<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
<TABLE>
<CAPTION>
CHECK THE APPROPRIATE BOX:
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission only
/x/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
UNITED WISCONSIN SERVICES, INC.
-------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THOMAS R. HEFTY, PRESIDENT OF REGISTRANT
--------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1. Title of each class of securities to which transaction applies:
---------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
----------------------------------------------------------------
5. Total fee paid:
----------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
1. Amount Previously Paid:
----------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
----------------------------------------------------------------
3. Filing Party:
----------------------------------------------------------------
4. Date Filed:
----------------------------------------------------------------
<PAGE>
[LOGO]
401 West Michigan Street
Milwaukee, Wisconsin 53203
(414) 226-6900
APRIL 18, 1997
To All Shareholders:
You are cordially invited to attend the Company's 1997 Annual Meeting of
Shareholders on May 28, 1997, in Eau Claire, Wisconsin.
The Annual Meeting will begin promptly at 11:00 a.m. at the Ramada Inn,
1202 West Clairemont Avenue, Eau Claire, Wisconsin.
The official Notice of Annual Meeting, Proxy Statement and appointment of
proxy form are included with this letter. The matters listed in the Notice of
Annual Meeting are described in detail in the Proxy Statement.
The vote of every shareholder is important to us. Please note that
returning your completed proxy will not prevent you from voting in person at the
Annual Meeting if you wish to do so. Your cooperation in promptly signing,
dating and returning your proxy will be greatly appreciated.
Sincerely,
/s/Thomas Hefty
------------------------
Thomas R. Hefty
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF COMMON STOCK OF UNITED WISCONSIN SERVICES, INC.:
The Annual Meeting of Shareholders (the "Meeting") of United Wisconsin
Services, Inc. (the "Company") will be held at the Ramada Inn, 1202 West
Clairemont Avenue, Eau Claire, Wisconsin, on Wednesday, May 28, 1997 at 11:00
a.m. local time, for the following purposes:
1. To elect three directors of the Company for terms expiring at the 2000
Annual Meeting of Shareholders;
2. To elect one director of the Company for a term expiring at the 1998 Annual
Meeting of Shareholders; and
3. To transact any other business as may properly come before the Meeting or
any adjournments or postponements thereof.
Only shareholders of record at the close of business on March 12, 1997, the
record date for the Meeting, are entitled to receive notice of and to vote at
the Meeting or any adjournments or postponements thereof.
A copy of the Proxy Statement furnished in connection with the solicitation
of proxies by the Company's Board of Directors for use at the Meeting
accompanies this Notice.
Shareholders who cannot attend in person are requested to date, fill in,
sign and return the enclosed proxy in the envelope provided. You may revoke
your proxy at any time prior to the voting thereof by advising the Secretary of
the Company in writing (by subsequent proxy or otherwise) of such revocation at
any time before it is voted.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY
IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
/s/Stephen E. Bablitch.
------------------------
Stephen E. Bablitch,
SECRETARY
Milwaukee, Wisconsin
April 18, 1997
<PAGE>
[LOGO]
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of United Wisconsin Services, Inc. (the
"Company") for use at the Annual Meeting of Shareholders (the "Meeting") to be
held at the Ramada Inn, 1202 West Clairemont Avenue, Eau Claire, Wisconsin,
Wednesday, May 28, 1997 at 11:00 a.m. local time, and at any adjournments or
postponements thereof.
Only holders of record of shares of common stock, no par value per share
("Common Stock"), of the Company at the close of business on March 12, 1997, the
record date for the Meeting, are entitled to receive notice of and to vote at
the Meeting. Shareholders will be entitled to one vote for each share of Common
Stock held. On March 31, 1997, there were issued and outstanding 16,409,999
shares of the Common Stock.
When you sign and return the enclosed appointment of proxy form, the shares
of the Common Stock represented thereby will be voted FOR the nominees for
directors listed on pages 3 and 4, unless otherwise indicated on the proxy form.
The Board of Directors expects all nominees to be available for election. In
case any nominee is not available, the proxy holders may vote for a substitute.
Returning your completed proxy form will not prevent you from voting in person
at the Meeting should you be present and wish to do so. You may revoke your
proxy at any time before it is voted by advising the Secretary of the Company of
such revocation in writing (by subsequent proxy or otherwise).
The Company knows of no specific matter to be brought before the Meeting
that is not referred to in the Notice of Annual Meeting. If any such matter
properly comes before the Meeting, it is the intention of the persons acting
pursuant to the enclosed appointment of proxy form to vote the shares
represented thereby in accordance with their best judgment.
Directors will be elected at the Meeting by a plurality of the votes cast
at the Meeting. Abstentions will be included in the determination of shares
present and voting for purposes of determining whether a quorum exists. Broker
non-votes will not be so included. Neither abstentions nor broker non-votes are
counted in determining whether a proposal has been approved.
Officers and other employees of the Company may solicit proxies by personal
interview, telephone and facsimile, in addition to the use of the mails, but
will receive no additional compensation for such activities. The Company also
has made arrangements with brokerage firms, banks, nominees and other
fiduciaries to forward proxy solicitation materials for shares of the Common
Stock held of record by them to the beneficial owners of such shares. The
Company will reimburse them for reasonable out-of-pocket expenses.
The Annual Report to Shareholders for the year ended December 31, 1996, the
Notice of the Meeting, this Proxy Statement and the accompanying appointment of
proxy form were first mailed to shareholders on or about April 18, 1997.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of the
Common Stock as of March 31, 1997 by each shareholder known to the Company to
own beneficially more than five percent (5%) of the shares of the Common Stock
outstanding, by each director of the Company, each person nominated to be a
director, each of the executive officers of the Company who appear in the
Summary Compensation Table below, and all directors and officers of the Company
as a group. Unless otherwise indicated, each shareholder listed below has sole
voting and dispositive power with respect to shares of the Common Stock
beneficially owned.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned(2) Class
- ----- --------------------- -----
<S> <C> <C>
Blue Cross & Blue Shield United of Wisconsin(1) 6,207,075 37.8%
Wallace J. Hilliard(1) . . . . . . . . . . . . . . . . . . . 1,931,477 11.4
Ronald A. Weyers(1). . . . . . . . . . . . . . . . . . . . . 1,252,759 7.4
Northern Capital Management Incorporated(1). . . . . . . . . 1,021,180 6.2
Thomas R. Hefty (2)(3)(4). . . . . . . . . . . . . . . . . . 55,071 *
Samuel V. Miller (2)(3). . . . . . . . . . . . . . . . . . . 475,852 2.8
Roger A. Formisano (2)(3)(4) . . . . . . . . . . . . . . . . 19,893 *
C. Edward Mordy (2)(4) . . . . . . . . . . . . . . . . . . . 35,345 *
Penny J. Siewert(2)(4) . . . . . . . . . . . . . . . . . . . 5,757 *
Richard A. Abdoo . . . . . . . . . . . . . . . . . . . . . . 1,800 *
Thomas A. Bausch . . . . . . . . . . . . . . . . . . . . . . 1,300 *
Jane T. Coleman. . . . . . . . . . . . . . . . . . . . . . . 3,000 *
Michael D. Dunham. . . . . . . . . . . . . . . . . . . . . . -0- *
James L. Forbes. . . . . . . . . . . . . . . . . . . . . . . 2,500 *
James C. Hickman . . . . . . . . . . . . . . . . . . . . . . 1,200 *
William R. Johnson . . . . . . . . . . . . . . . . . . . . . 5,500 *
Eugene A. Menden . . . . . . . . . . . . . . . . . . . . . . 2,500 *
Donald P. Muench(3). . . . . . . . . . . . . . . . . . . . 2,000 *
Arthur W. Nesbitt. . . . . . . . . . . . . . . . . . . . . . 3,150 *
William C. Rupp, M.D.. . . . . . . . . . . . . . . . . . . . -0- *
Carol N. Skornicka . . . . . . . . . . . . . . . . . . . . . -0- *
All directors and executive officers as a group (21 persons)(2)(4) 662,601 3.9
- -------------------
</TABLE>
* Amount represents less than 1% of the total shares of the Common Stock
issued and outstanding.
