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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
COMMISSION FILE NUMBER 1-13154
AMERICAN MEDICAL SECURITY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 39-1431799
(State of incorporation) (I.R.S. Employer Identification No.)
3100 AMS BOULEVARD
GREEN BAY, WISCONSIN 54313
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (920) 661-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, no par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
As of February 28, 1999, there were issued and outstanding 16,653,222
shares of Common Stock. The aggregate market value of the shares of such stock
held by non-affiliates of the registrant was $149,535,310 as of the same date,
assuming solely for purposes of this calculation that all directors and
executive officers of the Registrant are "affiliates." This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of American Medical Security Group, Inc. Proxy Statement dated
April 14, 1999 (Part III)
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AMERICAN MEDICAL SECURITY GROUP, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1998
PAGE
PART I
Item 1 Business..............................................................3
Item 2 Properties............................................................9
Item 3 Legal Proceedings....................................................10
Item 4 Submission of Matters to a Vote of Security Holders..................10
Executive Officers of the Registrant..........................................10
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters..............................................................11
Item 6 Selected Financial Data..............................................12
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................13
Item 7A Quantitative and Qualitative Disclosures About Market Risk ..........21
Item 8 Financial Statements and Supplementary Data..........................22
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................44
PART III
Item 10 Directors and Executive Officers of the Registrant...................44
Item 11 Executive Compensation...............................................44
Item 12 Security Ownership of Certain Beneficial Owners and Management.......44
Item 13 Certain Relationships and Related Transactions.......................44
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....44
Schedule II - Condensed Financial Information of Registrant........46
Schedule III - Supplementary Insurance Information..................49
Schedule IV - Reinsurance...........................................50
Schedule V - Valuation and Qualifying Accounts......................51
Signatures....................................................................52
Exhibit Index...............................................................EX-1
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
A number of forward looking statements are included in this document. When
used, the terms "anticipate", "believe", "estimate", "expect", "objective",
"plan", "project" and similar expressions are intended to identify forward
looking statements. Forward looking statements are subject to inherent risks,
uncertainties and assumptions that may cause actual results or events to differ
materially from those that are described. In addition to the assumptions and
other factors referred to specifically in connection with such statements,
factors that may cause actual results or events to differ are described in "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GENERAL
American Medical Security Group, Inc. is a leading marketer of individual
and small employer group health care benefits and other insurance products. The
Company's principal product offering is small group health insurance. The
Company also offers individual and large group health insurance and group life,
dental, prescription drug, disability and accidental death insurance. See the
Company's Notes to Consolidated Financial Statements, Note 13 "Segments of the
Business" for information concerning the Company's two reportable segments:
health insurance products (which accounted for 93% of the Company's revenue for
the year ended December 31, 1998) and life insurance products.
The Company's products are sold through independent licensed agents in 33
states and the District of Columbia. The Company specializes in providing health
care benefits and other insurance products designed to maximize choice and
control costs in a compassionate environment. The Company principally markets
health benefit products that provide discounts to insureds that utilize
preferred provider organizations ("PPOs"). PPO plans differ from health
maintenance organization ("HMO") plans in that they typically provide a wider
choice of health professionals, fewer benefit restrictions and increased access
to specialists at a somewhat higher premium cost.
American Medical Security Group, Inc. is a Wisconsin corporation organized
in 1983. As used herein, the terms "the Company" or "AMSG" include American
Medical Security Group, Inc. and its subsidiaries. The Company's principal
executive offices are located at 3100 AMS Boulevard, Green Bay, Wisconsin 54313
and its telephone number at that address is (920) 661-1500.
Prior to and for most of the year 1998, the business of the Company, then
known as "United Wisconsin Services, Inc.", consisted of two main components:
the small group health business, and the managed care and specialty products
business. Prior to December 1996, the small group health business consisted
primarily of individual and small group health insurance written through a joint
venture with American Medical Security Group, Inc., a Delaware corporation ("Old
AMS"). During that time, the Company owned approximately 12% of the issued and
outstanding shares of Old AMS. The Company underwrote all of the individual and
small group health insurance marketed, produced and administered by Old AMS and
ceded back to Old AMS approximately 50% of the individual and small group health
insurance written by the Company through the joint venture. On December 3, 1996,
Old AMS merged with and into the Company. The small group health insurance
business of the Company was then combined with that of Old AMS in a wholly owned
subsidiary of the Company.
On September 11, 1998, the Company contributed all of its subsidiaries
comprising the managed care and specialty products business to a newly created
subsidiary named "Newco/UWS, Inc.", a Wisconsin corporation ("Newco/UWS"). On
September 25, 1998, the Company spun off the managed care and specialty products
business through a distribution of 100% of the issued and outstanding shares of
common stock of Newco/UWS to the Company's shareholders of record as of
September 11, 1998, (see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Accomplishments -- Spin-off").
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The Company then adopted its current name of "American Medical Security Group,
Inc." and Newco/UWS changed its name to "United Wisconsin Services, Inc." Since
the spin-off, the business of the Company consists solely of the Company's small
group health insurance business.
PRODUCTS
The Company is a leading marketer of health care benefits and other
insurance products tailored to meet the varied health benefits needs of its
primary markets, including: groups with two to 99 employees; groups that choose
to self-fund their health benefits; and families and individuals. The Company
specializes in providing health care benefits and other insurance products
designed to maximize choice and control costs.
The Company customizes employee benefit packages for businesses through
IT'S YOUR CHOICE, an option that allows businesses to present employees multiple
medical plans in a single package. For example, this strategy allows an employer
with four employees to select four different and distinct medical plans, one for
each employee. Although the premium cost of the plans may vary, the ability to
offer different plans is without additional cost to the employer. With the
Company's self-funded products, employers and their employees have access to PPO
networks, but the sponsoring employer generally bears a significant portion of
the financial risk associated with providing the health care. Through its
MEDONECHOICE product, the Company provides coverage for individuals and families
that is designed to fit various lifestyles and budgets. The Company provides
insureds and plan participants with personal customer service 24 hours a day,
365 days a year. In addition, through the Company's wholly owned subsidiary,
Nurse Healthline, Inc., insureds and plan participants have access to a 24-hour
medical information line staffed by registered nurses. This confidential
telephone health advisory service provides information about health conditions,
medications, cost-effective treatments and the location of network providers.
The Company augments its core business with a select line of complementary
products and services. Ancillary benefits include group dental, group short-term
disability, group term life and accidental death, and dependent life insurance.
Voluntary dental and term life insurance products may be elected by employees
with no minimum participation or employer contribution requirements. The PREMIUM
ONLY PLAN, a Section 125 cafeteria plan allowing pretax deduction of medical
insurance premiums, is offered at no cost to fully insured groups with two or
more employees. Section 125 facilitation of pretax deduction of dependent care
and unreimbursed medical expenses is also available. Additionally, the Company
offers COBRA administration services to groups subject to regulations of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
MARKETING
The Company markets its employer group products and individual products in
33 states and the District of Columbia. Significant factors influencing an
employer's selection of the Company's products include flexibility of plan
design, choice and scope of benefits, quality of service, price, and the quality
of relationships with their agents.
Product sales are conducted exclusively through independent licensed
agents. As of December 31, 1998, the Company marketed products through
approximately 32,000 independent agents. Independent agents are paid commissions
on new and renewal sales. The Company offers an attractive benefit and service
package to agents, creating an environment as an "agent friendly" company.
The leading states with respect to direct premium during 1998 were Florida,
Texas, Illinois, Michigan and Wisconsin, which accounted for 51% of the
Company's premium revenue. For the year ended December 31, 1998, the top ten
employer groups in the aggregate accounted for approximately 1% of the premium
on business sold by the Company.
The Company divides its sales territory into two regions, each of which is
the responsibility of a Regional Vice President ("RVP"). The RVPs work with
approximately 120 sales managers located in offices throughout the United States
in coordinating the Company's sales and marketing efforts. Additionally, through
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an agreement with the Principal Life Insurance Company ("Principal"), regional
sales managers of Principal's Old Northwest Agent distribution network assume
responsibility for product sales in four states.
PROVIDERS
The Company uses over 65 commercial provider networks in 33 states and the
District of Columbia. A master "payor" agreement is in place for each provider
network that allows the Company to access the provider contracts for its PPO and
exclusive provider organization products. These networks are made available to
fully insured products as well as the Company's self-funded product offerings.
The Company also owns and operates a commercial PPO network that includes
providers in Texas, Florida, Iowa, Nebraska, Wisconsin, Arizona, North Dakota
and South Dakota. Approximately 23% of the Company's business was conducted
through this network for the year ended December 31, 1998. This network services
the Company business and is also offered to other insurers and third party
administrators. This provides additional revenue to the Company and increases
the volume of business used to leverage provider contract pricing concessions
which are largely volume related. The Company believes there is great value in
owning provider networks in select markets as a way to directly interact with
the provider networks as well as to effectively conduct its medical management
initiatives.
COST CONTAINMENT
The Company provides medical management services to all of its clients
either directly or through its contracted networks. The Company's utilization
review program is accredited to meet national standards to ensure services are
provided at the appropriate level and meet members needs. Case management is
performed by Company staff with the assistance of a combination of internally
developed and commercially purchased software packages used to prompt, guide and
record medical management decisions. In addition, the Company has developed a
series of software programs that enhance its medical management effort.
The Company has developed a high risk maternity program through a software
application using claims data and clinical methodologies. Staff registered
nurses classify all recognized pregnancies as to their potential risk of
complications. Nurses contact expectant mothers and provide them with
educational materials, reinforce compliance with medical treatment plans and
provide guidance toward efficient use of provider resources. The Company has
also developed a demand management telephonic service called Nurse Healthline.
Company insureds and plan participants can access Nurse Healthline nurses 24
hours a day, seven days a week. By using a computerized algorithm based system,
the nurses are able to gauge the severity of the problem and assist the insured
in making an informed health care decision.
