 million for the same period in the
prior year, due primarily to premium taxes on the increased volume of
business sold by AMS outside Wisconsin.
Interest and profit sharing on joint ventures for the three months ended
March 31, 1996 increased to $4.4 million from $2.3 million for the same
period in the prior year. Of these balances, $3.5 million and $1.7 million
for the three months ended March 31, 1996 and 1995, respectively, were due to
investment income and realized investment gains on funds held by the Company
on behalf of American Medical Security Insurance Company (AMSIC), an
insurance subsidiary of AMS.
The Company also recorded interest expense related to the issuance of
$45.0 million of Subordinated Notes in 1993 totaling $0.9 million for both
the first quarter of 1996 and the first quarter of 1995.
NET INCOME
Consolidated net income for the three months ended March 31, 1996 decreased
93.0% to $0.3 million from $4.2 million for the same period in the prior year.
Earnings per share were $0.02 for the first quarter of 1996 compared with $0.33
for the first quarter of 1995.
11
<PAGE>
The lower earnings are primarily due to the increase in health care costs
for small group PPO products and to a lesser extent for HMO products. Small
group PPO products recorded a pre-tax loss for the three months ended March 31,
1996 of $6.1 million, compared with pre-tax income of $0.8 million for the same
period in the prior year. Pre-tax income for HMO products for the three months
ended March 31, 1996 decreased to $1.0 million, compared with $2.2 million for
the same period in the prior year. See "Expense Ratios - Medical Loss Ratio."
Pre-tax income for specialty managed care products and services for the three
months ended March 31, 1996 increased to $6.7 million, compared with $4.5
million for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow consist primarily of premium revenue
received 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. The Company's investment policies are designed
to maximize yield, preserve principal and provide liquidity to meet
anticipated payment obligations.
Historically, the Company has generated positive cash
flow from operations. Net cash provided by operating activities amounted to
$5.3 million for the three months ended March 31, 1996, compared with $8.8
million for the three months ended March 31, 1995. The decrease in cash flow
from operations in the first quarter of 1996 was due primarily to the reduced
level of net income during the period. Due to periodic cash flow requirements
of certain subsidiaries the Company made borrowings under its bank line of
credit ranging up to $7.9 million during the first three months of 1996 to meet
short-term cash needs, and $3.1 million was outstanding on this line of credit
at March 31, 1996.
In conjunction with the AMS joint venture, the Company holds funds to
support policy reserves, holds AMSIC's undistributed net profits on this
business, and credits investment income and realized investment gains or
losses to AMSIC on the funds held balance at the Company's average portfolio
rate. The Company held $143.7 million and $140.3 million of funds on behalf
of AMSIC at December 31, 1995 and March 31, 1996, respectively, of which
$83.4 million and $88.9 million, respectively, were utilized to offset
reinsurance recoverable balances from AMSIC on the Company's balance sheet in
accordance with Statement of Financial Accounting Standards (SFAS) No. 113.
These funds are included in cash and investments, and $60.3 million and $51.4
million were accessible as of December 31, 1995 and March 31, 1996,
respectively, upon request by AMSIC without prior approval of the Company.
12
<PAGE>
The Company's investment portfolio consists primarily of investment
grade bonds and has a limited exposure to equity securities. At December 31,
1995, $471.8 million or 86.8% of the Company's total investment portfolio was
invested in bonds. At March 31, 1996, $442.3 million or 85.1% of the
Company's total investment portfolio was invested in bonds. At December 31,
1995 and March 31, 1996, the bond portfolio had an average quality rating of
"Aa3" by Moody's Investor Service 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 Company's balance sheet
at market value. The market value of the total bond portfolio was greater
than amortized cost by $10.6 million at December 31, 1995 and was less than
amortized cost by $2.8 million at March 31, 1996. Unrealized holding gains
and losses on bonds classified as available for sale are included as a
component of shareholders' equity, net of applicable deferred taxes and
amounts attributable to funds held on behalf of an affiliated reinsurer. The
Company has no investments in mortgage loans, non-publicly traded securities
(except for common and preferred stock of AMS), real estate held for
investment or financial derivatives (except for principal only strips of U.
S. Government securities).
In December 1995, UWIC borrowed $65.0 million from BCBSUW under a Surplus
Note Agreement, which is guaranteed by the Company. The Surplus Note provides
UWIC with regulatory capital needed to replace capital paid to the Company in
the form of a dividend in December 1995. The dividend and Surplus Note are part
of a capital restructuring plan designed to transfer capital from UWIC to UWLIC
to support UWLIC's retention of the small group medical business beginning in
1996.
The Company's anticipated expansion of its business requires capital levels
sufficient to support premium growth. The Company's compound annual growth rate
in premium revenue for the five years ended December 31, 1995 was 28.7%, due
principally to the growth of small group PPO products. While the future rate of
growth is uncertain, growth in premium revenue is expected to continue.
13
<PAGE>
From time to time, the Company makes capital contributions to its
subsidiaries to assist them in maintaining appropriate levels of capital and
surplus for regulatory and rating purposes. Compcare, Valley, Unity, UWIC and
UWLIC are required to maintain certain levels of statutory capital and surplus.
In Wisconsin, where a large percentage of the Company's premium is written,
these levels are based upon the amount and type of premiums written and are
calculated separately for each subsidiary. As of March 31, 1996, statutory
capital and surplus for each of these insurance subsidiaries exceeded required
levels.
In compliance with applicable state insurance regulations, UWIC and
UWLIC have deposited securities with various states aggregating $4.9 million
at March 31, 1996. In addition, HMOs are required to maintain a deposit with
the State of Wisconsin for future assessments for HMO insolvencies. As of
March 31, 1996, the combined deposit for Compcare, Valley and Unity was $3.8
million. States in which UWIC and UWLIC are licensed to do business
independently establish deposit requirements. Increases in deposit levels,
resulting in the segregation of certain investments, may adversely affect the
Company's liquidity.
The National Association of Insurance Commissioners (NAIC) has adopted
risk-based capital guidelines for both life and health insurers and for
property and casualty insurers. These guidelines currently apply only to
certain of the Company's subsidiaries. Those subsidiaries exceed the Company
action level for NAIC risk-based capital guidelines. The NAIC is also
developing risk-based capital guidelines for health organizations, which
would apply to the Company's HMO subsidiaries. In addition, the OCI and
other state regulators have the authority to establish capital and surplus
requirements for individual companies and may propose stricter capital and
surplus requirements for Compcare, Valley, Unity, UWIC and UWLIC.
In July 1995, the Company retained Merrill Lynch & Co. as its financial
advisor to explore alternatives to maximize the value of the Company's
interest in AMS, including the possible spin-off of the Company's interest in
AMS into a separate publicly traded company. After exploring the available
alternatives, the Company has decided that the exercise of its AMS buy-out
option granted under the 1988 Joint Venture Agreement (the Buy-out Option)
will best maximize shareholder value.
In April 1996 the Company notified the shareholders of AMS of the
Company's intent to exercise the Buy-out Option to purchase the approximately
88 percent of AMS stock that it does not already own. The purchase price
will be based on a contractual formula that is part of the original Joint
Venture Agreement. The transaction is expected to be completed no later than
December 31, 1996. Accordingly, the Company has decided to postpone the
spin-off for an indefinite period.