(1) Blue Cross & Blue Shield United of Wisconsin's address is 1515 North
River Center Drive, Milwaukee, Wisconsin 53212; Mr. Hilliard's address
is 3100 AMS Boulevard, Green Bay, Wisconsin 54313; Mr. Weyer's
address is 3100 AMS Boulevard, Green Bay, Wisconsin 54313; and
Northern Capital Management Incorporated's address is 8018 Excelsior
Drive, Suite 300, Madison, Wisconsin 53717-1951.
(2) Includes the following number of shares covered under options
exercisable within 60 days of March 31, 1997: Mr. Hefty, 39,157; Mr.
Miller, 473,852; Mr. Formisano, 15,581; Mr. Mordy 18,362; Ms. Siewert,
3,625, and all directors and officers as a group, 593,237.
(3) Includes shares with respect to which such person shares voting power
and dispositive power with his or her spouse: Mr. Hefty,
2,000 shares; Mr. Miller, 2,000 shares; Mr. Formisano, 3,750 shares;
and Mr. Muench, 1,000 shares.
(4) Includes the following shares held under the Company's 401(k) plan, as
to which such person has dispositive power: Mr. Hefty, 2,414 shares;
Mr. Formisano, 562; Mr. Mordy, 2,883; Ms. Siewert, 1,482; and all
directors and officers as a group, 13,303.
Blue Cross & Blue Shield United of Wisconsin ("Blue Cross") owns 37.8% of
the issued and outstanding shares of the Common Stock. Three of the Company's
nine directors will be directors of Blue Cross as of the date of the Meeting.
It is anticipated that Blue Cross will vote its shares of the Common Stock in
favor of each of the nominees.
-2-
<PAGE>
ITEM 1 - ELECTION OF DIRECTORS
Effective as of the date of the Meeting, the Company's Bylaws fix the
number of directors at nine. The Board of Directors is divided into three
classes, whose members each serve terms of three years (and until their
successors are elected and qualified). The terms of one of the three classes
expire at each annual meeting of shareholders. Messrs. Abdoo, Hefty and Johnson
are in the class of directors whose terms expire at the Meeting. They have been
nominated to serve as directors for terms expiring at the Annual Meeting of
Shareholders in 2000 and until their successors are elected and qualified. The
terms of Mr. Menden and Mr. Dunham (who was selected by the Board of Directors
to fill the vacancy created by the resignation of Mr. Muench) will expire at the
Annual Meeting of Shareholders in 1998. The Company also has realigned the
number of directors within each class, so that each class now includes three
directors. The directorship held by Ms. Coleman, which expires this year, is
being moved to the class with terms expiring in 1998. Ms. Skornicka has been
nominated to replace Ms. Coleman, who is resigning, and, accordingly, Ms.
Skornicka has been nominated to serve as a director for a term expiring at the
Annual Meeting of Shareholders in 1998 and until her successor is elected and
qualified. The terms of Messrs. Forbes and Hickman and Dr. Rupp (who was
selected by the Board of Directors to fill the vacancy created by the
resignation of Thomas A. Bausch) will expire at the Annual Meeting of
Shareholders in 1999. There are no family relationships among any of the
directors, nominees and/or executive officers of the Company.
The nominees standing for election have been approved by the Board of
Directors. The Board of Directors has no reason to believe that any nominee
will be unable or unwilling to serve as a director if elected. The name and age
as of March 31, 1997, and certain additional information, as to each such
nominee and each Director serving an unexpired term are as follows:
NOMINEES STANDING FOR ELECTION
NOMINEES FOR ELECTION AT THIS MEETING WITH TERMS EXPIRING IN 2000
Name and Age Principal Occupation During Past Five Years
- ------------ -------------------------------------------
Richard A. Abdoo Director of the Company since August 1991; Director of
Age: 53 Blue Cross from May 1991 until May 1997; Chairman of the
Board,President and Chief Executive Officer of
Wisconsin Energy Corporation, a diversified energy
services holding company, since May 1991; Chairman of
the Board and Chief Executive Officer of Wisconsin
Electric Power Company since 1990; Director of
Wisconsin Energy Corporation since 1988; Director of
Wisconsin Electric Power Company since 1989; Chairman
of the Board and Chief Executive Officer of Wisconsin
Natural Gas Company from 1990 to 1995; Director of
Wisconsin Natural Gas Company from 1989 to 1995;
Director of Marshall & Ilsley Corporation, a bank
holding company, and Sundstrand Corporation.
Thomas R. Hefty Director of the Company since 1983; President of the
Age: 49 Company since December 1986 and Chairman of the Board
and Chief Executive Officer of the Company since
July 1991; Chairman of the Board and Director of Blue
Cross since 1988; President of Blue Cross since 1982;
Deputy Insurance Commissioner for the Office of the
Commissioner of Insurance for the State of Wisconsin
from 1979 to 1982; Director of Artisan Funds, Inc., an
investment company registered under the Investment
Company Act of 1940, as amended.
-3-
<PAGE>
William R. Johnson Director of the Company since May 1993; President of
Age:70 Johansen Capital Associates,Inc., a financial and
investment consultant to corporations and individuals,
since 1984; Chairman, President and Chief Executive
Officer of National Investment Services of America,
Inc., an investment manager of pension, profit sharing
and other funds, from 1968 to 1984; Director of Munich
American Reinsurance and Munich Management Company, the
U.S. branch of Munich Reinsurance, both reinsurance
companies.