MANAGEMENT INFORMATION SYSTEMS
The Company's medical, dental, life, and short-term disability products use
custom built, integrated management information systems for all administrative
processing tasks. These systems include underwriting, billing, enrollment,
claims processing, utilization management, sales reporting, network analysis and
service and status reporting. These systems support all products and provider
arrangements. The management information systems handle electronic receipt of
claims, referrals and eligibility with networks and providers. The systems
support both fully insured and self-funded administrative needs.
The Company regularly evaluates, upgrades, and enhances the management
information systems that support its operations. An artificial intelligence
system is used for claims processing, eligibility and enrollment tasks. In
addition to electronic receipt of information, the Company's systems can also
electronically scan and image documents. The Company uses extensive personal
computer-based network and software solutions that are integrated with its
mainframe system, which allows for its continuous enhancement with technology
upgrades and other software solutions.
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The Company has completed a significant portion of its initiative to
assess, correct or reprogram, and test its computer systems for Year 2000
compliance. The Company believes that the Year 2000 issue will not pose
significant operational problems for its computer systems. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000" for a complete discussion of Year 2000 matters, including factors that
could affect Year 2000 costs and consequences.
RECENT ACQUISITIONS
In October 1997, the Company acquired, via assumption reinsurance, most of
the individual and small group health insurance business previously underwritten
by Pan American Life Insurance Company ("Pan American") of New Orleans,
Louisiana. Approximately 74,000 members were acquired with this block of
business.
In May 1998, the Company reached an agreement with Pan American to assume
most of its remaining domestic health insurance business effective July 1998,
which resulted in an additional 80,000 members at the time of acquisition.
In October 1998, the Company reached an agreement with Continental
Assurance Company ("CNA") to acquire the majority of CNA's fully insured
employer group health business effective January 1, 1999. This block of business
covered approximately 75,000 fully insured medical members as of January 1,
1999.
COMPETITION
The small group health care product market is highly competitive. The major
competition for the Company's products comes from national and regional firms
with a specific focus on the small group market. Many of the Company's
competitors have larger memberships in local markets or greater financial
resources. The small group, agency-controlled market is price sensitive, and the
business is put out for bid more frequently than larger group business. In
addition, because most of the Company's products are marketed exclusively
through independent agencies, most of which represent more than one company, the
Company experiences competition within each agency. The Company and other
insurers in the small group health care product market compete primarily on the
basis of responsiveness to user demands, price, diversity of product offerings,
quality of service, strength of provider networks, reputation and quality of
agency relations.
REINSURANCE
The Company has entered into a variety of reinsurance arrangements under
which it (i) cedes business to other insurance companies to mitigate large claim
risk, and (ii) accepts risk on a quota share basis from other insurance
carriers.
The Company cedes, through excess of loss arrangements, certain of its
risks on the small group health business and life business. This reinsurance
allows for greater diversification of risk to control exposure to potential
losses arising from large claims. In addition, it permits the Company to enhance
its premium and asset growth while maintaining favorable risk-based capital
ratios. All excess of loss reinsurers with which the Company contracts are rated
"A- (Excellent)" or better by A.M. Best.
In addition, in connection with certain acquisitions and other business,
the Company assumes risk from other insurance carriers on both an assumption and
a "quota share" basis. Under assumption reinsurance, the Company becomes
directly responsible to insureds for business previously written by the ceding
carrier. Quota share reinsurance is a contractual arrangement whereby the
reinsurer assumes an agreed percentage of certain risks insured by the ceding
insurer and shares premium revenue and losses proportionately. Quota share
reinsurance is being used by the Company as part of a vehicle to acquire certain
business from other insurance carriers and allows the Company to assume
insurance risk in certain jurisdictions.
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INVESTMENTS
The Company attempts to minimize its business risk through conservative
investment policies. Investment guidelines set quality, concentration and return
parameters. Individual fixed income issues must carry an investment grade rating
at the time of purchase, with an ongoing average portfolio rating of "A-" or
better, based on ratings of Standard & Poor's Corporation or another nationally
recognized securities rating organization. The Company invests in securities
authorized by applicable state laws and regulations and follows investment
policies designed to maximize yield, preserve principal and provide liquidity.
The Company's portfolio contains 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.
With the exception of short-term investments and securities on deposit with
various state regulators, investment responsibilities have been delegated to
external investment managers. Such investment responsibilities, however, must be
carried out within the investment parameters established by the Company, which
are amended from time to time. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Market Risk Exposure" and
the Company's Notes to Consolidated Financial Statements, Note 4, "Investments,"
for additional information on the Company's investments.
REGULATION
Government regulation of employee benefit plans, including health care
coverage and health plans, is a changing area of law that varies from
jurisdiction to jurisdiction and generally gives responsible state and federal
administrative agencies broad discretion. The Company strives to maintain
compliance in all material respects with the various federal and state
regulations applicable to its current operations. To maintain such compliance,
it may be necessary for the Company or a subsidiary to make changes from time to
time in its services, products, structure or operations. Additional governmental
regulation or future interpretation of existing regulations could increase the
cost of the Company's compliance or otherwise affect the Company's operations,
products, profitability or business prospects.
The Company is unable to predict what additional government regulations, if
any, affecting its business may be enacted in the future or how existing or
future regulations might be interpreted. Most jurisdictions have enacted small
group insurance and rating reforms which generally limit the ability of insurers
and health plans to use risk selection as a method of controlling costs for
small group business. These laws may generally limit or eliminate use of
pre-existing condition exclusions, experience rating and industry class rating,
and limit the amount of rate increases from year to year. Under these laws, cost
control through provider contracting and managing care may become more
important, and the Company believes its experience in these areas will allow it
to compete effectively. The Company regularly monitors state and federal
legislative and regulatory activity as it affects the Company's business. The
Company does this directly and through various trade associations to which it
belongs.
In 1997, federal legislation significantly expanded federal regulation of
group health plans and health care coverage. The new laws placed restrictions on
the use of pre-existing conditions and eligibility restrictions based upon
health status, and prohibited cancellation of coverage due to claims experience
or health status. Federal reform also prohibits insurance companies from
declining coverage to small employers. Additional federal laws that took effect
in 1998 include prohibitions against separate, lower dollar maximums for mental
health benefits and requirements relating to minimum coverage for maternity
inpatient hospitalization. Many requirements of the federal legislation are
similar to small group reforms that have been in place for many years. The
Company expects to be able to utilize and expand upon the cost control measures
initiated as a result of small group reform.
Increasingly, states are considering various health care reform measures
and are adopting laws or regulations, which may limit the Company's health
plans' and insurance operations' ability to control which providers are part of
their networks and may hinder their ability to effectively manage utilization
and cost. The Company is unable to predict what reforms, if any, may be enacted
or how these reforms would affect the Company's operations.
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INSURANCE REGULATION
The Company's insurance subsidiaries are subject to regulation by various
insurance regulatory bodies in each state in which the respective entities are
licensed. Regulatory authorities exercise extensive supervisory power over
insurance companies in regard to (i) the licensing of insurance companies; (ii)
the amount of reserves which must be maintained; (iii) the approval of forms and
insurance policies used; (iv) the nature of, and limitation on, an insurance
company's investments; (v) periodic examination of the operations of insurance
companies; (vi) the form and content of annual financial statements and other
reports required to be filed on the financial condition of insurance companies;
(vii) the establishment of capital requirements for insurance companies; and
(viii) transactions with affiliates and changes in control. The Company's
insurance company subsidiaries are required to file periodic statutory financial
statements in each jurisdiction in which they are licensed. Additionally, such
companies are periodically examined by the insurance departments of the
jurisdiction in which they are licensed to do business.
The National Association of Insurance Commissioners ("NAIC") has adopted
Risk-Based Capital ("RBC") requirements for life and health insurers to evaluate
the adequacy of statutory capital and surplus in relation to investment and
insurance risks associated with: (i) asset quality; (ii) mortality and
morbidity; (iii) asset and liability matching; and (iv) other business factors.
The RBC formula is used by state insurance regulators to monitor trends in
statutory capital and surplus for the purpose of initiating regulatory action.
The Company has calculated the risk-based capital for its life insurance
subsidiaries as of December 31, 1998, using the applicable RBC formula. These
calculations produced risk-based capital levels which substantially exceed the
levels at which the RBC formulas recommend intervention by regulatory
authorities.
Dividends paid by the Company's insurance subsidiaries to the Company are
limited by state insurance regulations. The insurance regulator in the insurer's
state of domicile may disapprove any dividend which, together with other
dividends paid by an insurance company in the prior 12 months, exceeds the
regulatory maximum as computed for the insurance company based on its statutory
surplus and net income. Based upon the financial statements of the Company's
insurance subsidiaries as of December 31, 1998, as filed with the insurance
regulators, the aggregate amount available for the payment of dividends to the
Company by its subsidiaries in 1999 without regulatory approval is $18.3
million.
INSURANCE HOLDING COMPANY REGULATIONS
The Company is an insurance holding company system under applicable state
laws. As such, the Company's insurance subsidiaries are subject to regulation
under state insurance holding company laws and regulations in each respective
state of domicile. Such insurance holding company laws and regulations generally
require annual registration with the state departments of insurance and the
filing of certain reports describing capital structure, ownership, financial
condition, certain intercompany transactions and general business operations.
Various notice and reporting requirements generally apply to transactions
between companies within an insurance holding company system, depending on the
size and nature of the transactions. Certain state insurance holding company
laws and regulations require prior regulatory approval or, in certain
circumstances, prior notice of certain material intercompany transactions.
Acquisition of control of an insurance company requires the prior approval of
state regulators in the insurer's state of domicile and sometimes other
jurisdictions as well. Acquisition of a controlling interest of the Company
would constitute an acquisition of a controlling interest in each of its
insurance subsidiaries. Under applicable state law, control is presumed to exist
when greater than 10% of a company's shares are controlled by an entity.