14
<PAGE>
The Company believes that internal funds and periodic borrowings on its
bank line of credit will be sufficient to finance planned growth for the
foreseeable future, other than financing that would be required in connection
with the exercise of the Buy-out Option to acquire the remaining interest of
AMS. In the event the Company seeks additional financing to facilitate
long-term growth, the Company believes that such financing could be obtained
through equity offerings, debt offerings, financings from BCBSUW or other
bank borrowings, as market conditions may permit or dictate.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1994, Compcare and BCBSUW filed a lawsuit in U.S. District
Court, Western District of Wisconsin against The Marshfield Clinic
(the "Clinic") and Security Health Plan of Wisconsin, Inc., a
Wisconsin HMO sponsored by the Clinic ("Security"), asserting that the
defendants committed violations of antitrust law through
monopolization of physician services and HMO services in northern and
north central Wisconsin. BCBSUW and Compcare sought: (i) treble
damages to compensate for excessive payments to the Clinic and lost
revenues due to the defendants' anti-competitive actions, as well as
(ii) certain injunctive relief intended to remedy and prevent the
defendants from maintaining their anti-competitive behavior. On
January 4, 1995 a jury found in favor of BCBSUW and Compcare and
awarded damages to BCBSUW and Compcare in the amount of approximately
$48.5 million (after trebling), of which approximately $17.0 million
was allocable to Compcare. On March 22, 1995 the U.S. District Court,
Western District of Wisconsin affirmed the jury's verdict but reduced
the damage award to approximately $16.8 million (after trebling) of
which approximately $15.2 million was allocable to Compcare. The
Court also awarded injunctive relief enjoining the Clinic from various
anti-competitive acts and requiring that the Clinic contract with
Compcare for HMO services on a non-discriminatory basis. The Clinic
and Security filed for appeal with the Seventh Circuit Court of
Appeals which, on September 18, 1995, affirmed the District Court's
finding of a violation of market division and remanded for a
determination of the damages related thereto. All other counts were
reversed. On November 7, 1995 the Court of Appeals granted the motion
of BCBSUW and Compcare to stay the remand pending their petition to
the U.S. Supreme Court to hear their appeal of the reversed portions
of the case. The petition to the U.S. Supreme Court filed by BCBSUW
and Compcare was denied in March 1996. The case has now been remanded
to the District Court for retrial on the issue of damages for those
violations affirmed by the Seventh Circuit and for the entry of
injunctive relief and awarding of attorneys' fees. The trial date
has been set for December 9, 1996.
On April 20, April 27, and May 10, 1995, suits were filed in the
United States District Court for the Eastern District of Wisconsin
against the Company and certain of its officers, alleging violations
of federal securities laws through the purported issuance of false and
misleading statements regarding the Company, its financial condition
and operations. The suits seek certification of a class of
individuals who purchased the Company's common stock between February
7, 1995 and April 18, 1995. A consolidated and amended complaint
combining the three cases was filed on August 14, 1995. The suit
seeks damages yet to be determined. The Company and its officers have
denied any wrongdoing, and will vigorously defend the actions. A
motion to dismiss the complaint was filed on September 5, 1995. In
October, 1995, before the court ruled on the motion to dismiss, the
plaintiffs sought leave from the court to file a second amended
complaint. In November, 1995, the court granted plaintiffs' request,
and the Company and its officers filed a motion to dismiss this second
amended complaint on December 4, 1995.
16
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3 (ii) Restated and Amended Bylaws of Registrant
11 Statement regarding computation of per share earnings.
(b) No reports of the Registrant on Form 8-K have been filed with
the SEC during the three months ended March 31, 1996.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: 5/14/96
---------------------------
UNITED WISCONSIN SERVICES, INC.
/s/ C. Edward Mordy
----------------------------------------
Vice President and Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
18
<PAGE>
UNITED WISCONSIN SERVICES, INC.
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Document Description Number
- - -------- ---------------------- -----------
3(ii) Restated and Amended Bylaws of Registrant 20
11 Statement regarding computation of per share
earnings. (See Note 1 of Notes to Interim
Consolidated Financial Statements).
19
<PAGE>
EXHIBIT 3(ii)
<PAGE>
RESTATED AND AMENDED
BYLAWS OF
UNITED WISCONSIN SERVICES, INC.
AS OF APRIL 1, 1996
ARTICLE I. OFFICES
SECTION 1. PRINCIPAL AND BUSINESS OFFICES. The Corporation may have
such principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
SECTION 2. REGISTERED OFFICE. The registered office of the Corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical to the principal office in the
state of Wisconsin; and the address of the registered office may be changed from
time to time by the Board of Directors or by the registered agent. The business
office of the registered agent of the Corporation shall be identical to the
registered office.
ARTICLE II. SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The Annual Meeting of the Shareholders
shall be held at the principal office of the Corporation in the City of
Milwaukee, Milwaukee County, Wisconsin, unless the Board of Directors shall
designate another location either within or without the State of Wisconsin. The
Annual Meeting shall take place on the last Wednesday of May each year or at
such other time and date within thirty days before or after said date as may be
fixed by or under the authority of the Board of Directors. If the day fixed for
the Annual Meeting shall be a legal holiday in the State of Wisconsin, such
meeting shall be held on the next succeeding business day. At such meeting the
Shareholders shall elect directors and transact such other business as shall
lawfully come before them.
A. ELECTORS AND OTHER BUSINESS. Nominations of persons for
election to the Board of Directors of the Corporation and
the proposal of business to be considered by the
Shareholders may be made at the Annual Meeting:
1. Pursuant to the Corporation's notice of meeting;
2. By or at the direction of the Board of Directors;
or
3. By any Shareholder of the Corporation who is a
shareholder of record at the time of the giving of
the notice provided for in these Bylaws and who is
entitled to vote at the meeting and complies with
the notice procedures set forth below.
<PAGE>
B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. For
nominations or other business to be properly before an
Annual Meeting by a shareholder, the Shareholder must
have given timely notice thereof in writing to the
Secretary of the Corporation. Timely notice is that
notice which is received by the Secretary at the
Corporation's principal office not less than 60 days nor
more than 90 days prior to the last Wednesday in May,
provided, however, that in the event the date of the
Annual Meeting is advanced by more than 30 days or
delayed by more than 60 days from the last Monday in May,
notice by the Shareholder, to be timely, must be received
as provided above not earlier than the 90th day prior to
the date of such Annual Meeting and not later than the
close of business on the later of (x) the 60th day prior
to such Annual Meeting, or (y) the 10th day on which
public announcement of the date of such a meeting is
first made. Such Shareholder's notice shall be signed by
the Shareholder of record who intends to make the
nomination or introduce the other business (or his or her
duly authorized proxy or other representative), shall
bear the date of signature of such Shareholder or
representative, and shall set forth:
1. The name and address, as they appear on the
Corporation's books, of such Shareholder and the
beneficial owner(s), if any, on whose behalf the
nomination or proposal is made;
2. The class and number of shares of the Corporation
which are beneficially owned by such Shareholder
or beneficial owner(s);
3. A representation that such Shareholder is a holder
of record of shares entitled to vote at such
meeting and intends to appear in person or by
proxy at the meeting to make the nomination or
introduce the other business specified in the
notice;
4. In the case of any proposed nomination for
election or reelection as a director:
(a) the name and residence address of the
nominee;
(b) a description of all arrangements or
understandings between such Shareholder or
beneficial owner(s) and each nominee and
any other person(s) (naming such
person(s)) pursuant to which the
nomination is to be made by the
Shareholder;
(c) such other information regarding each
nominee proposed by such Shareholder as
would be required to be disclosed in
solicitations of proxies for elections of
<PAGE>
directors, or would be otherwise required
to be disclosed, in each case pursuant to
Regulation 14A under the Securities
Exchange Act of 1934, as amended,
including any information that would be
required to be included in a proxy
statement filed pursuant to Regulation 14A
had the nominee been nominated by the
Board of Directors; and
(d) the written consent of each nominee to be
named in a proxy statement and to serve as
a director of the Corporation if so
elected; and
5. In the case of any other business that such
Shareholder proposes to bring before the meeting,
(a) a brief description of the business
desired to be brought before the meeting,
and, if the business includes a proposal
to amend these Bylaws, the language of the
proposed amendment;
(b) such Shareholder's and beneficial
owner's(s') reasons for conducting such
business at such time; and
(c) any material interest in such business of
such Shareholder or beneficial owners(s).