NOMINEES FOR ELECTION AT THIS MEETING WITH TERM EXPIRING IN 1998
Carol N. Skornicka Vice President, Secretary and General Counsel of
Age: 55 Midwest Express Holdings, Inc. and Midwest Express
Airlines, Inc. since May 1996; Secretary of the
Wisconsin Department of Industry, Labor and Human
Relations from 1991 to May 1996; Director of Astral
Aviation, Inc. since May 1996.
CONTINUING DIRECTORS
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 1998
Eugene A. Menden Director of the Company since August 1991; Director of
Age: 66 Blue Cross from January 1987 until May 1992. Prior to
retirement, Director of International Finance for
Marquette Electronics, Inc., a manufacturer of medical
electronic products. Served as Vice President of
Finance for Marquette Electronics, Inc. from 1970 to
February 1991, as Treasurer from 1970 to 1989, and as a
director since 1972.
Michael D. Dunham Director of Blue Cross from August 1996 until May 1997;
Age: 51 President and a director of Effective Management
Systems, Inc., a manufacturer of integrated
manufacturing and business management software, since
its incorporation in 1978.
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 1999
James L. Forbes Director of the Company since August 1991; Director
Age: 64 Blue Cross since May 1974; President and Chief
Executive Officer of Badger Meter, Inc., a manufacturer
of products using flow measurement technology, since
1987; Director of Badger Meter, Inc., Universal Foods
Corporation, an international manufacturer and marketer
of value-added food products, Firstar Corporation, a
bank holding company, and Firstar Trust Company, a
subsidiary of Firstar Corporation.
James C. Hickman Blue Director of the Company since August 1992;
Age: 69 Director ofCross since December 1986; Emeritus
Professor and Emeritus Dean of the School of Business
of the University of Wisconsin-Madison ("UW School of
Business") since July 1993; Professor in the UW School
of Business from 1990 to 1993; Dean of the UW School of
Business from 1985 to 1990.
William C. Rupp,M.D. President and Chief Executive Officer of
Age: 50 Luther/Midelfort Mayo Health System since
October 1992; President of Midelfort Clinic from 1991
through October 1992; practicing physician in oncology
since August 1982.
The affirmative vote of a plurality of the votes cast is required for the
election of directors. Unless otherwise specified, the shares of the Common
Stock represented by the proxies solicited hereby will be voted in favor of the
election of the above-described nominees. If at or prior to their election, any
one or more of the nominees is unwilling or unable to serve, the proxies shall
have discretionary authority to select and/or vote for substituted nominees.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE NOMINEES FOR DIRECTORS.
-4-
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
In 1996, the Board of Directors held five meetings. Each director attended
at least 75% of these meetings. During 1996 each director also attended at
least 75% of the meetings of the committees of the Board of Directors
("Committees") held during his or her tenure as a Committee member. The Board
of Directors has standing Executive, Finance, Management Review and Audit
Committees.
The Executive Committee discharges certain of the responsibilities of the
Board of Directors when so instructed by the Board and studies proposals and
makes recommendations to the Board. Specifically, the Executive Committee has
the authority to approve long range corporate and strategic plans, advise and
consult with management on corporate policies, approve the annual operating plan
and approve major changes in policy affecting new services and programs. The
Executive Committee held eight meetings during 1996. Beginning in 1997, it is
anticipated that the Executive Committee will not meet regularly but instead
will meet only when the entire Board of Directors is unable to do so. As of the
date of the Meeting the members of the Executive Committee will be Messrs.
Forbes (Chairman), Abdoo, Hefty, Hickman and Johnson.
The Finance Committee approves investment policies and plans and approves
the investment of funds of the Company, consults with management regarding real
estate, accounts receivable and other assets, determines the amounts and types
of insurance carried by the Company, advises and consults with management
regarding selection of insurance carriers and corporate tax policies and
discharges certain other responsibilities of the Board of Directors when so
instructed by the Board. The Finance Committee held four meetings during 1996.
As of the date of the Meeting the members of the Finance Committee will be
Messrs. Hefty, Johnson and Menden.
The Management Review Committee evaluates the performance of the Company's
executive officers, approves executive officer development programs, determines
the compensation of the executive officers and reviews management's
recommendations as to the compensation of other key personnel, acts as the
nominating committee for officers and directors and makes recommendations to the
Board of Directors regarding the types, methods and levels of director
compensation, administers the compensation plans for the officers, directors and
key employees, and discharges certain other responsibilities of the Board of
Directors when so instructed by the Board. The Management Review Committee will
consider a nominee for election to the Board of Directors recommended by a
shareholder if the shareholder submits the nomination in compliance with the
requirements of the Company's Bylaws relating to nominations by shareholders.
The Management Review Committee held four meetings during 1996. As of the date
of the Meeting the members of the Management Review Committee will be Messrs.
Forbes and Abdoo.
The Audit Committee reviews the scope and timing of the audit of the
Company's financial statements and reviews with the Company's independent public
accountants the Company's management policies and procedures with respect to
auditing and accounting controls. The Audit Committee also reviews with the
independent public accountants the audited financial statements for the Company
and the auditors' reports and management letter. The Audit Committee selects
and engages the Company's independent public accountants and reviews and
approves all related party transactions. In addition, it reviews and evaluates
Conflict of Interest statements and discharges certain other responsibilities of
the Board of Directors when so instructed by the Board. The Audit Committee
held four meetings during 1996. As of the date of the Meeting the members of
the Audit Committee will be Messrs. Hickman and Menden.
-5-
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are officers or employees of Company receive no compensation
as such for service as members of the Board of Directors or Committees of the
Board. A director who is not an officer or employee of the Company receives a
fee of $1,100 for each day on which he or she attends one or more Board or
Committee meetings, regardless of the number of meetings attended that day, and
a monthly retainer of $750. In addition, each Committee Chairman receives a
monthly fee of $250. Pursuant to the 1995 Director Stock Option Plan of United
Wisconsin Services, Inc., each director has received in connection with his or
her service as a director an option to purchase 3,000 shares of Common Stock at
an exercise price equal to the fair market value of the Common Stock on the date
of grant.
NOMINATIONS FOR DIRECTORS BY SHAREHOLDERS
The Board of Directors will consider a nominee for election to the Board
recommended by a shareholder if the shareholder submits the nomination in
compliance with the requirements of the Company's Bylaws relating to nominations
by shareholders. Article II, Section 1(B) of the Company's Bylaws provides that
if a shareholder desires to make a nomination for the election of directors at
an annual meeting, he or she must give timely written notice of the nomination
to the Secretary of the Company. Notice is timely if received by the Secretary
at the Company's principal office not less than 60 days nor more than 90 days
prior to the last Wednesday in May in the year of the applicable annual meeting.