TPAS
Certain subsidiaries of the Company are also licensed as third-party
administrators ("TPAs") in states where such licensing is required for their
activities. TPA regulations, although differing greatly from state to state,
generally contain certain required administrative procedures, periodic reporting
obligations and minimum financial requirements.
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PPOS
Certain of the Company's subsidiaries' operations may be subject to PPO or
managed care laws and regulations in certain states. PPO and managed care
regulations generally contain requirements pertaining to provider networks,
provider contracting, and reporting requirements that vary from state to state.
In some cases the regulated activities are delegated by the Company's
subsidiaries to a third party. In cases where activities are delegated, the
Company's subsidiaries must monitor the activities of the third party for
compliance with the laws and regulations.
UTILIZATION REVIEW REGULATIONS
A number of states have enacted laws and/or adopted regulations governing
the provision of utilization review activities. Generally, these laws and
regulations require compliance with specific standards for the performance of
utilization review services including confidentiality, staffing, appeals and
reporting requirements. Some of these laws and regulations may affect certain
operations of the Company's subsidiaries. In some cases the regulated activities
are delegated by the Company's subsidiaries to a third party. In cases where
activities are delegated, the Company's subsidiaries must monitor the activities
of the third party for compliance with the laws and regulations.
ERISA
The provision of goods and services to or through certain types of employee
health benefit plans is subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). ERISA is a complex set of laws and regulations
that are subject to periodic interpretation by the United States Department of
Labor and the Internal Revenue Service. ERISA governs how the Company's business
units may do business with employers whose employee benefit plans are covered by
ERISA, particularly employers that self fund such plans. There recently have
been legislative attempts to limit ERISA's preemptive effect on state laws. If
such limitations were to be enacted, they might increase the Company's liability
exposure under state law-based suits relating to employee health benefits
offered by the Company's health plans and may permit greater state regulation of
other aspects of those businesses' operations.
EMPLOYEES
As of December 31, 1998, the Company had 2,080 employees, 290 of whom were
managerial and supervisory personnel and 147 of whom were part-time employees.
None of these employees are represented by a union. The Company considers its
relations with its employees to be good.
TRADEMARKS
The phrase ITS YOUR CHOICE is a federally registered service mark of the
Company. The Company has filed for and maintains various other service marks,
trademarks and trade names at the federal level and in various states. Although
the Company considers its registered service marks, trademarks and trade names
important in the operation of its business, the business of the Company is not
dependent on any individual service mark, trademark or trade name.
ITEM 2: PROPERTIES
The Company's headquarters are located in Green Bay, Wisconsin, in a
390,000 square foot office building owned by the Company. The Company also
leases property at approximately 50 locations throughout the United States for
its field sales and provider network offices.
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ITEM 3: LEGAL PROCEEDINGS
The Company is involved in various legal and regulatory actions occurring
in the normal course of its business. In the opinion of management, adequate
provision has been made for losses which may result from these actions and,
accordingly, the outcome of these matters is not expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who are elected for one year terms,
are as follows:
Name Age Title
Samuel V. Miller 53 Chairman of the Board, President and Chief
Executive Officer
Edward R. Skoldberg 49 Executive Vice President and Chief Operating
Officer
Gary D. Guengerich 53 Executive Vice President, Chief Financial Officer
and Treasurer
Timothy J. Moore 47 Senior Vice President of Corporate Affairs,
General Counsel and Secretary
Christopher N. Earl 45 Senior Vice President of Sales and Marketing
Clifford A. Bowers 47 Vice President, Corporate Communications
Scott B. Westphal 36 Vice President and Chief Actuary
John R. Wirch 45 Vice President, Human Resources
Samuel V. Miller has been Chairman of the Board, President and Chief
Executive Officer of the Company since September 1998. Prior to that time, he
was an Executive Vice President of the Company since December 1995. Mr. Miller
has also served as President and Chief Executive Officer of American Medical
Security Holdings, Inc. ("AMS Holdings") since October 1996. During 1994 and
1995, Mr. Miller was a member of the executive staff planning group with the
Travelers Group, serving as Chairman and Group Chief Executive of National
Benefit Insurance Company and Primerica Financial Services Ltd. of Canada. Prior
to 1994, Mr. Miller spent 10 years as President and Chief Executive Officer of
American Express Life Assurance Company.
Edward R. Skoldberg has been Executive Vice President and Chief Operating
Officer of the Company since September 1998. He also served in such capacity
with AMS Holdings since November 1996. Prior to that time, he was a Senior Vice
President with Time Insurance from August 1995 to November 1996. From 1988 to
1995, Mr. Skoldberg was a Vice President with Empire Blue Cross Blue Shield in
New York City.
Gary D. Guengerich has been Executive Vice President, Chief Financial
Officer and Treasurer of the Company since September 1998. He also served in
such capacity with AMS Holdings since November 1997. Prior to that time, Mr.
Guengerich was Senior Vice President and Comptroller of First Colony Life
Insurance since 1981.
Timothy J. Moore has been Senior Vice President of Corporate Affairs,
General Counsel and Corporate Secretary of the Company since September 1998. He
also served in such capacity with AMS Holdings since March 1997. Prior to that
time, Mr. Moore was a partner with the national law firm of Katten Muchin &
Zavis, practicing at the firm from 1987 to 1997.
Christopher N. Earl has been Senior Vice President of Sales and Marketing
since February 1999. Prior to joining the Company, he held various senior
management positions, including Regional Vice President of Sales, with United
Healthcare Corporation from 1993 to 1999. From 1989 to 1993, Mr. Earl held
senior marketing positions with Prudential Insurance Company of American.
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Clifford A. Bowers has been Vice President of Corporate Communications of
the Company since September 1998. He also served in such capacity with American
Medical Security, Inc. ("AMS Inc.), a subsidiary of the Company, since October
1997. From 1988 to 1997, Mr. Bowers was Director of Communications with Fort
Howard Corporation (a paper manufacturer that subsequently merged with James
River Corporation).
Scott B. Westphal has been Vice President and Chief Actuary of the Company
since September 1998. He also served in such capacity with AMS Holdings and/or
AMS Inc. since December 1994. Prior to that time, Mr. Westphal was Manager of
Actuarial Services for AMS Inc. for seven years.
John R. Wirch has been Vice President of Human Resources of the Company
since September 1998. He also served in such capacity with AMS Holdings and/or
AMS Inc. since February 1996. Prior to that time, Mr. Wirch was Vice President
of Human Resources for Little Rapids Corporation (a manufacturer of specialty
papers) from 1993 to 1996, having served as Director of Human Resources of
Little Rapids Corporation from 1980 to 1993.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on the New York Stock Exchange
("NYSE") under the symbol "AMZ". Prior to September 14, 1998, the Common Stock
was traded on the NYSE under the symbol "UWZ". The following table sets forth
the per share high and low sales prices for the Common Stock as reported on the
NYSE for the periods indicated and the cash dividends paid per share for those
periods. Stock prices prior to the September 25, 1998 are not adjusted to
reflect the spin-off.
<TABLE>
<CAPTION>
Cash
Dividends
High Low Paid
--------------- -------------- ---------------
<S> <C> <C> <C>
Year Ended December 31, 1998
First Quarter $33.38 $25.50 $0.12
Second Quarter 33.19 28.38 0.12
Third Quarter 28.38 8.56 0.12
Fourth Quarter 15.06 6.38 -
Year Ended December 31, 1997
First Quarter $26.75 $21.25 $0.12
Second Quarter 37.88 24.63 0.12
Third Quarter 36.63 28.81 0.12
Fourth Quarter 31.94 24.25 0.12
</TABLE>
The Company does not expect to pay any cash dividends in the foreseeable
future and intends to employ its earnings in the continued development of its
business. Future dividend policy will depend on the Company's earnings, capital
requirements, financial condition and other factors considered relevant by the
Board of Directors.
As of March 1, 1999, there were 287 shareholders of record of Common Stock.
Based on information obtained from the Company's Transfer Agent and from
participants in security position listings and otherwise, the Company has reason
to believe there are approximately 3,300 beneficial owners of shares of Common
Stock.
11
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA.
The following selected financial data as of and for the years ended
December 31, 1994, through 1998 has been derived from the Company's consolidated
financial statements. The following data should be read in conjunction with the
Company's Consolidated Financial Statements, the related notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
As of and for the years ended December 31,
---------------------------------------------------------------
1998(b) 1997 1996(a) 1995 1994
------------ ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Health service revenues:
Premium revenue $ 914,017 $ 957,204 $ 596,099 $ 506,349 $ 375,955
Net investment income 24,220 24,071 24,570 31,186 5,589
Other revenue 22,632 24,249 2,935 - -
------------ ------------ ------------ ----------- ------------
Total revenues 960,869 1,005,524 623,604 537,535 381,544
Expenses:
Medical and other benefits 691,767 733,491 472,319 399,449 250,034
Selling, general and administrative 242,073 252,160 157,136 135,052 96,862
Interest 7,691 9,311 4,325 3,483 3,487
Amortization of goodwill and other
intangibles 8,781 7,975 670 - -
Write-off of intangible assets and related
charges 15,453 - - - -
------------ ------------ ------------ ----------- ------------
Total expenses 965,765 1,002,937 634,450 537,984 350,383
------------ ------------ ------------ ----------- ------------
Income (loss) from continuing
operations, before income taxes (4,896) 2,587 (10,846) (449) 31,161
Income tax expense (benefit) (1,868) 1,032 (4,140) (728) 11,231
------------ ------------ ------------ ----------- ------------
Income (loss) from continuing operations (3,028) 1,555 (6,706) 279 19,930
Income from discontinued operations, less
applicable income taxes 10,003 16,595 16,909 6,094 12,833
------------ ------------ ------------ ----------- ------------
Net income $ 6,975 $ 18,150 $ 10,203 $ 6,373 $ 32,763
============ ============ ============ =========== ============
Earnings per common share - basic
Continuing operations $ (0.18) $ 0.10 $ (0.52) $ 0.02 $ 1.71
Discontinued operations 0.60 1.01 1.31 0.48 1.11
------------ ------------ ------------ ----------- ------------
Net income per common share $ 0.42 $ 1.11 $ 0.79 $ 0.50 $ 2.82
Earnings per common share - diluted
Continuing operations $ (0.18) $ 0.10 $ (0.52) $ 0.02 $ 1.71
Discontinued operations 0.60 1.00 1.31 0.48 1.11
------------ ------------ ------------ ----------- ------------
Net income per common share $ 0.42 $ 1.10 $ 0.79 $ 0.50 $ 2.82
Weighted average common shares outstanding 16,559 16,423 12,892 12,551 11,601
Cash dividends per common share 0.36 0.48 0.48 0.48 0.48
BALANCE SHEET DATA:
Cash and investments $ 309,562 $ 316,858 $ 335,839 $ 402,711 $ 305,624
Total assets 498,722 648,136 693,278 580,121 460,662
Notes payable 55,064 124,578 125,788 109,898 44,960
Total shareholders' equity 266,451 326,377 313,655 212,411 171,705
(a) Includes the operations of American Medical Security Group, Inc. since December 3, 1996, the date of
acquisition.