Notwithstanding anything in the above paragraph to the contrary,
in the event that the number of directors to be elected to the
Board of Directors of this Corporation is increased and there is
no public announcement naming all of the nominees for director
or specifying the size of the increased Board of Directors made
by the Corporation at least 70 days prior to the last Wednesday
in May, a Shareholder's notice required by this Section shall
also be considered timely, but only with respect to nominees for
new positions created by such increase, if it is received by the
Secretary at the Corporation's principal office not later than
the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
SECTION 2. SPECIAL MEETINGS. Special meetings of the Shareholders may
be called by the Chairman of the Board, and shall be called by the Secretary on
written request of a majority of members of the Board of Directors, or on
written request of the holders of at least 10 percent of
<PAGE>
the Corporation's shares entitled to vote on a matter. The request shall be
signed, dated and delivered to the Secretary describing one or more purposes for
which the meeting is to be held. The Board of Directors shall set the place of
the meeting. If no such designation is made, the place of the meeting shall be
the principal business office of the Corporation in the State of Wisconsin, but
any meeting may be adjourned to reconvene at any place designated by a vote of a
majority of the shares represented thereat.
A. ELECTIONS AND OTHER BUSINESS. Nominations of persons for
election to the Board of Directors may be made at a
Special Meeting at which directors are to be elected
pursuant to such notice of meeting:
1. By or at the direction of the Board of Directors;
or
2. By any Shareholder of the Corporation who:
(a) is a Shareholder of record at the time of
giving notice of the meeting,
(b) is entitled to vote at the meeting, and
(c) complies with the notice procedures set
forth below.
B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. Only
such business as shall have been described in such notice
shall be conducted at the Special Meeting. Any
Shareholder desiring to nominate persons for election to
the Board of Directors at a Special Meeting shall cause
written notice to be received by the Secretary of the
Corporation at its principal office not earlier than 90
days prior to such Special Meeting and not later than the
close of business on the later of (x) the 60th day prior
to such Special Meeting or (y) the 10th day following the
day on which public announcement is first made of the
date of such Special Meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting.
Such written notice shall be signed by the Shareholder of
record who intends to make the nomination (or his or her
duly authorized proxy or other representative), shall
bear the date of signature of such Shareholder or other
representative, and shall set forth:
1. The name and address, as they appear on the
Corporation's books, of such Shareholder and the
beneficial owner(s), if any, on whose behalf the
nomination is made;
2. The class and number of shares of the Corporation
which are beneficially owned by such Shareholder
or beneficial owner(s);
<PAGE>
3. A representation that such Shareholder is a holder
of record of shares of the Corporation entitled to
vote at such meeting and intends to appear in
person or by proxy at the meeting to make the
nomination specified in the notice;
4. The name and residence address of the person(s) to
be nominated;
5. A description of all arrangements or
understandings between such Shareholder or
beneficial owner(s) and each nominee and any other
person(s) (naming such person(s)) pursuant to
which the nomination is to be made by such
Shareholder;
6. Such other information regarding each nominee
proposed by such Shareholder as would be required
to be disclosed in solicitations of proxies for
elections of directors, or would be otherwise
required to be disclosed, in each case pursuant to
Regulation 14A under the Securities Exchange Act
of 1934, as amended, including any information
that would required to be included in a proxy
statement filed pursuant to Regulation 14A had the
nominee been nominated by the Board of Directors;
and
7. The written consent of each nominee to be named in
a proxy statement and to serve as a director of
the Corporation if so elected.
SECTION 3. NOTICE OF ANNUAL OR SPECIAL MEETING. Notice may be
communicated by telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, and, if these forms of personal
notice are impracticable, notice may be communicated by public announcement.
Such notice stating the place, day and hour of the meeting and, in case of a
special meeting, a description of each purpose for which the meeting is called,
shall be communicated or sent not less than 10 days nor more than 60 days before
the date of the meeting, by or at the direction of the Chairman of the Board or
the Secretary, or other Officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. Written notice by the
Corporation to its shareholders is effective when mailed and may be addressed to
the shareholder's address shown in the Corporation's current record of
shareholders.
SECTION 4. UNANIMOUS CONSENT WITHOUT MEETING. Any action that may be
taken at a meeting of the Shareholders may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all of
the Shareholders entitled to vote with respect to the subject matter thereof.
SECTION 5. CLOSING OF STOCK TRANSFER BOOKS OR FIXING OF RECORD DATE. A
"Shareholder" of the Corporation shall mean the person in whose name shares are
registered in the stock transfer books of the Corporation or the beneficial
owner of shares to the extent of the rights granted by a
<PAGE>
nominee certificate on file with the Corporation. Such nominee certificates, if
any, shall be reflected in the stock transfer books of the Corporation. For the
purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled to
receive payment of any dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, 70 days. If the stock transfer books shall be closed for
the purpose of determining Shareholders entitled to the notice of or to vote at
a meeting of Shareholders, such books shall be closed for at least 10 days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of Shareholders, such date in any case to be not more
than 70 days and, in case of a meeting of Shareholders, not less than 10 days
prior to the date on which the particular action requiring such determination of
Shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of Shareholders entitled to notice of
or to vote at a meeting of Shareholders, or Shareholders entitled to receive
payment of a dividend, the close of business on the date on which notice of the
meeting is mailed or on the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of Shareholders. When a determination of
Shareholders entitled to vote at any meeting of Shareholders has been made as
provided in this section, such determination shall be applied to any adjournment
thereof except where the determination has been made through the closing of the
stock transfer books and the stated period of closing has expired.
SECTION 6. VOTING RECORD. The Secretary shall, before each meeting of
Shareholders, make a complete list of the Shareholders entitled to vote at such
meeting, or any adjournment thereof, with the address of and the number of
shares held by each. Such record shall be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of any
Shareholder during the whole time of the meeting for the purposes of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the Shareholders entitled to examine such record or transfer books or to
vote at any meeting of Shareholders. Failure to comply with the requirements of
this section shall not affect the validity of any action taken at such meeting.
SECTION 7. QUORUM. Shares entitled to vote as a separate voting group
as defined in the Wisconsin Business Corporation Law may take action on a matter
at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the articles of incorporation or the Wisconsin Business
Corporation Law provide otherwise, a majority of the votes entitled to be cast
on the matter by a voting group constitutes a quorum of that voting group for
action on that matter.
Once a share is represented for any purposes at a meeting, other than
for the purpose of objecting to holding the meeting or transacting business at
the meeting, it is considered present for purposes of determining whether a
quorum exists for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for that adjourned meeting.
<PAGE>
If a quorum exists, action on a matter by a voting group 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 Wisconsin
Business Corporation Law require a greater number of affirmative votes.
"Voting group" means any of the following:
A. All shares of one or more classes or series that under
the articles of incorporation or the Wisconsin Business
Corporation Law are entitled to vote and be counted
together collectively on a matter at a meeting of
Shareholders.
B. All shares that under the articles of incorporation or
the Wisconsin Business Corporation Law are entitled to
vote generally on a matter.
Though less than a quorum of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
SECTION 8. PROXIES. At all meetings of Shareholders, a Shareholder
entitled to vote may vote in person or by proxy. A Shareholder may appoint a
proxy to vote or otherwise act for the Shareholder by signing an appointment
form, either personally or by his or her attorney-in-fact. Such proxy
appointment is effective when received by the Secretary of the Corporation
before or at the time of the meeting. Unless otherwise provided in the
appointment form of proxy, a proxy appointment may be revoked at any time before
it is voted, either by written notice filed with the Secretary or the acting
Secretary of the meeting or by oral notice given by the Shareholder to the
presiding officer during the meeting. The presence of a Shareholder who has
filed his or her proxy appointment shall not of itself constitute a revocation.
No proxy appointment shall be valid after eleven months from the date of its
execution, unless otherwise provided in the appointment form of proxy. The
Board of Directors shall have the power and authority to make rules
establishing presumptions as to the validity and sufficiency of proxy
appointments.
