<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 PERIOD ENDED JUNE 30, 1998
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
Identification No.)
401 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53203-2896
(Address of principal executive offices) (Zip Code)
(414) 226-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all documents and
reports required to be filed by Section 13, or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock outstanding as of July 31, 1998 was 16,569,578.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- -------------
(000's omitted, except share data)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,078 $ 45,291
Investments--available for sale 294,192 267,764
Due from affiliates 1,620 6,024
Other receivables 10,921 12,863
Prepaid and other current assets 8,145 8,701
-------- --------
Total Current Assets 321,956 340,643
Investments--held to maturity 3,928 3,804
Property and equipment, net 36,839 37,169
Goodwill and other intangible assets, net 134,557 137,797
Other noncurrent assets 4,726 7,539
Net assets of discontinued operations 126,194 123,616
-------- --------
Total Assets $628,200 $650,568
-------- --------
-------- --------
</TABLE>
See Notes to Interim Consolidated Financial Statements.
2
<PAGE>
UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- -------------
(000's omitted, except share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Medical and other benefits payable $102,422 $126,329
Advance premiums 20,038 19,986
Due to affiliates 777 1,548
Payables and accrued expenses 20,401 28,932
Other current liabilities 24,305 15,389
-------- --------
Total Current Liabilities 167,943 192,184
Long-term Debt:
Affiliates 70,000 70,000
Other 53,132 53,378
Other noncurrent liabilities 7,956 8,629
-------- --------
Total Liabilities 299,031 324,191
Redeemable preferred stock--Series A adjustable
rate nonconvertible, $1,000 stated value,
25,000 shares authorized - -
Shareholders' Equity:
Preferred stock (no par value, 475,000 shares
authorized) - -
Common stock (no par value, $1 stated value,
50,000,000 shares authorized, 16,569,536 and
16,509,578 issued and outstanding at June 30,
1998 and December 31, 1997, respectively) 16,570 16,510
Paid-in capital 188,428 186,768
Retained earnings 121,021 117,331
Unrealized gains on available for sale
securities 3,150 5,768
-------- --------
Total Shareholders' Equity 329,169 326,377
-------- --------
Total Liabilities and Shareholders' Equity $628,200 $650,568
-------- --------
-------- --------
</TABLE>
See Notes to Interim Consolidated Financial Statements.
3
<PAGE>
UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
1998 1997 1998 1997
----------- ------------ ----------- ----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 226,956 $ 240,722 $ 461,915 $ 493,915
Net investment results 5,723 5,461 11,804 10,538
Other revenue 4,675 7,193 9,475 14,378
----------- ------------ ----------- -----------
Total Revenues 237,354 253,376 483,194 518,831
Expenses:
Medical and other benefits 174,325 183,279 353,610 378,062
Selling, general and administrative expenses 57,693 62,964 116,735 130,311
Interest expense 2,336 2,409 4,707 4,627
Amortization of goodwill and intangibles 2,195 2,023 4,435 4,024
----------- ------------ ----------- -----------
Total Expenses 236,549 250,675 479,487 517,024
----------- ------------ ----------- -----------
Income From Continuing Operations,
Before Income Taxes 805 2,701 3,707 1,807
Income Tax Expense 413 1,230 1,764 1,167
----------- ------------ ----------- -----------
Income From Continuing Operations 392 1,471 1,943 640
Income From Discontinued Operations:
Income from discontinued managed care and
specialty operations, net of tax 5,822 4,092 10,662 8,293
Transaction costs associated with spin off, net of tax 4,948 - 4,948 -
----------- ------------ ----------- -----------
Income from discontinued operations, net of tax 874 4,092 5,714 8,293
----------- ------------ ----------- -----------
Net Income $ 1,266 $ 5,563 $ 7,657 $ 8,933
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Earnings Per Common Share - Basic
Income from continuing operations $ 0.03 $ 0.09 $ 0.12 $ 0.04
Income from discontinued operations 0.05 0.25 0.34 0.51
----------- ------------ ----------- -----------
Net Income Per Common Share $ 0.08 $ 0.34 $ 0.46 $ 0.55
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Earnings Per Common Share - Diluted
Income from continuing operations $ 0.03 $ 0.09 $ 0.12 $ 0.04
Income from discontinued operations 0.05 0.25 0.34 0.50
----------- ------------ ----------- -----------
Net Income Per Diluted Common Share $ 0.08 $ 0.34 $ 0.46 $ 0.54
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
See Notes to Interim Consolidated Financial Statements.
4
<PAGE>
UNITED WISCONSIN SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------
1998 1997
-------------- --------------
(000's omitted)
<S> <C> <C>
Operating Activities:
Income from continuing operations $ 1,943 $ 640
Adjustments to reconcile income from continuing operations
to net cash used in operating activities:
Depreciation and amortization 7,791 9,035
Realized investment (gains) losses (1,481) 366
Deferred income tax expense (benefit) 185 (1,611)
Changes in operating accounts:
Other assets 8,619 3,781
Medical and other benefits payable (25,622) (23,505)
Advance premiums (123) (1,185)
Payables and accrued expenses (9,169) 1,592
Due to/from affiliates (771) 669
Other liabilities 8,226 (15,278)
-------------- --------------
Net Cash Used in Operating Activities (10,402) (25,496)
Investing Activities:
Acquisition of subsidiary (net of cash and cash equivalents acquired
of $2,773) 2,623 -
Purchases of available for sale securities (176,092) (140,217)
Proceeds from sale of available for sale securities 149,648 138,982
Purchases of property and equipment (2,075) (1,103)
Proceeds from sale of property and equipment 2 1,116
-------------- --------------
Net Cash Used in Operating Activities (25,894) (1,222)
Financing Activities:
Cash dividends paid (3,967) (3,940)
Issuance of common stock 1,718 1,108
Repayment of debt (837) (600)
-------------- --------------
Net Cash Used in Financing Activities (3,086) (3,432)
Net Cash Provided by Discontinued Operations 1,169 6,592
-------------- --------------
Cash and Cash Equivalents:
Net decrease (38,213) (23,558)
Balance at beginning of year 45,291 31,999
-------------- --------------
Balance at End of Period $ 7,078 $ 8,441
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Interim Consolidated Financial Statements.
5
<PAGE>
UNITED WISCONSIN SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
Note A. Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three-and six-month
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the United
Wisconsin Services, Inc. ("UWS") annual report on Form 10-K for the year ended
December 31, 1997.
Note B. Discontinued Operations
On May 27, 1998, the Board of Directors of UWS approved a plan to spin off
its managed care companies and specialty business to its shareholders. The
spin off is anticipated to be completed during September 1998. Shareholders
of UWS, as of the distribution date, will receive one share of common stock
of a newly formed company, Newco/UWS, Inc. (Newco), for every share of UWS
owned. UWS is in the process of obtaining all necessary regulatory
approvals, and has received a ruling from the Internal Revenue Service that
the spin off will be tax free to UWS, Newco and UWS shareholders. The
operations of Newco, along with direct costs associated with the spin off of
$4.9 million, have been reflected in discontinued operations. All prior
periods of the interim consolidated financial statements of UWS have been
restated to reflect Newco operations as discontinued operations.
On July 31, 1998, in anticipation of the spin off transaction, UWS refinanced
its subordinated notes outstanding in the amount of $44.9 million. The
subordinated notes, including accrued interest, were replaced with borrowings
of $45.2 million against a $70.0 million bank line of credit. The line of
credit contains certain covenants which, among other things, restrict the
ability to incur additional debt, limit future cash dividends and the
transfer of assets and require the maintenance of a minimum tangible net
worth. However, the terms of the line of credit agreement permit the
distribution of shares of Newco common stock in connection with the spin off.
6
<PAGE>
Discontinued operations include managed care and specialty operations. The
operating results of the discontinued operations presented below include
pretax expenses of $0.3 million and $0.5 million of selling, general and
administrative costs for the three months and the six months ended June 30,
1998, respectively. Similar amounts are included in the 1997 results. These
expenses are included below to reflect all the costs of doing business as if
Newco was a stand alone company and they are not included in income from
discontinued operations in the accompanying UWS consolidated statements of
income.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Health services revenues $ 157,783 $ 144,888 $ 312,980 $ 287,111
Investment results 5,999 5,902 9,960 10,672
--------------- --------------- --------------- ---------------
Total Revenues 163,782 150,790 322,940 297,783
Expenses:
Medical and other benefits 127,641 120,322 253,708 235,763
Selling, general and administrative 26,828 23,543 50,674 47,203
Amortization of goodwill and other
intangibles 99 441 215 881
Profit sharing on joint ventures 289 343 1,413 1,188
--------------- --------------- --------------- ---------------
Total Expenses 154,857 144,649 306,010 285,035
--------------- --------------- --------------- ---------------
Income Before Income Taxes 8,925 6,141 16,930 12,748
Income Tax Expense 3,473 2,252 6,515 4,861
--------------- --------------- --------------- ---------------
Income from discontinued managed care and
specialty operations, net of tax $ 5,452 $ 3,889 $ 10,415 $ 7,887
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
The net assets of the discontinued managed care and specialty operations are
carried in "Net Assets of Discontinued Operations" in the Consolidated Balance
Sheets. The major components are provided as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Current assets $ 230,090 $ 231,056
Current liabilities (114,925) (117,322)
------------- -----------------
Net current assets 115,165 113,734
Property, plant and equipment 8,086 6,978
Other non-current assets 29,338 28,222
Non-current liabilities (26,395) (25,318)
------------- -----------------
Net non-current assets 11,029 9,882
------------- -----------------
Net Assets of Discontinued Operations $ 126,194 $ 123,616
------------- -----------------
------------- -----------------
</TABLE>
Note C. Net Income Per Share
Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share are computed by dividing net income by
7
<PAGE>
the weighted average number of common shares outstanding, adjusted for the
effect of dilutive securities for employee stock options.
The following table provides a reconciliation of the number of weighted average
basic and diluted shares outstanding:
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Weighted average common shares outstanding 16,546,176 16,422,332
Potentially dilutive stock options 175,925 207,522
----------- -----------
Weighted average common and potentially
dilutive shares outstanding 16,722,101 16,629,854
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding 16,531,108 16,380,208
Potentially dilutive stock options 173,671 139,527
----------- -----------
Weighted average common and potentially
dilutive shares outstanding 16,704,779 16,519,735
----------- -----------
----------- -----------
</TABLE>
Options to purchase 1,040,931 and 1,142,139 shares during the six months ended
June 30, 1998 and 1997, respectively, were not included in the computation of
earnings per diluted common share since the options' exercise prices were
greater than the average market price of the outstanding common shares.
Note D. Adoption of New Generally Accepted Accounting Principles
Effective January 1, 1998, UWS adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), issued by
the Financial Accounting Standards Board (FASB) in June 1997. Comprehensive
income is defined therein as all changes in equity during the period except
those resulting from shareholder equity contributions and distributions.
Comprehensive income from continuing operations totaled $0.5 million and $5.2
million for the three months ended June 30, 1998 and 1997, respectively, and
$1.3 million and $0.3 million for the six months ended June 30, 1998 and 1997.
Comprehensive income from discontinued operations totaled $(2.0) million and
$6.7 million for the three months ended June 30, 1998 and 1997, respectively,
and $3.8 million and $8.5 million for the six months ended June 30, 1998 and
1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the reporting of operating segment information in both annual
financial reports and interim financial reports issued to shareholders.
Operating segments are components of an entity for which separate financial
information is available and is evaluated regularly by the entity's chief
operating management. SFAS 131 is effective for fiscal years beginning after
December 15, 1997 and is not required to be adopted in interim financial reports
during the first year of adoption. Adoption of this statement is not expected
to have a material impact on UWS.
Note E. Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for 1997 to conform with the 1998 presentation.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UNITED WISCONSIN SERVICES, INC.
OVERVIEW
United Wisconsin Services, Inc. ("UWS") is a leading provider of managed
health care services and employee benefit products. UWS has three primary
product lines: (i) small group managed care and life products sold through
American Medical Security Holdings, Inc. ("AMS"); (ii) Health Maintenance
Organization ("HMO") products, including Compcare Health Services Insurance
Corporation ("Compcare"), Valley Health Plan, Inc. ("Valley"), Unity Health
Plans Insurance Corporation ("Unity") and certain point of service ("POS")
and other related products managed by Compcare, Valley and Unity, and (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 behavioral
health services.
On May 27, 1998, the Board of Directors of UWS approved a formal plan to spin
off the managed care products and specialty managed care products and
services from the AMS small group products business. The spin off, which
involves the creation of a new corporation, is anticipated to be completed
during September 1998. Shareholders of UWS, as of the distribution date, will
receive one share of common stock of a newly formed company, Newco/UWS, Inc.
("Newco"), for every share of UWS owned. UWS has received a private letter
ruling from the Internal Revenue Service that the distribution will be
tax-free to UWS, Newco and UWS shareholders.
As a result of the spin off, the revenues and expenses, assets and liabilities,
and cash flows of the managed care and specialty segments have been classified
as discontinued operations in the interim consolidated financial statements.
Accordingly, the discussions of continuing operations that follow reflect the
operations of the AMS small group managed care and life products.
RESULTS OF CONTINUING OPERATIONS
TOTAL REVENUES
Total revenues decreased 6.3% for the three months ended June 30, 1998 to
$237.4 million from $253.4 million for the three months ended June 30, 1997.
For the six months ended June 30, total revenues decreased 6.9% to $483.2
million in 1998 from $518.8 million in 1997. The decline in revenues is
primarily the result of declining insurance premiums from AMS's efforts to
eliminate unprofitable business, partially offset by premium rate increases.
INSURANCE PREMIUMS -- Medical insurance premiums for the three months
ended June 30, 1998 decreased 6.1% to $216.0 million from $230.0 million for
the three months ended June 30, 1997. Average medical membership decreased
by 24.0% for the three months ended June 30, 1998 as compared to the prior
year period. Medical insurance premiums for the six months ended June 30,
1998 decreased 7.0% to $439.2 million from $472.3 million for the six months
ended June 30, 1997. Average medical membership decreased by 27.3% for the
six months ended June 30, 1998 as compared to the prior period. Membership
has declined at a faster rate than the decline in premium, which is the
result of a significant reduction in the self funded business, which has a
lower premium per member than insured business.
Life insurance premiums for the three months ended June 30, 1998 decreased
19.0% to $6.1 million from $7.6 million for the three months ended June 30,
1997. Average life membership decreased by 29.8% for the three months ended June
30, 1998 as compared to one year prior. Life insurance premiums for the six
months ended June 30, 1998 decreased 21.5% to $12.7 million from $16.1 million
for the six months ended June 30, 1997. Average life membership decreased by
30.4% for the six months ended June 30, 1998 as compared to the prior year. The
life membership decrease is the primary reason for the premium decline.
9
<PAGE>
Overall medical and life insurance premiums and memberships have
declined over the past two years as a result of management's efforts to
return to profitability. Actions taken include: 1) exiting certain
unprofitable markets in Texas and Kentucky, 2) canceling one-life dental
business effective June 1, 1998, and 3) implementing substantial rate
increases for certain product lines. Management continues to pursue
initiatives to reverse the premium and membership decline, including new
agency sales relationships, expansion into new geographic areas, acquisition
of blocks of business and introduction of new products. Membership in the
core medical business, excluding self-funded business and acquired closed
blocks of business, increased from March 31, 1998 to June 30, 1998. This is
the first such increase since the first quarter of 1996.
NET INVESTMENT RESULTS -- Net investment results includes investment income
and realized gains or losses on investments. Net investment income for the
three months ended June 30, 1998 increased 4.8 % to $5.7 million from $5.5
million for the three months ended June 30, 1997. Net investment income for
the six months ended June 30, 1998 increased 12.0% to $11.8 million from
$10.5 million for the same period one year ago. Average annual investment
yields, excluding realized gains and losses, were 6.8% and 7.2% for the three
months ended June 30, 1998 and 1997, respectively. Average annual investment
yields, excluding realized gains and losses, was 6.7% for the six months
ended June 30, 1998 compared to 6.9% for the same period in the prior year.
Excluding realized gains and losses, net investment income declined from the
prior periods by 8.4% and 5.2% for the three month period and the six month
period, respectively. Average invested assets for the three months ended
June 30, 1998 decreased 3.2% to $292.8 million from $302.3 million for the
three months ended June 30, 1997. The decrease in average invested assets is
due primarily to the decrease in medical and other benefits payable resulting
from the membership decline for AMS products over the past year as described
above, and a decrease in the inventory of claims pending adjudication.
EXPENSE RATIOS
LOSS RATIO -- The medical loss ratio for the three months ended June 30, 1998
was 78.8% compared with 78.0% for the three months ended June 30, 1997. The
medical loss ratio for the six months ended June 30, 1998 was 78.9% compared
with 78.5% for the six months ended June 30, 1997. The increase in the medical
loss ratio during 1998 is primarily attributable to a decline in profitability
for business written in Florida due to delays in receiving approval of new
rates.
The life loss ratio for the three months ended June 30, 1998 was 20.6%
compared to the three months ended June 30, 1997 of 34.8%. The life loss ratio
for the six months ended June 30, 1998 was 26.9% compared to the six months
ended June 30, 1997 of 32.8%. The life loss ratio decline in 1998 is due to
decreased claims activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO -- The selling, general and
administrative ("SGA") expense ratio for medical products for the three months
ended June 30, 1998 was 21.4% compared with 22.5% for the three months ended
June 30, 1997. For the six months ended, the SGA ratio for medical products was
21.4% and 22.5% for 1998 and 1997, respectively. The SGA expense ratio for life
products for the second quarter of 1998 was 28.9% compared with 30.0% for the
same period in the prior year. The SGA expense ratio for life products for the
six months ended June 30, 1998 was 29.1% compared to the six months ended June
30, 1997 of 29.9%.
AMS products are sold exclusively through independent agents who are
compensated through commissions. Over time, renewal business has gradually
represented a larger proportion of the total AMS medical and life business.
Since renewal commissions are typically lower than commissions on new sales,
this has contributed to the decrease in the expense ratios. AMS continues to
focus on efforts to improve operating efficiency through process re-engineering
and to align staff commensurate with gross premium revenue.