(b) Discontinued operations includes the operations of Newco/UWS through September 25, 1998, the
spin-off distribution date. Continuing operations includes interest on debt assumed by Newco/UWS
through September 11, 1998, the effective date of the spin-off.
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
American Medical Security Group, Inc., formerly known as United Wisconsin
Services, Inc., together with its subsidiary companies ("AMSG" or the
"Company"), is a provider of life and health insurance products for individuals
and employer groups. The Company's principal product offering is small group
health insurance. It also sells individual and large group health insurance and
group life, dental, prescription drug, disability and accidental death
insurance. The Company's products are actively marketed in 33 states and the
District of Columbia through independent agents. The Company's products
generally provide discounts to insureds that utilize preferred provider
organizations ("PPOs"). The average group size is eight lives.
HISTORY
Prior to and for most of the year 1998, the business of the Company, then
known as "United Wisconsin Services, Inc.", consisted of two main components:
the small group business and the managed care and specialty business. Prior to
December 1996, the small group business consisted primarily of individual and
small group insurance written through a joint venture with American Medical
Security Group, Inc., a Delaware corporation ("Old AMS"). During that time, the
Company owned approximately 12% of the issued and outstanding shares of Old AMS.
The Company underwrote all of the individual and small group insurance marketed,
produced and administered by Old AMS and ceded back to Old AMS approximately 50%
of the individual and small group insurance written by the Company through the
joint venture. On December 3, 1996, Old AMS merged with and into the Company.
On September 11, 1998, the Company contributed all of its subsidiaries
comprising the managed care and specialty business to a newly created subsidiary
named "Newco/UWS, Inc.", a Wisconsin corporation ("Newco/UWS"). On September 25,
1998, the Company spun off the managed care and specialty business through a
distribution of 100% of the issued and outstanding shares of common stock of
Newco/UWS to the Company's shareholders of record as of September 11, 1998 (see
Spin-off below). The Company thereupon adopted its current name of "American
Medical Security Group, Inc." and Newco/UWS changed its name to "United
Wisconsin Services, Inc." After the spin-off, the business of the Company
consists solely of the Company's small group insurance business. The
Consolidated Financial Statements included hereafter report the Company's
managed care and specialty business as discontinued operations. The continuing
operations of the Company as reported herein reflect the historical small group
insurance portion of the Company's business. Certain portions of Management's
Discussion and Analysis discuss pro forma information for 1996 reporting
selected financial information as if the business of Old AMS were a part of the
Company's business for the entire year of 1996.
ACCOMPLISHMENTS
SPIN-OFF
On September 25, 1998, the Company completed the separation of its managed
care and specialty business through the spin-off of Newco/UWS to the Company's
shareholders on a share-for-share basis. The intent of the spin-off was to allow
both companies to operate more effectively. Management believes that the
separation should afford each company increased marketing, joint venture and
acquisition opportunities.
The net assets of Newco/UWS consisted of assets and liabilities of the
managed care and specialty management business along with $70.0 million in debt
that was assumed by Newco/UWS in conjunction with the spin-off. The Company
obtained a private letter ruling from the Internal Revenue Service to the effect
that the spin-off qualifies as tax-free to the Company, Newco/UWS and the
Company's shareholders (see Newco/UWS Form 10 for more details).
As a result of the spin-off, the revenues and expenses, assets and
liabilities, and cash flows of the managed care and specialty business have been
classified as discontinued operations in the consolidated financial statements.
13
<PAGE>
Accordingly, the discussions of continuing operations to follow reflect only the
operations of the Company's health and life products.
TURNAROUND
After experiencing major operating losses in 1995 and 1996, a new
management team for the small group business was appointed, headed by Samuel V.
Miller, President and Chief Executive Officer. Management implemented a
turnaround strategy to return the small group business to profitability. Actions
taken included the termination of unprofitable business, enhancement of network
management, significant repricing of business and the initiation of a medical
management process. These actions reduced the health loss ratio from 80.3% (pro
forma) in 1996 to 77.5% in 1997 and 76.7% in 1998. Management also implemented
cost saving measures, including a reduction in personnel, the automation of
claim payments and increased productivity which caused the health expense ratio
to decline from 24.2% (pro forma) in 1996 to 23.0% in 1997. During 1998, the
health expense ratio increased to 23.9% due primarily to investments in the
Company's distribution channel, costs related to the Year 2000 project and
higher commissions resulting from a change in product mix. Management's efforts
have resulted in a significant increase in income from continuing operations
from a pro forma loss of $25.1 million in 1996 to income of $8.9 million and
$8.4 million in 1997 and 1998, respectively, excluding non-recurring items and
interest on debt assumed by Newco/UWS.
ACQUISITIONS
The Company continues to actively seek opportunities for growth through
acquisition. Management believes that as industry consolidation occurs, the
Company is in a position to take advantage of its operational efficiencies.
During 1997 and 1998, the Company acquired the following blocks of business:
- In the fourth quarter of 1997 the Company acquired most of the
individual and small group health insurance business of Pan American
Life Insurance Company ("Pan American"). Approximately 74,000 members
were acquired with the acquisition of this block of business.
- On May 7, 1998, the Company reached an agreement with Pan American to
assume most of their remaining domestic health insurance business
effective July 1, 1998, which resulted in an additional 80,000 members
at the time of acquisition.
- On October 15, 1998, the Company reached an agreement with Continental
Assurance Company ("CNA") to acquire the majority of CNA's fully
insured employer group health business effective January 1, 1999.
Management estimates the book of business covered approximately 75,000
fully insured medical members as of January 1, 1999.
Management continues to evaluate potential targets for acquisition.
MEMBERSHIP
Membership increased to 636,238 at December 31, 1998, from 623,727 at the
end of 1997. New sales grew each quarter during 1998 from 16,800 new members in
January to 27,800 by December. In addition, the acquisition in July of the
second Pan American block of business added approximately 46,000 members as of
December 31,1998.
At the same time, the Company continued to take necessary steps to improve
profitability through rate increases and exiting certain markets. By the end of
1998, new sales growth combined with slower terminations caused the membership
in force to begin to grow.
14
<PAGE>
The following is a table reflecting the quarterly membership in force:
<TABLE>
<CAPTION>
<S> <C> <C>
1997:
Fourth Quarter 623,727
1998:
First Quarter 594,585
Second Quarter 577,520
Third Quarter 624,456
Fourth Quarter 636,238
</TABLE>
TANGIBLE BOOK VALUE
The tangible book value at December 31, 1998, increased to $8.95 per share
compared to $8.02 at December 31, 1997. Tangible book value is computed by
taking shareholders' equity adjusted by net gain (loss) on available for sale
investments, less goodwill and other intangibles over end-of-period shares
outstanding.
NON-RECURRING ITEMS
The Company's distribution system asset was acquired in 1996 as part of the
merger with Old AMS. During 1997 and 1998, the Company experienced significant
turnover of sales managers and began to reorganize sales offices. In particular,
during that period, the Company replaced commissioned independent sales managers
with salaried sales offices, while it evaluated the Company's distribution
strategy. In the fourth quarter of 1998, management concluded that a salaried
sales office structure was more consistent with current strategy and the
Company's intangible distribution system asset was impaired. As a result, the
Company recorded an after tax charge of $9.3 million to write off the intangible
asset and to record other related costs at December 31, 1998. Management
believes that no other material impairment of goodwill and other intangible
assets existed at December 31, 1998.
Results for 1997 include an after tax charge of $4.1 million in
non-recurring costs related to the acquisition of the Pan American small group
business in October 1997.
COMPARISON OF RESULTS OF CONTINUING OPERATIONS
The Company's results of continuing operations includes certain
non-recurring charges as previously discussed and interest on debt assumed by
Newco/UWS in conjunction with the spin-off. The following table reflects the
Company's income from continuing operations adjusted for these items:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
-------------- -------------- --------------
Income (loss) from continuing operations
before interest on debt assumed by
Newco/UWS and non-recurring items $ 8,439 $ 8,851 $ (6,340)
Interest on debt assumed by
Newco/UWS, net of tax (2,216) (3,180) (366)
Non-recurring items, net of tax (9,251) (4,116) -
-------------- -------------- --------------
Income (loss) from continuing operations $ (3,028) $ 1,555 $ (6,706)
============== ============== ==============
</TABLE>
15
<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1997
Results from continuing operations for 1998 was a loss of $3.0 million,
which is a $4.6 million decrease from income of $1.6 million for 1997. Excluding
non-recurring charges and excluding interest on debt assumed by Newco/UWS,
income from continuing operations for 1998 was $8.4 million compared to $8.9
million for 1997. The modest decline in income from continuing operations
reflects an improved loss ratio offset by increased selling, general and
administrative expenses. The turnaround slowed during 1998 principally due to
losses in the individual dental business and delayed rate increases in the State
of Florida. Action was taken by year end 1998 with respect to both challenges
which management believes will be effective.