SECTION 9. VOTING OF SHARES. Each outstanding share shall be entitled
to one vote upon each matter submitted to a vote at a meeting of Shareholders,
except to the extent that the voting rights of the shares of any voting group or
groups are enlarged, limited or denied by the articles of incorporation.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS.
A. OTHER CORPORATIONS. Shares standing in the name of
another corporation may be voted either in person or by
proxy, by the president of such corporation or any other
officer appointed by such president. An appointment form
of proxy executed by any principal officer of such other
<PAGE>
corporation or assistant thereto shall be conclusive
evidence of the signer's authority to act, in the absence
of express notice to this Corporation, given in writing
to the Secretary of this Corporation, or the designation
of some other person by the Board of Directors or by the
bylaws of such other corporation.
B. LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by an
administrator, executor, guardian, conservator, trustee
in bankruptcy, receiver or assignee for creditors may be
voted by him, either in person or by proxy, without a
transfer of such shares into his or her name, provided
that there is filed with the Secretary before or at the
time of meeting proper evidence of his or her incumbency
and the number of shares held by him, either in person or
by proxy. An appointment form of proxy executed by a
fiduciary shall be conclusive evidence of the signer's
authority to act, in the absence of express notice to
this Corporation, given in writing to the Secretary, that
such manner of voting is expressly prohibited or
otherwise directed by the document creating the fiduciary
relationship.
C. PLEDGEES. A Shareholder whose shares are pledged shall
be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the
shares so transferred; provided, however, a pledgee shall
be entitled to vote shares held of record by the pledgor
if the Corporation receives acceptable evidence of the
pledgee's authority to sign.
D. TREASURY STOCK AND SUBSIDIARIES. Neither treasury
shares, nor shares held by another corporation if a
majority of the shares entitled to vote for the election
of directors of such other corporation is held by this
Corporation, shall be voted at any meeting or counted in
determining the total number of outstanding shares
entitled to vote, but shares of its own issue held by
this Corporation in a fiduciary capacity, or held by such
other corporation in a fiduciary capacity, may be voted
and shall be counted in determining the total number of
outstanding shares entitled to vote.
E. MINORS. Shares held by a minor may be voted by such
minor in person or by proxy and no such vote shall be
subject to disaffirmance or avoidance, unless prior to
such vote the Secretary of the Corporation has received
written notice or has actual knowledge that such
Shareholder is a minor. Shares held by a minor may be
voted by a personal representative, administrator,
executor, guardian or conservator representing the minor
if evidence of such fiduciary status, acceptable to the
Corporation, is presented.
<PAGE>
F. INCOMPETENTS AND SPENDTHRIFTS. Shares held by an
incompetent or spendthrift may be voted by such
incompetent or spendthrift in person or by proxy and no
such vote shall be subject to disaffirmance or avoidance,
unless prior to such vote the Secretary of the
Corporation has actual knowledge that such Shareholder
has been adjudicated an incompetent or spendthrift or
actual knowledge of judicial proceedings for appointment
of a guardian. Shares held by an incompetent or
spendthrift may be voted by a personal representative,
administrator, executor, guardian or conservator
representing the minor if evidence of such fiduciary
status, acceptable to the Corporation, is presented.
G. JOINT TENANTS. Share registered in the names of two or
more individuals who are named in the registration as
joint tenants may be voted in person or by proxy signed
by any one or more of such individuals if either (i) no
other such individual or his or her legal representative
is present and claims the right to participate in the
voting of such shares or prior to the vote files with the
Secretary of the Corporation a contrary written voting
authorization or direction or written denial of authority
of the individual present or signing the appointment form
of proxy proposed to be voted, or (ii) all such other
individuals are deceased and the Secretary of the
Corporation has no actual knowledge that the survivor has
been adjudicated not to be the successor to the interests
of those deceased.
SECTION 11. CONDUCT OF MEETINGS. The Chairman of the Board, or in the
Chairman's absence, the President, or, in their absence such Vice President as
is designated by the Board of Directors, shall call the meeting to order and act
as Chairperson of the meeting. Only persons nominated in accordance with the
procedures set forth in Article II, Sections 1 and 2, shall be eligible to serve
as Directors. Only such business as shall have been brought before a meeting in
accordance with the procedures set forth in Article II, Sections 1 and 2, shall
be eligible to be conducted. The Chairperson of the meeting shall have the
power and duty to determine whether any nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in Article II, Sections 1 and 2, and, if any proposed nomination or
business is not in compliance therewith, to declare that such defective proposal
shall be disregarded.
SECTION 12. PUBLIC ANNOUNCEMENT. For purposes of Article II, Sections
1 and 2, "public announcement" shall mean disclosure in a press release reported
by the Dow Jones News Service, Associated Press, or comparable national news
service or in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Securities
Exchange Act of 1934, as amended.
SECTION 13. INVALIDITY. The Chairperson, upon recommendation of the
Secretary, may reject a vote, consent, waiver, or proxy appointment, if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable doubt about the
<PAGE>
validity of the signature on it or about the signatory's authority to sign for
the Shareholder. The Corporation and its officer or agent who accepts or
rejects a vote, consent, waiver or proxy appointment in good faith and in
accordance with the Wisconsin Business Corporation Law shall not be liable for
damages to the Shareholders for consequences of the acceptance or rejection.
SECTION 14. WAIVER OF NOTICE. A Shareholder may waive any notice
required by the Wisconsin Business Corporation Law, the articles of
incorporation, or these Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the Shareholder entitled
to the notice, contain the same information that would have been required in the
notice under the Wisconsin Business Corporation Law (except that the time and
place of meeting need not be stated), and be delivered to the Corporation for
inclusion in the corporate records. A Shareholder's attendance at any Annual
Meeting or Special Meeting, in person or by proxy, waives objection to all of
the following: (a) lack of notice or defective notice of the meeting, unless
the Shareholder promptly upon arrival or at the beginning of the meeting objects
to holding, or transacting business at, the meeting; and (b) consideration of a
particular matter at the meeting that is not within the purpose described in the
meeting notice, unless the Shareholder objects to considering the matter when it
is presented.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of Directors of the
Corporation shall be ten (10), all of whom shall be nominated and elected by the
Shareholders as provided herein.
SECTION 2. TERM OF OFFICE. Elected Directors shall hold office for a
term of three (3) years and until their successors are elected and qualified,
except as otherwise provided in this section or until their death, resignation
or removal. The Board of Directors shall be divided into three (3) classes of
not less than three (3) nor more than five (5) Directors each. The term of
office of the first class of Directors shall expire at the first annual meeting
after their initial election and when their successors are elected and
qualified, the term of office of the second class shall expire at the second
annual meeting after their initial election and when their successors are
elected and qualified, and the terms of office of the third class shall expire
at the third annual meeting after their initial election and when their
successors are elected and qualified. At each annual meeting after the initial
classification of the Board of Directors, the class of Directors whose term
expires at the time of such election shall be elected to hold office until the
third succeeding annual meeting and until their successors are elected and
qualified.
SECTION 3. NOMINATIONS. Nominations for the election of directors
shall be made in accordance with the provisions of Article II, Sections 1 and 2
hereof, which requirements are hereby incorporated by reference in this Article
III, Section 3.
SECTION 4. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the Annual Meeting
<PAGE>
of Shareholders, for election of corporate officers and transaction of other
business. The Board of Directors may provide by resolution the time and place
for holding additional meetings without other notice than such resolution.
SECTION 5. SPECIAL MEETINGS. Special Meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board or the
Secretary upon written request of any three Directors. The Secretary shall give
sufficient notice of such meeting, to be not less than two (2) days, in person
or by mail or by telephone, telegraph, teletype, facsimile or other form of wire
or wireless communication as to enable the Directors so notified to attend such
meeting. The Chairman or Secretary who calls the meeting may fix any place,
within or without the State of Wisconsin, as the place for holding any Special
Meeting of the Board of Directors.