The notice must set forth the shareholder's name and address as they appear on
the Company's books; the class and number of shares of Common Stock beneficially
owned by such shareholder; a representation that such shareholder is a holder of
record of shares entitled to vote at the meeting and intends to appear at the
meeting, in person or by proxy, to make the nomination; the name and residence
address of the nominee; a description of all arrangements or understandings
between the shareholder and the nominee (and any other person or persons)
pursuant to which the nomination is to be made; the written consent of the
nominee to serve if elected; and certain other information. The notice must be
signed by the shareholder of record who intends to make the nomination (or his
or her duly authorized proxy or other representative) and must bear the date of
signature of such shareholder or representative. Article II, Section 2(B) of
the Bylaws provides that notices with respect to any nomination for a Board
election to be held at any special meeting must contain all the information set
forth above and must be received by the Secretary of the Company not earlier
than 90 days and not later than the later of 60 days prior to the special
meeting or ten days after notice of such meeting is first given to shareholders.
Shareholders wishing to submit a nomination should review the Bylaw requirements
regarding nominations by shareholders and should communicate with the Secretary,
United Wisconsin Services, Inc., 401 West Michigan Street, Milwaukee, Wisconsin
53203, for further information.
EXECUTIVE COMPENSATION
Pursuant to the Service Agreement (as hereinafter described), certain
executive officers of the Company provide services to Blue Cross. Costs and
expenses associated therewith are shared in accordance with the terms of the
Service Agreement. See "Certain Transactions." The following table summarizes
the total compensation paid by the Company or its subsidiaries to the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company for services rendered to the Company and Blue Cross for the years
ended December 31, 1996, 1995 and 1994.
-6-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
OTHER ANNUAL SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION UNDERLYING PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) ($)(1,2) ($)(4) OPTIONS/SARS (#) ($)(1) ($) (5)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas R. Hefty 1996 $410,028 $177,542 $9,355 30,000 -- $3,750
CHAIRMAN OF THE 1995 390,024 91,265 6,693 -- $10,832 3,750
BOARD, PRESIDENT & 1994 290,016 179,230 -- 45,543 -- 3,750
CHIEF EXECUTIVE
OFFICER
Samuel V. Miller (6) 1996 500,004 1,500,000(3) 89,169 434,563 -- --
EXECUTIVE VICE 1995 77,652 83,350(3) -- 198,019 -- --
PRESIDENT; PRESIDENT
OF AMERICAN MEDICAL
SECURITY HOLDINGS, INC.
Roger A. Formisano 1996 235,128 61,604 3,424 15,000 -- 3,750
EXECUTIVE VICE 1995 179,840 41,004 4,999 -- 4,406 3,750
PRESIDENT & CHIEF 1994 137,940 61,797 1,324 17,024 -- 3,449
OPERATING OFFICER;
PRESIDENT OF
COMPCARE HEALTH
SERVICES INSURANCE
CORPORATION AND
MERIDIAN RESOURCE
CORPORATION
C. Edward Mordy 1996 176,040 55,805 3,106 10,000 -- 3,750
VICE PRESIDENT & 1995 161,496 18,734 2,567 -- 5,502 3,750
CHIEF FINANCIAL 1994 133,464 52,318 -- 22,816 -- 3,337
OFFICER
Penny J. Siewert(7) 1996 163,152 53,677 1,737 7,000 -- 3,017
VICE PRESIDENT OF 1995 117,388 33,808 -- 7,500 -- 2,935
REGIONAL SERVICES
</TABLE>
- -----------
(1) Amounts include compensation earned and deferred at the election of
the named executive officer during the fiscal years indicated and paid
subsequent to the end of each fiscal year.
(2) Amounts represent bonuses earned under both the Company's Profit
Sharing Plan and Management Incentive Plan.
(3) Amounts represent bonuses earned by Mr. Miller pursuant to the terms
of his employment agreement with the Company.
(4) Amounts represent reimbursement for the payment of taxes and the
payout for unused personal days. Except for Mr. Miller, the amounts
indicated do not include perquisites and other personal benefits to
the named executive officers which for each such officer did not
exceed the lesser of $50,000 or 10% of the officer's total annual
salary and bonus.
(5) Amounts represent the Company's matching contributions to the
UWSI/BCBSUW 401(k) Plan.
(6) Mr. Miller became an employee of the Company in November 1995, and
compensation information reflects amounts earned since that time.
(7) Ms. Siewert was promoted to an executive officer of the Company on
September 1, 1995.
-7-
<PAGE>
The following table details the options granted in the last fiscal year to the
executive officers listed in the Summary Compensation Table. No stock
appreciation rights ("SARs") were granted in the last fiscal year.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------------------
# OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR POTENTIAL REALIZABLE VALUE AT ASSUMED
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ANNUAL RATES OF STOCK PRICE
EXECUTIVE GRANTED (1) FISCAL YEAR ($/SHARE) DATE APPRECIATION FOR OPTION TERM
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Hefty 30,000 1.63% $22.875 01/01/08 $546,156.40 $1,467,496.47
Samuel V. Miller (1) 275,833(2) 15.02% 18.130 10/31/07 3,552,302.21 9,267,162.92
158,730 8.64% 25.200 12/16/08 3,183,422.12 8,553,704.95
Roger A. Formisano 15,000 0.82% 22.875 01/01/08 273,078.20 733,748.24
C. Edward Mordy 10,000 0.54% 22.875 01/01/08 182,052.13 489,165.49
Penny J. Siewert 7,000 0.38% 22.875 01/01/08 127,436.49 342,415.84
</TABLE>
- -----------
(1) Mr. Miller's options were fully vested when they were granted. All
other options granted vest at the rate of 25% each year on the
anniversary of the grant date. All options listed for Messrs. Hefty,
Formisano, Mordy and Ms. Siewert were granted on 1/2/96.
(2) These options were granted to Mr. Miller in connection with the merger
of the Company and American Medical Security Group, Inc. ("AMSG") in
substitution for existing options he held to purchase shares of AMSG
from the Company.
-8-
<PAGE>
No SARs or options were exercised by any of the executive officers listed in the
Summary Compensation Table during 1996. The number of unexercised SARs and
options and the total value of unexercised in-the-money SARs and options at
December 31, 1996 are shown in the following table:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FY-END (#) FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
- ---- ---------------------------- -------------------------
<S> <C> <C>
Thomas R. Hefty. . . . . . 45,271 / 70,271 $250,575 / $350,575
Samuel V. Miller (2) . . . 473,852 / 158,730 $2,437,783 / $166,667
Roger A. Formisano . . . . 15,074 / 28,199 $62,878 / $113,034
C. Edward Mordy. . . . . . 22,658 / 30,158 $125,288 / $158,413
Penny J. Siewert . . . . . 1,875 / 12,625 $7,266 / $45,422
</TABLE>
- -----------
(1) Options become immediately exercisable upon change in control of the
Company. A change in control includes: the acquisition by certain
persons or groups of 25% or more of the outstanding Common Stock; a
change in the membership of a majority of the Board of Directors, if
not approved by the incumbent Directors; or the approval by the
Company's shareholders of a plan of liquidation, an agreement to sell
substantially all of the Company's assets, or certain mergers,
consolidations or reorganizations.