For 1998, health insurance premiums declined 5.8% to $865.2 million from
$918.6 million in 1997. The decline in premium is primarily the result of a
decline in average fully insured medical membership of 7.2% in 1998 compared to
1997 reflecting the Company's efforts to cull unprofitable business. Life
insurance premiums declined 15.4% in 1998 to $24.5 million from $28.9 million in
1997 which is consistent with the decline in average life membership of 16.2% in
1998 compared to 1997.
The health loss ratio for the year ended December 31, 1998 was 76.7%, an
improvement from 77.5% for 1997. The improved loss ratio for 1998, as previously
mentioned, reflects the cancellation of unprofitable business, including the
stand-alone dental business effective June 1, 1998, increased higher margin new
business and repricing of existing business. The life loss ratio for the year
ended December 31, 1998, was 31.5%, which is an improvement from 35.3% for 1997.
Net investment income includes investment income and realized gains. Net
investment income for 1998 increased 0.6% to $24.2 million from $24.1 million in
1997. Average annual investment yields, excluding realized gains and losses,
were 6.7% for the year ended December 31, 1998, compared to 7.4% for the same
period in the prior year. Net investment income for 1997 includes $1.4 million
of mutual fund distributions which were favorably impacted by foreign financial
markets in 1997. Investment gains and losses are realized in the normal
investment process in response to market opportunities.
During 1998, other revenue declined to $22.6 million from $24.2 million in
1997. The decrease is primarily due to lower administrative fee revenue from
self-funded business in 1998 offset by additional fees related to the Pan
American business acquired beginning in the third quarter 1998.
The expense ratio includes commissions, administrative expenses and premium
taxes and assessments, but excludes non-recurring charges. For 1998, the expense
ratio for health products was 23.9% compared to 23.0% for 1997. The increased
health expense ratio for the year reflects higher commission costs related to
growth in new business in 1998 over 1997 and an investment in the Company's
distribution network. Also contributing to the increase in the expense ratio
were expenses related to the Year 2000 initiative, and a one-time investment in
re-engineering administrative work flow processes.
For 1998, interest expense decreased to $7.7 million from $9.3 million for
1997. The decrease in interest expense for 1998 reflects the assumption of $70.0
million in debt by Newco/UWS on September 11, 1998, as part of the spin-off
transaction, as further described in Note 2 to the Consolidated Financial
Statements. Excluding the interest on debt assumed by Newco/UWS, interest
expense for 1998 was approximately $4.3 million which is consistent with
management's ongoing expectations.
Amortization of goodwill and intangibles for the year ended December 31,
1998, increased to $8.8 million from $8.0 million at December 31, 1997. The
increase in amortization expense in 1998 is primarily due to recorded intangible
assets related to the Pan American small group business acquired in October
1997. Amortization of intangibles is expected to decline significantly in 1999
due to the write-off of the Company's distribution system intangible asset.
The effective tax rate for the year 1998 was 38.1% compared with 39.9% for
the year 1997. The effective tax rate is raised by the amortization of
non-deductible goodwill in relation to pretax income.
16
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
Results from continuing operations for 1997 was income of $1.6 million
compared with a loss of $6.7 million for 1996. Excluding non-recurring charges
and interest on debt assumed by Newco/UWS, income from continuing operations for
1997 was $8.9 million which compares to a 1996 pro forma loss of $25.1 million.
The increase in income from continuing operations was due to an improved loss
ratio on health business and an improved expense ratio, offset by increased
expenses related to interest costs on debt and amortization of goodwill and
intangibles.
For the year ended December 31, 1997, health insurance premiums increased
63.4% to $918.6 million from $562.1 million for 1996. The increase in 1997 was
due primarily to the merger of the Company with Old AMS. Considering the effects
of the merger with Old AMS, health insurance premiums decreased 12.4% from
$1,094.5 million (pro forma) in 1996 to $957.2 million in 1997. The decline in
health insurance premium is the result of management's efforts to return the
business to profitability. Steps in this process included exiting certain
unprofitable markets and lines of business, and implementing rate increases.
Group life insurance premiums, which are generally tied to group health
business, declined 13.9% to $28.9 million in 1997 from $33.6 million in 1996.
The health loss ratio for 1997 was 77.5% compared to 80.3% (pro forma) for
1996. The lower loss ratio in 1997 reflects improvements in medical cost trends
and pricing increases as discussed above. For 1997, the life loss ratio was
35.3%, which compares to 32.8% for 1996.
Net investment income (including realized gains/losses) for 1997 decreased
0.2% to $24.1 million from $24.6 million at December 31, 1996. Net investment
income declined due to a decrease in average invested assets offset by an
increase in investment yield in 1997. Average annual investment yields,
excluding realized gains and losses, were 7.4% for the year ended December 31,
1997, compared to 6.8% for 1996. The average yield for 1997 includes the mutual
fund distribution of $1.4 million discussed above in the comparison of years
1998 and 1997.
Other revenue for the year ended December 31, 1997, increased to $24.2
million from $2.9 million for the year ended December 31, 1996. Other revenue
principally represents administrative and other related fees from the
administration of medical polices. The increase in other revenue in 1997 is
principally due to the merger with Old AMS in December 1996.
For the year ended December 31, 1997, the expense ratio for health products
was 23.0% compared with 24.2% (pro forma) for 1996. The improved health expense
ratio for the year reflects a decline in commissions on new business, increased
productivity, a reduction in personnel and the automation of claims payments.
Interest expense increased from $4.3 million in 1996 to $9.3 million in 1997.
The increase is attributable to $70.0 million of additional debt borrowed to
finance the merger with Old AMS. For 1997, amortization of goodwill and
intangibles increased to $8.0 million from $0.7 million in 1996. The large
increase in amortization expenses is due to the $150.0 million of goodwill and
other intangibles recorded at the time of the merger with Old AMS.
The effective tax rate for 1997 was 39.9%, compared with 38.2% for 1996.
17
<PAGE>
DISCONTINUED OPERATIONS
Income from discontinued operations reflects the operating results of
Newco/UWS (now called United Wisconsin Services, Inc.) through September 25,
1998, the distribution date of the spin-off. Reported results of discontinued
operations in 1998 included direct costs associated with the spin-off of $4.9
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow consist primarily of insurance premiums,
administrative fee revenue and investment income. The primary uses of cash
include payment of medical and other benefits, selling, general and
administrative expenses and debt service costs. Positive cash flows are invested
pending future payments of medical and other benefits and other operating
expenses. The Company's investment policies are designed to maximize yield,
preserve principal and provide liquidity to meet anticipated payment
obligations.
The Company's cash flows from operations were negative at $3.7 million,
$31.8 million and $17.0 million for the years ended 1998, 1997 and 1996,
respectively. Negative cash flows from operations are principally the result of
the decline in medical and other benefits payable of $14.9 million, $32.2
million and $13.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The decline in medical and other benefits payable results
primarily from a decline in business and a reduction in the inventory of claims
pending adjudication. The Company's cash flows from operations were positive
during the last half of 1998 and should remain positive during 1999 due to a
leveling of the claims inventory, growth in membership and lower debt service
costs as a result of the assumption of $70.0 million in debt by Newco/UWS in
September 1998.
The Company's insurance subsidiaries operate in states that require certain
levels of regulatory capital and surplus and may restrict dividends to their
parent companies. The National Association of Insurance Commissioners ("NAIC")
has adopted risk-based capital ("RBC") standards for life and health insurers
designed to evaluate the adequacy of statutory capital and surplus in relation
to various business risks faced by such insurers. The RBC formula is used by
state insurance regulators as an early warning tool to identify insurance
companies that potentially are inadequately capitalized. At December 31, 1998,
the Company's principal insurance company subsidiaries had an RBC ratio that was
substantially above the levels which would require regulatory action.
On July 31, 1998, in anticipation of the spin-off transaction, the Company
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 on a bank line of credit with a maximum commitment
of $70.0 million. The line of credit contains certain covenants which, among
other matters, requires the Company to maintain a minimum tangible net worth and
restricts the Company's ability to incur additional debt, pay future cash
dividends and transfer assets. The Company is in compliance with all such
covenants at December 31, 1998.
In addition to internally generated funds and periodic borrowings on its
bank line of credit, the Company believes that additional financing could be
obtained through equity offerings, debt offerings or bank borrowings, as market
conditions may permit or dictate.
The Company does not expect to pay any cash dividends in the foreseeable
future and intends to employ its earnings in the continued development of its
business. The Company's future dividend policy will depend on its earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors.
MARKET RISK EXPOSURE
The primary investment objective of the Company is to maximize investment
income while controlling risks and preserving principal. The Company seeks to
meet this investment objective through diversity of coupon rates, liquidity,
investment type, industry, issuer and geographic location. The investment
portfolio of the Company consists primarily of investment grade debt securities.
Outside investment managers who seek to maximize return on the portfolio within
the Company's investment guidelines are utilized. At December 31, 1998, $296.5
million or 99.2% of the Company's total investment portfolio was invested in
debt securities.
18
<PAGE>
The bond portfolio had an average quality rating of A1 at December 31,
1998, and Aa3 at December 31, 1997, as measured by Moody's Investor Service.
Almost the entire portfolio was classified as available for sale. The Company
had no investment mortgage loans, non-publicly traded securities (except for
principal only strips of U.S. Government securities), real estate held for
investment or financial derivatives. The market value of the total investment
portfolio exceeded amortized cost by $1.9 million at December 31, 1998.
The primary market risk affecting the Company is interest rate risk.
Assuming an immediate increase of 100 basis points in interest rates, the net
hypothetical decline in fair value of shareholders' equity is estimated to be
$7.2 million (after tax) at December 31, 1998. This amount represents
approximately 2.7% of the Company's shareholders' equity.