SECTION 6. WAIVER OF NOTICE. Whenever any notice whatever is required
to be given to any Director of the Corporation under the articles of
incorporation or bylaws or any provisions of law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the Director
entitled to such notice, shall be deemed equivalent to the giving of such
notice, and the Corporation shall retain copies of such waivers in its corporate
records. A director's attendance at or participation in a meeting waives any
required notice to him or her of the meeting unless the Director at the
beginning of the meeting or promptly upon his or her arrival objects to holding
the meeting and does not thereafter vote for or assent to action taken at the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the Directors in office for the time
being, and convened according to these Bylaws, shall constitute a quorum for the
transaction of business, but a majority of the directors present or
participating (though less than a quorum) may adjourn the meeting from time to
time without further notice.
SECTION 8. VACANCIES. Vacancies, including those created by an
increase in the number of directors in the Board of Directors, may be filled by
the remaining Directors. A Director elected to fill a vacancy shall serve for
the unexpired term of his or her predecessor. In the absence of action by the
remaining Directors, the Shareholders may fill such vacancy at a Special
Meeting in accordance with the articles of incorporation, or by unanimous
consent according to these Bylaws.
SECTION 9. REMOVAL. The Shareholders may remove one or more directors,
with or without cause, at a meeting called for that purpose, the notice of which
reflects that purpose, in accordance with the articles of incorporation of this
Corporation.
SECTION 10. COMPENSATION. A director may receive such compensation for
services as is determined by resolution of the Board irrespective of any
personal interest of its members. A director also may serve the Corporation in
any other capacity and receive compensation therefor. The Board of Directors
also shall have authority to provide for or to delegate authority to an
appropriate committee to provide for reasonable pensions, disability or death
benefits and other
<PAGE>
benefits or payments, to Directors, Officers and employees and to their estates,
families, dependents or beneficiaries on account of prior services rendered to
the Corporation by such Directors, Officers and employees.
SECTION 11. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation shall
be managed under the direction of, the Board of Directors, subject to any
limitation set forth in these Bylaws or the articles of incorporation.
SECTION 12. CONDUCT OF MEETINGS. The Chairman of the Board, or in the
Chairman's absence the President, or in their absence such Vice President as is
designated by the Board of Directors, shall call meetings of the Board of
Directors to order and shall act as Chairperson of the meeting. The Secretary
of the Corporation shall act as Secretary of all meetings of the Board of
Directors, but in the absence of the Secretary, the presiding Officer may
appoint an Assistant Secretary or any Director or other person present or
participating to act as Secretary of the meeting.
SECTION 13. MANNER OF ACTING. If a quorum is present or participating
when a vote is taken, the affirmative vote of a majority of directors present or
participating is the act of the Board of Directors or a committee of the Board
of Directors, unless the Wisconsin Business Corporation Law or the articles of
incorporation or these bylaws require the vote of a greater number of directors.
SECTION 14. PRESUMPTION OF ASSENT. A Director of the Corporation who
is present at or participates in a meeting of the Board of Directors or a
committee thereof of which he or she is a member, at which action on any
corporate matter is taken, shall be presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the Secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
SECTION 15. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the articles of incorporation or Bylaws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the Directors then in office.
SECTION 16. MEETING BY TELEPHONE OR BY OTHER COMMUNICATION TECHNOLOGY.
Meetings of the Board of Directors or committees may be conducted by telephone
or by other communication technology in accordance with Section 180.0820 of the
Wisconsin Business Corporation Law.
SECTION 17. COMMITTEES.
A. REGULAR COMMITTEES.
<PAGE>
1. GENERAL DESCRIPTION. In order to facilitate the
work of the Board of Directors of this
Corporation, the following regular committees
shall be elected from the membership of the Board
of Directors at the regular meeting held in May of
each year (or at such other time as the Board of
Directors may determine):
Executive Committee
Finance Committee
Management Review Committee
Audit Committee
Each committee shall have three to six members.
The Chairman of the Board of Directors, and in the
Chairman's absence the President, and in their
absence, such Vice President as is designated by
the Board of Directors, shall submit nominations
for such committee memberships. Committee members
shall hold office until the next board meeting at
which Committee elections are conducted in
accordance with these Bylaws, and until their
successors are elected and qualified. Each
Regular Committee of the Board of Directors may
exercise the authority of the full Board within
the scope of the duties and powers delegated to it
in these Bylaws, except that no committee of this
Board shall do any of the following:
(a) Authorize distributions;
(b) Approve or propose to shareholders action
that the Wisconsin Business Corporation
Law requires be approved by shareholders;
(c) Fill vacancies on the board of directors
or, except as provided herein, on any of
its committees;
(d) Amend the articles of incorporation;
(e) Adopt, amend or repeal the bylaws;
(f) Approve a plan of merger not requiring
shareholder approval;
(g) Authorize or approve reacquisition of
shares, except according to a formula or
method prescribed by the full Board; or
<PAGE>
(h) Authorize or approve the issuance or sale
or contract for sale of shares or
determine the designation and relative
rights, preferences and limitations of a
class or series of shares, except that the
Board of Directors may authorize a
committee or a senior executive officer of
the Corporation to do so within limits
prescribed by the Board of Directors.
2. THE EXECUTIVE COMMITTEE. When the Board of
Directors is not in session, the Executive
Committee shall have and may exercise all of the
powers of the full Board solely with regard to
those matters which are within the scope of the
Executive Committee's designated duties, as
provided herein.
The Executive Committee shall:
(a) Approve long range corporate and strategic
plans, including plans for any major
borrowing or capital raising programs;
(b) Advise and consult with management on
corporate policies regarding reserving,
reinsurance and other liabilities;
(c) Approve the annual operating plan;
(d) Approve major changes in policy affecting
new services and programs; and
(e) Carry out such special assignments as the
Board of Directors may, from time to time,
give to the Executive Committee.
3. THE FINANCE COMMITTEE. When the Board of
Directors is not in session, the Finance Committee
shall have and may exercise all of the powers of
the full Board solely with regard to those matters
which are within the scope of the Finance
Committee's designated duties, as provided herein.
The Finance Committee shall:
(a) Approve investment policies and plans;
<PAGE>
(b) Authorize and approve the investment of
funds of the Corporation;
(c) Consult with management regarding real
estate, accounts receivable and other
assets;
(d) Determine the amount and types of all
insurance that should be carried by this
Corporation and authorize the purchase
thereof;
(e) Advise and consult with the operating
management in the selection of the
carriers of such insurance;
(f) Advise and consult with management on
corporate tax policy; and
(g) Carry out such special assignments as the
Board of Directors may, from time to time,
give to the Finance Committee.
4. THE MANAGEMENT REVIEW COMMITTEE. When the Board
of Directors is not in session, the Management
Review Committee shall have and may exercise all
of the powers of the full Board solely with regard
to those matters which are within the scope of the
Management Review Committee's designated duties,
as provided herein.
The Management Review Committee shall:
(a) Evaluate Senior Management (corporate
officers) performance against objectives;
(b) Approve Senior Management development
programs;
(c) Approve the corporate compensation policy,
including making recommendations and
decisions on any bonuses or incentive
plans, and establish the annual
compensation for the Chairman of the Board
of Directors;
(d) Act as the Nominating Committee for
officers and directors and make
recommendations to the Board for types,
methods and levels of directors'
compensation;
(e) Administer the compensation plans for the
officers, directors, and key employees;
and
<PAGE>
(f) Carry out such special assignments as the
Board of Directors may, from time to time,
give to the Management Review Committee.
5. THE AUDIT COMMITTEE. When the Board of Directors
is not in session, the Audit Committee shall have
and may exercise all of the powers of the full
Board solely with regard to those matters which
are within the scope of the Audit Committee's
designated duties, as provided herein.