10
<PAGE>
OTHER EXPENSES
Interest expense decreased to $2.3 million for the three months ended June
30, 1998 from $2.4 million for the same period in the prior year. For the six
months ended June 30, 1998, interest expense increased to $4.7 million from $4.6
million for the six months ended June 30, 1997. Amortization of goodwill and
other intangibles totaled $2.2 million for the second quarter of 1998, compared
with $2.0 million of amortization expense for the second quarter of 1997. On a
year to date basis, amortization of goodwill and intangibles increased to $4.4
million from $4.0 million for the six months ended June 30, 1997. The increase
in amortization expense in 1998 is primarily due to recorded intangibles related
to the Pan American small group business acquired in October 1997.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for the three months ended June 30, 1998
decreased 73.4% to $0.4 million or $.03 per share from $1.5 million or $.09 per
share for the three months ended June 30, 1997. Income from continuing
operations for the six months ended June 30, 1998 increased 45.5% to $1.9
million or $.12 per share from $0.6 million or $.04 per share for the six months
ended June 30, 1997. The effective tax rate was 51.3% for the three months
ended June 30, 1998 compared with 45.5% for the three months ended June 30,
1997. The effective tax rate for the six months ended June 30, 1998 was 47.6%
compared with 64.6% for the six months ended June 30, 1997. The effective tax
rate is significantly impacted by the amortization of non-deductible goodwill in
relation to pretax income. Excluding the impact of non-deductible goodwill, the
effective tax rate was 35.8% for the six months ended June 30, 1998 compared
with 41.9% for the same period one year ago.
SUMMARY OF OPERATING RESULTS AND STATISTICS - CONTINUING OPERATIONS
Operating results and statistics for the AMS products are presented below for
the periods indicated:
<TABLE>
<CAPTION>
June 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
Membership at end of period:
Medical 577,520 666,584
Dental 411,364 486,894
Life 228,832 310,911
Other 25,539 23,454
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------- -----------------
1998 1997 1998 1997
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Operating statistics:
Loss ratio (1):
Medical 78.8% 78.0% 78.9% 78.5%
Life 20.6% 34.8% 26.9% 32.8%
Expense ratio (2):
Medical 21.4% 22.5% 21.4% 22.5%
Life 28.9% 30.0% 29.1% 29.9%
</TABLE>
(1) Medical and other benefits as a percentage of premium revenue.
(2) Selling, general and administrative expenses as a percentage of premium
revenue.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - CONTINUING OPERATIONS
UWS's sources of cash flow consist primarily of health services revenues and
investment income. The primary uses of cash include medical and other
benefits and operating expense payments. Positive cash flows are invested
pending future payments of medical and other benefits and other operating
expenses. UWS's investment policies are designed to maximize yield, preserve
principal and provide liquidity to meet anticipated payment obligations.
During 1997 and 1998, UWS has generated negative cash flows from operations.
For the six months ended June 30, 1998 and 1997, net cash used in operating
activities amounted to a use of $10.4 million and $25.5 million,
respectively. Negative cash flows from operations is principally the result
of the decline in medical and other benefits payable of $25.6 million and
$23.5 million for 1998 and 1997, respectively. The decline in medical and
other benefits payable results from the decline in membership and a reduction
in inventory claims pending adjudication.
UWS's investment portfolio from continuing operations consists primarily of
investment grade bonds and has limited exposure to equity securities. At
June 30, 1998, $275.9 million or 92.6% of UWS's total investment portfolio
was invested in bonds. At December 31, 1997, $267.0 million or 98.3% of the
Company's total investment portfolio was invested in bonds. The bond
portfolio had an average quality rating of Aa3 at both June 30, 1998 and
December 31, 1997 by Moody's Investor Service, and the majority of the bond
portfolio was classified as available for sale. The market value of the
total investment portfolio from continuing operations, which includes stocks
and bonds, exceeded amortized cost by $2.9 million and $3.9 million at June
30, 1998 and December 31, 1997, respectively. UWS has no investments in
mortgage loans, non-publicly traded securities (except for principal only
strips of U.S. Government securities), real estate held for investment or
financial derivatives.
From time to time, UWS makes capital contributions to its subsidiaries to
assist them in maintaining appropriate levels of capital and surplus for
regulatory and rating purposes. Insurance subsidiaries are required to
maintain certain levels of statutory capital and surplus. As of the balance
sheet date presented, statutory capital and surplus for each of these
insurance subsidiaries exceeded required levels.
On July 31, 1998, in anticipation of the spin off transaction, UWS refinanced
its subordinated notes outstanding in the amount of $44.9 million. The
subordinated notes, including accrued interest, were replaced with borrowings
of $45.2 million against a $70.0 million bank line of credit. The line of
credit contains certain covenants which, among other things, restrict the
ability to incur additional debt, limit future cash dividends and transfer of
assets and require the maintenance of a minimum tangible net worth. However,
the terms of the line of credit agreement permit the distribution of shares
of Newco common stock in connection with the spin off.
Also in conjunction with the distribution of assets pursuant to the spin off,
Newco will assume a $70.0 million note obligation of UWS to Blue Cross & Blue
Shield United of Wisconsin ("BCBSUW"). The obligation and related debt
service costs to BCBSUW has been reflected in continuing operations in the
accompanying interim consolidated financial statements.
In addition to internally generated funds and periodic borrowings on its bank
line of credit, UWS believes that additional financing to facilitate
long-term growth could be obtained through equity offerings, debt offerings,
or bank borrowings, as market conditions may permit or dictate.
DISCONTINUED OPERATIONS
The unaudited combined financial statements of Newco (discontinued
operations) are provided below as supplemental information for the periods
indicated. Newco's financial statements reflect all the costs of doing
business as if Newco was a stand alone company during the periods presented.
Therefore, the financial results include all costs fully allocated to Newco
and additional selling, general and administrative pre-tax costs of
approximately $0.3 million and $0.5 million for the three months and six
months ended June 30, 1998, respectively. Similar amounts are included in the
1997 results.
12
<PAGE>
NEWCO
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- --------------
(000's omitted)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,750 $ 17,033
Investments--available for sale 154,365 151,653
Due from affiliates 201 313
Other receivables 52,910 53,753
Prepaid and other current assets 7,864 8,304
-------------- --------------
Total Current Assets 230,090 231,056
Investments--held to maturity 7,856 7,893
Property and equipment, net 8,086 6,978
Goodwill and other intangible assets, net 4,715 5,005
Other noncurrent assets 16,767 15,324
-------------- --------------
Total Assets $ 267,514 $ 266,256
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Medical and other benefits payable $ 55,537 $ 60,724
Advance premiums 29,765 24,060
Due to affiliates 4,472 3,867
Payables and accrued expenses 16,869 20,926
Other current liabilities 8,282 7,745
-------------- --------------
Total Current Liabilities 114,925 117,322
Other noncurrent liabilities 26,395 25,318
-------------- --------------
Total Liabilities 141,320 142,640
Shareholders' Equity:
Investments by and advances from UWS 124,947 120,405
Unrealized gains on available for sale securities 1,247 3,211
-------------- --------------
Total Shareholders' Equity 126,194 123,616
-------------- --------------
Total Liabilities and Shareholders' Equity $ 267,514 $ 266,256
-------------- --------------
-------------- --------------
</TABLE>
13
<PAGE>
NEWCO
COMBINED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------
1998 1997 1998 1997
------------- ----------- ---------- ----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 150,526 $ 138,327 $ 298,602 $ 273,760
Net investment income 5,999 5,902 9,960 10,672
Other revenue 7,257 6,561 14,378 13,351
------------ ----------- ---------- ----------
Total Revenues 163,782 150,790 322,940 297,783
Expenses:
Medical and other benefits 127,641 120,322 253,708 235,763
Selling, general and administrative expenses 26,828 23,543 50,674 47,203
Profit sharing on joint ventures 289 343 1,413 1,188
Amortization of goodwill and intangibles 99 441 215 881
------------ ----------- ---------- ----------
Total Expenses 154,857 144,649 306,010 285,035
------------ ----------- ---------- ----------
Income Before Income Taxes 8,925 6,141 16,930 12,748
Income Tax Expense 3,473 2,252 6,515 4,861
------------ ----------- ---------- ----------
Net Income $ 5,452 $ 3,889 $ 10,415 $ 7,887
------------ ----------- ---------- ----------
------------ ----------- ---------- ----------
Earnings Per Common Share - Basic $ 0.33 $ 0.24 $ 0.63 $ 0.48
------------ ----------- ---------- ----------
------------ ----------- ---------- ----------
Earnings Per Common Share - Diluted $ 0.33 $ 0.23 $ 0.62 $ 0.48
------------ ----------- ---------- ----------
------------ ----------- ---------- ----------
</TABLE>
14
<PAGE>
NEWCO
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1998 1997
--------------------------
(000's omitted)
<S> <C> <C>
Cash Flows - Operating Activities:
Income from operations $ 10,415 $ 7,887
Adjustments to reconcile income from operations
to net cash provided by operating activities:
Depreciation and amortization 1,278 1,723
Realized investment gains (5,023) (5,545)
Deferred income tax expense 116 739
Changes in operating accounts:
Other receivables 910 (698)
Medical and other benefits payable (6,006) (2,676)
Advance premiums 5,705 3,493
Due to/from affiliates 717 17,158
Other, net (5,973) (13,902)
---------- -----------
Net cash provided by operating activities 2,139 8,179
Cash Flows - Investing Activities:
Purchases of available for sale investments (102,367) (103,149)
Proceeds from sale of available for sale investments 98,291 107,592
Proceeds from maturity of available for sale investments 5,575 2,985
Purchases of held to maturity investments (313) (211)
Proceeds from maturity of held to maturity investments 265 340
---------- -----------
Net cash provided by investing activities 1,451 7,557
Cash Flows - Financing Activities:
Decrease in investments by and advances from (to) UWS (5,873) (6,704)
---------- -----------
Net cash used in financing activities (5,873) (6,704)
Cash and cash equivalents:
Increase (decrease) during period (2,283) 9,032
Balance at beginning of year 17,033 19,147
---------- -----------
Balance at end of period $ 14,750 $ 28,179
---------- -----------
---------- -----------
</TABLE>
15
<PAGE>
RESULTS OF DISCONTINUED OPERATIONS
TOTAL REVENUES
Total revenues for the three months ended June 30, 1998 increased 8.6%
to $163.8 million from $150.8 million for the three months ended June 30,
1997. On a year-to-date basis, total revenues increased 8.4% to $322.9
million from $297.8 million for the six months ended June 30, 1997. These
increases were due primarily to increased membership in a majority of the
product lines and general premium increases.
HEALTH SERVICES REVENUES -- HMO health services revenues for the three
months ended June 30, 1998 increased 7.6% to $128.1 million from $119.0 million
for the three months ended June 30, 1997. Average HMO medical premium per
member for the three months ended June 30, 1998 increased 2.7% from the same
period in the prior year. The average number of HMO medical members for the
three months ended June 30, 1998 increased 3.9% to 296,093 from 285,031 for the
three months ended June 30, 1997.
HMO health services revenues for the six months ended June 30, 1998
increased 8.5% to $254.7 million from $234.8 for the same period in the prior
year. Average HMO medical premium per member for the six months ended June
30, 1998 increased 3.2% from the same period in the prior year, primarily due
to general premium increases. The average number of HMO medical members for
the six months ended June 30, 1998 increased 4.8% to 294,409 from 280,815 for
the same period in the prior year.
Health services revenues for specialty managed care products and
services for the three months ended June 30, 1998 increased 13.1% to $33.7
million from $29.8 million for the three months ended June 30, 1997. This
increase was due primarily to an increase in general membership. Health
services revenues for specialty managed care products and services for the
six months ended June 30, 1998 increased 9.8% to $66.2 million from $60.3
million for the six months ended June 30, 1997.
NET INVESTMENT RESULTS -- Investment results include investment income
and realized gains (losses) on investments. Investment results for the three
months ended June 30, 1998 increased 1.6% to $6.0 million from $5.9 million
for the three months ended June 30, 1997. On a year-to-date basis,
investment results decreased 6.7% to $10.0 million from $10.7 million for the
same period in the prior year. Average annual investment yields, excluding
net realized gains, were 5.5% for the three months ended June 30, 1998 and
5.1% for the three months ended June 30, 1997. On a year-to-date basis,
average investment yields, excluding net realized gains, were 5.7% and 5.5%
for the six months ended June 30, 1998 and 1997, respectively. Investment
gains are realized in the normal investment process in response to market
opportunities. Average invested assets for the three months ended June 30,
1998 increased 0.3% to $181.2 million from $180.7 million for the three
months ended June 30, 1997. On a year-to-date basis, average invested assets
held steady at $180.9 million compared to $181.6 million for the six months
ended June 30, 1997.
EXPENSE RATIOS
LOSS RATIO -- The consolidated loss ratio represents the ratio of medical
and other benefits to premium revenue on a consolidated basis, and is therefore
a blended ratio for medical, life, dental, disability and other product lines.
The consolidated loss ratio was 84.8% for the second quarter of 1998 compared
with 87.0% for the second quarter of 1997. On a year-to-date basis, the
consolidated loss ratio was 85.0% for the first six months of 1998, compared
with 86.1% for the first six months of 1997. The consolidated loss ratio is
influenced by the component loss ratio for each of Newco's primary product
lines, as discussed below.
16
<PAGE>
The medical loss ratio for HMO products for the three months ended June 30,
1998 was 88.3%, compared with 90.7% for the three months ended June 30, 1997.
On a year-to-date basis, the medical loss ratio for HMO products was 88.4%,
compared with 89.5% for the same period in 1997. The decrease in the medical
loss ratio in 1998 for HMO products is due primarily to provider recontracting
with a shift to additional capitation in the southeastern Wisconsin HMO market.
For the six months ended June 30, 1998, approximately 43.0% of the medical
benefits were provided under capitated arrangements compared to 31.0% during the
comparable period in 1997.
The loss ratio for the risk products within specialty managed care products
and services for the three months ended June 30, 1998 was 68.7%, compared with
69.6% for the three months ended June 30, 1997. On a year-to-date basis, the
loss ratio for specialty managed care products and services was 69.9% compared
with 70.5% for the same period in 1997. The decrease is primarily attributable
to improved results in the United Heartland worker's compensation block of
business.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE RATIO -- The selling,
general and administrative ("SGA") expense ratio includes commissions,
administrative expenses, and premium taxes and other assessments. The SGA
expense ratio for HMO products for the second quarter of 1998 was 9.8%,
compared with 9.2% for the second quarter of 1997. The increase was due to
higher investments in improved system capabilities and enhancements and
related system conversion and training costs. On a year-to-date basis, the
SGA expense ratio for HMO products was 9.4% for the six months ended June 30,
1998, which was consistent with the six months ended June 30, 1997.
SGA expense ratio related to the risk products within specialty managed
care products and services for the second quarter of 1998 was 26.7%, compared
with 23.2% for the second quarter of 1997. On a year-to-date basis, SGA expense
ratio for the risk products was 25.5% for the six months ended June 30, 1998
compared with 22.9% for the six months ended June 30, 1997. This increase was
due to higher investments in improved system capabilities and enhancements and
related system conversion and training costs, in addition to an increase in loss
adjusting expenses recorded on the workers' compensation business.
Operating expense ratio related to the service products within specialty
managed care products and services for the second quarter of 1998 was 92.1%,
compared with 97.7% for the second quarter of 1997. On a year-to-date basis,
the operating expense ratio for the service products was 91.6% for the six
months ended June 30, 1998 compared with 98.1% for the six months ended June 30,
1997. Those reductions in 1998 are primarily related to a decrease in loss
adjustment expense recorded by the workers' compensation TPA unit.
OTHER EXPENSES
Profit sharing on joint ventures was $0.3 million for both the three months
ended June 30, 1998 and the three months ended June 30, 1997. On a year-to-date
basis, profit sharing on joint ventures was $1.4 million for the six months
ended June 30, 1998 and $1.2 million for the six months ended June 30, 1997.
These balances represent profit sharing expenses related to the Unity and Valley
joint ventures.
Amortization of goodwill and other intangibles totaled $0.1 million for the
second quarter of 1998, compared with $0.4 million of amortization expense for
the second quarter of 1997. On a year-to-date basis, amortization of goodwill
and other intangibles totaled $0.2 million compared with $0.9 million of
amortization expense for the same period in the prior year. The reduction is
the result of a disposition of an intangible during the third quarter of 1997
related to appreciated securities.
17
<PAGE>
NET INCOME FROM DISCONTINUED OPERATIONS
Income from Discontinued Operations for the three months ended June 30,
1998 increased 40.2% to $5.5 million or $0.33 per diluted share from $3.9
million or $0.23 per diluted share for the three months ended June 30, 1997.
Income from Discontinued Operations, excluding the transaction costs
associated with the spin off for the six months ended June 30, 1998 increased
32.1% to $10.4 million or $0.62 per diluted share from $7.9 million or $0.48
per diluted share for the six months ended June 30, 1997.
Newco's effective tax rate was 38.9% for the three months ended June 30,
1998 compared with 36.7% for the three months ended June 30, 1997. On a
year-to-date basis, Newco's effective tax rate was 38.5% for the six months
ended June 30, 1998, compared with 38.1% for the six months ended June 30,
1997. Newco's effective tax rate fluctuates based upon the relative
profitability of Newco's two product lines and the differing effective tax
rate for each of those product lines.
SUMMARY OF OPERATING RESULTS AND STATISTICS - DISCONTINUED OPERATIONS
Operating results and statistics for the two primary product groups are
presented below for the periods indicated.
<TABLE>
<CAPTION>
JUNE 30,
--------
Membership at end of period: 1998 1997
---- ----
<S> <C> <C>
HMO PRODUCTS (BY BUSINESS UNIT):
Compcare 172,825 169,908
Valley 40,203 37,476
Unity 84,880 80,471
--------- ---------
Total HMO products membership 297,908 287,855
--------- ---------
--------- ---------
SPECIALTY MANAGED CARE PRODUCTS AND SERVICES:
UWG Life/AD&D 154,033 119,924
Dental - HMO 168.044 167,442
UWG Dental 12,094 12,126
Disability 99,457 74,598
Behavioral Health 913,479 851,495
Workers' Compensation 53,509 55,109
--------- ---------
Total Specialty managed care products
and services membership 1,400,616 1,280,694
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
------- ------- ----- -----
<S> <C> <C> <C> <C>
Health services revenues (as a
percentage of the total):
HMO products 81.2% 82.1% 81.4% 81.8%
Specialty managed care products
and services
Service Products 6.5% 6.9% 6.7% 6.9%
Risk Products 14.9% 13.7% 14.5% 14.1%
Intercompany eliminations (2.6%) (2.7%) (2.6%) (2.8%)
------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997 1998 1997
------ ----- ------ -----
<S> <C> <C> <C> <C>
Operating statistics:
HMO products:
Medical loss ratio (1) 88.3% 90.7% 88.4% 89.5%
Selling, general and administrative expense ratio (2) 9.8% 9.2% 9.4% 9.4%
Combined loss and expense ratio 98.1% 99.9% 97.7% 98.9%
Specialty managed care products and services:
Service products:
Operating expense ratio* 92.1% 97.7% 91.6% 98.1%
Risk products:
Loss ratio (1) 68.7% 69.6% 69.9% 70.5%
Selling, general and administrative expense ratio (2) 26.7% 23.2% 25.5% 22.9%
Combined loss and expense ratio 95.4% 92.8% 95.4% 93.4%
Consolidated:
Loss ratio (1) 84.8% 87.0% 85.0% 86.1%
Net income margin (3) 3.3% 2.6% 3.2% 2.6%
</TABLE>
(1) Medical and other benefits as a percentage of premium revenue.