At December 31, 1998, the fair value of the Company's borrowings under the
line of credit facility approximated the carrying value. Market risk was
estimated as the potential increase in the fair value resulting from a
hypothetical 1% decrease in the Company's weighted average short-term borrowing
rate at December 31, 1998, and was not materially different from the year end
carrying value.
INFLATION
Health care costs have been rising and are expected to continue to rise at
a rate that exceeds the consumer price index. The Company's cost control
measures and premium rate increases are designed to reduce the adverse effect of
medical cost inflation on its operations. In addition, the Company uses its
underwriting and medical management capabilities to help control inflation in
health care costs. However, there can be no assurance that the Company's efforts
will fully offset the impact of inflation or that premium revenue increases will
equal or exceed increasing health care costs.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer equipment
and software devices with embedded technology that are time-sensitive may
recognize a date using "00" as the year 1900 rather that the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
The Company has divided the Year 2000 issues facing the organization into
three major sections: 1) software applications developed in-house ("In-house
Applications"); 2) software applications acquired from a third party that have
been customized by the Company ("Customized Applications"); and 3) software
applications acquired from a third party that have not been customized by the
Company and those products and services provided to the Company by third parties
("Third Party Products").
In-house Applications represent the primary operating software of the
Company and include applications that perform premium billing and cash posting,
claims adjudication and commission payment processing. The project to make all
In-House Applications Year 2000 compliant was completed in November 1998. The
deletion of temporary bridges and workfiles used to facilitate communication
between compliant and non-compliant computer codes during the course of the
implementation was completed in early March 1999.
Customized Applications include electronic data interchange applications,
publishing systems, fax capabilities, accounting packages and other special
application software as well as utility software packages that serve as links
between different packages. Each of these software packages is currently being
upgraded or replaced. It is anticipated that all Customized Applications will be
compliant prior to the end of the third quarter of 1999. With respect to Third
Party Products, the Company has reviewed its business processes that may have
Year 2000 concerns performed by, with or through external business associates.
This includes computer hardware,
19
<PAGE>
telephone systems, security systems and
numerous other products as well as third party applications that have not been
customized by the Company. The Company has evaluated various third parties that
provide products or services, such as printing companies, power and utility
companies and other vendors. Where appropriate, agreements with third party
vendors have been amended and Year 2000 compliance certifications have been
obtained. Significant business partners and vendors will be required to provide
the Company with Year 2000 certified products or services. Such products and
services are being tested by the Company to validate the compliance
certification. The Company estimates this portion of the plan is approximately
73% complete, is on schedule and is planned for completion in September 1999.
YEAR 2000 PLAN PERCENT COMPLETE COMPLETION DATE
In-house Applications 100% March 1999
Customized Applications 43% September 1999
Third Party Products 73% September 1999
The cost of the Year 2000 project is being funded through operating cash
flows and is not expected to be material to the Company's financial position.
Through December 31,1998, the Company has incurred costs of $2.0 million ($1.5
million in 1998) relating to the Year 2000 project. In 1999, the Company
anticipates an additional cost of $1.1 million which will be expensed as
incurred. The Company has made capital expenditures of $1.8 million through
December 31, 1998, and expects to make an additional $3.1 million in capital
expenditures to complete the project.
The Company is developing a comprehensive analysis of the operational
problems and costs (including loss of revenues) that could result from the
unlikely failure by the Company and certain third parties to complete efforts
necessary to achieve Year 2000 compliance on a timely basis. The majority of the
contingency plans has been developed and documented for dealing with the worst
case scenarios with the highest chance of occurring. The Company currently plans
to complete such analysis and contingency planning during the second quarter of
1999.
The costs of the project and the date on which the Company plans to
complete the necessary Year 2000 modifications are based on management's best
estimates, which were derived using numerous assumptions of future events
including the continued availability of certain resources, third party
remediation plans and other factors. There can be no guarantee that these
timelines or estimates will be achieved. Actual results could differ materially
from those planned. Specific factors that might cause such material differences
to occur include, but are not limited to, the availability and cost of personnel
trained in this area; the ability to locate and correct all relevant computer
codes; and the ability of the Company's significant suppliers, customers and
others with which it conducts business, including federal, state and local
governmental agencies, to identify and resolve their own Year 2000 issues and
similar uncertainties. Due to these uncertainties, the Company may face certain
claims, the impact of which is not currently estimable. No assurance can be
given that the cost of defending and resolving such claims, if any, will not
significantly affect the Company's results of operations. Although the Company
has some agreements with third party vendors and suppliers that contain
indemnification provisions that protect the Company under certain circumstances
relating to Year 2000 issues, there can be no assurances that such
indemnification provisions will cover all of the Company's liabilities and costs
related to Year 2000 claims by third parties.
20
<PAGE>
FORWARD LOOKING STATEMENTS
Statements contained in this report that are not historical facts are
forward looking statements subject to inherent risks and uncertainties that may
cause actual results or events to differ materially from those contemplated by
such forward looking statements. The terms "anticipate", "believe", "estimate",
"expect", "objective", "plan", "project" and similar expressions are intended to
identify forward looking statements. In addition to the assumptions and other
factors referred to specifically in connection with such statements, factors
that may cause actual results or events to differ materially from those
contemplated by such forward looking statements, include, among others, (1) the
effects of either federal or state health care reform or other legislation; (2)
rising health care costs, including the Company's ability to predict such costs
and adequately price its products; (3) changes in membership utilization and
risk; (4) government regulations, including changes in insurance, health care
and other regulatory conditions; (5) delays in regulatory approvals, and
regulatory action resulting from market conduct activity and general
administrative compliance with state and federal laws; (6) general business
conditions, including competitive practices and demand for the Company's
products; (7) development of claims reserves; (8) rating agency policies and
practices; (9) general economic conditions, including changes in interest rates
and the effect of such changes on the Company's investment portfolio; (10) the
Company's ability to integrate acquisitions; (11) unforeseen costs or
consequences of Year 2000 issues; (12) the retention of key management and
technical employees, and (13) other factors that may be referred to in the
Company's reports filed with the Securities and Exchange Commission from time to
time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Market Risk Exposure" for information concerning
potential market risks related to the Company's investment portfolio.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Medical Security Group, Inc.
We have audited the accompanying consolidated balance sheets of American
Medical Security Group, Inc. and its subsidiaries, formerly known as United
Wisconsin Services, Inc., (the Company) as of December 31, 1998 and 1997, and
the related consolidated statements of income, changes in shareholders' equity
and comprehensive income and cash flows for each of the three years in the
period ended December 31, 1998. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 5, 1999
22
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
1998 1997
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Securities available for sale, at fair value:
Fixed maturities $ 293,096 $ 266,976
Equity securities-preferred 2,457 787
Fixed maturity securities held to maturity, at amortized cost 3,361 3,804
---------------------------------
Total Investments 298,914 271,567
Cash and Cash Equivalents 10,648 45,291
Other Assets:
Property and equipment, net 35,356 37,169
Goodwill and other intangibles, net 116,093 137,796
Other assets 37,711 32,697
---------------------------------
Total Other Assets 189,160 207,662
Net Assets of Discontinued Operations - 123,616
---------------------------------
Total Assets $ 498,722 $ 648,136
=================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
23
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<CAPTION>
December 31,
1998 1997
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Medical and other benefits payable $ 113,133 $ 126,882
Advance premiums 18,157 19,986
Payables and accrued expenses 23,439 28,930
Notes payable 55,064 124,578
Other liabilities 22,478 21,383
------------------------------------
Total Liabilities 232,271 321,759
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, 16,653,179 and 16,509,578 shares issued and
outstanding at December 31, 1998 and 1997, respectively) 16,653 16,510
Paid-in capital 188,981 186,768
Retained earnings 59,572 117,331
Accumulated other comprehensive income (net of taxes
of $642,000 in 1998 and $123,000 in 1997) 1,245 5,768
------------------------------------
Total Shareholders' Equity 266,451 326,377
------------------------------------
Total Liabilities and Shareholders' Equity $ 498,722 $ 648,136
====================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
24
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Insurance premiums $ 914,017 $ 957,204 $ 596,099
Net investment income 24,220 24,071 24,570
Other revenue 22,632 24,249 2,935
--------------------------------------------------
Total Revenues 960,869 1,005,524 623,604
Expenses:
Medical and other benefits 691,767 733,491 472,319
Selling, general and administrative 242,073 252,160 157,136
Interest 7,691 9,311 4,325
Amortization of goodwill and other intangibles 8,781 7,975 670
Write-off of intangible assets and related charges 15,453 - -
--------------------------------------------------
Total Expenses 965,765 1,002,937 634,450
--------------------------------------------------
Income (Loss) From Continuing Operations,
Before Income Taxes (4,896) 2,587 (10,846)
Income Tax Expense (Benefit) (1,868) 1,032 (4,140)
--------------------------------------------------
Income (Loss) From Continuing Operations (3,028) 1,555 (6,706)
Income From Discontinued Operations,
Less Applicable Income Taxes 10,003 16,595 16,909
--------------------------------------------------
Net Income $ 6,975 $ 18,150 $ 10,203
==================================================
Earnings (Loss) Per Common Share - Basic
Continuing operations $ (0.18) $ 0.10 $ (0.52)
Discontinued operations 0.60 1.01 1.31
--------------------------------------------------
Net Income Per Common Share $ 0.42 $ 1.11 $ 0.79
==================================================
Earnings (Loss) Per Common Share - Diluted
Continuing operations $ (0.18) $ 0.10 $ (0.52)
Discontinued operations 0.60 1.00 1.31