(2) All of Mr. Miller's options were vested on the date of the grant.
However, the option on 158,730 shares that Mr. Miller received on
December 16, 1996 is not exercisable prior to six months following the
date of its grant.
LONG-TERM INCENTIVE PLAN
The Company maintains a Long-Term Incentive Plan ("LTIP") for, among
others, the executive officers of the Company. The LTIP is administered by the
Company's Management Review Committee. Awards are based on the achievement of
certain growth objectives established at the beginning of each three-year plan
cycle by the Management Review Committee. Goals are set at minimum, target and
maximum levels for each objective. Payout awards are determined at the end of
each three-year plan cycle and are prorated when actual results for any
objective lie between the minimum and maximum goal levels. Payout awards are
based on a percentage of each participant's average base salary range midpoint
during the applicable three-year cycle. The components and maximum payout
potential for the 1996-1998 Plan for Messrs. Hefty, Formisano and Mordy and Ms.
Siewert are: Average Annual Increase in Combined Surplus of Blue Cross and the
Company calculated in accordance with generally accepted accounting principles
("GAAP"), 8.33% (17.5% for Ms. Siewert); Average Annual Increase in Government
Programs Reimbursement, 2.5% (7.5% for Ms. Siewert); Increase in Combined
Revenue for Blue Cross and the Company, 5.83%. For Ms. Siewert the third goal
is Increase in Blue Cross Individual Products Premium Revenue, 25%. Mr. Miller
is not eligible to participate in the LTIP.
-9-
<PAGE>
The potential value of payouts under the 1996-1998 LTIP to the listed
executive officers is shown in the following table:
LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR
OTHER PERIOD UNTIL ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
NAME MATURATION OR PAYOUT PRICE-BASED PLANS(1)
--------------------------------------------------
Threshold Target Maximum
<S> <C> <C> <C> <C>
Thomas R. Hefty. . . . . . . 3 Years $32,668 $49,000 $81,668
Roger A. Formisano . . . . . . 3 Years 18,934 28,400 47,334
C. Edward Mordy. . . . . . . . 3 Years 14,201 21,300 35,501
Penny J. Siewert . . . . . . . 3 Years 37,500 56,250 93,750
</TABLE>
- ---------------
(1) The average midpoint of the named executive's annual base salary range
for the three-year term is calculated using the actual 1996 and 1997
base salary range midpoints and the estimated 1998 base salary range
midpoint. The estimated 1998 midpoint is 4% higher than the 1997
actual base salary range midpoint.
DEFINED BENEFIT PENSION PLANS
The Company provides a non-contributory defined benefit plan to its
salaried employees pursuant to the UWSI/BCBSUW Salaried Pension Plan ("Salaried
Plan"). The Salaried Plan was amended effective January 1, 1997 to change the
benefit formula from a final average pay formula to a cash balance formula. The
cash balance formula provides annual pay credits of 4% plus transition credits
of 4% for the number of years of service on December 31, 1996 (up to 15 years).
Interest is credited monthly on the cash balance account based on the yield on
10-year Treasury securities for the month of October of the previous year.
In addition, the Company provides to executives defined benefits from
the Supplemental Executive Retirement Plan ("SERP"). The SERP was amended,
effective January 1, 1997, to provide a total benefit (taking into account
Salaried Plan benefits and Social Security benefits) of 2% of final 5-year
average pay per year of service (up to 30 years).
-10-
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------
REMUNERATION 15 20 25 30 or more
<S> <C> <C> <C> <C>
$125,000 . . . . . . . . . $37,500 $50,000 $62,500 $75,000
$150,000 . . . . . . . . . $45,000 $60,000 $75,000 $90,000
$175,000 . . . . . . . . . $52,500 $70,000 $87,500 $105,000
$200,000 . . . . . . . . . $60,000 $80,000 $100,000 $120,000
$225,000 . . . . . . . . . $67,500 $90,000 $112,500 $135,000
$250,000 . . . . . . . . . $75,000 $100,000 $125,000 $150,000
$275,000 . . . . . . . . . $82,500 $110,000 $137,500 $165,000
$300,000 . . . . . . . . . $90,000 $120,000 $150,000 $180,000
$400,000 . . . . . . . . . $120,000 $160,000 $200,000 $240,000
$500,000 . . . . . . . . . $150,000 $200,000 $250,000 $300,000
$600,000 . . . . . . . . . $180,000 $240,000 $300,000 $360,000
</TABLE>
The persons named in the Summary Compensation Table who are participants in the
Salaried Plan and the SERP have the following years of credited service: Mr.
Hefty, fourteen years; Mr. Formisano, five years; Mr. Mordy, eleven years; Ms.
Siewert, twenty years.
MANAGEMENT REVIEW COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Management Review Committee of the Board of Directors (the "Committee")
is composed of five independent, non-employee directors. The Committee
establishes and directs the administration of all programs under which executive
benefits are provided and compensation is paid or awarded to the Company's
executive officers, evaluates executive officer performance and assesses the
effectiveness of the Company's executive compensation programs.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is designed to closely link
executive compensation to corporate performance and return to shareholders. To
this end, the Company has developed an overall compensation strategy and
implemented compensation plans that tie a significant portion of executive
compensation to the Company's success in meeting specified performance goals and
to appreciation in the Common Stock price. The overall objectives of this
strategy are to attract and retain the best possible executive talent, to
motivate these executives to achieve the goals contained in the Company's
business strategy, to link executive and shareholder interests through equity-
based plans and, finally, to provide a compensation package that recognizes
individual contributions as well as overall business results.
-11-
<PAGE>
Accordingly, the Company sets base salaries at approximately 90% of the
market average for comparable positions at comparable companies. The Company's
incentive compensation plans are designed to bring total compensation to
approximately 110% of the market average for comparable positions at comparable
companies for outstanding corporate and individual performance.
Each year the Committee conducts a full review of the Company's executive
compensation program to ensure the continuing correlation between Company
performance and executive compensation. During 1996 this process included
consultation with Hewitt Associates ("Hewitt") throughout the year on such
issues as base salaries, overall compensation and stock option awards. The
Committee's review included a comparison of the Company's executive compensation
against a peer group with which the Company competes for executive talent. The
Committee believes that the Company's most direct competitors for executive
talent are not necessarily all of the companies that would be included in a peer
group established for comparing shareholder returns. Consequently, the peer
group used for compensation analysis is not the same as the peer group index in
the Performance Graph included in this Proxy Statement.