(2) Selling, general and administrative expenses as a percentage of premium
revenue.
(3) Net income as a percentage of total revenues.
* This business does not have insurance related risk associated with it.
Newco's revenues are derived primarily from premiums, while medical
benefits constitute the majority of expenses. Profitability is directly
affected by many factors including, among others, premium rate adequacy,
estimates of medical benefits, health care utilization, effective administration
of benefit payments, operating efficiency, investment returns and federal and
state laws and regulations.
LIQUIDITY AND CAPITAL RESOURCES - DISCONTINUED OPERATIONS
Newco's sources of cash flow consist primarily of health services revenues
and investment income. The primary uses of cash include medical and other
benefits and operating expense payments. Positive cash flows are invested
pending future payments of medical and other benefits and other operating
expenses. The investment policies are designed to maximize yield, preserve
principal and provide liquidity to meet anticipated payment obligations.
On a historical basis, Newco has generated positive cash flow from
operations. For the six months ended June 30, 1998, net cash provided by
operating activities amounted to $2.1 million, compared with $8.7 million for
the six months ended June 30, 1997. The decrease in cash flows from operations
in 1998 compared to 1997 was due primarily to a decrease in medical and other
benefits payable and a reduction in the affiliates receivables. Due to periodic
cash flow requirements of certain subsidiaries, Newco made borrowings under its
bank line of credit ranging up to $10.0 million during the first six months of
1998 and $8.5 million during the first six months of 1997 to meet short-term
cash needs. No balance was outstanding at June 30, 1998 or at December 31,
1997.
19
<PAGE>
Newco's investment portfolio consists primarily of investment grade bonds,
Government securities and has a limited exposure to equity securities. At June
30, 1998, $122.0 million or 75.2% of Newco's total investment portfolio was
invested in bonds compared with $127.9 million or 80.1% at December 31, 1997.
The bond portfolio had an average quality rating by Moody's Investor Service of
A1 and Aa3 at June 30, 1998 and December 31, 1997, respectively. The majority
of the bond portfolio was classified as available for sale. The market value of
the total investment portfolio, which includes stocks and bonds, exceeded
amortized cost by $4.2 million and $4.8 million at June 30, 1998 and December
31, 1997, respectively. Newco has no investments in mortgage loans,
non-publicly traded securities (except for principal only strips of U. S.
Government securities), real estate held for investment or financial
derivatives.
From time to time, capital contributions are made to the subsidiaries to
assist them in maintaining appropriate levels of capital and surplus for
regulatory and rating purposes. Insurance subsidiaries are required to maintain
certain levels of statutory capital and surplus. In Wisconsin, where a large
percentage of Newco's premium are written, these levels are based upon the
amount and type of premiums written and are calculated separately for each
subsidiary. As of the balance sheet dates presented, statutory capital and
surplus for each of these insurance subsidiaries exceeded required levels.
In addition to internally generated funds and periodic borrowings on its
bank line of credit, Newco believes that additional financing to facilitate
long-term growth could be obtained through equity offerings, debt offerings,
financings from Blue Cross and Blue Shield United of Wisconsin or bank
borrowings, as market conditions may permit or dictate.
FORWARD LOOKING STATEMENTS
This report contains certain forward looking statements with respect to the
financial condition, results of operation and business of the Company. Such
forward looking statements are subject to inherent risks and uncertainties that
may cause actual results to differ materially from those contemplated by such
forward looking statements. Factors that may cause actual results to differ
materially from those contemplated by such forward looking statements include,
among others, rising health care costs, business conditions and competition in
the managed care industry, developments in health care reform and other
regulatory issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Intractions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 3 and by
Rule 305 of Regulation S-K are inapplicable to UWS at this time.
20
<PAGE>
PART II. OTHER INFORMATION
UNITED WISCONSIN SERVICES, INC.
ITEM 1. LEGAL PROCEEDINGS
None
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
SPIN OFF OF HMO AND SPECIALTY PRODUCTS
On April 22, 1998, the Company announced its intention to separate its
American Medical Security small group products business from its HMO
and specialty products business through a spin off. The Company has
received a private letter ruling from the Internal Revenue Service
that the distribution will be tax free to the Company and its
shareholders. The Company expects to complete the spin off during the
third quarter of 1998.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's
1999 annual meeting of shareholders must be received by the Secretary
of the Company at the Company's principal offices no later than
December 19, 1998 in order to be included in the Company's proxy
statement and form of proxy relating to the 1999 annual meeting. Such
proposals also must comply with all of the requirements of Rule 14a-8
of the Rules and Regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Effective June 29, 1998, the Securities and Exchange Commission
amended Rule 14a-4(c) under the Exchange Act which governs a company's
use of discretionary proxy voting authority with respect to
shareholder proposals that are not being included in a company's proxy
solicitation materials pursuant to Rule 14a-8 of the Exchange Act.
New Rule 14a-4(c)(1) provides that if a shareholder fails to notify
the Company of such a proposal at least 45 days prior to the month and
day of mailing of the prior year's proxy statement, then the
management proxies named in the form of proxy distributed in
connection with the Company's proxy statement would be allowed to use
their discretionary voting authority to address the proposal submitted
by the shareholder, without discussion of the proposal in the proxy
statement. Accordingly, if a shareholder who intends to present a
proposal at the 1999 annual
21
<PAGE>
PART II. OTHER INFORMATION
meeting of shareholders does not notify the Company of such proposal
on or prior to March 1, 1999, then management proxies would be allowed
to use their discretionary voting authority to vote on the proposal
when the proposal is raised at the annual meeting, even though there
is no discussion of the proposal in the 1999 proxy statement.
Pursuant to Article II of the Company's Bylaws which provides
procedures by which shareholders may timely raise matters at annual
meetings, proposals of shareholders intended to be presented at the
Company's 1999 annual meeting of shareholders must be received by the
Secretary of the Company not less than 60 days nor more than 90 days
prior to the last Wednesday in May; provided, however, as stated
above, the proposal must be received no later than December 19, 1998
in order to be included in the proxy statement relating to the 1999
annual meeting. The Company currently believes that the 1999 annual
meeting of shareholders will be held on the last Wednesday in May
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 United Wisconsin Services, Inc. Equity Incentive Plan,
as revised effective July 1, 1998.
10.2 Acquisition Agreement between United Wisconsin Services,
Inc. and Victoria Hekkers dated July 2, 1998
10.3 United Wisconsin Services, Inc. 1992 Stock Appreciation
Rights Plan (Adopted July 1, 1998)
10.4 1995 Director Stock Option Plan of United Wisconsin
Services, Inc. (As Amended July 24, 1998)
(b) Reports on Form 8-K
None
22
<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: 8/14/98
-----------------
UNITED WISCONSIN SERVICES, INC.
/s/ C. Edward Mordy
------------------------------------------
C. Edward Mordy
Vice President and Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
23
<PAGE>
UNITED WISCONSIN SERVICES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Document Description Number
- ------- -------------------- ----------
<C> <S> <C>
10.1 United Wisconsin Services, Inc. Equity Incentive Plan, 26-67
as revised effective July 1, 1998.
10.2 Acquisition Agreement between United Wisconsin Services, 69-89
Inc. and Victoria Hekkers dated July 2, 1998
10.3 United Wisconsin Services, Inc. 1992 Stock Appreciation 91-98
Rights Plan (Adopted July 1, 1998)
10.4 1995 Director Stock Option Plan of United Wisconsin 100-108
Services, Inc. (As Amended July 24, 1998)
</TABLE>
24
<PAGE>
EXHIBIT 10.1
25
<PAGE>
EQUITY
INCENTIVE PLAN
UNITED WISCONSIN SERVICES, INC.
July 1, 1998
26
<PAGE>
UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE SECTION PAGE
- ------ ------- ----
<S> <C> <C>
1 ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Duration of the Plan 2
2 DEFINITIONS
3 ADMINISTRATION
3.1 The Committee 10
3.2 Authority of the Committee 10
3.3 Decisions Binding 11
4 SHARES SUBJECT TO THE PLAN
4.1 Number of Shares 11
4.2 Lapsed Awards 12
4.3 Adjustments in Authorized Shares 12
5 ELIGIBILITY AND PARTICIPATION
5.1 Eligibility 13
5.2 Actual Participation 13
6 STOCK OPTIONS
6.1 Grant of Options 13
6.2 Option Award Agreement 16
6.3 Option Price 16
6.4 Duration of Options 17
6.5 Exercise of Options 17
6.6 Payment 17
6.7 Restrictions on Share Transferability 18
6.8 Termination of Employment Due to Death, Disability or Retirement 18
6.9 Termination of Employment for
Other Reasons 20
6.10 Transferability of Options 21
7 STOCK APPRECIATION RIGHTS
7.1 Grant of SARs 22
7.2 Exercise of Tandem SARs 22
7.3 Exercise of Affiliated SARs 23
27
<PAGE>
7.4 Exercise of Freestanding SARs 23
7.5 SAR Agreement 23
7.6 Term of SARs 23
7.7 Payment of SAR Amount 23
7.8 Rule 16b-3 Requirements 24
7.9 Termination of Employment Due to Death Disability, or Retirement 24
7.10 Termination of Employment for Other Reasons 26
7.11 Nontransferability of SARs 26
8 RESTRICTED STOCK
8.1 Grant of Restricted Stock 26
8.2 Restricted Stock Agreement 27
8.3 Transferability 27
8.4 Other Restrictions 27
8.5 Certificate Legend 27
8.6 Removal of Restrictions 28
8.7 Voting Rights 28
8.8 Dividends and Other Distributions 28
8.9 Termination of Employment Due to Death, Disability, or Retirement 29
8.10 Termination of Employment for Other Reasons 29
9 PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 Grant of Performance Units/Shares 30
9.2 Value of Performance Units/Shares 30
9.3 Earning of Performance Units/Shares 30
9.4 Form and Timing of Payment of Performance Units/Shares 30
9.5 Termination of Employment Due to Death, Disability, Retirement,
or Involuntary Termination (without Cause) 31
9.6 Termination of Employment for Other Reasons 31
9.7 Nontransferability 32
10 BENEFICIARY DESIGNATION
11 DEFERRALS
12 RIGHTS OF EMPLOYEES
12.1 Employment 33
12.2 Participation 33
13 CHANGE IN CONTROL
28
<PAGE>
14 AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, and Termination 34
14.2 Awards Previously Granted 34
15 WITHHOLDING
15.1 Tax Withholding 34
15.2 Share Withholding 35
16 INDEMNIFICATION
17 SUCCESSORS
18 LEGAL CONSTRUCTION
18.1 Gender and Number 37
18.2 Severability 37
18.3 Requirements of Law 37
18.4 Securities Law Compliance 38
18.5 Governing Law 38
</TABLE>
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UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. United Wisconsin Services, Inc. (until
the Effective Date known as Newco/UWS, Inc.), a Wisconsin corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "United Wisconsin Services, Inc. Equity
Incentive Plan" (hereinafter referred to as the "Plan"), as set forth in this
document. The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, SARs, Restricted Stock, Performance Units, and
Performance Shares.
This Plan is being created in connection with the distribution (the
"Distribution"), by the corporation formerly known as United Wisconsin Services,
Inc. of all of the shares in the Company in connection with the spin-off of the
managed care and specialty products business to the Company and the assumption
by the Company of the United Wisconsin Services, Inc. name. In connection with
the Distribution, options ("Substituted Options") will be issued under this Plan
in substitution for options issued under the equity incentive plan of the
corporation formerly known as United Wisconsin Services, Inc. (the "Prior
Plan").
Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of a majority of Shares of the Company, the
Plan shall become effective as of the Distribution Date (the "Effective Date"),
and shall remain in effect as provided in Section 1.3 herein.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success, and enhance the value, of the Company by linking the personal
interests of Participants to those of Company shareholders, and by providing
Participants with an incentive for outstanding performance.
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The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants upon whose
judgment, interest, and special effort the successful conduct of its operation
is dependent.
1.3 DURATION OF THE PLAN. Subject to approval by the Board of
Directors of the Company and ratification by the shareholders of the Company,
the Plan shall commence on the Effective Date, as described in Section 1.1
herein, and shall remain in effect, subject to the right of the Board of
Directors to terminate the Plan at any time pursuant to Article 14 herein,
until all Shares subject to it shall have been purchased or acquired
according to the Plan's provisions. However, in no event may an Award be
granted under the Plan more than ten years after the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:
(a) "Affiliate" - A company closely related to UWSI such
as Blue Cross & Blue Shield United of Wisconsin, or such
other company as the Board may designate. For purposes of
options received in connection with the Distribution, American
Medical Security Group, Inc. (and its subsidiaries) will be
considered Affiliates.
(b) "Affiliated SAR" means a SAR that is granted in connection
with a related Option, and which will be deemed to
automatically be exercised simultaneous with the exercise of
the related Option.
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(c) "Award" means, individually or collectively, a grant
under this Plan of Nonqualified Stock Options, Incentive
Stock Options, SARs, Restricted Stock, Performance Units, or
Performance Shares.
(d) "Award Agreement" means an agreement entered into by
each Participant and the Company, setting forth the
terms and provisions applicable to Awards granted to
Participants under this Plan.
(e) "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
(f) "Board" or "Board of Directors" means the Board of Directors
of the Company.
(g) "Cause" means: (i) willful and gross misconduct
on the part of a Participant that is materially and
demonstrably detrimental to the Company; or (ii) the
commission by a Participant of one or more acts which
constitute an indictable crime under United States Federal,
state, or local law. "Cause" under either (i) or (ii) shall
be determined in good faith by the Committee.
(h) "Change in Control" of the Company shall be deemed to
have occurred as of the first day that any one or
more of the following conditions shall have been satisfied:
(i) Any Person (other than those Persons in control of the
Company as of the Effective Date, or other than a trustee or
other fiduciary holding securities under an
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employee benefit plan of the Company, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) During any period of two (2) consecutive years (not
including any period prior to the Effective Date),
individuals who at the beginning of such period constitute
the Board (and any new Director, whose election by the
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or
whose election or nomination for election was so approved),
cease for any reason to constitute a majority thereof; or
(iii) The stockholders of the Company approve: (A) a plan of
complete liquidation of the Company; or (B) an agreement for
the sale or disposition of all or substantially all the
Company's assets; or (C) a merger, consolidation, or
reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, or
reorganization that would result in the voting securities of
the
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Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity),
at least fifty percent (50%) of the combined voting power of
the voting securities of the Company (or such surviving
entity) outstanding immediately after such merger,
consolidation, or reorganization.
However, in no event shall a "Change in Control" be deemed
to have occurred, with respect to a Participant, if the
Participant is part of a purchasing group which consummates
the Change-in-Control transaction. A Participant shall be
deemed "part of a purchasing group" for purposes of the
preceding sentence if the Participant is an equity
participant in the purchasing company or group (except for:
(i) passive ownership of less than three percent (3%) of the
stock of the purchasing company; or (ii) ownership of equity
participation in the purchasing company or group which is
otherwise not significant, as determined prior to the Change
in Control by a majority of the nonemployee continuing
Directors).
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(j) "Committee" means the Management Review Committee, as
specified in Article 3, appointed by the Board
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to administer the Plan with respect to grants of Awards.
(k) "Company" means United Wisconsin Services,
Inc., a Wisconsin corporation, (until the Effective Date known
as Newco/UWS, Inc.) or any successor thereto as provided in
Article 17 herein.
(l) "Director" means any individual who is a
Non-Employee member of the Board of Directors of the Company.
(m) "Directors Plan" means the 1995 Directors Stock
Option Plan of United Wisconsin Services, Inc.
(n) "Disability" means a permanent and total
disability, within the meaning of Code Section 22(e)(3), as
determined by the Committee in good faith, upon receipt of
sufficient competent medical advice from one or more
individuals, selected by the Committee, who are qualified to
give professional medical advice.
(o) "Distribution Date" means the date the stock of
the Company is distributed by the corporation formerly known
as United Wisconsin Services, Inc.
(p) "Employee" means any full-time employee of the
Company or of the Company's Subsidiaries or Affiliates.
Directors who are not otherwise employed by the Company shall
not be considered Employees under this Plan.
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(q) "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any successor
Act thereto.
(r) "Fair Market Value" means the closing price for
Shares on the relevant date, or (if there were no sales on
such date) the average of closing prices on the nearest day
before and the nearest day after the relevant date, on a stock
exchange or over the counter, as determined by the Committee.
(s) "Freestanding SAR" means a SAR that is granted
independently of any Options.
(t) "Incentive Stock Option" or "ISO" means an
option to purchase Shares, granted under Article 6 herein,
which is designated as an Incentive Stock Option and is
intended to meet the requirements of Section 422 of the Code.
(u) "Insider" shall mean a Participant who is, on
the relevant date, an officer, Director or 10% shareholder of
the Company, subject to Section 16 of the Exchange Act.
(v) "Nonqualified Stock Option" or "NQSO" means an
option to purchase Shares, granted under Article 6 herein,
which is not intended to be an Incentive Stock Option.
(w) "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
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(x) "Option Price" means the price at which a Share
may be purchased by a Participant pursuant to an Option, as
determined by the Committee.
(y) "Participant" means an Employee or a Director
who has outstanding an Award granted under the Plan.
(z) "Performance Unit" means an Award granted to an
Employee, as described in Article 9 herein.
(aa) "Performance Share" means an Award granted to an Employee,
as described in Article 9 herein.
(bb) "Period of Restriction" means the period during
which the transfer of Shares of Restricted Stock is limited in
some way (based on the passage of time, the achievement of
performance goals, or upon the occurrence of other events as
determined by the Committee, at its discretion), and the
Shares are subject to a substantial risk of forfeiture, as
provided in Article 8 herein.
(cc) "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and used in
Sections 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d).
(dd) "Restricted Stock" means an Award granted to a
Participant pursuant to Article 8 herein.
(ee) "Retirement" shall have the meaning ascribed to
it in the tax-qualified defined benefit retirement plan of the
Company.
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(ff) "Shares" means the shares of common stock of
the Company.
(gg) "Subsidiary" means any corporation in which the
Company owns directly, or indirectly through subsidiaries, at
least fifty percent (50%) of the total combined voting power
of all classes of stock, or any other entity (including, but
not limited to, partnerships and joint ventures) in which the
Company owns at least fifty percent (50%) of the combined
equity thereof.