--------------------------------------------------
Net Income Per Common Share $ 0.42 $ 1.10 $ 0.79
==================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
25
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<CAPTION>
Accumulated
Other
Common Comprehensive Total
Shares Common Paid-In Retained Income, Net Shareholders'
Outstanding Stock Capital Earnings of Taxes Equity
---------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 12,599,715 $ 12,600 $ 86,902 $ 103,361 $ 9,548 $ 212,411
Comprehensive income:
Net income 10,203 10,203
Change in net unrealized gain
on securities, net of
reclassification adjustment
in net income of $4,615,000
and net of taxes of
$3,789,000 (3,279) (3,279)
---------------
Comprehensive income 6,924
---------------
Cash dividends paid on common
stock ($.48 per share) (6,491) (6,491)
Issuance of common stock and
options related to
acquisition of subsidiary 3,694,280 3,694 97,117 100,811
---------------------------------------------------------------------------------
Balance at December 31, 1996 16,293,995 16,294 184,019 107,073 6,269 313,655
Comprehensive income:
Net income 18,150 18,150
Change in net unrealized gain
on securities, net of
reclassification adjustment
in net income of $1,854,000
and net of taxes of $123,000 (501) (501)
---------------
Comprehensive income 17,649
---------------
Cash dividends paid on common
stock ($.48 per share) (7,892) (7,892)
Issuance of common stock 215,583 216 2,749 2,965
---------------------------------------------------------------------------------
Balance at December 31, 1997 16,509,578 16,510 186,768 117,331 5,768 326,377
Comprehensive income:
Net income 6,975 6,975
Change in net unrealized gain
on securities, net of
reclassification adjustment
in net income of $3,670,000
and net of taxes of $642,000 (4,613) (4,613)
---------------
Comprehensive income 2,362
---------------
Cash dividends paid on common
stock ($.36 per share) (5,956) (5,956)
Issuance of common stock 143,601 143 2,213 2,356
Distribution of Newco/UWS to
shareholders (58,778) 90 (58,688)
---------------------------------------------------------------------------------
Balance at December 31, 1998 16,653,179 $ 16,653 $ 188,981 $ 59,572 $ 1,245 $ 266,451
=================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
26
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended December 31,
1998 1997 1996
-----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (3,028) $ 1,555 $ (6,706)
Adjustments to reconcile income (loss) from
continuing operations to net cash used in
operating activities:
Depreciation and amortization 15,343 17,424 1,611
Write-off of intangible asset 12,833 - -
Net realized investment gains (3,670) (1,854) (4,615)
Deferred income tax benefit (8,256) (1,722) (319)
Changes in operating accounts:
Other assets (4,869) 10,204 15,877
Medical and other benefits payable (14,911) (32,181) (13,536)
Advance premiums (2,004) (5,485) (7,792)
Payables and accrued expenses (6,129) 2,122 266
Funds held on behalf of affiliated reinsurers - - (21,002)
Other liabilities 10,982 (21,882) 19,237
-----------------------------------------------------
Net Cash Used in Operating Activities (3,709) (31,819) (16,979)
INVESTING ACTIVITIES:
Acquisition of subsidiaries (net of cash and
cash equivalents acquired of $2,773,000 in 1998
and $14,793,000 in 1996) 2,623 - (56,837)
Purchases of available for sale securities (347,931) (276,510) (126,361)
Proceeds from sale of available for sale securities 300,416 311,374 200,605
Proceeds from maturity of available for sale securities 20,225 400 23,694
Purchases of held to maturity securities (540) (1,629) (1,416)
Proceeds from maturity of held to maturity securities 1,100 935 1,195
Purchases of property and equipment (3,326) (1,839) (102)
Proceeds from sale of property and equipment 254 2,404 6
-----------------------------------------------------
Net Cash Provided by (Used in) Investing
Activities (27,179) 35,135 40,784
Activities
FINANCING ACTIVITIES:
Cash dividends paid (5,956) (7,892) (6,491)
Issuance of common stock 2,356 2,965 -
Proceeds from notes payable borrowings 45,158 - -
Repayment of notes payable (46,944) (1,210) (9,277)
Proceeds from notes with affiliate - - 70,000
Repayment of notes with affiliate - - (65,000)
-----------------------------------------------------
Net Cash Used in Financing Activities (5,386) (6,137) (10,768)
Net Cash Provided by Discontinued Operations 1,631 16,113 13,751
-----------------------------------------------------
Cash and cash equivalents:
Net increase (decrease) during year (34,643) 13,292 26,788
Balance at beginning of year 45,291 31,999 5,211
-----------------------------------------------------
Balance at End of Year $ 10,648 $ 45,291 $ 31,999
=====================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
27
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
American Medical Security Group, Inc., formerly known as United Wisconsin
Services, Inc., together with its subsidiary companies ("AMSG" or the
"Company"), provides life and health insurance products for individuals and
small employer groups. The Company offers a wide variety of health and life
insurance products including medical, dental, prescription drug, disability,
group term life and accidental death insurance. The Company's products are sold
through licensed, independent agents in 33 states and the District of Columbia.
Approximately 120 Company sales managers located in sales offices throughout the
United States support the independent agents. The Company principally markets
health benefit products that provide discounts to insureds that utilize
preferred provider organizations (PPOs). AMSG owns a large preferred provider
network and also contracts with more than 65 other networks to ensure
cost-effective health care choices to its customers.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. Significant intercompany accounts
and transactions have been eliminated.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include operating cash and short-term investments
with original maturities of three months or less. These amounts are recorded at
cost, which approximates market.
INVESTMENTS
Investments are classified as either held-to-maturity or
available-for-sale. Investments which the Company has the positive intent and
ability to hold to maturity are designated as held-to-maturity and are stated at
amortized cost. All other investments are classified as available-for-sale and
are stated at fair value based on quoted market prices, with unrealized gains
and losses excluded from earnings and reported as a separate component of
shareholders' equity as accumulated other comprehensive income, net of income
tax effects. Realized gains and losses from the sale of available-for-sale debt
securities and equity securities are based on the first-in, first-out basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of investments are reported in Note 4. The fair values of
other financial instruments, principally other assets, advanced premiums,
payables and accrued expenses, notes payable and other liabilities approximate
their December 31, 1998 and 1997 carrying values.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of cost over the fair market value of net
assets acquired. Goodwill and other intangible assets are being amortized on a
straight-line basis over a period of 40 years or less. Accumulated amortization
was $8,403,000 and $8,895,000 at December 31, 1998 and 1997, respectively.
28
<PAGE>
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its intangibles. The study conducted during 1998,
determined that the Company's sales distribution system intangible assets were
considered to be impaired as the Company largely eliminated its commission-based
sales offices, replacing them with salaried sales offices since the acquisition.
This resulted in an after-tax charge of $9,251,000 or $0.56 per share, including
$7,683,000 of intangible distribution system assets and $1,568,000 of related
costs. The Company's management believes that no other material impairment of
goodwill or other intangible assets exists at December 31, 1998.
REVENUE RECOGNITION
Premiums for group life and health policies are recognized ratably over the
period that insurance coverage is provided.
MEDICAL AND OTHER BENEFITS
The liabilities for medical and other benefits are determined using
statistical analyses and represent estimates of the ultimate net cost of all
reported and unreported claims that are unpaid at year end. The Company's
year-end claim liabilities are substantially satisfied through claim payments in
the subsequent year. Management believes that the liabilities for insurance
claims are adequate. The liability for medical and other benefits, excluding
reinsurance recoverables, of $123,907,000 at December 31, 1997, was deficient in
the subsequent year by $1,228,000. At December 31, 1996, medical and other
benefits payable, including reinsurance recoverables of $155,114,000, developed
favorably by $9,418,000 in the subsequent year. The estimates are reviewed
periodically and, as adjustments to the liabilities become necessary, the
adjustments are reflected in current operations.
REINSURANCE
Reinsurance premiums, commissions and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Premiums and benefits ceded to other companies have been reported as a reduction
of premium revenue and benefits. Reinsurance receivables and prepaid reinsurance
premium amounts are reported as assets.
The Company limits the maximum net loss that can arise from certain lines
of business by reinsuring (ceding) a portion of these risks with other insurance
organizations (reinsurers) on an excess of loss or quota share basis. The
Company is contingently liable on reinsurance ceded in the event that the
reinsurers do not meet their contractual obligations.
The Company has acquired certain business from other carriers through
reinsurance transactions. A summary of reinsurance ceded and assumed related to
acquired business is as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- -- ---------------
(IN THOUSANDS)
<S> <C> <C>
Reinsurance Assumed:
Insurance Premiums $ 99,645 $ 30,256
Medical and Other Benefits 80,786 23,270
Reinsurance Ceded:
Insurance Premiums $ 14,074 $ -
Medical and Other Benefits 12,958 -
</TABLE>
29
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives,
which are 20 to 30 years for land improvements, 10 to 40 years for buildings and
building improvements, three to five years for computer equipment and software
and three to 10 years for furniture and other equipment.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. A valuation allowance is
recorded on deferred tax assets that management believes more likely than not
will not be realized.
EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
replaces the presentation of primary and fully diluted earnings per share
("EPS") with a presentation of basic and diluted EPS.
The following table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations $ (3,028) $ 1,555 $ (6,706)
Denominator:
Denominator for basic EPS - weighted average shares 16,558,887 16,423,270 12,892,431
Effect of dilutive securities - employee stock options - 147,715 -
-------------- -------------- --------------
Denominator for diluted EPS 16,558,887 16,570,985 12,892,431
============== ============== ==============
Income (loss) from continuing operations:
Basic $ (0.18) $ 0.10 $ (0.52)
Diluted $ (0.18) $ 0.10 $ (0.52)
</TABLE>
The effect of dilutive securities is excluded from the diluted EPS
computation for the years 1998 and 1996 because employee stock options are
antidilutive during such periods. Options to purchase 1,908,449 shares of common
stock were outstanding and exercisable at the end of 1997 and all but 147,715
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of common
shares and, therefore, the effect would be antidilutive.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which established standards for the reporting and display of
comprehensive income and its components in a full set of comparative
general-purpose financial statements. The statement became effective for the
Company as of January 1, 1998. Comprehensive income is defined in this statement
as net income plus other comprehensive income, which for the Company, under
existing accounting standards, includes unrealized gains and losses, net of
income tax effects, on certain investments in debt and equity securities.