The elements of the Company's executive compensation package are: base
salary, profit sharing, an annual management incentive performance-based bonus,
a long-term incentive plan and non-qualified Common Stock options. The
Committee's decisions with respect to each of these elements, including the
basis for the compensation awarded to the CEO, are discussed below. While the
elements of compensation described in this Report are considered separately, the
Committee takes into account the full compensation package afforded by the
Company to the individual, including pension benefits, supplemental retirement
benefits, insurance and other benefits. In reviewing the individual performance
of the executives whose compensation is detailed in this Proxy Statement, the
Committee takes into account the views of Mr. Hefty, the Company's CEO, for
positions other than that of the CEO.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits a
publicly held corporation's deductions for certain executive compensation in
excess of $1 million in taxable years beginning after December 31, 1993.
Certain performance-based compensation is excepted from the $1 million
limitation. In 1996, none of the Company's executives received compensation in
excess of $1 million for purposes of Section 162(m) and all 1996 executive
compensation is fully deductible. This includes the compensation paid to Mr.
Miller because, under the terms of his employment agreement, Mr. Miller's
compensation was structured using performance-based compensation and
compensation deferrals. The Committee has, however, reviewed Section 162(m) and
considered its impact on the Company's future executive compensation plans. At
this time, it is not anticipated that any of the Company's executives will
receive salary and bonus in 1997 in excess of Section 162(m)'s $1 million limit.
Therefore, the Committee did not take any action to modify its compensation
plans in accordance with Section 162(m). The Committee will continue to monitor
this situation and will take appropriate action if it is warranted in the
future.
BASE SALARIES
Base salaries for executive officers are determined initially by evaluating
and comparing the responsibilities of their positions and experience and by
reference to the competitive marketplace for executive talent. Salary
adjustments are determined by evaluating the performance of the Company and of
each executive officer and by surveying the industry to determine the average
industry change in executive base salary. In the case of executives with
responsibility for a particular business unit, such unit's financial results
also are a major consideration. The Committee, where appropriate, considers
non-financial performance measures such as increase in market share, gains in
administrative cost efficiency, improvements in product quality and improvements
in relations with customers, suppliers and employees.
When setting 1996 base salaries for the Company's executives, the Committee
considered competitive data which indicated that the base salaries of the
Company's executives were below competitive levels at approximately 81% of
estimated market value for the group as a whole. Accordingly, since the
Company's compensation philosophy calls for base salaries that are approximately
90% of the market average, executive officers, excluding the CEO, received base
salary increases of between 4.5% and 9.0%.
-12-
<PAGE>
ANNUAL INCENTIVE COMPENSATION
PROFIT SHARING PLAN
The Company annually establishes a Profit Sharing Plan for all employees
who are with the Company for the entire calendar year. The United Wisconsin
Services, Inc. 1996 Profit Sharing Plan (the "Profit Sharing Plan") compensated
employees based on corporate profitability, on individual business unit or
regional area profitability and on the attainment of high levels of customer
satisfaction, all measured against targets set at the beginning of the year.
Under the corporate profitability goal, the Profit Sharing Plan pays each
employee from 0% to 9% of base salary depending on the attainment of specified
profit levels. For employees to receive the 9% payout, the Company and Blue
Cross had to attain combined net income, excluding net income or loss from
extraordinary items, of $49.1 million or more. If a specified minimum level of
profitability had not been attained, no awards would have been made under any
portion of the Profit Sharing Plan.
An individual business unit's or regional area's financial performance was
required to attain specific levels of profitability based on the business unit's
or regional area's annual budget and/or prior year results for its employees to
receive an additional payout of up to 9% of compensation on the "Local
Component." The Profit Sharing Plan also contained a customer satisfaction
modifier which enabled employees to earn up to an additional 3% of annual
compensation for achievement of high customer satisfaction levels, generally in
excess of 93.5%, or which could reduce an award by up to 2% of annual
compensation for poorer levels of customer satisfaction. In total, the Profit
Sharing Plan paid the executives described herein between 8.5% and 10.7% of
annual compensation.
MANAGEMENT INCENTIVE PLAN
The Company's executive officers are eligible for an annual performance
bonus under the Management Incentive Plan. The bonus paid from this Plan has
two components: the Corporate Component and the Individual Performance/Expense
Ratio/Profit Sharing Component. The Corporate Component is equal to one times
the executive's total payout from the Profit Sharing Plan (two times the Profit
Sharing payout for the CEO) as described above.
The Individual Performance/Expense Ratio/Profit Sharing Component has three
parts. First, individual performance objectives are established for each
eligible executive. These individual objectives can include both financial and
non-financial measures related to the performance of the business units or
corporate departments for which the executive is responsible. To determine how
well executives other than the CEO have performed on their individual
performance objectives, the Committee considers input from the CEO as well as
other relevant factors. Not all individual performance objectives are
quantifiable and the Committee did not assign quantitative relative weights to
different factors or follow mathematical formulae. Therefore, the Committee
used discretion in evaluating the executives' achievements of their individual
performance objectives. Individual performance objectives are also established
for the CEO. The Committee evaluates all relevant data to determine to what
extent Mr. Hefty has met his performance expectations. Again, the Committee
uses its discretion in making this determination.
The second part of the Individual Performance/Expense Ratio/Profit Sharing
Component is based on the Company and Blue Cross's attainment of a combined
expense ratio target. The target ratio for minimum payout is based on the
achievement of the Annual Operating Plan ("AOP") expense ratio, while the middle
and maximum payout targets require improvement beyond the AOP ratio.
The third part of the Individual Performance/Expense Ratio/Profit Sharing
Component is based on the executive's payout from the Local Component of the
1996 Profit Sharing Plan. Bonus payments are made according to a schedule which
correlates percentages of base salary paid under the Local Component of the
Profit Sharing Plan with specific bonus amounts.
-13-
<PAGE>
Bonus amounts can range from 0% to 39% of annual compensation for
executives other than the CEO (up to 21% from the Corporate Component and up to
18% from the Individual Performance/Expense Ratio/Profit Sharing Component) and
from 0% to 72% of annual compensation for the CEO (up to 42% from the Corporate
Component and up to 30% from the Individual Performance/Expense Ratio/Profit
Sharing Component). For executives to earn the maximum award, they must have
achieved outstanding results on each of their individual goals; the
profitability of the business unit or regional area to which they are assigned
must have reached an exceptional level; and the Company and Blue Cross must have
achieved a combined return on equity, excluding net income or loss from
extraordinary items, of 22% or more as well as a combined expense ratio of 9.45%
or less. In 1996, the Company and Blue Cross's combined return on equity, as
defined by the Plan documents, was 0.8% and the final combined expense ratio was
10.37%. 1996 performance bonus awards for the executives discussed herein,
other than the CEO, ranged from 17.7% to 23.2% of annual compensation. These
awards were paid in 1997.
LONG-TERM INCENTIVE COMPENSATION
The Company's executive compensation strategy is to provide long-term
compensation at a competitive level for the HMO and insurance markets. It is
intended that two-thirds of the long-term compensation come from non-qualified
stock options while one-third is to come from the Long-Term Incentive Plan.