(hh) "Substituted Option" means an option issued
under this Plan in substitution for options issued under
another stock option plan, including but not limited to
options issued pursuant to the Prior Plan and the Directors
Plan.
(ii) "Stock Appreciation Right" or "SAR" means an
Award, granted alone or in connection with a related Option,
designated as a SAR, pursuant to the terms of Article 7 herein.
(jj) "Tandem SAR" means a SAR that is granted in
connection with a related Option, the exercise of which shall
require forfeiture of the right to purchase a Share under the
related Option (and when a Share is purchased under the
Option, a SAR shall similarly be cancelled).
(kk) "Window Period" means the period beginning on
the third business day following the date of public release of
the Company's quarterly sales and earnings information, and
ending on the thirtieth day following such date.
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ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Management
Review Committee of the Board, or by any other Committee appointed by the
Board consisting of not less than two (2) Directors who are not Employees.
The members of the Committee shall be appointed from time to time by, and
shall serve at the discretion of, the Board of Directors.
All members of the Committee shall be Non-Employee Directors.
"Non-Employee Directors," as defined in rule 16b-3 promulgated by the
Securities and Exchange Commission ("SEC") under the Exchange Act, means a
director who (i) is not currently an officer or otherwise employed by the
Company or any affiliate (ii) does not receive compensation for consulting
service or in any other capacity from the Company in excess of $60,000 in any
one year, (iii) does not possess an interest in and is not engaged in
business relationships required to be reported under Items 404(a) or 404(b)
of Regulation S-K promulgated under the Exchange Act and (iv) is an Outside
Director as defined in Treas. Reg. 1.162-27.
3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power
except as limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions herein, to determine the size and
types of Awards with respect to Employees; to determine the terms and
conditions of such Employee Awards in a manner consistent with the Plan; to
construe and interpret the Plan and any agreement or instrument entered into
under the Plan; to establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 14 herein)
to amend the terms and conditions of any outstanding Award to the extent such
terms and conditions are within the discretion of the Committee as provided
in the Plan. Further, the Committee shall make all other
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determinations which may be necessary or advisable for the administration of
the Plan. As permitted by law, the Committee may delegate its authority as
identified hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding
on all persons, including the Company, its stockholders, Employees,
Directors, Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan may not
exceed 4,500,000. These 4,500,000 Shares may be either authorized but
unissued or reacquired Shares.
The following rules will apply for purposes of the determination of the
number of Shares available for grant under the Plan:
(a) While an Award is outstanding, it shall be counted against the
authorized pool of Shares, regardless of its vested status.
(b) The grant of an Option or Restricted Stock shall reduce the
Shares available for grant under the Plan by the number of Shares
subject to such Award.
(c) The grant of a Tandem SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the
related Option (i.e., there
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is no double counting of Options and their related Tandem SARs).
(d) The grant of an Affiliated SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the SAR,
in addition to the number of Shares subject to the related
Option.
(e) The grant of a Freestanding SAR shall reduce the number of Shares
available for grant by the number of Freestanding SARs granted.
(f) The Committee shall in each case determine the appropriate number
of Shares to deduct from the authorized pool in connection with
the grant of Performance Units and/or Performance Shares.
(g) To the extent that an Award is settled in cash rather than in
Shares, the authorized Share pool shall be credited with the
appropriate number of Shares represented by the cash settlement
of the Award, as determined at the sole discretion of the
Committee (subject to the limitation set forth in Section 4.2
herein).
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related option, or the
termination of a related Option upon exercise of the corresponding Tandem
SAR), any Shares subject to such Award again shall be available for the grant
of an Award under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization,
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separation, liquidation, stock dividend, split-up, Share combination, or
other change in the corporate structure of the Company affecting the Shares,
such adjustment shall be made in the number and class of Shares which may be
delivered under the Plan, and in the number and class of and/or price of
Shares subject to outstanding Options, SARs, and Restricted Stock granted
under the Plan, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of
rights; and provided that the number of Shares subject to any Award shall
always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include
all Employees and Directors.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those
to whom Awards shall be granted and shall determine the nature and amount of
each Award. Directors shall receive Options as provided in Section 6.1.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
options may be granted to Employees at any time and from time to time as
shall be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each Employee
except that no Employee may receive options (other than Substituted Options)
with respect to more than 250,000 Shares in any year. The Committee may
grant ISOs, NQSOs, or a combination thereof to Employees. Directors may
receive only NQSOs. Substituted Options may be issued under the Plan. The
number of Substituted Options
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shall be the number of options immediately before the substitution, adjusted
to prevent dilution or enlargement of the Participant's rights. The grant
date of such substituted options shall be the grant date under the plan
through which the options were originally granted. Substituted Options shall
be issued to Directors and Employees who participated in the Prior Plan and
in the Directors Plan in accordance with the terms of the Employee Benefits
Agreement executed in connection with the Distribution, and such substituted
Options shall be subject to the same grant date, exercise price (as adjusted
pursuant to Section 6.3), vesting and exercise period such Options were
subject to under the Prior Plan and the Directors Plan.
To the extent Shares are available for grant under the Plan, each
Director who is first elected as a Director subsequent to the Effective Date (a
"Subsequent Director") shall be granted, as of the date on which such Subsequent
Director is qualified and first begins to serve as a Director, an Option to
purchase 6,000 shares, subject to adjustment pursuant to Section 4.3 or to
purchase such lesser number of Shares as remain available for grant under the
Plan. In the event that the number of Shares available for grant under the Plan
is insufficient to make all grants hereby specified on the relevant date, then
all Directors who are entitled to a grant on such date shall share ratably in
the number of Shares then available for grant under the Plan. The Option Price
of such Option shall equal the Fair Market Value of a Share on the date the
grant of this Option is effective.
If sufficient Shares are not available under the Plan to fulfill the
grant of Options to any Subsequent Director first elected after the Effective
Date, and thereafter additional Shares become available, such Subsequent
Director receiving an Option for fewer than 6,000 Shares shall then receive an
Option to purchase an amount of Shares, determined by dividing the number of
Shares available pro-rata among each Subsequent
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Director receiving an Option for fewer than 6,000 Shares, then available
under the Plan, not to exceed 6,000 Shares, subject to adjustment as to any
one Subsequent Director. The date of grant shall be the date such additional
Shares become available. The Option Price of an Option shall equal the Fair
Market Value of a Share on the date the Option is granted.
If a Subsequent Director receives an Option to purchase fewer than
6,000 Shares, subject to adjustment pursuant to Section 4.3 hereof, and
additional Shares subsequently become available under the Plan, an Option to
purchase such Shares shall first be allocated as of the date of availability to
any Subsequent Director who has not previously been granted an Option. Such
Options shall be granted to purchase a number of Shares no greater than the
number of Shares covered by Options granted to other Subsequent Directors first
elected subsequent to the Effective Date, but who have received Options to
purchase fewer than 6,000 Shares (subject to adjustment pursuant to Section
4.3). Thereafter, Options for any remaining Shares shall be granted pro-rata
among all Subsequent Directors granted Options to purchase fewer than 6,000
Shares. No Director first elected after the Effective Date shall receive an
Option to purchase more than 6,000 Shares (subject to adjustment under Section
4.3).
The Option Price of the Shares purchasable under each Option granted to a
Director shall be equal to one hundred percent (100%) of the Fair Market Value
per Share on the date of grant of such Option.
Subject to acceleration as provided below, Options granted to Directors
shall vest annually at the rate of thirty-three and one third percent
(33-1/3%) of the aggregate number of Shares granted annually beginning on the
first anniversary of the date of grant and on each subsequent anniversary of
the date of grant
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thereafter. If a Director's tenure ends during the applicable three-year
period due to Death, Disability or Retirement or following a Change in
Control, however, such Director's Options shall become immediately
exercisable as to one hundred percent (100%) of the Shares covered thereby as
of the Director's last day of service as a Director with the Company to the
extent such Option may be exercised pursuant to Section 6.5 of this Plan.
Retirement with respect to a Director shall mean the date of the Company's
annual shareholders' meeting at which he or she would otherwise, but for said
retirement, be a nominee for election to the Board, or the date on which the
Director attains seventy (70) years of age.
Once any portion of an Option issued to a Director becomes exercisable, it
shall remain exercisable for the shortest period of (1) twelve years from the
date of grant; or (2) two (2) years following the date on which the Director
ceases to serve in such capacity for any reason other than removal for Cause.
If a Director is removed for Cause, all outstanding Options held by the Director
shall immediately be forfeited to the Company and no additional exercise period
shall be allowed, regardless of the vested status of the Options.
6.2 OPTION AWARD AGREEMENT. Each Option grant shall be evidenced by an
Option Award Agreement that shall specify the Option Price, the duration of
the Option, the number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The Option Award Agreement also
shall specify whether the Option is intended to be an ISO within the meaning
of Section 422 of the Code, or a NQSO whose grant is intended not to fall
under the Code provisions of Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an option to an
Employee shall be determined by the Committee; provided that the Option Price
shall not be less than one hundred
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percent (100%) of the Fair Market Value of a Share on the date the Option is
granted. The Option Price for a Substituted Option shall be the Option Price
immediately before the substitution, adjusted to prevent dilution or
enlargement of the Participant's rights.
6.4 DURATION OF OPTIONS. Each Option granted shall expire at such time
as the Committee shall determine at the time of grant; provided, however,
that no ISO shall be exercisable later than the tenth (10th) anniversary date
of its grant, and no NQSO shall be exercisable later than the twelfth (12th)
anniversary date of its grant. Substituted Options shall expire on the
earlier of the date provided in this Section 6.4 or the date such options
would have expired under the plan and agreement pursuant to which they were
originally granted.
6.5 EXERCISE OF OPTIONS. Options granted to Employees under the Plan
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each grant or for each Employee. However, in no event may any
Option granted under this Plan to an Employee or Director become exercisable
prior to six (6) months following the date of its grant.
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Secretary of the Company, setting forth the number
of Shares with respect to which the Option is to be exercised, accompanied by
full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to
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the total Option Price (provided that the Shares which are tendered must have
been held by the Participant for at least six (6) months prior to their
tender to satisfy the Option Price), or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an
Option under the Plan, as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any Stock exchange or market upon which such Shares are then
listed and/or traded, and under any Blue Sky or state securities laws
applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of an Employee
is terminated by reason of death, all outstanding Options granted
to that Employee shall immediately vest one hundred percent
(100%), and shall remain exercisable at any time prior to their
expiration date, or for one (1) year after
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the date of death, whichever period is shorter, by such person
or persons as shall have been named as the Employee's
beneficiary, or by such persons that have acquired the Employee's
rights under the Option by will or by the laws of descent and
distribution.
(b) TERMINATION BY DISABILITY. In the event the employment of an
Employee is terminated by reason of Disability, all outstanding
Options granted to that Employee shall immediately vest one
hundred percent (100%) as of the date the Committee determines
the definition of Disability to have been satisfied, and shall
remain exercisable at any time prior to their expiration
date, or for one (1) year after the date that the Committee
determines the definition of Disability to have been satisfied,
whichever period is shorter.
(c) TERMINATION BY RETIREMENT. In the event the employment of an
Employee is terminated by reason of Retirement, the Committee
shall retain discretion over the treatment of Options.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that an
Employee's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such termination the Employee dies, then
the remaining exercise period under outstanding Options
shall equal the longer of: (i) one (1) year following death; or
(ii) the remaining portion of the exercise period which was
triggered by the employment termination. Such Options shall be
exercisable by such person or persons who shall
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have been named as the Employee's beneficiary, or by such persons
who have acquired the Employee's rights under the Option by will
or by the laws of descent and distribution.
(e) EXERCISE LIMITATIONS ON ISOS. In the case of ISOs, the tax
treatment prescribed under Section 422 of the Internal Revenue
Code of 1986, as amended, may not be available if the Options are
not exercised within the Section 422 prescribed time periods
after each of the various types of employment termination.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of
an Employee shall terminate for any reason other than the reasons set forth
in Section 6.8 (and other than for Cause), all Options held by the Employee
which are not vested as of the effective date of employment termination
immediately shall be forfeited to the Company (and shall once again become
available for grant under the Plan). However, the Committee, in its sole
discretion, shall have the right to immediately vest all or any portion of
such Options, subject to such terms as the Committee, in its sole discretion,
deems appropriate.
Options which are vested as of the effective date of employment
termination may be exercised by the Employee within the period beginning on
the effective date of employment termination, and ending six (6) months after
such date or on such later date as is approved by the Committee.
If the employment of an Employee shall be terminated by the Company for
Cause, all outstanding Options held by the Participant immediately shall be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the Options.
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For Employees employed by Affiliates, termination shall mean termination of
such Employee's employment with the Affiliate.
6.10 TRANSFERABILITY OF OPTIONS. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
ISOs granted to a Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant.
NQSOs granted hereunder may be exercised only during a Participant's
lifetime by the Participant, the Participant's guardian or legal
representative or by a permissible transferee. NQSOs shall be transferable
by Participants pursuant to the laws of descent and distribution upon a
Participant's death, and during a Participant's lifetime, NQSOs shall be
transferable by Participants to members of their immediate family, trusts for
the benefit of members of their immediate family, and charitable institutions
("permissible transferees") to the extent permitted under Section 16 of the
Exchange Act and subject to federal and state securities laws. The term
"immediate family" shall mean any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, sister-in-law, or brother-in-law and shall
include adoptive relationships.
NQSOs also shall be transferable by Participants other than to
permissible transferees with the prior approval of the Committee which shall
have the authority to approve such transfers of NQSOs on a case-by-case basis
in its sole discretion.
The Committee shall have the authority to establish rules and
regulations specifically governing the transfer of NQSOs granted under this
Plan as it deems necessary and advisable.
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ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, an
SAR may be granted to an Employee at any time and from time to time as shall
be determined by the Committee. The Committee may grant Affiliated SARs,
Freestanding SARs, Tandem SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number
of SARs granted to each Employee (subject to Article 4 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs. However, the grant price of a
Freestanding SAR shall be at least equal to one hundred percent (100%) of the
Fair Market Value of a Share on the date of grant of the SAR. The grant
price of Tandem or Affiliated SARs shall equal the Option Price of the
related Option. In no event shall any SAR granted hereunder become
exercisable within the first six (6) months of its grant.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the
right to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related Option
is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when
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the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.3 EXERCISE OF AFFILIATED SARS. Affiliated SARs shall be deemed to be
exercised upon the exercise of the related Options. The deemed exercise of
Affiliated SARs shall not necessitate a reduction in the number of related
Options.
7.4 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.
7.5 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.6 TERM OF SARS. The term of a SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed twelve (12) years.
7.7 PAYMENT OF SAR AMOUNT. Upon exercise of a SAR, an Employee shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
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At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
7.8 RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on exercise of a SAR
(including, without limitation, the right of the Committee to limit the time
of exercise to specified periods) as may be required to satisfy the
requirements of Section 16 (or any successor rule) of the Exchange Act.
For example, if the Participant is an Insider, the ability of the
Participant to exercise SARs for cash will be limited to Window Periods.
However, if the Committee determines that the Participant is not an Insider,
or if the securities laws change to permit greater freedom of exercise of
SARs, then the Committee may permit exercise at any point in time, to the
extent the SARs are otherwise exercisable under the Plan.
7.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of an Employee
is terminated by reason of death, all outstanding SARs granted to
that Employee shall immediately vest one hundred percent (100%),
and shall remain exercisable at any time prior to their
expiration date, or for one (1) year after the date of death,
whichever period is shorter, by such person or persons as shall
have been named as the Employee's beneficiary, or by such persons
that have acquired the Employee's rights under the SAR by will or
by the laws of descent and distribution.
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(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all
outstanding SARs granted to that Employee shall immediately vest
one hundred percent (100%) as of the date the Committee
determines the definition of Disability to have been satisfied,
and shall remain exercisable at any time prior to their
expiration date, or for one (1) year after the date that the
Committee determines the definition of Disability to have been
satisfied, whichever period is shorter.
(c) TERMINATION BY RETIREMENT. In the event the employment of an
Employee is terminated by reason of Retirement, the Committee
shall retain discretion over the treatment of SARs.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that an
Employee's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such termination the Employee dies, then the
remaining exercise period under outstanding SARs shall equal the
longer of: (i) one (1) year following death; or (ii) the
remaining portion of the exercise period which was triggered by
the employment termination. Such SARs shall be exercisable by
such person or persons who shall have been named as the
Employee's beneficiary, or by such persons who have
acquired the Employee's rights under the SAR by will or by the
laws of descent and distribution.
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7.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of
an Employee shall terminate for any reason other than the reasons set forth
in Section 7.9 (and other than for Cause), all SARs held by the Employee
which are not vested as of the effective date of employment termination
immediately shall be forfeited to the Company (and shall once again become
available for grant under the Plan). However, the Committee, in its sole
discretion, shall have the right to immediately vest all or any portion of
such SARs, subject to such terms as the Committee, in its sole discretion,
deems appropriate.
SARs which are vested as of the effective date of employment termination
may be exercised by the Employee within the period beginning on the effective
date of employment termination, and ending six (6) months after such date or
on such later date as is approved by the Committee.
If the employment of an Employee shall be terminated by the Company for
Cause, all outstanding SARs held by the Employee immediately shall be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the SARs.
7.11 NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
SARs granted to an Employee under the Plan shall be exercisable during his or
her lifetime only by such Employee.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time
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to time, may grant Shares of Restricted Stock to eligible Employees in such
amounts as the Committee shall determine.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or Periods, the number of Restricted Stock Shares granted, and
such other provisions as the Committee shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares
of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified
in the Restricted Stock Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set
forth in the Restricted Stock Agreement. However, in no event may any
Restricted Stock granted under the Plan become vested in an Employee prior to
six (6) months following the date of its grant. All rights with respect to
the Restricted Stock granted to an Employee under the Plan shall be available
during his or her lifetime only to such Participant.
8.4 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any Shares of Restricted Stock granted pursuant to the Plan
as it may deem advisable including, without limitation, restrictions based
upon the achievement of specific performance goals (Company-wide, divisional,
and/or individual), and/or restrictions under applicable Federal or state
securities laws; and may legend the certificates representing Restricted
Stock to give appropriate notice of such restrictions.
8.5 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 8.4 herein, each certificate
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representing Shares of Restricted Stock granted pursuant to the Plan shall
bear the following legend:
"The sale or other transfer of the Shares of stock
represented by this certificate, whether voluntary,
involuntary, or by operation of law, is subject to certain
restrictions on transfer as set forth in the United
Wisconsin Services, Inc. Equity Incentive Plan, and in a
Restricted Stock Agreement. A copy of the Plan and such
Restricted Stock Agreement may be obtained from the
Secretary of United Wisconsin Services, Inc."