The Audit Committee shall:
(a) Select and engage the independent
certified public accountants to audit the
books, records and financial transactions
of the Corporation;
(b) Review with the independent accountants
the scope of their examination, with
particular emphasis on the areas to which
either the committee or the independent
accountants believe special attention
should be directed. The Audit Committee
may have the independent accountants
perform such additional procedures as the
Committee or the auditors deem necessary;
(c) Review and approve the annual plan for the
financial audit (internal audit)
department;
(d) Review with the independent accountants
the financial statements and auditors'
reports thereon;
(e) Review the management letter of the
independent accountants, and audit reports
by the Corporation's internal auditors to
assure that appropriate action has been
taken by Senior Management as to each item
recommended;
(f) Encourage the independent accountants and
the internal auditors to communicate
directly with the Chairman of the Board
and President or, if necessary, the
Chairman of the Audit Committee whenever
any significant recommendation has not
been satisfactorily resolved at the Senior
Management level;
<PAGE>
(g) Review the Conflict of Interest statements
to assure the Board of Directors that any
conflict of interest has been duly
reported to and reviewed Audit Committee;
(h) Review and approve all related party
transactions; and
(i) Carry out such special assignments as the
Board of Directors may, from time to time,
give to the Audit Committee.
B. SPECIAL COMMITTEES. In addition to the foregoing Regular
Committees, the Board of Directors may, from time to
time, establish Special Committees and specify the
composition, functions and authority of any such Special
Committee.
C. VACANCIES; TEMPORARY APPOINTMENTS. When, for any cause a
vacancy occurs in any Regular Committee, the remaining
committee members, by majority vote, may fill such
vacancy by a temporary appointment of a director on the
Board not on the subject committee to fill the vacancy
until the next Board Meeting, at which time the full
Board shall fill the vacancy.
D. COMMITTEE MINUTES AND REPORTS. All of the foregoing
committees shall keep minutes and records of all of their
meetings and activities and shall report the same to the
Board of Directors at its next regular meeting. Such
minutes and records shall be available for inspection by
the Directors at all times.
ARTICLE IV. OFFICERS
SECTION 1. GENERALLY. The principal Officers of the Corporation shall
be a Chairman of the Board (Chief Executive Officer), a President, one or more
Vice Presidents, a Secretary and a Treasurer. The Board of Directors shall
elect the principal officers annually at the Annual Meeting. All officers shall
hold office for a period of one year and until their successors are duly elected
and qualified, or until their prior death, resignation or removal.
SECTION 2. REMOVAL. Any officer or agent may be removed by the Board
of Directors with or without cause whenever in its judgment the best interests
of the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment shall not of itself create contract rights.
SECTION 3. VACANCIES. A vacancy in any principal office because of
death, resignation, removal, or otherwise, shall be filled by the Board of
Directors for the unexpired portion of the term. The Board of Directors may,
from time to time, omit to elect one or more officers, or may omit to
<PAGE>
fill a vacancy, and in such case, the designated duties of such officer, unless
otherwise provided in these Bylaws, shall be discharged by the Chairman of the
Board or such other officers as he or she may designate.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, who shall
also be the Chief Executive Officer, shall preside at all meetings of the
Shareholders and of the Directors and shall do and perform such other duties as
from time to time may be assigned to that office by the Board of Directors.
SECTION 5. PRESIDENT. The President shall have general supervision of
the business and affairs of the Corporation. The President may sign and execute
all authorized bonds, notes, checks, contracts, or other obligations in the name
of the Corporation. The President shall perform such other duties as from time
to time may be assigned to him or her by the Board of Directors.
SECTION 6. VICE PRESIDENTS. Should the Chairman or the President be
absent or unable to act, the Board of Directors shall designate a Vice President
or other Officer to discharge the duties of the vacant office with the same
power and authority as is vested in that office. The Vice Presidents shall
perform such other duties as from time to time may be assigned to them by the
President or the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall keep a record of the minutes
of the meetings of the Shareholders and of the Board of Directors. He or she
shall countersign all instruments and documents executed by the Corporation;
affix to instruments and documents the seal of the Corporation; keep in books
therefor the transactions of the Corporation; see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
and perform such other duties as usually are incident to such office or may be
assigned by the Chairman of the Board, the President or the Board of Directors.
SECTION 8. TREASURER. The Treasurer, subject to the control of the
Board of Directors, shall collect, receive, and safely keep all monies, funds
and securities of the Corporation, and attend to all its pecuniary affairs. He
or she shall keep full and complete accounts and records of all its
transactions, of sums owing to or by the Corporation, and all rents and profits
in its behalf.
SECTION 9. ASSISTANTS AND ACTING OFFICERS. The Chairman of the Board,
the President and the Board of Directors shall have the power to appoint any
person to act as assistant to any officer, or as agent for the Corporation in
the officer's stead, or to perform the duties of such officer whenever for any
reason it is impracticable for the officer to act personally, and the assistant
or acting officer or other agent so appointed by the Chairman of the Board, the
President or the Board of Directors shall have the power to perform all the
duties of the office to which he or she is so appointed to be assistant, or as
to which he or she is so appointed to act, except as such power otherwise may be
defined or restricted by the Chairman of the Board, the President or the Board
of Directors.
<PAGE>
SECTION 10. SALARIES. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such salary
by reason of the fact that he or she is also a Director of the Corporation.
ARTICLE V. FUNDS OF THE CORPORATION
SECTION 1. FUNDS. All funds of the Corporation shall be deposited or
invested in such depositories or in such securities as may be authorized from
time to time by the Board of Directors or appropriate committee under
authorization of the Board of Directors.
SECTION 2. NAME. All investments and deposits of funds of the
Corporation shall be made and held in its corporate name, except that securities
kept under a custodial agreement or trust arrangement with a bank or banking and
trust company may be issued in the name of a nominee of such bank or banking and
trust company and except that securities may be acquired and held in bearer
form.
SECTION 3. LOANS. All loans contracted on behalf of the Corporation
and all evidences of indebtedness that are issued in the name of the Corporation
shall be under the authority of a resolution of the Board of Directors. Such
authorization may be general or specific.
SECTION 4. CONTRACTS. The Board of Directors may authorize one or more
officers, or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such authorization
may be general or specific. In the absence of other designation, all deeds,
mortgages and instruments of assignment or pledge made by the Corporation shall
be executed in the name of the Corporation by the Chairman of the Board, the
President or one of the Vice Presidents and by the Secretary or Treasurer; the
Secretary, when necessary or required, shall affix the corporate seal thereto;
and when so executed no other party to such instrument or any third party shall
be required to make any inquiry into the authority of the signing officer or
officers.
SECTION 5. DISBURSEMENTS. All monies of the Corporation shall be
disbursed by check, draft, or written order only, and all checks and orders for
the payment of money shall be signed by such Officer or Officers as may be
designated by the Board of Directors. The Officers and employees of the
Corporation handling funds and securities of the Corporation shall give surety
bonds in such sums as the Board of Directors or appropriate committee may
require.
SECTION 6. PROHIBITED TRANSACTIONS. No directors or Officer of the
Corporation shall borrow money from the Corporation, or receive any compensation
for selling, aiding in the sale, or negotiating for the sale of any property
belonging to the Corporation, or for negotiating any loan for or by the
Corporation.