LONG-TERM INCENTIVE PLAN
The Company maintains an LTIP for, among others, the executive officers of
the Company. The LTIP is based on the achievement of certain growth objectives,
including improved surplus and premium revenue growth. Each year, the Committee
sets annual performance goals for the next three-year plan cycle. Goals are set
at minimum, target and maximum levels for each objective. Payout awards are
determined at the end of each three-year plan cycle and are prorated when actual
results for any objective lie between the minimum and maximum goal levels.
There were no payouts from the 1994 - 1996 LTIP for the executives discussed
herein.
STOCK OPTIONS
The Committee is responsible for administering the Company's stock option
program, which is designed to motivate employees to maximize shareholder value
and maintain a medium to long-term perspective. Option grants are made at the
fair market price on the date of grant and become exercisable in equal annual
installments over a four-year term, generally expiring 12 years after the date
of grant.
When determining the size of the option grants made to executives, the
Committee considers the results of a competitive market compensation survey
performed by Hewitt which primarily focuses on the Blue Cross and HMO markets.
The Committee also considers its own evaluation of the executives' past and
prospective contributions to the success of the Company, anticipated performance
requirements and contributions of each executive officer, and historical option
award data. Based on all of this information, the Committee awarded options
exercisable for 15,000, 10,000 and 7,000 shares of Common Stock to Mr.
Formisano, Mr. Mordy and Ms. Siewert, respectively. The awards to the CEO and
Mr. Miller are discussed below.
EXECUTIVE VICE PRESIDENT'S COMPENSATION
During 1995, the Company recognized the need to recruit and hire an
executive to direct its interests in its joint venture with AMSG. Due to the
specialized knowledge and experience required for this position, a nationwide
search was undertaken. At the end of 1995, Samuel V. Miller was hired as
Executive Vice President of the Company. Mr. Miller does not participate in the
Company's standard executive compensation programs. His compensation package
was determined through employment negotiations which took into account his
extensive experience at the senior levels of the financial services and
insurance industries, his outstanding skills and his familiarity with the small
group health insurance business. His compensation consists of base salary, an
annual performance bonus, and non-qualified Common Stock options and certain
other options. Pursuant to the terms of his employment agreement,
-14-
<PAGE>
Mr. Miller received a base salary of $500,004 for 1996.
Mr. Miller's employment contract provides for an annual performance bonus
of not less than $500,000 nor more than $1,000,000. The Committee awarded Mr.
Miller a bonus of $500,000 for 1996 based on the Committee's evaluation of his
overall achievements in his management of the AMSG joint venture.
In 1995, also pursuant to the terms of his employment contract, Mr. Miller
was granted an option to purchase 7,113 shares of AMSG Common Stock from the
Company. The grant, which included tandem stock appreciation rights, was made
at the fair market value on the date of grant, was exercisable immediately, and
terminates 12 years after the date of grant. Upon the Company's acquisition of
100% ownership of AMSG, Mr. Miller's AMSG option was converted to an option to
purchase 275,833 shares of UWS stock at $18.13 per share. Additionally, in
accordance with the terms of his employment contract, which provided for an
option grant upon the Company's acquisition of AMSG, Mr. Miller was granted an
option to purchase 158,730 shares of Common Stock on December 17, 1996. This
grant was made at "fair market value on the date of grant," was vested
immediately, exercisable six months after the date of grant and terminates 12
years after the date of grant. For purposes of this grant only, "fair market
value on the date of grant" was equal to the average of the closing prices of
Company stock on the ten (10) trading days immediately following completion of
the Company's acquisition of AMSG. Finally, again in accordance with his
employment contract, Mr. Miller received a transaction bonus of $1 million upon
completion of the Company's acquisition of AMSG.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Hefty's compensation for 1996 included base salary, profit sharing, and
management incentive bonus for a total of $587,570. As discussed herein, some
elements were paid in 1997 based on 1996 performance.
Mr. Hefty's base salary in 1995 was approximately 80% of the average base
salary for comparable positions, according to the previously mentioned Hewitt
compensation survey. Because the Company's compensation philosophy provides
that executive base salaries should be set at approximately 90% of the market
average for comparable positions at comparable companies, Mr. Hefty's base
salary for 1996 was increased to an amount which represents approximately 84% of
the December 1995 estimated market value of his position. Mr. Hefty received
8.5% of his 1996 base salary from the Profit Sharing Plan based on the Company's
combined return on equity of 0.8% and the Company's customer satisfaction
levels. Under the Management Incentive Plan, Mr. Hefty was awarded 34.8% of his
1996 base salary based on the Company's and Blue Cross' financial results and
his achievement of individual performance goals set at the beginning of the
year.
In determining the individual performance portion of Mr. Hefty's annual
incentive award, the Committee considered several events which evidenced his
personal contributions to the Company and its operating performance including
the increase in revenue in virtually all lines of specialty business and the
recruitment of Mr. Miller to manage the Company's AMSG interests.
Mr. Hefty did not receive a payout from the Company's LTIP for the 1994 -
1996 performance period but did receive an option to purchase 30,000 shares of
Common Stock.
CONCLUSION
After its review of the total compensation program for the executives of
the Company, the Committee continues to believe this program is competitive with
the programs provided by companies with which the Company competes. The
Committee believes that amounts paid under the incentive plans are appropriately
related to corporate and individual performance, yielding awards directly linked
to the financial and operational results of the Company and consistent with the
returns generated on behalf of the Company's shareholders.
Submitted by: James L. Forbes, Chairman Richard A. Abdoo
Donald P. Muench Jane T. Coleman
Arthur W. Nesbitt
-15-
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return of the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative total return
of companies included in the Center for Research in Security Prices (the "CRSP")
Total Return Index for the NYSE/AMEX/NASDAQ Market (U.S. Companies) and a
self-determined Peer Group of ten companies chosen by the Company.
Comparison of Five Year-Cumulative Total Returns
Performance Graph for United Wisconsin Services, Inc.
PREPARED BY THE CENTER FOR RESEARCH IN SECURITY PRICES
Produced on 02/20/97 including data to 12/31/96
[GRAPH]
Legend
Symbol CRSP Total Returns Index for:
____ / / United Wisconsin Services, Inc.
- --__-- * NYSE/AMEX/Nasdaq Stock Market (US Companies)
- ----- TRIANGLE Self-Determined Peer Group
12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
- -------- -------- -------- -------- -------- --------
100.0 241.0 237.2 287.8 179.9 219.1
100.0 109.7 122.0 121.4 165.5 200.6
100.0 127.7 191.4 229.7 298.9 288.9
Companies in the Self-Determined Peer Group
- COVENTRY CORP - EMPHESYS FINANCIAL GROUP INC - HUMANA INC - MID ATLANTIC
MEDICAL SVCS INC - OXFORD HEALTH PLANS INC - PHYSICIANS HEALTH SVCS INC -
RIGHTCHOICE MANAGED CARE INC - UNITED HEALTHCARE CORP - UNITED STATES
HEALTHCARE INC - WELLPOINT HEALTH NETWORKS INC
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/91.