8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article 8, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the Employee after
the last day of the Period of Restriction. Once the Shares are released from
the restrictions, the Employee shall be entitled to have the legend required
by Section 8.5 removed from his or her Share certificate.
8.7 VOTING RIGHTS. During the Period of Restriction, Employees holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Employees holding Shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those Shares while they are so held. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.
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In the event that any dividend constitutes a "derivative security" or an
"equity security" pursuant to Rule 16(a) under the Exchange Act, such
dividend shall be subject to a vesting period equal to the longer of: (i) the
remaining vesting period of the Shares of Restricted Stock with respect to
which the dividend is paid; or (ii) six months. The Committee shall
establish procedures for the application of this provision.
8.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
In the event the employment of an Employee is terminated by reason of death
or Disability, all outstanding Shares of Restricted Stock shall immediately
vest one hundred percent (100%) as of the date of employment termination (in
the case of Disability, the date employment terminates shall be deemed to be
the date that the Committee determines the definition of Disability to have
been satisfied). The Committee retains discretion over the treatment of
Restricted Stock upon Retirement. In the event of full vesting, the holder
of the certificates of Restricted Stock shall be entitled to have any
nontransferability legends required under Sections 8.4 and 8.5 of this Plan
removed from the Share certificates.
8.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of
an Employee shall terminate for any reason other than those specifically set
forth in Section 8.9 herein, all Shares of Restricted Stock held by the
Employee which are not vested as of the effective date of employment
termination immediately shall be forfeited and returned to the Company (and,
subject to Section 4.2 herein, shall once again become available for grant
under the Plan).
With the exception of a termination of employment for Cause, the Committee,
in its sole discretion, shall have the right to provide for lapsing of the
restrictions on Restricted Stock
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following employment termination, upon such terms and provisions as it deems
proper.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the
Plan, Performance Units and Performance Shares may be granted to eligible
Employees at any time and from time to time, as shall be determined by the
Committee. The Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to each Employee.
9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall
have an initial value that is established by the Committee at the time of
grant. Each Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the date of grant. The Committee shall set
performance goals in its discretion which, depending on the extent to which
they are met, will determine the number and/or value of Performance
Units/Shares that will be paid out to the Employee. The time period during
which the performance goals must be met shall be called a "Performance
Period." Performance Periods shall, in all cases, exceed six (6) months in
length.
9.3 EARNING OF PERFORMANCE UNITS/SHARES. After the applicable
Performance Period has ended, the holder of Performance Units/Shares shall be
entitled to receive payout on the number of Performance Units/Shares earned
by the Employee over the Performance Period, to be determined as a function
of the extent to which the corresponding performance goals have been achieved.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/ SHARES. Payment
of earned Performance Units/Shares shall be made
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in a single lump sum, within forty-five (45) calendar days following the
close of the applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Shares in the form of cash or in
Shares (or in a combination thereof), which have an aggregate Fair Market
Value equal to the value of the earned Performance Units/Shares at the close
of the applicable Performance Period.
Prior to the beginning of each Performance Period, Participants may elect
to defer the receipt of Performance Unit/Share payout upon such terms as the
Committee deems appropriate.
9.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT, OR
INVOLUNTARY TERMINATION (WITHOUT CAUSE). In the event the employment of an
Employee is terminated by reason of death or Disability or involuntary
termination without Cause during a Performance Period, the Employee shall
receive a prorated payout of the Performance Units/Shares. The Committee
retains discretion over the treatment of Performance Units/Shares upon
Retirement. Any prorated payout shall be determined by the Committee, in its
sole discretion, and shall be based upon the length of time that the Employee
held the Performance Units/Shares during the Performance Period, and shall
further be adjusted based on the achievement of the preestablished
performance goals.
Timing of payment of earned Performance Units/Shares shall be determined by
the Committee at its sole discretion.
9.6 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that an
Employee's employment terminates for any reason other than those reasons set
forth in Section 9.5 herein, all Performance Units/Shares shall be forfeited
by the Employee to
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the Company, and shall once again be available for grant under the Plan.
9.7 NONTRANSFERABILITY. Performance Units/Shares may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, an
Employee's rights under the Plan shall be exercisable during the Employee's
lifetime only by the Employee or the Employee's legal representative.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a
form prescribed by the Company, and will be effective only when any necessary
spousal consent is obtained and filed by the Participant in writing with the
Secretary of the Company during the Participant's lifetime. In the absence
of any such designation, benefits remaining unpaid at the Participant's death
shall be paid to the Participant's estate.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise
be due to such Participant by virtue of the exercise of an Option or SAR, the
lapse or waiver of restrictions with respect to Restricted Stock, or the
satisfaction of any requirements or goals with respect to Performance
Units/Shares. If any such deferral election is required or
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permitted, the Committee shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any Employee's
employment at any time, nor confer upon any Employee any right to continue in
the employ of the Company.
For purposes of the Plan, transfer of employment of a Participant between
the Company and any one of its Subsidiaries (or between Subsidiaries) or Blue
Cross & Blue Shield United of Wisconsin shall not be deemed a termination of
employment.
12.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless otherwise specifically
prohibited by the terms of Section 18 herein:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable;
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse, and within ten (10) business days after the
occurrence of a Change in Control, the stock certificates
representing Shares of Restricted Stock, without any restrictions
or legend thereon, shall be delivered to the applicable
Participants;
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(c) The target value attainable under all Performance Units and
Performance Shares shall be deemed to have been fully earned
for the entire Performance Period as of the effective date of
the Change in Control, and shall be paid out in cash to
Participants within thirty (30) days following the effective
date of the Change in Control; provided, however, that there
shall not be an accelerated payout with respect to Performance
Units or Performance Shares which were granted less than six
(6) months prior to the effective date of the Change in Control;
(d) Subject to Article 14 herein, the Committee shall have the
authority to make any modifications to the Awards as determined
by the Committee to be appropriate before the effective date of
the Change in Control.
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1 AMENDMENT, MODIFICATION, AND TERMINATION. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend,
or modify the Plan.
14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal,
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state, and local taxes (including the Participant's FICA obligation) required
by law to be withheld with respect to any taxable event arising or as a
result of this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event hereunder, Participants may elect,
subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Shares
having a Fair Market Value on the date the tax is to be determined equal to
the minimum statutory total tax which could be imposed on the transaction.
All elections shall be irrevocable, made in writing, signed by the
Participant, and elections by Insiders shall additionally comply with the
applicable requirement set forth in (a) or (b) of this Section 15.2.
(a) AWARDS HAVING EXERCISE TIMING WITHIN INSIDERS' DISCRETION. The
Insider must either:
(i) Deliver written notice of the stock withholding election to
the Committee at least six (6) months prior to the date
specified by the Insider on which the exercise of the Award
is to occur; or
(ii) Make the stock withholding election in connection with an
exercise of an Award which occurs during a Window Period.
(b) AWARDS HAVING A FIXED EXERCISE/PAYOUT SCHEDULE WHICH IS OUTSIDE
INSIDERS' CONTROL. The Insider must either:
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(i) Deliver written notice of the stock withholding election to
the Committee at least six (6) months prior to the date on
which the taxable event (e.g., exercise or payout) relating
to the Award is scheduled to occur; or
(ii) Make the stock withholding election during a Window Period
which occurs prior to the scheduled taxable event relating
to the Award (for this purpose, an election may be made
prior to such a Window Period, provided that it becomes
effective during a Window Period occurring prior to the
applicable taxable event).
ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's
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Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold them harmless.
ARTICLE 17. SUCCESSORS
All obligations,of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Notwithstanding any other provision set forth in the Plan, if required by
the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant
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to the Plan to any Insider may not be sold or transferred for at least six
(6) months after the date of grant of such Award. The terms "equity security"
and "derivative security" shall have the meanings ascribed to them in the
then-current Rule 16(a) under the Exchange Act.
18.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of
the plan or action by the Committee fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
Committee.
18.5 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Wisconsin.
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EXHIBIT 10.2
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ACQUISITION AGREEMENT
THIS AGREEMENT is made as of this ____ day of ________________, 1998,
by and between UNITED WISCONSIN SERVICES, INC., a Wisconsin corporation
("UWSI"), and VICTORIA HEKKERS ("Ms. Hekkers"), sole shareholder of Intercare
Network, Inc., a Wisconsin corporation (the "Company").
RECITAL
Subject to the satisfaction of the terms and conditions set forth
herein, UWSI desires to purchase from Ms. Hekkers, and Ms. Hekkers desires to
sell to UWSI, 1,000 shares of $1.00 par value common stock of the Company (the
"Company Shares").
AGREEMENTS
In consideration of the recital and the mutual agreements contained
herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE COMPANY SHARES
1.1 PURCHASE AND SALE OF THE COMPANY SHARES. Subject to the
satisfaction of the terms and conditions of Articles V and VI hereof, Ms.
Hekkers shall transfer and deliver to UWSI, and UWSI shall purchase and accept
from Ms. Hekkers, the Company Shares.
1.2 PURCHASE PRICE; METHOD OF PAYMENT. In exchange for the Company
Shares, upon satisfaction of the terms and conditions of Article VI hereof, UWSI
shall pay to Ms. Hekkers a purchase price ("Purchase Price") of One Million
Dollars ($1,000,000).
1.3 POST-CLOSING ADJUSTMENTS.
(a) As soon as practicable, but not later than 45 days after the
Closing, (as defined in Article II) UWSI's designated accountant shall prepare a
balance sheet (the "Proposed Closing Balance Sheet") of the Company as of
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December 31, 1997. The Proposed Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles, consistently applied.
UWSI's accountants shall permit Ms. Hekkers to review all
accounting records and all work papers and computations used by them in the
preparation of the Proposed Closing Balance Sheet. If Ms. Hekkers does not give
notice of dispute to UWSI within fifteen (15) days of receiving the Proposed
Closing Balance Sheet, the Proposed Closing Balance Sheet shall become the
"Closing Balance Sheet." If Ms. Hekkers gives notice of dispute to UWSI within
such fifteen day period, Ms. Hekkers and UWSI shall negotiate in good faith to
resolve the dispute. If, after 5 days from the date notice of a dispute is
given hereunder, Ms. Hekkers and UWSI cannot agree on the resolution of the
dispute, the parties shall designate an independent public accounting firm
acceptable to both UWSI and Ms. Hekkers to resolve the dispute, whose decision
as to the Closing Balance Sheet shall be conclusive and binding upon Ms. Hekkers
and UWSI in the absence of manifest error. The expenses pertaining to any
dispute resolution hereunder shall be shared equally by Ms. Hekkers and UWSI.
(b) If the Closing Balance Sheet results in a net book value
("Book Value") of less than Eighty Thousand, Eight Hundred Fifteen Dollars
($80,815), the Purchase Price shall be reduced by the difference between $80,815
and the Book Value (such reduction being referred to herein as the "Seller's
Adjustment Amount"). If such adjustment is required, Ms. Hekkers shall pay to
UWSI the Seller's Adjustment Amount within five days of Ms. Hekkers' acceptance
of the Closing Balance Sheet or, if applicable, within one (1) day after receipt
of a determination in resolution of any dispute over the Book Value as provided
for above. If the Closing Balance Sheet results in a Book Value of more than
$80,815, the Purchase Price shall be increased by the difference between $80,815
and the Book Value (such increase being referred to herein as the "Buyer's
Adjustment Amount"). If such adjustment is required, UWSI shall pay to Ms.
Hekkers the Buyer's Adjustment Amount within five (5) days of acceptance of the
Closing Balance Sheet or, if applicable, within one (1) day after receipt of a
determination in resolution of any dispute over the Book Value as provided for
above. If any part of the Buyer's Adjustment Amount or Seller's Adjustment
Amount remains unpaid after such one-day period, interest shall accrue on the
unpaid amount at the annual rate that is equal to the lesser of 18% or the
maximum rate provided by law.
(c) If, after thirty (30) days from the date of resolution of the
dispute referenced in this section 1.3 above, any part of the Buyer's Adjustment
Amount or Seller's Adjustment Amount remains unpaid, the party to whom such
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money is owed shall be entitled to receive from the other party such amount as a
court may determine to be reasonable attorneys' fees for services rendered to
enforce collection of such adjustment amount.
ARTICLE II
CLOSING
The closing (the "Closing") of the transactions contemplated by this
Agreement shall be consummated upon (1) the execution of this Agreement, and
(2) the satisfaction of the terms and conditions of Articles V and VI hereof.
The date on which the Closing occurs which shall be no later than August 13,
1998, is referred to in this Agreement as the Closing Date.
ARTICLE III
REPRESENTATIONS OF MS. HEKKERS
To induce UWSI to enter into this Agreement, Ms. Hekkers makes the
following representations and warranties, each of which shall be deemed to be
independently material and relied upon by UWSI, regardless of any investigation
made by or information known to UWSI.
3.1 SUBSIDIARIES. The Company owns no stock or other securities and
has no investment in any corporation, joint venture, partnership or other
business enterprise.
3.2 ORGANIZATION AND QUALIFICATION; POWER; AUTHORIZATION.
(a) ORGANIZATION AND QUALIFICATION. The Company is a business
corporation duly organized and validly existing under the laws of the State of
Wisconsin, has filed with the Wisconsin Department of Financial Institutions the
most recent annual report required to be filed by it, has not filed Articles of
Dissolution and has a perpetual period of existence. The Company has full
corporate power and authority to conduct its business as it is now being
conducted and is not required to be qualified to transact business as a foreign
corporation in any jurisdiction where the Company transacts business.
(b) POWER. Ms. Hekkers has all requisite legal power to enter
into this Agreement and all other agreements contemplated hereunder, to sell
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the Company Shares, to carry out and perform her obligations under this
Agreement and all other agreements contemplated hereunder and to consummate
all of the transactions contemplated hereby and thereby. This Agreement and
the agreements contemplated hereunder are legal, valid and binding
obligations of Ms. Hekkers and are enforceable against Ms. Hekkers in
accordance with their terms.
(c) AUTHORIZATION. There is no corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by Ms. Hekkers of this Agreement and the
agreements contemplated hereby.
(d) S CORPORATION. The Company is an S Corporation, was an
S Corporation at its inception and has never changed its corporate form or
election of S Corporation during its entire existence.
3.3 CONFLICTING OBLIGATIONS; CONSENTS. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
hereby will not: (a) conflict with or violate any provisions of the Articles of
Incorporation or By-Laws of the Company; (b) conflict with or violate any
provisions of, or result in the maturation or acceleration of, any obligations
under any material contract, agreement, instrument, document, lease, license,
permit, indenture or obligation, or any law, statute, ordinance, rule,
regulation, code, guideline, order, arbitration award, judgment or decree, to
which Ms. Hekkers or the Company is subject or by which either is bound; or
(c) violate any material restriction or limitation, or result in the termination
or loss of any material right (or give any third party the right to cause such
termination or loss) of any kind affecting the Company. Except as set forth on
Schedule 3.3, no third-party consents, approvals or authorizations are necessary
for Ms. Hekkers to consummate the transactions contemplated hereby.
3.4 CAPITALIZATION. The entire authorized capital stock of the
Company consists of 56,000 shares of common stock, $1.00 par value. After
giving effect to the consummation of the transactions contemplated by this
Agreement, the only shares of capital stock of the Company issued and
outstanding will be the Company Shares. When sold, transferred and delivered in
accordance with the terms of this Agreement, the Company Shares will be duly and
validly issued, fully paid, nonassessable, subject to the provisions of
section 180.0622(2)(b) of the Wisconsin Statutes, and free and clear of all
liens, charges, claims and other encumbrances. There are no outstanding
options, warrants, convertible securities or other rights to subscribe for or
acquire any
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capital stock of the Company or securities convertible into capital stock of
the Company. All capital stock of the Company has been issued in compliance
with applicable federal and state securities laws.
3.5 ORGANIZATIONAL DOCUMENTS. The Articles of Incorporation, By-Laws
and other organizational documents and corporate minute books of the Company
have been delivered to UWSI and are true, correct and complete in all material
respects.
3.6 FINANCIAL STATEMENTS. Attached as Schedule 3.6 are complete
copies of the financial statements (including balance sheets and statement of
earnings, stockholders' equity and cash flow) of the Company for each of its
fiscal years through and including March 31, 1998 (collectively the "Financial
Statements"). The December balance sheet of the Company for the period ending
December 31, 1997 is referred to in this Agreement as the "12/97 Company Balance
Sheet." The Company's books and records of account accurately reflect in all
material respects all of the assets, liabilities, transactions and results of
operations of the Company and the Financial Statements have been prepared based
upon and in conformity therewith. Except as set forth on Schedule 3.6, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles maintained and applied on a consistent basis throughout
the indicated periods, and fairly present the financial condition and results of
operation of the Company at the dates and for the relevant periods indicated.
3.7 ACCOUNTS RECEIVABLE. All accounts receivable of the Company (the
"Receivables") reflected on the March 31, 1998 financial statements arose in the
ordinary course of business and represent amounts payable by a buyer for goods
actually sold or services actually performed and are current and, to the
knowledge of Ms. Hekkers, collectible at the aggregate recorded amounts thereof,
less the reserve for bad debts reflected on the March 31, 1998 financial
statements, and are not subject to any counterclaims or setoffs. To the
knowledge of Ms. Hekkers, Receivables arising after the date of the March 31,
1998 financial statements have arisen in the ordinary course of business,
represent amounts payable by a buyer for goods actually sold or services
actually performed and are current and collectible at the aggregate recorded
amounts thereof, less a reserve for bad debts consistent with the reserve stated
on the March 31, 1998 financial statements.
3.8 REAL PROPERTY. The Company does not own any real properties.
Schedule 3.8 sets forth an accurate summary description of all real
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properties leased or rented by the Company ("Company Leased Real Estate").
Except for Permitted Encumbrances (as defined below), the Company has good
and marketable leasehold title to all Company Leased Real Estate. "Permitted
Encumbrances" means municipal and zoning ordinances, recorded easements,
covenants and restrictions, provided the same do not prohibit or materially
interfere with the present use, or materially affect the present value, of
the Company Leased Real Estate, and general taxes levied on or after January
1, 1998 and not yet due or payable. Each parcel of the Company Leased Real
Estate is the subject of a written lease agreement.
3.9 PERSONAL PROPERTY. Except as set forth on Schedule 3.9, the
Company owns, free and clear of all security interests and other encumbrances,
good and marketable title to all property and assets used in its business (the
"Assets"). Except as also set forth on Schedule 3.9, the Assets are in good
working order and condition, reasonable wear and tear excepted.