SECTION 7. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject
always to the specific directions of the Board of Directors:
<PAGE>
A. Any shares or other securities issued by any other
corporation and owned or controlled by this Corporation
may be voted at any meeting of security holders of such
other corporation by the Chairman of the Board, the
President or in their absence any Vice President of this
Corporation who may be present and designated by the
Board of Directors; and
B. Whenever, in the judgment of the Chairman of the Board,
the President, or in their absence, a designated Vice
President, it is desirable for this Corporation to
execute a proxy or written consent in respect to any
shares or other securities issued by any other
corporation and owned by this Corporation, such proxy or
consent shall be executed in the name of this Corporation
by the Chairman of the Board, the President, or a
designated Vice President of this Corporation in the
order as provided in clause A. of this section, without
necessity of any authorization by the Board of Directors,
affixation of corporate seal or countersignature or
attestation by another officer. Any person or persons
designated in the manner above stated as the proxy or
proxies of this Corporation shall have full right, power
and authority to vote the shares or other securities
issued by such other corporation and owned by this
Corporation the same as such shares or other securities
might be voted by this Corporation.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares
of the Corporation shall be in such form, consistent with law, as shall be
determined by the Board of Directors. Such Certificates shall be signed by the
Chairman of the Board, the President, or a Vice President, and the Secretary, or
by another officer designated by the Chairman of the Board, the President or the
Board of Directors. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except as provided in
Section 6 of this Article VI.
SECTION 2. FACSIMILE SIGNATURES AND SEAL. The seal of the Corporation
on any certificates for shares may be a facsimile. The signature of the
Chairman of the Board, the President or other authorized officer upon a
certificate may be a facsimile if the certificate is manually signed on behalf
of a transfer agent, or a registrar, other than the Corporation itself or an
employee of the Corporation.
SECTION 3. SIGNATURE BY FORMER OFFICER. In case any officer who has
signed or whose facsimile signature has been placed upon any certificate for
shares shall have ceased to be such
<PAGE>
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she were such officer at the date of its issue.
SECTION 4. TRANSFER OF SHARES. Prior to due presentment of a
certificate for shares for registration of transfer, the Corporation may treat
the shareholder of such shares as the person exclusively entitled to vote, to
receive notifications and otherwise to have and exercise all the rights and
powers of an owner. Where a certificate for shares is presented to the
Corporation with a request to register for transfer, the Corporation shall not
be liable to the owner or any other person suffering loss as a result of such
registration of transfer if:
A. There were on or with the certificate the necessary
endorsements; and
B. The Corporation had no duty to inquire into adverse
claims or has discharged any such duty.
The Corporation may require reasonable assurance that said endorsements are
genuine and effective and in compliance with such other regulations as may be
prescribed by or under the authority of the Board of Directors:
SECTION 5. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
SECTION 6. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner
claims that his or her certificate for shares has been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner:
A. So requests before the Corporation has notice that such
shares have been acquired by a bona fide purchaser;
B. Files with the Corporation a sufficient indemnity bond;
and
C. Satisfies such other reasonable requirements as may be
prescribed by or under the authority of the Board of
Directors.
SECTION 7. CONSIDERATION FOR SHARES. The shares of the Corporation may
be issued for such consideration as shall be fixed from time to time by the
Board of Directors, provided that any shares having a par value shall not be
issued for a consideration less than the par value thereof. The consideration
to be received for shares may consist of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, contracts for services to be performed or other securities of the
Corporation. When the Corporation receives the consideration for which the
Board of Directors authorized the issuance of shares, the shares issued for that
consideration are fully paid and nonassessable, except as provided by Section
180.0622 of
<PAGE>
the Wisconsin Business Corporation Law which may require further assessment for
unpaid wages to employees under certain circumstances. The Corporation may
place in escrow shares issued for a contract for future services or benefits or
a promissory note, or make other arrangements to restrict the transfer of the
shares, and may credit distributions in respect of the shares against their
purchase price, until the services are performed, the benefits are received or
the note is paid. If the services are not performed, the benefits are not
received or the note is not paid, the Corporation may cancel, in whole or in
part, the shares escrowed or restricted and the distributions credited.
SECTION 8. UNCERTIFICATED SHARES. In accordance with Section 180.0626
of the Wisconsin Business Corporation Law, the Board of Directors may issue any
shares of any of its classes or series without certificates. The authorization
does not affect shares already represented by certificates until the
certificates are surrendered to the Corporation. Within a reasonable time after
the issuance or transfer of shares without certificates, the Corporation shall
send the Shareholder a written statement of the information required on share
certificates by Sections 180.0625 and 180.0627, if applicable, of the Wisconsin
Business Corporation Law, and by the Bylaws of the Corporation.
The Corporation shall maintain at its offices, or at the office of its
transfer agent, an original or duplicate stock transfer book containing the
names and addresses of all Shareholders and the number of shares held by each
Shareholder. If the shares are uncertificated, the Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
such, as the owner of shares for all purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Wisconsin.
SECTION 9. TRANSFER AGENT AND REGISTRAR. The Corporation may maintain
one or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors, where the shares of stock of the
Corporation shall be transferable. The Corporation also may maintain one or
more registry offices, each in charge of a registrar designated by the Board of
Directors, where such shares of stock shall be registered. The same person or
entity may be both a transfer agent and registrar.
SECTION 10. STOCK REGULATIONS. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the laws of the State of Wisconsin as it may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the Corporation.
<PAGE>
ARTICLE VII.
INDEMNIFICATION AND LIABILITY OF OFFICERS AND DIRECTORS
SECTION 1. INDEMNIFICATION.
A. Any person, or such person's estate or personal
representative, made or threatened with being made a
party to any action, suit, arbitration, or proceeding
(civil, criminal, administrative, or investigative,
whether formal or informal), which involves foreign,
federal, state or local law, by reason of the fact that
such person is or was a Director or Officer of this
Corporation or of any corporation or other enterprise for
which he or she served at this Corporation's request as a
director, officer, partner, trustee, member of any
decision-making committee, employee, or agent, shall be
indemnified by this Corporation for all reasonable
expenses incurred in the proceeding to the extent he or
she has been successful on the merits or otherwise.
B. In cases where a person described in subsec. A. is not
successful on the merits or otherwise, this Corporation
shall indemnify such person against liability and
reasonable expenses incurred by him or her in any such
proceeding, unless liability was incurred because the
person breached or failed to perform a duty he or she
owed to the Corporation and the breach or failure to
perform constituted any of the following:
1. A wilful failure to deal fairly with the
Corporation or its Shareholders in connection with
a matter in which the Director or Officer had a
material conflict of interest;
2. 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;
3. A transaction from which the Director or Officer
derived an improper personal profit; or
4. Wilful misconduct.
C. The determination whether indemnification shall be
required under subsec. B. shall be made, at the selection
of the Director or Officer, according to one of the
following methods:
1. By a majority vote of a quorum of the Board of
Directors consisting of directors not at the time
parties to the same or related proceedings. If a
quorum of disinterested directors cannot be
obtained, by majority
<PAGE>
vote of a committee duly appointed by the Board of
Directors and consisting solely of two or more
directors not at the time parties to the same or
related proceedings. Directors who are parties to
the same or related proceedings may participate in
the designation of members of the committee;
2. By independent legal counsel selected by a quorum
of the Board of Directors or its committee in the
manner prescribed in sub. 1. or, if unable to
obtain such a quorum or committee, by a majority
vote of the full Board of Directors, including
Directors who are parties to the same or related
proceedings; or
3. By the court conducting the proceedings or another
court of competent jurisdiction, either on
application by the Director or Officer for an
initial determination or on application for review
of an adverse determination under 1. or 2., above.
D. The termination of a proceeding by judgment, order,
settlement or conviction, or upon a plea of no contest or
an equivalent plea, does not, by itself, create a
presumption that indemnification of the Director or
Officer is not required.
E. A Director or Officer who seeks indemnification under
this section shall make a written request to the
Corporation.
F. Upon written request by a Director or Officer who is a
party to a proceeding described in subsec. A., this
Corporation may pay or reimburse his or her reasonable
expenses as incurred if the Director or Officer provides
the Corporation with all of the following:
1. A written affirmation of his or her good faith
belief that he or she has not breached or failed
to perform his or her duties to the Corporation;
and
2. A written undertaking, executed personally or on
his or her behalf, to repay the allowance, and
reasonable interest thereon, to the extent that it
is ultimately determined under subsections C. 1.
or C. 2., above, that indemnification is not
required or to the extent that indemnification is
not ordered by a court under subsection C. 3.,
above. The undertaking under this subsection
shall be an unlimited general obligation of the
Director or Officer, may be accepted without
reference to his or her ability to repay the
allowance, and may be secured or unsecured.