E. Methodology for calculating the company index was modified at the request
of the company.
-16-
<PAGE>
CERTAIN TRANSACTIONS
SERVICE AGREEMENT. The Company and Blue Cross have entered into the
Service Agreement with respect to the reciprocal provision of certain services,
including sales and marketing, rental of office space, computerized data
processing, claims processing, and legal, investment, actuarial and other
management services. The company receiving a service is obligated to pay the
provider thereof an amount which varies depending upon the particular service
rendered, determined on either an allocated cost basis or based upon direct
costs. If the recipient can obtain any of the services under more favorable
terms by performing the services itself or by procuring them from a third party,
it is not obligated to renew the Service Agreement for those services if the
provider is unwilling to substantially match such terms. However, the Company
must continue to purchase claims processing services from Blue Cross through
December 31, 1997, pursuant to certain arrangements with Electronic Data Systems
Corporation ("EDS"). Pursuant to the Service Agreement, the Company received
net payments of $6.9 million, $5.7 million and $5.8 million from Blue Cross for
the years ended December 31, 1994, 1995 and 1996, respectively. The Service
Agreement is in effect until December 31, 1997 and may be renewed for a period
of one year on each succeeding January 1, subject to negotiation of the services
to be provided and the rates and allocations set forth therein. Pursuant to
Wisconsin law, the Service Agreement is filed with the Office of the
Commissioner of Insurance for the State of Wisconsin for its review to determine
whether the agreement is reasonable and fair to the interests of the insurance
companies which are parties to the agreement.
In 1984, Blue Cross entered into a servicing agreement (the "EDS Servicing
Agreement") whereby EDS would develop integrated processing systems, maintain
computer hardware and software and provide data processing personnel. Key
systems covered by this agreement include claims, membership, actuarial,
commission, general ledger, accounts payable and fixed assets. The term of the
EDS Servicing Agreement runs through December 31, 1999, with an option to
terminate upon one year's prior written notice, deliverable at any time. Blue
Cross will continue to receive services from EDS after expiration or early
termination, for a period of not less than six months and not more than two
years, to migrate its claims processing to a new provider of these services.
Blue Cross plans on exercising its right of early termination, if at all,
approximately one year prior to the target completion date for conversion to the
computer system operated by Blue Cross and Blue Shield of South Carolina. For
the years ended December 31, 1994, 1995 and 1996, the Company paid approximately
$3.2 million, $3.4 million and $3.5 million, respectively, for services pursuant
to the EDS Servicing Agreement.
HEALTH AND OTHER BENEFITS TO THE EMPLOYEES OF BLUE CROSS. Certain
subsidiaries of the Company provide health, life and other insurance benefits to
the employees of Blue Cross. Premium revenue received from Blue Cross for these
services totaled $3.8 million, $4.6 million and $4.4 million in 1994, 1995 and
1996, respectively. In addition, Blue Cross provides health insurance to
certain of the Company's employees.
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons owning in excess of ten percent
of the shares of the Common Stock outstanding to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the
exchange on which the Common Stock is traded. Officers, directors and ten
percent shareholders are also required to furnish the Company with copies of all
Section 16(a) forms they file.
Based upon a review of the information furnished to the Company, the
Company believes that during the fiscal year ended December 31, 1996, its
officers and directors and Blue Cross complied with all applicable
Section 16(a) filing requirements.
-17-
<PAGE>
AUDITORS
The Audit Committee of the Board of Directors has selected Ernst & Young
LLP as independent auditors for the Company for the year ending December 31,
1997. Ernst & Young has examined the accounts of the Company since 1988.
Representatives of Ernst & Young will be present at the Meeting, will be
available to respond to questions and may make a statement if they so desire.
OTHER MATTERS
The Company knows of no other matters to come before the Meeting. If any
other matters properly come before the Meeting, it is the intention of the
persons acting pursuant to the enclosed appointment of proxy form to vote the
shares represented thereby in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Pursuant to Article II of the Company's Bylaws, which provides procedures
by which shareholders may raise matters at annual meetings, proposals which
shareholders intend to present at the 1998 Annual Meeting of Shareholders must
be received by the Company no later than March 31, 1998 to be presented at that
meeting. To be eligible for inclusion in the proxy material for that meeting,
shareholder proposals must be received by
December 19, 1997.
UNITED WISCONSIN SERVICES, INC.
/s/ Stephen E. Bablitch
Stephen E. Bablitch
Secretary
Milwaukee, Wisconsin
April 18, 1997
A COPY (WITHOUT EXHIBITS) OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1996, WILL BE PROVIDED WITHOUT CHARGE TO EACH RECORD OR
BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK AS OF MARCH 12, 1996, ON THE
WRITTEN REQUEST OF SUCH PERSON DIRECTED TO: STEPHEN E. BABLITCH, SECRETARY,
UNITED WISCONSIN SERVICES, INC., 401 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN
53203.
-18-
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UNITED WISCONSIN SERVICES, INC.
401 West Michigan Street, Milwaukee, WI 53203
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. Hefty and C. Edward Mordy,
and each of them, proxies of the undersigned with power of substitution, to
vote all shares of the common stock the undersigned is entitled to vote at
the Annual Meeting of the Shareholders of United Wisconsin Services, Inc. to
be held on May 28, 1997 at 11:00 a.m., and at any adjournments thereof, as
indicated below.
The shares of common stock represented by this proxy will be voted as
directed. If no direction is specified, the shares of common stock will be
voted FOR Item 1.
TRIANGLE PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY TRIANGLE
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
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UNITED WISCONSIN SERVICES, INC. 1997 ANNUAL MEETING
1. ELECTION OF DIRECTORS: / / FOR all / / WITHHOLD AUTHORITY
FOR TERM EXPIRING IN 2000: nominees listed to to vote for all
1 - RICHARD A. ABDOO the left (except as nominees listed
2 - THOMAS R. HEFTY specified below). to the left.
3 - WILLIAM R. JOHNSON
FOR TERM EXPIRING IN 1998:
4 - CAROL N. SKORNICKA
(Instructions: To withhold authority to vote for any indicated nominee, write
the number(s) of the nominee(s) in the box provided to the right.) --) / /
2. With discretionary power upon and all other business that may properly
come before the meeting and upon matters incident to the conduct of the
meeting.
The Board of Directors recommends a vote FOR the nominees as directors.
Address Change?
MARK BOX / /
Indicate changes below.
Date __________________________
NO. OF SHARES__________________
/ /
SIGNATURE(S) IN BOX
Please sign exactly as your name appears on this proxy giving your full title
if signing as attorney or fiduciary. If shares are held jointly, each joint
owner should sign. If a corporation, please sign in full corporate name, by
duly authorized officer. If a partnership, please sign in partnership name by
authorized person.