3.10 INTELLECTUAL PROPERTY. Schedule 3.10 lists (or, in the case of
trade secrets and secret processes, generally describes) all of the (a) patents
and patent applications, (b) trademarks, trade names and applications therefor
and service marks, (c) copyrights and copyright registrations, (d) trade secrets
and secret processes and (e) other intellectual property rights used, employed
or intended to be used or employed by the Company (the "Company Intellectual
Property"). The Company owns (or has valid, unrestricted and enforceable rights
to use and license) all of the Company Intellectual Property, and the Company
Intellectual Property includes all intellectual property rights which are
necessary to conduct the business of the Company as presently conducted.
Schedule 3.10 lists, for each item of Company Intellectual Property which is
registered with any foreign, federal or state agency or office, the registration
number thereof, the date of registration and the agency or office where so
registered. Except as otherwise described on Schedule 3.10, the Company is the
sole owner of all right, title and interest in the Company Intellectual
Property. With respect to the Company Intellectual Property licensed by the
Company, the Company has valid, binding and enforceable rights to use and
license such Company Intellectual Property. The use and licensing of the
Company Intellectual Property do not infringe upon the rights of any third
party. No claim, suit or action is pending or, to the knowledge of Ms. Hekkers,
threatened alleging that the Company is infringing upon the intellectual
property rights of others.
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3.11 INSURANCE.
(a) GENERAL. Schedule 3.11 lists and contains a description of
each policy of insurance owned or held by the Company currently in effect
(including without limitation, policies for fire and casualty, liability,
worker's compensation, business interruption, umbrella coverage, products
liability, medical, disability and other forms of insurance) specifying the
insurer, amount of coverage, type of insurance, policy number, deductible limits
and any pending claim (the "Company Insurance"). The Company Insurance is in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date hereof have been paid, and no notice of cancellation
or termination has been received by the Company with respect to any such policy.
The Company Insurance is sufficient for compliance with all requirements of law
and with all agreements to which the Company is a party.
(b) DENIALS OF COVERAGE. The Company has not been refused any
insurance with respect to the Assets or its operations and its coverage has not
been limited by any insurance carrier to which it has applied for or with which
it has carried insurance.
3.12 GOVERNMENTAL AUTHORIZATIONS. The Company possesses all
governmental, regulatory and administrative licenses, permits, approvals and
other authorizations as are necessary for the consummation of the transactions
contemplated hereby and the conduct of its business and operations. The Company
is in compliance with the terms and conditions of all such licenses, permits,
approvals and authorizations. Neither the execution of this Agreement or the
agreements contemplated hereby nor the consummation of the transactions
contemplated hereby or thereby will result in the revocation, or an adverse
change in the terms or conditions, of any such license, permit, approval or
authorization. Such licenses, permits, approvals and authorizations shall
continue in full force and effect in accordance with their present terms and
conditions notwithstanding the consummation of the transactions contemplated
hereby.
3.13 LITIGATION. Except as set forth on Schedule 3.13, there is no
litigation, claim, proceeding or investigation pending, or, to the knowledge of
Ms. Hekkers, threatened against or relating to the Company, the Assets, its
business or the transactions contemplated hereby. Schedule 3.13 discloses, with
respect to each item described thereon, the name or title of the action (and
parties or potential parties thereto) and a description of the nature of the
action or claim. Except as so described, Ms. Hekkers knows of no state of facts
or circumstances which reasonably could be expected to ripen into any
litigation, proceeding or
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investigation or adversely affect the Assets or the Company's business or
prospects. Except as described on Schedule 3.13, there is no outstanding
order, decree or stipulation issued by any federal, state or local authority
to which the Company is a party or subject.
3.14 COMPLIANCE WITH LAW. The conduct of the business of the Company
does not violate, nor is the Company in default under, any law, rule,
regulation, code, guideline, order, arbitration award, judgment, decree,
restriction or condition.
3.15 ENVIRONMENTAL CONCERNS. The Company is and has been in
compliance with all applicable environmental, health, safety and noise
pollution laws, rules and regulations and with all laws, rules and
regulations regarding the generation, production, storage, treatment,
labeling, transportation or disposition of infectious, hazardous or other
wastes or toxic substances ("Environmental Laws"). The Company has timely
filed all reports and notices required to be filed by it, has obtained all
required approvals and permits and has generated and maintained all required
data, documentation and records required under the Environmental Laws. The
Company has not, nor has, to the knowledge of Ms. Hekkers, any other person
or entity, caused or permitted hazardous substances to be stored, discharged
or released, deposited, treated, recycled, leaked, spilled or disposed of on,
under or at any real property occupied by the Company. The Company Leased
Real Estate contains no urea-formaldehyde, asbestos or asbestos by-products,
and there are no storage tanks, vessels or other facilities on, under or at
the Company Leased Real Estate which contain or previously contained
materials which, if known to be present, would require cleanup, removal or
other remedial action under the Environmental Laws.
3.16 CONTINGENT AND UNDISCLOSED LIABILITIES. The Company does not
have any debts, obligations or liabilities and it is not subject to the
imposition of any valid governmental or third-party claim arising from the
conduct of its business or the ownership or use of the Assets on or prior to
the date hereof, whether known or unknown, fixed or contingent, of any nature
whatsoever, except those: (a) reflected or reserved against on the 12/97
Company Balance Sheet, (b) disclosed on Schedule 3.16 or (c) liabilities
which have arisen in the ordinary course of business and consistent with past
practice from the date of the 12/97 Company Balance Sheet through the date
hereof and which are not, singly or in the aggregate, materially adverse to
the Company.
3.17 TAXES. The federal and state corporate tax returns of the
Company have not been audited. There is no tax audit or examination now
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pending or, to the knowledge of Ms. Hekkers, threatened with respect to the
Company. The Company has filed all federal, state and local tax reports and
returns required by any law, rule or regulation to be filed by it except for
extensions duly obtained, all taxes, duties and charges indicated due on the
basis of such reports and returns have been paid or adequate provision for
the payment thereof has been duly made and the assessment of any material
amount of additional taxes in excess of those paid and reported is not
reasonably expected. All taxes and assessments which the Company was or is
required by law to withhold or collect have been and are being withheld or
collected and have been paid over to the proper governmental authorities or,
if not yet due, are being held for such payment. All such taxes and
assessments which are not yet due will be paid as they become due.
3.18 PERFORMANCE OF CONTRACTS. The Company is not in material default
under, nor has breached any provision of, any oral or written contract,
agreement, instrument, document, lease, license, permit, indenture, insurance
policy or other obligation to which the Company is a party (the "Company
Contracts"), and there is no oral modification or past practice inconsistent in
any material respect with the written terms of any of the Company Contracts.
The Company has delivered to UWSI copies of all written Company Contracts and a
description of any oral Company Contracts is set forth on Schedule 3.18. All of
the Company Contracts are currently in full force and effect. To the knowledge
of Ms. Hekkers, the other parties to the Company Contracts have complied with
their obligations thereunder and are not in breach thereof. The Company has
performed each term, condition and covenant of each Company Contract required to
be performed by it on or prior to the date hereof. Ms. Hekkers or the Company
know of no state of facts which, with the giving of notice or the passing of
time or both, would give rise to any default under the Company Contracts.
3.19 CHANGES IN FINANCIAL POSITION. Since the date of the 12/97
Company Balance Sheet, the Company's business has been conducted in the ordinary
course thereof and consistent with past practice, and, except as described on
Schedule 3.19, there has not been:
(a) FINANCIAL CONDITIONS. Any material and adverse change in
the Assets or the business, condition (financial or otherwise) or prospects of
the Company;
(b) BUSINESS OR PROPERTY DAMAGE. Any material damage,
destruction or loss (whether or not covered by insurance) adversely affecting
the Assets or the business or prospects of the Company; or
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(c) EXTRAORDINARY EVENTS. Any material transaction outside the
ordinary course of business of the Company.
3.20 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 3.20,
the Company does not have any union contract, collective bargaining agreement,
employment contract, deferred compensation agreement or bonus, incentive,
profit-sharing, pension, retirement or other employee benefit plan (as that term
is defined by the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (collectively the "Plans") currently in force and effect, or any
informal understanding with respect to any of the foregoing. The Company does
not maintain and has not ever maintained or contributed to any funded employee
pension plan (as that term is defined in ERISA). All Plans which are subject to
ERISA comply with ERISA and have been administered (a) in strict compliance with
ERISA and the Internal Revenue Code of 1986, as amended (the "Code") as to
filing when due all materials required to be filed, and (b) in material
compliance with ERISA and the Code in all other respects. With respect to each
of the Plans, the Company does not have any material liability for any failure
to comply with ERISA or the Code or for any action or failure to act in
connection with the administration of the Plans. No Plan has engaged in any
prohibited transaction in violation of ERISA or any prohibited transaction
within the meaning of the Code. There are no material controversies or
employment related claim or allegation pending or, to the knowledge of the
Company or Ms. Hekkers, currently threatened between the Company and its
employees.
3.21 BROKERAGE. The Company has not incurred, or made commitments
for, any brokerage, finder's or similar fee in connection with the transaction
contemplated by this Agreement.
3.22 RELATED PARTY TRANSACTIONS. Except as described on
Schedule 3.22, the Company: (a) has not had any financial transactions or
arrangements, other than payment of regular salary to any Related Party (as
defined below) who is an employee, with any Related Party during the last three
fiscal years and (b) has not had and will not have any present or future
obligation to enter into any transaction or arrangement with any Related Party.
For purposes hereof, the term "Related Party" shall mean: (i) any shareholder
of the Company or any partner or affiliate of such shareholder, (ii) any officer
or director of the Company, (iii) any spouse, in-law or lineal descendant of any
other Related Party, and (iv) any Person who, directly or indirectly, Controls
or is Controlled by or is under common Control with the Company. For purposes
of this Agreement, "Person" shall mean an individual, partnership, corporation,
trust, unincorporated
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organization or other entity and "Control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
management and policies of a Person, whether through the ownership of voting
securities, by contract, by common management or otherwise. A Person having
a contract or other arrangement giving that Person Control is deemed to be in
Control despite any limitations placed by law on the validity of such
contract or arrangement. Except as described on Schedule 3.22, to the
knowledge of Ms. Hekkers, no Related Party owns, directly or indirectly, or
is a director, shareholder, member, officer or employee of, or consultant to,
any business organization that is a competitor, supplier or customer having
business dealings with the Company, nor does any Related Party own any assets
or properties which are used in the business of the Company.
3.23 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The
representations and warranties contained herein, and in all other documents,
certifications, materials and written statements or written information given to
UWSI by or on behalf of Ms. Hekkers in connection herewith, do not include any
untrue statement of any material fact or fail to state any material fact known
to Ms. Hekkers required to be stated herein or therein in order to make the
statements herein or therein, in light of the circumstances under which they are
made, not misleading.
ARTICLE IV
REPRESENTATIONS OF UWSI
To induce Ms. Hekkers to enter into this Agreement, UWSI makes the
following representations and warranties, each of which shall be deemed to be
independently material and relied upon by Ms. Hekkers, regardless of any
investigation made by or information known to the Company.
4.1 POWER; AUTHORIZATION.
(a) CORPORATE POWER. UWSI has all requisite legal and corporate
power to enter into this Agreement and all other agreements contemplated
hereunder, to carry out and perform its obligations under this Agreement and all
other agreements contemplated hereunder and to consummate all of the
transactions contemplated by this Agreement and all other agreements
contemplated hereunder.
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(b) AUTHORIZATION. All corporate action on the part of UWSI and
its directors and shareholders necessary for the authorization, execution,
delivery and performance by UWSI of this Agreement and the agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, has been taken. This Agreement and the agreements
contemplated hereby to which UWSI is a party are legal, valid and binding
obligations of UWSI enforceable against UWSI in accordance with their terms.
4.2 CONFLICTING OBLIGATIONS; CONSENTS. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
hereby will not, conflict with or violate any provisions of the Articles of
Incorporation or By-Laws of UWSI. No third-party consents, approvals or
authorizations are necessary for UWSI's execution and consummation of the
transactions contemplated hereby.
4.3 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The
representations and warranties contained herein, and in all other documents,
certifications, materials and written statements or written information given to
Ms. Hekkers by or on behalf of UWSI in connection herewith, do not include any
untrue statement of any material fact or fail to state any material fact known
to UWSI and required to be stated herein or therein in order to make the
statements herein or therein, in light of the circumstances under which they are
made, not misleading.
ARTICLE V
CONDITIONS TO MS. HEKKERS'
OBLIGATION TO CLOSE
The obligation of Ms. Hekkers to consummate the transactions
contemplated in this Agreement shall be subject to the satisfaction and
fulfillment of each of the following express conditions precedent at or prior to
Closing:
5.1 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The
representations and warranties made by UWSI herein shall be true, correct and
complete.
5.2 LEASE AGREEMENT. UWSI shall guaranty a lease agreement between
Intercare Network, Inc. and the landlord to lease the property located at
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285 Forrest Grove Drive, Pewaukee, Wisconsin, on terms and conditions
acceptable to UWSI.
5.3 EXHIBITS. All Exhibits referenced in this Agreement shall be in
a form acceptable to Ms. Hekkers, which acceptance shall not be unreasonably
withheld.
5.4 OTHER DOCUMENTS. UWSI shall have delivered to Ms. Hekkers all
other documents and instruments necessary, in the reasonable opinion of counsel
to Ms. Hekkers, to consummate the transactions contemplated hereunder.
ARTICLE VI
CONDITIONS TO UWSI'S OBLIGATION TO CLOSE
The obligation of UWSI to consummate the transactions contemplated in
this Agreement shall be subject to the satisfaction and fulfillment of each of
the following express conditions precedent at or prior to Closing:
6.1 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The
representations and warranties made by Ms. Hekkers herein shall be true, correct
and complete.
6.2 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All proceedings,
corporate or otherwise, to be taken by Ms. Hekkers or the Company in connection
with the transactions contemplated by this Agreement shall be satisfactory in
form and substance to UWSI.
6.3 CONSENTS, APPROVALS, CERTIFICATIONS AND LICENSES. All consents,
approvals, certifications and licenses required with respect to Ms. Hekkers'
consummation of the transactions contemplated hereby shall have been received.
6.4 DELIVERY OF STOCK CERTIFICATES. Ms. Hekkers shall have delivered
to UWSI a stock certificate representing the Company Shares, duly endorsed for
transfer to UWSI or in blank or accompanied by assignments separate from the
certificate.
6.5 DUE DILIGENCE. UWSI shall have conducted a due diligence
investigation and review of the Company, its operations and all matters
pertaining
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thereto that UWSI deems relevant and the results of such investigation and
review shall be reasonably satisfactory to UWSI.
6.6 EMPLOYMENT AGREEMENT. Ms. Hekkers shall have executed and
delivered to UWSI the Employment Agreement in the form attached hereto as
Exhibit A.
6.7 SCHEDULES AND EXHIBITS. All Schedules and Exhibits referenced in
this Agreement shall be in a form acceptable to UWSI, which acceptance shall not
be unreasonably withheld.
6.8 OTHER DOCUMENTS. Ms. Hekkers shall have delivered to UWSI all
other documents and instruments, necessary in the reasonable opinion of counsel
to UWSI, to consummate the transactions contemplated hereunder.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the parties in Articles III and IV of this Agreement
shall survive the Closing and shall continue for a period of three years
following the Closing except for those contained in sections 3.15 and 3.17,
which shall continue indefinitely.
7.2 INDEMNIFICATION COVENANTS. Subject to the provisions of this
Article VII, from and after the Closing:
(a) BY MS. HEKKERS. Ms. Hekkers shall indemnify UWSI and its
affiliates, and their respective shareholders, officers, directors, agents,
employees and consultants (collectively the "UWSI Indemnified Parties"), for and
defend and hold the UWSI Indemnified Parties harmless from, in connection with
and against any demands, suits, orders, proceedings, claims, actions, causes of
action, assessments, losses, response costs, damages, liabilities, fees, fines,
forfeitures, costs and expenses, including, without limitation, interest,
penalties and consultant, contractor, engineer and attorneys' fees (collectively
"Damages") sustained or incurred by the UWSI Indemnified Parties as a result of,
arising out of, related to, in connection with or incidental to (a) any breach,
inaccuracy or nonfulfillment of any representation, warranty or covenant of Ms.
Hekkers contained in or made pursuant to this Agreement or in any Schedule,
Exhibit,
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certificate or other document delivered by the Company or Ms. Hekkers to UWSI
pursuant to this Agreement or (b) any debts, liabilities or obligations of
the Company, whether known or unknown, fixed or contingent, or otherwise,
related to ownership or occupancy of the property located at 133 Hill Street,
Hartland, Wisconsin, prior to the Closing Date.
(b) BY UWSI. UWSI shall indemnify Ms. Hekkers and her agents,
employees and consultants (collectively "Ms. Hekkers Indemnified Parties"), for
and defend and hold Ms. Hekkers Indemnified Parties harmless from and against
any Damages sustained or incurred by Ms. Hekkers Indemnified Parties as a result
of, arising out of, relating to, in connection with or incidental to any breach,
inaccuracy or nonfulfillment of any representation, warranty or covenant of UWSI
contained in or made pursuant to this Agreement or in any Schedule, Exhibit,
certificate or other document delivered by UWSI to Ms. Hekkers pursuant to this
Agreement.
(c) PROCEDURES. The party seeking indemnification (the
"Indemnified Party") shall give the party from whom indemnification is sought
(the "Indemnifying Party") written notice of any claim, demand, assessment,
action, suit or proceeding to which the indemnity set forth in this Agreement
applies. If the document evidencing such claim or demand is a court pleading,
the Indemnified Party shall give such notice within 10 days of receipt of such
pleading, and otherwise shall give such notice within 30 days of the date it
receives written notice of such claim. If the Indemnified Party's request for
indemnification arises from the claim of a third party, the written notice shall
permit the Indemnifying Party to assume the control of any such claim, or any
litigation resulting from such claim. Failure by the Indemnifying Party to
notify the Indemnified Party of its election to defend a complaint by a third
party within 5 days of notice shall be a waiver by the Indemnifying Party of its
right to respond to such complaint and, within 20 days after notice thereof,
shall be a waiver by the Indemnifying Party of its right to assume control of
the defense of such action. Notwithstanding the Indemnifying Party's assumption
of the defense of such third-party claim or demand, the Indemnified Party shall
have the right to participate in the defense of such third-party claim or demand
at its own expense. The Indemnified Party shall furnish the Indemnifying Party,
in reasonable detail, all information the Indemnified Party may have with
respect to any such third-party claim and shall make available to the
Indemnifying Party and its representatives all records and other similar
materials which are reasonably required in the defense of such third-party claim
and shall otherwise cooperate with and assist the Indemnifying Party in the
defense of such third-party claim. If the Indemnifying Party does not assume
control of the defense of any such third-party claim or
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litigation resulting therefrom, the Indemnified Party may defend against such
claim or litigation in such manner as it may reasonably deem appropriate.