<PAGE>
G. This Article VII, Section 1 subsecs. A-F, shall also
apply where a person, or such person's estate or personal
representative, is made or threatened with being made a
party to any proceeding described in subsec. A by reason
of the fact that such person is or was an Employee of the
Corporation, except that in addition to the categories of
conduct set forth in subsec. B in relation to which the
Corporation has no duty to indemnify, the Corporation
also shall have no duty to indemnify the Employee against
liability and reasonable expenses incurred by him or her
in any such proceeding if liability was incurred because
the person breached or failed to perform a duty he or she
owed to the Corporation and the breach or failure to
perform constituted material negligence or material
misconduct in performance of the Employee's duties to the
Corporation.
H. Unless a Director or Officer of this Corporation has
knowledge that makes reliance unwarranted, a Director or
Officer, in discharging his or her duties to the
Corporation, may rely on information, opinions, reports
or statements, any of which may be written or oral,
formal or informal, including financial statements and
other financial data, if prepared or presented by any of
the following:
1. An officer or employee of the Corporation whom the
Director or Officer believes in good faith to be
reliable and competent in the matters presented;
2. Legal counsel, public accountants or other persons
as to matters the Director or Officer believes in
good faith are within the person's professional or
expert competence; or
3. In the case of reliance by a Director, a committee
of the Board of Directors of which the Director is
not a member if the Director believes in good
faith that the committee merits confidence.
This subsection does not apply to the liability of a
Director for improper declaration of dividends,
distribution of assets, corporate purchase of its own
shares, or distribution of assets to shareholders during
liquidation, or for corporate loans made to an Officer or
Director, under Wisconsin Business Corporation Law
Section 180.0832(1), or the reliance of a Director on
financial information represented as correct by corporate
officers or independent or certified public accountants
under Wisconsin Business Corporation Law Section 180.0826.
I. In discharging his or her duties to the Corporation and
in determining what he or she believes to be in the best
interest of the Corporation, a
<PAGE>
Director or Officer may, in addition to considering the
effects of any action on Shareholders, consider the
following:
1. The effects of the action on employees, suppliers
and customers of the Corporation;
2. The effects of the action on communities in which
the Corporation operates; or
3. Any other factor the Director or Officer considers
pertinent.
SECTION 2. LIMITED LIABILITY OF DIRECTORS AND OFFICERS TO CORPORATION
AND SHAREHOLDERS.
A. Except as provided in subsec. B. of this Section 2, a
Director or Officer is not liable to this 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 her
status as a Director, unless the person asserting
liability proves that the breach or failure to perform
constitutes any of the following:
1. A wilful failure to deal with the Corporation or
its Shareholders in connection with a matter in
which the Director had a material conflict of
interest;
2. 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;
3. A transaction from which the Director derived an
improper personal profit; or
4. Wilful misconduct.
B. This Section 2 does not apply to the liability of a
Director or Officer for improper declaration of
dividends, distribution of assets, corporate purchase of
its own shares, or distribution of assets to shareholders
during liquidation, or for corporate loans made to an
Officer or Director, under Wisconsin Business Corporation
Law Section 180.0832(1).
SECTION 3. CODE OF ETHICS.
<PAGE>
A. Directors, Officers and management employees shall
exercise the utmost good faith in all transactions
touching upon their duties to the Corporation and its
property. In their dealings with and on behalf of the
Corporation they are held to a strict rule of honesty and
fair dealing between themselves and the Corporation.
They shall not use their positions, or knowledged gained
therefrom, so that a conflict may arise between the
Corporation's interest and that of the individual.
A "conflict of interest" transaction means a transaction
with the Corporation in which a Director of the
Corporation has a direct or indirect interest. The
circumstances in which a Director of the Corporation has
an indirect interest in a transaction include but are not
limited to a transaction under any of the following
circumstances:
1. Another entity in which the Director has a
material financial interest or in which the
Director is a general partner is a party to the
transaction; or
2. Another entity of which the Director is a
director, officer or trustee is a party to the
transaction and the transaction is, or because of
its significance to the Corporation should be,
considered material by the Board of Directors of
the Corporation. A conflict of interest
transaction is not voidable by the Corporation
solely because of the Director's interest in the
transaction if any of the circumstances set forth
in Section 180.0831 of the Wisconsin Business
Corporation Law are true or occur.
B. All acts of Directors, Officers and management employees
shall be for the sole benefit of the Corporation in any
dealing which may affect it adversely.
C. No Director, Officer or management employee shall accept
any favor which might influence his official act or which
might reflect upon his business conduct.
D. Officers and management employees shall avoid outside
employment or activity which involves obligations which
may compete with or be in conflict with the interests of
the Corporation.
E. A full disclosure of all facts of any transaction which
is subject to any doubt shall be made to the Chairman of
the Board or the President of the Corporation before
consummating the same.
<PAGE>
F. A copy of this Article VII, Section 3, annually shall be
delivered to all Directors, Officers and management
employees, each of whom shall acknowledge receipt thereof
to the Secretary of the Corporation.
ARTICLE VIII. CORPORATE DIVIDENDS
The Board of Directors may from time to time declare dividends on its
outstanding shares in the manner and upon the terms and conditions provided by
law and its articles of incorporation.
ARTICLE IX. CORPORATE SEAL
The Board of Directors may provide a corporate seal which may be
circular in form and may have inscribed thereon the name of the Corporation and
the state of incorporation and the words "Corporate Seal."
ARTICLE X. FISCAL YEAR
The fiscal year shall be set by the Board of Directors.
ARTICLE XI. AMENDMENTS
SECTION 1. BY SHAREHOLDERS. These Bylaws may be altered, amended or
repealed and new bylaws may be adopted by the Shareholders by affirmative vote
of not less than a majority of the shares present or represented at an annual or
special meeting of the Shareholders at which a quorum is in attendance.
SECTION 2. BY DIRECTORS. These Bylaws may also be altered, amended or
repealed and new bylaws may be adopted by the Board of Directors by affirmative
vote of a majority of the number of Directors present at or participating in any
meeting at which a quorum is in attendance; but no bylaw adopted by the
Shareholders shall be amended or repealed by the Board of Directors if the bylaw
so adopted so provides.
SECTION 3. IMPLIED AMENDMENTS. Any action taken or authorized by the
Shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by affirmative vote of not less
than the number of shares or the number of Directors required to amend the
bylaws so that the bylaws would be consistent with such action, shall be given
the same effect as though the bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
<PAGE>
CERTIFICATE OF ADOPTION
THE UNDERSIGNED OFFICER OF UNITED WISCONSIN SERVICES, INC. ("UWS")
HEREBY CERTIFIES:
THE FOREGOING RESTATED AND AMENDED BYLAWS OF UWS WERE DULY ADOPTED AS OF
THE 1ST DAY OF APRIL, 1996.
______________/s___________________
Mary Traver, Secretary
CORPORATE SEAL
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 432,386
<DEBT-CARRYING-VALUE> 9,870
<DEBT-MARKET-VALUE> 10,019
<EQUITIES> 77,531
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 519,787
<CASH> 35,191
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 687,190
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 46,193
<POLICY-OTHER> 245,886
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 44,888
0
0
<COMMON> 12,600
<OTHER-SE> 192,430
<TOTAL-LIABILITY-AND-EQUITY> 687,190
261,649
<INVESTMENT-INCOME> 7,374
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<OTHER-INCOME> 7,266
<BENEFITS> 221,439
<UNDERWRITING-AMORTIZATION> 0
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<EPS-PRIMARY> .02
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<RESERVE-OPEN> 0
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