Notwithstanding any other provision of this Agreement, Ms. Hekkers shall not
settle, compromise or otherwise dispose of any claim, demand, assessment,
action, suit or proceeding relating to any breach of any representation or
warranty contained in section 3.14 hereof without the prior written consent
of UWSI (which consent shall not be unreasonably withheld). Additionally
notwithstanding any other provision of this Agreement, UWSI shall not settle,
compromise or otherwise dispose of any claim, demand, assessment, action,
suit or proceeding relating to any breach of any representation or warranty
contained in section 3.14 hereof without the prior written consent of Ms.
Hekkers (which consent shall not be unreasonably withheld).
7.3 CAP. The aggregate liability of Ms. Hekkers to the UWSI
Indemnified Parties shall not exceed the Purchase Price, as adjusted (the
"Cap"); provided, however, that the Cap shall not apply to any Damages incurred
by the UWSI Indemnified Parties resulting from Ms. Hekkers' breach of any
representation or warranty contained in sections 3.15 or 3.17 hereof.
7.4 BASKET. No indemnification hereunder shall be payable by Ms.
Hekkers unless the aggregate Damages incurred by the UWSI Indemnified Parties
exceed $10,000 (the "Basket"), in which event the full amount of Damages
incurred by the UWSI Indemnified Parties shall be payable by Ms. Hekkers
(subject to the Cap).
7.5 EXCLUSIONS. Damages shall not, in any event:
(i) include any reduction or adjustment necessitated as a result of
Post-Closing Adjustments as set forth in Section 1.3 herein;
(ii) be calculated based on a multiple of earnings or discounted cash flow
methodology; and
(iii) include any loss or expense to the extent the same has been resolved,
settled, or compromised by insurance proceeds paid to the party seeking
indemnification.
7.6 PAYMENT OF DAMAGES. If an Indemnified Party is entitled to
Damages hereunder, the Indemnifying Party shall pay such Damages to the
Indemnified Party (subject to the Cap and the Basket) within 90 days (the
"Payment Period") of the date the Indemnified Party becomes entitled to such
Damages. If the Indemnifying Party does not pay within the Payment Period, the
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past-due payment shall bear interest at the lower of 18% per annum or the
maximum rate permitted by applicable law and the Indemnifying Party shall pay
all of the Indemnified Party's costs of collection, including, without
limitation, attorneys' fees.
7.7 ATTORNEYS' FEES. If, after the Closing, a party seeks arbitration or
institutes any judicial action or proceeding to recover Damages pursuant to this
Article VII or to otherwise enforce any provision of this Agreement, the party
in whose favor final judgment shall be entered shall be entitled to receive from
the other party such amount as the arbitrator or court may determine to be
reasonable attorneys' fees for the services rendered to the prevailing party in
any such arbitration, action or proceeding and such fees shall be included as
Damages.
ARTICLE VIII
COVENANTS OF UWSI
8.1 TAX RETURNS. UWSI shall not amend the Company's tax
returns prior to Closing. UWSI shall file 1998 tax returns which are not
inconsistent with the Proposed Closing Balance Sheet.
ARTICLE IX
MISCELLANEOUS
9.1 FURTHER ASSURANCES. Each party agrees that, from time to time
hereafter and upon request of any other party, it shall perform any further acts
and execute, acknowledge and deliver any additional documents as may be
reasonably necessary to carry out the provisions of this Agreement.
9.2 BENEFIT AND ASSIGNMENT. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by and against the parties hereto and
their successors and permitted assigns. This Agreement may not be assigned by
either party without the prior written consent of the other party except that
UWSI may assign this Agreement to any new entity formed by UWSI.
9.3 GOVERNING LAW; CONSTRUCTION. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Wisconsin,
and without reference to any rules of construction regarding the party
responsible for the drafting hereof.
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9.4 EXPENSES. All expenses and costs incurred in connection with
this Agreement or the transactions contemplated hereby shall be paid by the
party or parties incurring such expenses and costs.
9.5 NOTICES. All notices, demands and other communications required
or permitted to be given under this Agreement shall, for all purposes, be deemed
to be duly given as of the date when personally delivered to the recipient
thereof, or as of the date that is three business days after the date when
mailed by registered or certified mail, postage prepaid, addressed in each case
as follows, until some other address shall have been designated in a written
notice given in like manner:
If to UWSI: Mr. Roger A. Formisano
United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, WI 53203
Barbara Van Dam, Esq.
United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, WI 53203
With a copy to: Larri J. Broomfield, Esq.
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
1000 North Water Street, Suite 2100
Milwaukee, WI 53202
If to Ms. Hekkers:___________________________________
___________________________________
___________________________________
___________________________________
With a copy to: Mr. John M. Remmers
Cramer, Multhauf & Hammes, LLP
1601 East Racine Avenue, Suite 200
Waukesha, WI 53187
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9.6 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.7 HEADINGS. All section headings herein are inserted for
convenience only and shall not modify or affect the construction or
interpretation of any provision of this Agreement.
9.8 AMENDMENT, MODIFICATION AND WAIVER. This Agreement may not be
modified, amended or supplemented except by mutual written agreement of UWSI and
Ms. Hekkers. Either party may waive in writing any term or condition contained
in this Agreement and intended to be for its or their benefit; provided,
however, that no waiver by any party, whether by conduct or otherwise, in any
one or more instances, shall be deemed or construed as a further or continuing
waiver of any such term or condition. Each amendment, modification, supplement
or waiver shall be in writing signed by the party to be charged.
9.9 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits
delivered herewith represent the entire agreement of the parties with respect to
the subject matter hereof and no provision or document of any kind shall be
included in or form a part of this Agreement unless signed and delivered to the
other party by the party to be charged.
9.10 PUBLICITY. The parties agree that no publicity announcements or
disclosures of any kind concerning the terms of this Agreement or concerning the
transactions contemplated hereby shall be made without the mutual consent of
UWSI and Ms. Hekkers, except to the extent that disclosure is required by legal
process or to accountants, counsel, other professionals and to lenders on a need
to know basis.
9.11 KNOWLEDGE. As used herein, any reference to the "knowledge" of
any party shall include the knowledge of such party after making due inquiry
and, if such party fails to make such inquiry, shall include constructive
knowledge of such facts as would have been learned had such due inquiry been
made.
9.12 RECORDS. Following Closing, for a period of five (5) years, UWSI
will permit Ms. Hekkers to have access to, and examine and make copies of, all
books and records of Ms. Hekkers relating to the business or assets of the
Company, which books and records are retained by UWSI and which relate to
transactions or events occurring prior to Closing.
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9.13 TAX RETURN AMENDMENTS. In the event Ms. Hekkers wishes to amend
any of the Company's tax returns for years prior to 1997, UWSI shall cooperate
with Ms. Hekkers' filing of such amendments as long as such amendments are
prepared solely at Ms. Hekkers' cost and expense and will not create a corporate
tax obligation to UWSI or any of its affiliates.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
VICTORIA HEKKERS
----------------------------------------
UNITED WISCONSIN SERVICES, INC.
BY
-------------------------------------
Its
---------------------------------
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EXHIBIT 10.3
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UNITED WISCONSIN SERVICES, INC.
1992 STOCK APPRECIATION RIGHTS PLAN
(Adopted July 1, 1998)
1. PURPOSE. The purpose of the United Wisconsin Services, Inc. 1992 Stock
Appreciation Rights Plan (the "Plan") is to attract and retain outstanding
individuals as officers and key employees of United Wisconsin Services,
Inc. (the "Corporation") (until the Effective Date, known as Newco/UWS,
Inc.) and its subsidiaries, and to furnish incentives to such individuals
through rewards upon the performance of the common stock of the
Corporation. To this end, the Management Review Committee of the
Corporation, or such other committee as determined by the Board of
Directors (the "Committee") may grant stock appreciation rights ("SARs") to
officers and other key employees of the Corporation and its subsidiaries,
on the terms and subject to the conditions set forth in this Plan.
This Plan is being created in connection with the distribution (the
"Distribution"), by the corporation formerly known as United Wisconsin
Services, Inc., of shares in connection with the spin-off of the managed
care and specialty products business to the Corporation and the assumption
by the Corporation of the United Wisconsin Services, Inc. name. In
connection with the Distribution, SARs will be issued under the Plan in
substitution for SARs issued under the 1992 Stock Appreciation Rights Plan
maintained by the corporation formerly known as United Wisconsin Services,
Inc., (the "Prior Plan") effective as of the date of the Distribution (the
"Distribution Date").
2. PARTICIPANTS. Participants in the Plan shall consist of such officers and
employees of the Corporation and its subsidiaries as the Committee in its
sole discretion may select from time to time to receive stock appreciation
rights. In determining the officers and employees to whom stock
appreciation rights will be granted, the Committee shall take into account
the duties of the respective officers and employees, their past, present
and potential contributions to the success of the Corporation, their level
of responsibility for the growth, development and financial success of the
Corporation, and such other factors as the Committee deems relevant in
connection with accomplishing the purposes of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall consist of not less than two members of the
Board of Directors. All members of the Committee shall be "Non-Employee
Directors". Non-Employee Director, as defined in rule 16b-3 promulgated by
the Securities and Exchange Commission ("SEC") under the Exchange Act,
means a director who (i) is not currently an officer or otherwise employed
by the Company or any Affiliate, (ii) does not receive compensation for
consulting services or in any
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other capacity from the Company in excess of $60,000 in an one year,
(iii) does not possess an interest in and is not engaged in business
relationships required to be reported under Items 404(a) or 404(b) of
Regulation S-K promulgated under the Exchange Act and (iv) is an Outside
Director as defined in Treas. Reg. 1.162-27. Subject to the provisions
of the Plan, the Committee shall have sole discretion and authority (i)
to determine which officers and employees of the Corporation and its
subsidiaries shall be eligible for participation in the Plan; (ii) to
select officers and employees to receive grants under the Plan; (iii) to
determine the number of stock appreciation rights subject to the grant,
the conditions of exercise, the fair market value of the common stock of
the Corporation for purposes of the Plan, and all other terms and
conditions of any grant; and (iv) to prescribe the form of agreement,
certificate or other instrument evidencing the grant. The Committee
shall also have authority to interpret the Plan and to establish, amend
and rescind rules and regulations for the administration of the Plan,
and all such interpretations, rules and regulations shall be conclusive
and binding on all persons, provided, however, that the Committee shall
not exercise such authority in a manner adversely and significantly
affecting stock appreciation rights previously granted unless the action
taken is required to comply with any applicable law or regulation.
4. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall be effective as of the
Distribution Date. The Plan shall terminate only by action of the Board of
Directors. No further grants may be made under the Plan after its
termination, but the termination of the Plan shall not adversely and
significantly affect the rights of any participant under, or the authority
of the Committee with respect to, any grants made prior to termination
unless the action taken is required to comply with any applicable law or
regulations.
5. NUMBER OF STOCK APPRECIATION RIGHTS SUBJECT TO THE PLAN. Subject to
adjustment as provided in paragraph 7 hereof, the aggregate number of stock
appreciation rights which may be granted under the Plan shall not exceed
150,000, multiplied by a fraction (the "Adjustment Factor") the numerator
of which is the Market Price of the common stock of the corporation
formerly known as United Wisconsin Services, Inc. on the Distribution Date
and the denominator of which is the Market Price of Corporation common
stock on the day after the Distribution Date. The "Market Price" of a
security is defined to be the closing sales price of such security as
reported on the NYSE Composite Tape. Each stock appreciation right
evidences the right upon exercise to receive payment from the Corporation
of the amount set forth in Section 6(d) hereof. Whenever stock
appreciation rights granted under the Plan can no longer under any
circumstances be exercised, these
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stock appreciation rights shall be available for additional grants under
the Plan. Stock appreciation rights which are exercised shall thereafter
be canceled and retired.
6. STOCK APPRECIATION RIGHTS.
(a) Grants. Stock appreciation rights entitling the grantee to
receive cash equal to the sum of (i) the appreciation in
value and (ii) the value of dividends paid on a stated
number of shares of common stock of the Corporation between
the date of grant and the date of exercise may be granted
without consideration from time to time to such officers and
employees of the Corporation and its subsidiaries as may be
selected by the Committee.
(b) Terms of Grant and Exercise: General. The grantee's rights
with respect to stock appreciation rights granted shall vest
three years after the date of grant as to 50% of the stock
appreciation rights; the remaining 50% of the stock
appreciation rights granted shall vest six years after the
date of grant. Notwithstanding the above, the Committee has
the sole discretion to alter the time in which previously
granted SARs vest in the event a grantee becomes disabled,
retires or dies; provided, however, that no previously
granted SARs vest prior to six months from the date of
grant. Stock appreciation rights are exercisable in whole
or in part provided all of the following conditions are met
at the time of exercise: (i) the stock appreciation rights
to be exercised are vested; (ii) the stock appreciation
rights are exercised only during the period beginning on the
third business day following the date of release of the
Corporation's quarterly or annual summary statements of
revenues and earnings and ending on the thirtieth day
following such date (the "Exercise Date"); (iii) the stock
appreciation rights are exercised prior to the expiration of
twelve years from the date of grant; and (iv) the grantee is
employed by the Corporation or any present or future parent
or subsidiary of the Corporation at the time of exercise.
Stock appreciation rights not exercised on or before the
close of business twelve years from the date of grant shall
automatically expire and the stock
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appreciation rights shall become void. The Committee may at the
time of grant or at any time thereafter impose such additional
terms and conditions on the exercise of stock appreciation rights
as it deems necessary or desirable for compliance with Section 16.
SARs may be granted under this Plan in substitution for SARs issued
under the Prior Plan. For purposes of this Plan, the date of grant
shall mean, with respect to such substituted SARs, the date such
SARs were originally granted under the Prior Plan. The number of
substituted SARs issued under this Plan to any Participant shall be
determined by multiplying the number of outstanding SARs on the
Distribution Date by the Adjustment Factor. The grant price of such
substituted SARs shall be determined by dividing the grant price on
the Distribution Date by the Adjustment Factor.
(c) Terms of Grant and Exercise: Termination of Employment or
Death. If a grantee ceases to be employed by the
Corporation or any of its subsidiaries for any reason other
than death, any stock appreciation right held by such
grantee may be exercised only on the Exercise Date
immediately following the date of such cessation of
employment, but only with respect to that number of stock
appreciation rights which were exercisable immediately prior
to the date of cessation of employment.
If a grantee ceases to be employed by the Corporation or any
of its subsidiaries by reason of death, or dies after
termination of his employment by the Corporation or any of
its subsidiaries but prior to the Exercise Date immediately
following thereto, any stock appreciation right held by such
grantee which was exercisable by the grantee immediately
prior to his or her death, may be exercised by the grantee's
personal representative or executor of his or her estate on
an Exercise Date so long as such Exercise Date is during the
period ending on the earlier of the first anniversary of the
date of such grantee's death or the date of expiration of
such stock appreciation rights.
The Committee has the sole discretion to alter the time in
which previously granted SARs vest
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in the event a grantee becomes disabled, retires or dies; provided,
however, that no previously granted SARs vest prior to six months
from the date of grant.
(d) Payment on Exercise. Upon exercise of a stock appreciation
right, the grantee shall be paid within five business days
an amount in cash equal to the sum of (i) the amount by
which the fair market value of one share of the
Corporation's common stock on the date of exercise exceeds
the date of grant value thereof multiplied by the number of
stock appreciation rights being exercised and (ii) the value
of the cash dividends associated therewith. The value of
the cash dividends associated with exercised stock
appreciation rights shall be equal to the actual cash
dividend paid on a share of common stock between the date of
grant and the date of exercise, plus annual interest earned
on the dividend paid between the date the cash dividend is
paid and the date of exercise, multiplied by the number of
stock appreciation rights being exercised. Annual interest
shall be reset annually and shall be at the rate of the one
year Treasury Bill as of September 30th of the prior year
plus 150 basis points; provided, however, the annual
interest rate shall in no event be less than 7.00% or
greater than 10.00% per annum.
For purposes of this paragraph, the fair market value of a
share of common stock of the Corporation shall be determined
using the first of the following rules which apply:
(A) During such time as the Corporation's common stock
is traded on the New York Stock Exchange (the
"Exchange"), the closing price of the
Corporation's common stock on the Exchange; or
(B) If the Corporation's common stock is not then
traded on the Exchange, the mean between the
published bid and asked prices of the common stock
of the Corporation if the common stock of the
Corporation was then traded on a bona fide
over-the-counter market; or
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(C) If the common stock of the Corporation was not
traded on the Exchange or on a bona fide
over-the-counter market, a value determined by an
appraiser selected by the Committee.
In the event that the date of exercise of a stock
appreciation right is a date for which there were no sales
of the Corporation's common stork if the stock is traded on
the Exchange, such fair market value shall be determined by
taking an average of the closing prices on the nearest day
before and the nearest day after the exercise date. In the
event that the date of exercise of a stock appreciation
right is a date for which there is no published bid and
asked prices if the stock is traded on the over-the-counter
market, such fair market value shall be determined by
referring to the next preceding business day on which
trading occurs or on which published prices are available.
(e) Additional Terms and Conditions. The agreement or
instrument evidencing the grant of stock appreciation rights
may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the
Committee in its sole discretion.
7. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION, ETC. The terms and conditions
of stock appreciation rights shall be subject to adjustment by the
Committee in its sole discretion as to the number, kind and date of grant
value in the event of changes in the outstanding common stock of the
Corporation by reason of stock dividends, stock splits, recapitalization,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in corporate structure or capitalization occurring after
the date of the grant of any stock appreciation right, provided that if the
Corporation shall change its common stock into a greater or lesser number
of shares through a stock dividend, stock split up, or combination of
shares, outstanding rights shall be adjusted proportionately, consistent
with existing law and regulation, to prevent inequitable results.
8. EFFECT OF LIQUIDATION, MERGER, CONSOLIDATION OR OTHER EVENTS. Nothing
contained in the Plan or in the terms of any stock appreciation rights
granted under the Plan shall in any way prohibit the Corporation from
merging with or consolidating
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into another corporation, or from selling or transferring all or
substantially all of its assets, or from distributing all of its assets
to its shareholders in liquidation, or from dissolving and terminating
its corporate existence; and in any such event, all outstanding stock
appreciation rights granted under the Plan which have vested shall be
deemed to have been exercised at the time of any such merger,
consolidation, sale or transfer of assets, liquidation, or dissolution,
except to the extent that any agreement or undertaking of any party to
such merger, consolidation, or sale or transfer of assets, or any plan
pursuant to which such liquidation or dissolution is effected, shall
make specific provision to continue such stock appreciation rights and
the rights of such person or persons entitled to exercise such stock
appreciation rights.
9. AMENDMENT AND TERMINATION OF PLAN. The Plan may be amended or terminated
by the Board of Directors of the Corporation in any respect; provided,
however, the Board shall not exercise such authority in a manner adversely
and significantly affecting stock appreciation rights previously granted
unless the action taken is required to comply with any applicable law or
regulation.
10. MISCELLANEOUS.
(a) No Right to a Grant. Neither the adoption of the Plan nor
any action of the Board of Directors or of the Committee
shall be deemed to give any officer or employee any right to
be selected as a participant or to be granted a stock
appreciation right.
(b) No Rights as Shareholder. No officer or employee shall have
any rights of any kind as a shareholder of the Corporation
with respect to stock appreciation rights.
(c) Employment. Nothing contained in this Plan shall be deemed
to confer upon any officer or employee any right of
continued employment with the Corporation or any of its
subsidiaries or to limit or diminish in any way the right of
the Corporation or any such subsidiary to terminate his or
her employment at any time with or without cause.
(d) Taxes. The Corporation shall be entitled to deduct from any
payment under the Plan the amount of any tax required by law
to be withheld with respect to such payment or may require
any participant to pay such amount to
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the Corporation prior to and as a condition of making
such payment.
(e) Nontransferability. No stock appreciation right shall be
transferable except by will or the laws of descent and
distribution. During the grantee's lifetime, stock
appreciation rights shall be exercisable only by such
grantee.
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EXHIBIT 10.4
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1995 DIRECTOR STOCK OPTION PLAN
OF
UNITED WISCONSIN SERVICES, INC.
(AS AMENDED JULY 24, 1998)
1. PURPOSE OF THE PLAN
The purpose of the Plan is to attract and retain superior Directors, to
provide a stronger incentive for such Directors to put forth maximum effort for
the continued success and growth of the Company and its affiliates and, in
combination with these goals, to encourage stock ownership in the Company by
Directors.
2. DEFINITIONS
Unless the context otherwise requires, the following terms shall have the
meanings set forth below:
(a) "Administrator" shall mean the Board of Directors or any executive
officer or officers of the Company designated by the Board of Directors which
may include the Company's Director of Human Resources.
(b) "Board of Directors" or "Board" shall mean the entire board of
directors of the Company, consisting of both Employee and non-Employee members.
(c) "Cause" shall mean: (i) willful and gross misconduct on the part of a
Participant that is materially and demonstrably detrimental to the Company; or
(ii) the commission by a Participant of one or more acts which constitute an
indictable crime under United States Federal, state, or local law.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Company" shall mean United Wisconsin Services, Inc., a Wisconsin
corporation.
(f) "Director" shall mean an individual who is a non-Employee member of
the Board of Directors.
(g) "Disability" shall mean a physical or mental incapacity which results
in a Director no longer serving as a member of the Board of Directors.
(h) "Effective Date" shall mean February 22, 1995, or such other date as
the Board of Directors may establish as the Effective Date.
(i) "Employee" shall mean an individual who is a full-time employee of the
Company or a Subsidiary.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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(k) "Fair Market Value" for a Share shall mean the Market Price for a
Share on the business day immediately preceding the relevant date.
(l) "Market Price" shall mean the closing price for Shares on the relevant
date as reported on the New York Stock Exchange, or (if there were no sales on
such date) the average of closing prices on the nearest day before and the
nearest day after the relevant date.
(m) "Option" shall mean an option which does not comply with the
provisions of Section 422 of the Code and which is granted under the Plan to
purchase Shares.
(n) "Option Agreement" shall mean the agreement between the Company and a
Director whereby an Option is granted to a Director.
(o) "Participant" shall mean a Director of the Company who has outstanding
an Option granted under the Plan.
(p) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(q) "Plan" shall mean the 1995 Director Stock Option Plan of the Company.
(r) "Retirement" shall mean: (i) a Director's determination after serving
a full three-year term not to stand for reelection to the Board of Directors at
the next annual meeting of the Board, (ii) the inability of the Director to
stand for reelection to the Board due to age guidelines adopted by the Board, or
(iii) a Director's resigning from the Board after reaching seventy (70) years of
age.
(s) "Share" shall mean a share of the no par value common stock of the
Company.
(t) "Subsidiary" shall mean a subsidiary corporation of the Company as
defined in Section 424(f) of the Code and shall be deemed to include American
Medical Security Group, Inc., or any successor entity thereto, and any
affiliates thereof.
(u) "Triggering Event" shall be deemed to have occurred as of the first
day that any one or more of the following conditions shall have been satisfied:
(i) Any Person (other than those Persons in control of the Company as
of the Effective Date, or other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a corporation
owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), becomes the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities; or
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(ii) During any period of two (2) consecutive years (not including
any period prior to the Effective Date), individuals who at the beginning
of such period constitute the Board (and any new Director, whose election
by the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the Directors then still in office who either were Directors at
the beginning of the period or whose election or nomination for election
was so approved) (the "Incumbent Board"), cease for any reason to
constitute a majority thereof; PROVIDED, HOWEVER, that any person becoming
a Director after the Effective Date and whose initial assumption of office
occurs as a result of an actual or threatened election contest which was
(or, if threatened, would have been) subject to Rule 14a-11 under the
Exchange Act shall be excluded from being considered a member of the
Incumbent Board; or
(iii) The stockholders of the Company approve: (A) a plan of complete
liquidation of the Company; or (B) an agreement for the sale or disposition
of all or substantially all of the Company's assets; or (C) a merger,
consolidation, or reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, or reorganization that
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), at least fifty percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization.
However, in no event shall a "Triggering Event" be deemed to have occurred,
with respect to a Participant, if the Participant is part of a purchasing
group which consummates the Triggering Event transaction. A Participant
shall be deemed "part of a purchasing group" for purposes of the preceding
sentence if the Participant is an equity participant in the purchasing
company or group (except for: (i) passive ownership of less than three
percent (3%) of the stock of the purchasing company; or (ii) ownership of
an equity participation in the purchasing company or group which is
otherwise not significant, as determined prior to the Triggering Event by a
majority of the continuing Directors).
Following the occurrence of an event which is not a Triggering Event
whereby there is a successor holding company to the Company, or, if there
is no such successor, whereby the Company is not the surviving corporation
in a merger or consolidation, the surviving corporation or successor
holding company (as the case may be), for purposes of this definition,
shall thereafter be referred to as the Company.
Words importing the singular shall include the plural and vice versa and
words importing the masculine shall include the feminine.
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3. ADMINISTRATION
The Plan shall be administered by the Administrator. The terms and
conditions under which Options may be granted are set forth in Paragraph 6. The
Administrator shall have the authority to interpret the provisions of the Plan,
to establish such rules and procedures as may be necessary or advisable to
administer the Plan and to make all determinations necessary or advisable for
the administration of the Plan; PROVIDED, HOWEVER, that no such interpretation
or determination shall change or affect the eligibility of Directors to receive
Options, the number of Shares covered by or the timing of any Option grant under
the Plan or the terms and conditions thereof. The interpretation and
construction by the Administrator of any Plan provision or of any Option
Agreement shall be final and binding upon all persons.
4. SHARES RESERVED UNDER THE PLAN
The aggregate number of Shares which may be issued or sold under the Plan
and which are subject to outstanding Options at any time shall not exceed
seventy-five thousand (75,000) Shares, which may be treasury Shares or
authorized but unissued Shares, or a combination of the two, subject to
adjustment as provided in Paragraph 10 hereof. Any Shares subject to an Option
which expires or terminates for any reason (whether by voluntary surrender,
lapse of time or otherwise) and is unexercised as to such Shares may again be
the subject of an Option under the Plan subject to the limits set forth above.
A Director shall be entitled to the rights and privileges of ownership with
respect to the Shares subject to the Option only after actual purchase and
issuance of such Shares pursuant to exercise of all or part of an Option.
5. PARTICIPATION
Only Directors shall be eligible to receive Options under the Plan.
6. OPTIONS: TERMS AND CONDITIONS
(a) OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by a written Option Agreement which shall specify the number of Shares
that may be acquired through its exercise, and which shall comply with and be
subject to the following terms and conditions:
(i) INITIAL OPTION GRANTS. Upon the Effective Date of the Plan each
Director shall be granted an Option to purchase five thousand (5,000)
Shares, subject to adjustment as provided in Paragraph 10 hereof. The
effective date of these initial grants shall be the Effective Date of the
Plan.
(ii) GRANTS TO SUBSEQUENT DIRECTORS. To the extent Shares are
available for grant under the Plan, each Director who is first elected as a
Director subsequent to the Effective Date (a "Subsequent Director") shall
be granted, as of the date on which such Subsequent Director is qualified
and first begins to serve as a Director, an Option to purchase 5,000
Shares, subject to adjustment pursuant to Paragraph 10, or to purchase such
lesser number of Shares as remain available for grant under the Plan. In
the event that the
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number of Shares available for grant under the Plan is insufficient
to make all grants hereby specified on the relevant date, then
all Directors who are entitled to a grant on such date shall share ratably
in the number of Shares then available for grant under the Plan. The
purchase price per Share deliverable upon exercise of such Option shall
equal the Fair Market Value of a Share on the date the grant of this Option
is effective.
If sufficient Shares are not available under the Plan to fulfill the
grant of Options to any Subsequent Director first elected after the
Effective Date, and thereafter additional Shares become available, such
Subsequent Director receiving an Option for fewer than 5,000 Shares shall
then receive an Option to purchase an amount of Shares, determined by
dividing the number of Shares available pro-rata among each Subsequent
Director receiving an Option for fewer than 5,000 Shares, then available
under the Plan, not to exceed 5,000 Shares, subject to adjustment as to any
one Subsequent Director. The date of grant shall be the date such
additional Shares become available. The purchase price per Share
deliverable upon exercise of an Option shall equal the Fair Market Value of
a Share on the date the Option is granted.
If a Subsequent Director receives an Option to purchase fewer than
5,000 Shares, subject to adjustment pursuant to Paragraph 10 hereof, and
additional Shares subsequently become available under the Plan, an Option
to purchase such Shares shall first be allocated as of the date of
availability to any Subsequent Director who has not previously been granted
an Option. Such Options shall be granted to purchase a number of Shares no
greater than the number of Shares covered by Options granted to other
Subsequent Directors first elected subsequent to the Effective Date, but
who have received Options to purchase fewer than 5,000 Shares (subject to
adjustment pursuant to Paragraph 10). Thereafter, Options for any
remaining Shares shall be granted pro-rata among all Subsequent Directors
granted Options to purchase fewer than 5,000 Shares. No Director first
elected after the Effective Date shall receive an Option to purchase more
than 5,000 Shares (subject to adjustment under Paragraph 10).
(b) OPTION EXERCISE PRICE. The per share exercise price of the Shares
purchasable under each Option shall be equal to one hundred percent (100%) of
the Fair Market Value per Share on the date of grant of such Option.
(c) VESTING OF OPTIONS. An Option for Shares can not be exercised until
it is vested. Subject to acceleration as provided below, Options shall vest
annually at the rate of thirty-three and one third percent (33-1/3%) of the
aggregate number of Shares granted annually beginning on the first anniversary
of the date of grant and on each subsequent anniversary of the date of grant
thereafter. If a Director's tenure ends during the applicable three-year
period, however, the Director's rights in the Option shall be as follows:
(i) DEATH, DISABILITY. Upon the death or Disability of a Director,
each Option of such Director shall become immediately exercisable as to one
hundred percent (100%) of the Shares covered thereby as of the Director's
last day of service as a Director with the Company;
104
<PAGE>
(ii) RETIREMENT. In the event of a Director's Retirement from the
Board, such Director's Option shall become exercisable as to one hundred
percent (100%) of the Shares covered thereby as of the earlier of: (i) the
date of the Company's annual shareholders' meeting at which he or she would
otherwise, but for said Retirement, be a nominee for election to the Board,
or (ii) the date on which the Director attains seventy (70) years of age;
(iii) TRIGGERING EVENT. Upon the occurrence of a Triggering Event,
each Option outstanding under the Plan shall become immediately exercisable
as to one hundred percent (100%) of the Shares covered thereby; or
(iv) ANY OTHER REASON. If a Director's tenure ends for any reason
other than death, Disability, Retirement or as the result of a Triggering
Event, the unvested portion of such Director's Option shall lapse
immediately.
Once any portion of an Option becomes exercisable, it shall remain exercisable
for the shortest period of (1) twelve years from the date of grant; or (2) two
(2) years following the date on which the Director ceases to serve in such
capacity for any reason other than removal for Cause. If a Director is removed
for Cause, all outstanding Options held by the Participant shall immediately be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the Options.
(d) PAYMENT OF EXERCISE PRICE. The purchase or exercise price shall be
payable in whole or in part in cash or Shares; and such price shall be paid in
full at the time that an Option is exercised. If a Director elects to pay all
or a part of the purchase or exercise price in Shares, such Director shall make
such payment by delivering to the Company a number of Shares already owned by
the Director equal in value to the purchase or exercise price. All Shares so
delivered shall be valued at their Market Price on the business day immediately
preceding the day on which such Shares are delivered.
7. TRANSFERABILITY
An Option granted to a Director under this Plan shall not be transferable
or subject to execution, attachment or similar process, and during the lifetime
of the Director shall be exercisable only by the Director. A Director shall
have the right to transfer the Option upon such Director's death, either by the
terms of such Director's will or under the laws of descent and distribution, and
all such distributees shall be subject to all terms and conditions of this Plan
to the same extent as would the Director, except as otherwise expressly provided
herein.
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when any necessary spousal
consent is obtained and filed by the Participant in writing with the Secretary
of the Company during the
105
<PAGE>
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
8. EXERCISE
An Option shall be exercisable by a Director's giving written notice of
exercise to the Secretary of the Company specifying the number of Shares to be
purchased and such other documentation as the Administrator shall reasonably
require accompanied by payment in full of the required exercise price. The
Company shall have the right to delay the issue or delivery of any Shares under
the Plan until: (a) the completion of such registration or qualification of such
Shares under any federal or state law, ruling or regulation as the Company shall
determine to be necessary or advisable, and (b) receipt from the Director of
such documents and information as the Company may deem necessary or appropriate
in connection with such registration or qualification. In no event may any
Option become exercisable prior to six (6) months following the date of its
grant.
The Administrator also may allow cashless exercise as permitted under the
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or exercise by any other means which the Administrator determines
to be consistent with the Plan's purpose and applicable law.
9. SECURITIES LAWS
Each Option Agreement shall contain such representations, warranties and
other terms and conditions as shall be necessary in the opinion of counsel to
the Company to comply with all applicable federal and state securities laws.
The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange
Act. Any provision of the Plan or of any Option Agreement inconsistent with the
terms of such Rule shall be inoperative and shall not affect the validity of the
Plan, such Option Agreement or any provision thereof.
10. ADJUSTMENT PROVISIONS
In the event of any stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, or the like, as a result of
which shares of any class shall be issued in respect of the outstanding Shares,
or the Shares shall be changed into the same or a different number of the same
or another class of stock, or into securities of another person, cash or other
property (not including a regular cash dividend), the total number of Shares
authorized to be offered in accordance with Paragraph 4, the number of Shares
subject to each outstanding Option, the exercise price applicable to each such
Option, and/or the consideration to be received upon exercise of each such
Option shall be appropriately adjusted.
106
<PAGE>
11. TAXES
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, state, and local taxes required by law to be withheld with respect to
any taxable event arising or as a result of this Plan, and the Company may defer
making delivery of Shares obtained pursuant to the exercise of an Option until
arrangements satisfactory to it have been made with respect to any such
withholding obligations. If a withholding obligation should arise, a Director
exercising an Option may, at his or her election, provided applicable laws and
regulations are complied with, satisfy his or her obligation for payment of
withholding taxes either by having the Company retain a number of Shares having
an aggregate Market Price on the date the Shares are withheld equal to the
amount of the withholding tax or by delivering to the Company Shares already
owned by the Director having an aggregate Market Price on the business day
immediately preceding the day on which such Shares are delivered equal to the
amount of the withholding tax. In addition, the Director's tax obligation may
be satisfied through a cashless exercise, if the Administrator so allows.
12. EFFECTIVE DATE OF THE PLAN
Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of a majority of Shares at an annual
shareholders' meeting of the Company, the Plan shall become effective as of
February 22, 1995, or such later date as the Board may determine, and shall
remain in effect as provided herein. Options may be granted prior to
shareholder ratification of the Plan; provided, however, that in the event
shareholder approval of the Plan is not obtained, all outstanding Options shall
become null and void.
13. TERMINATION AND AMENDMENT
With the approval of the Board of Directors, the Administrator may
terminate the Plan or make such modifications or amendments thereof as it shall
deem advisable, including, but not limited to, such modifications or amendments
as it shall deem advisable in order to conform to any law or regulation
applicable thereto; PROVIDED, HOWEVER, that the Administrator may not amend the
Plan more frequently than once every six months (except as to comport with
changes in the Code or the Employee Retirement Income Security Act of 1974, as
amended) and may not, unless otherwise permitted under federal law, without
further approval of the holders of a majority of the Shares voted at any meeting
of shareholders at which a quorum is present and voting, adopt any amendment to
the Plan for which shareholder approval is required under tax, securities or any
other applicable law, including, but not limited to, any amendment to the Plan
which would cause the Plan to no longer comply with Rule 16b-3 of the Exchange
Act or any successor rule or other regulatory requirements. Subject to the
right of the Administrator to terminate the Plan at any time, the Plan shall
remain in effect until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an Option
award be granted under the Plan on or after February 22, 2005. No termination,
modification or amendment of the Plan may, without the consent of a Director,
adversely affect the rights of such Director under an outstanding Option then
held by the Director.
107
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14. TENURE
The grant of an Option pursuant to the Plan is no guarantee that a Director
will be renominated, reelected or reappointed as a Director, and nothing in the
Plan shall be construed as conferring upon a Director the right to continue to
be associated with the Company as a Director or otherwise.
15. SUCCESSORS
All obligations of the Company under the Plan, with respect to Option
grants hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
16. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State of
Wisconsin.
108
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET FOR CONTINUING OPERATIONS AT JUNE 30, 1998
(UNAUDITED) AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED) FOR CONTINUING OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 294,192
<DEBT-CARRYING-VALUE> 3,928
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 298,120
<CASH> 7,078
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 628,200
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 20,038
<POLICY-OTHER> 102,422
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 123,132
0
0
<COMMON> 16,570
<OTHER-SE> 312,599
<TOTAL-LIABILITY-AND-EQUITY> 628,200
461,915
<INVESTMENT-INCOME> 11,804
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 9,475
<BENEFITS> 353,610
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 116,735
<INCOME-PRETAX> 3,707
<INCOME-TAX> 1,764
<INCOME-CONTINUING> 3,707
<DISCONTINUED> 5,714
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,657
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
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</TABLE>