Comprehensive income is reported by the Company in the consolidated statements
of changes in shareholders' equity and comprehensive income.
30
<PAGE>
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform with the 1998 presentation.
2. DISTRIBUTION OF NEWCO/UWS TO SHAREHOLDERS
On May 27, 1998, the Board of Directors of the Company, then known as
United Wisconsin Services, Inc., ("UWS") approved a plan to spin off its managed
care companies and specialty management business to its shareholders (the
"Distribution"). In connection with the spin-off, the Company changed its name
to "American Medical Security Group, Inc." On September 25, 1998, the
distribution date, shareholders of AMSG received one share of common stock of a
newly formed company, Newco/UWS, Inc. ("Newco/UWS"), for every share of AMSG
owned as of September 11, 1998, the record date. At December 31, 1998, Blue
Cross and Blue Shield United of Wisconsin ("BCBSUW") holds approximately 38% of
the outstanding stock of AMSG.
The net assets of Newco/UWS consisted of assets and liabilities of the
managed care and specialty management business along with $70,000,000 in debt
that was assumed by Newco/UWS in conjunction with the Distribution. Newco/UWS
was renamed United Wisconsin Services, Inc. AMSG has obtained a private ruling
from the Internal Revenue Service to the effect that the spin-off qualifies as
tax free to AMSG, Newco/UWS and to AMSG shareholders. The operations of
Newco/UWS, along with direct costs of approximately $4,900,000 associated with
the spin-off, have been reflected in discontinued operations. All prior periods
of the consolidated financial statements of AMSG have been restated to reflect
Newco/UWS operations as discontinued operations in the accompanying consolidated
financial statements of AMSG. Discontinued operations reported total revenues of
$488,033,000, $609,109,000 and $539,764,000 for 1998, 1997 and 1996
respectively. Interest expense on the $70,000,000 debt assumed by Newco/UWS is
reflected in continuing operations only through September 11, 1998.
3. ACQUISITIONS
Prior to December 3, 1996, the Company owned 12% of the common stock of
American Medical Security Group, Inc., a Delaware corporation, ("Old AMS"). The
Company also had a joint venture agreement with Old AMS and its subsidiaries and
was a party to related reinsurance agreements. Effective December 3, 1996, the
Company acquired the remaining 88% of Old AMS. The aggregate consideration for
the acquisition was cash of $71,800,000, including expenses, and $98,719,000
representing the market value of 3,694,280 newly issued shares of the Company's
common stock and options to purchase the Company's common stock. Most of the
cash consideration came from $70,000,000 borrowed from BCBSUW. In conjunction
with the acquisition, $150,018,000 of goodwill and other intangibles and
$22,173,000 of related deferred tax liabilities were recorded on the
consolidated balance sheet.
The above acquisition has been accounted for using the purchase method of
accounting, and the accompanying consolidated financial statements include the
results of operations from the date of acquisition.
On a pro forma basis, assuming the acquisition had occurred on January 1,
1996, after giving effect to certain adjustments arising from the recording of
the transaction, including amortization of goodwill and other intangibles,
reduction of investment income due to cash payments, interest expense on debt
and intercompany eliminations, 1996 revenues would have been $1,150,000,000. In
addition, the loss from continuing operations would have been $25,112,000,
resulting in a loss per common share of $1.95.
These pro forma results are not necessarily indicative of the results that
would have occurred had the acquisition taken place on January 1, 1996, or
indicative of future results of operations for the combined companies.
31
<PAGE>
4. INVESTMENTS
Net investment income from continuing operations includes the
following:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on fixed maturities $ 18,437 $ 19,037 $ 18,889
Dividends on equity securities 716 2,369 1,205
Realized gains 5,078 2,219 7,413
Realized losses (1,408) (365) (2,798)
Interest on cash equivalents and other investment income 2,112 1,720 744
-------------- -------------- --------------
Gross investment income 24,935 24,980 25,453
Investment expenses (715) (909) (883)
-------------- -------------- --------------
$ 24,220 $ 24,071 $ 24,570
============== ============== ==============
</TABLE>
Unrealized gains (losses) are computed as the difference between estimated
fair value and amortized cost for equity securities and fixed maturities
classified as available for sale. A summary of the net increase (decrease) in
unrealized gains, which is included in other accumulated comprehensive income,
is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities $ (1,849) $ 7,669 $ (6,186)
Equity securities (105) (7,545) (4,841)
Funds held on behalf of affiliated reinsurer, net of
deferred income taxes - - 3,511
Discontinued operations, net of deferred income taxes (3,211) (748) 448
-------------- -------------- --------------
$ (5,165) $ (624) $ (7,068)
============== ============== ==============
</TABLE>
32
<PAGE>
The amortized cost and estimated fair values of investments are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------------- ---------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998:
Available for sale:
Fixed maturities:
U.S. Treasury securities $ 35,932 $ 630 $ (31) $ 36,531
Corporate debt securities 168,853 3,201 (2,230) 169,824
Foreign government securities 18,055 371 (476) 17,950
Government agency mortgage-backed
securities 68,291 536 (36) 68,791
--------------- ---------------- --------------- ---------------
291,131 4,738 (2,773) 293,096
Equity securities - preferred 2,507 - (50) 2,457
Held to maturity:
U.S. Treasury securities 3,361 85 - 3,446
--------------- ---------------- --------------- ---------------
$ 296,999 $ 4,823 $ (2,823) $ 298,999
=============== ================ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------------- -------------- ---------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
Available for sale:
Fixed maturities:
U.S. Treasury securities $ 59,038 $ 625 $ - $ 59,663
Corporate debt securities 145,289 2,847 (177) 147,959
Foreign government securities 16,489 218 (298) 16,409
Government agency mortgage-backed
securities 42,346 607 (8) 42,945
--------------- -------------- ---------------- ---------------
263,162 4,297 (483) 266,976
Equity securities - preferred 732 55 - 787
Held to maturity:
U.S. Treasury securities 3,804 91 - 3,895
--------------- -------------- ---------------- ---------------
$ 267,698 $ 4,443 $ (483) $ 271,658
=============== ============== ================ ===============
</TABLE>
33
<PAGE>
The amortized cost and estimated fair values of debt securities at December
31, 1998, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------- ------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Due in one year or less $ 12,597 $ 12,635 $ 617 $ 627
Due after one through five years 89,529 89,852 2,744 2,819
Due after five through ten years 83,619 84,304 - -
Due after ten years 37,095 37,514 - -
------------- ------------- -------------- -------------
222,840 224,305 3,361 3,446
Government agency mortgage-backed securities 68,291 68,791 - -
------------- ------------- -------------- -------------
$ 291,131 $ 293,096 $ 3,361 $ 3,446
============= ============= ============== =============
</TABLE>
At December 31, 1998, the insurance subsidiaries had fixed securities and
cash equivalents on deposit with various state insurance departments with
carrying values of approximately $3,361,000.
5. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements $ 3,877 $ 3,877
Building and building improvements 23,740 23,232
Computer equipment and software 13,052 10,594
Furniture and other equipment 13,137 12,281
--------------- ---------------
53,806 49,984
Less accumulated depreciation (18,450) (12,815)
--------------- ---------------
$ 35,356 $ 37,169
=============== ===============
</TABLE>
The Company recognized depreciation expense on property and equipment of
$5,450,000, $8,625,0000 and $1,425,000 in 1998, 1997 and 1996, respectively.
34
<PAGE>
6. DEBT
Notes payable consists of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------------------
(IN THOUSANDS)
<S> <C> <C>
Line of credit, commercial bank, adjusted periodically, interest payments
due quarterly through July 31, 2003 $ 45,158 $ -
Mortgage payable, commercial bank, 9.05% interest, monthly principal
payments of $100,000 plus interest through January 1, 2004 8,500 9,700
Notes payable, commercial bank, adjusted periodically, one year
note due March 31, 1999, interest payments due monthly 1,000 -
Promissory note, 8.00% interest, quarterly principal payments of
$47,000 plus interest through October 1, 2001 406 -
Subordinated notes, 7.75% interest, due July 1, 2000; retired
July 30, 1998 - 44,878
Note payable, BCBSUW, 1.25% in excess of LIBOR, adjusted quarterly - 70,000
--------------- ---------------
$ 55,064 $ 124,578
=============== ===============
</TABLE>
As further discussed in Note 2, the note payable to BCBSUW was assumed by
Newco/UWS in conjunction with the Distribution.
On July 31, 1998, the Company entered into a five year revolving bank line
of credit with a maximum commitment of $70,000,000, and a $10,000,000 sublimit
for swingline loans. Under the bank line of credit, the Company has the option
to select an interest rate at the Eurodollar rate or the alternate base rate.
The alternate base rate is the larger of the bank's corporate base rate of
interest or the federal funds rate plus 1/2% per annum. The swingline loans are
used for short term borrowing and are required to be repaid no later than 30
days after they are made. Swingline loans are charged the bank's daily floating
rate of interest. The agreement contains certain convenants which, among other
matters, require the Company to maintain a minimum tangible net worth and
restrict the Company's ability to incur additional debt, pay future cash
dividends and transfer assets. The aggregate commitment on the line of credit
must be reduced to $60,000,000, $50,000,000 and $35,000,000 on July 31, 2000,
July 31, 2001 and July 31, 2002, respectively.
During 1998 the Company borrowed $45,158,000 on the bank line of credit to
retire its subordinated notes outstanding. A six month Eurodollar rate of 6.00%
was selected on November 5, 1998 for the outstanding line of credit borrowings.
The weighted average interest rate on swingline loans as of December 31, 1998
was 7.75%. The mortgage payable is collateralized by the Company's home office
property located in Green Bay, Wisconsin.
The Company believes the carrying value of all notes payable approximates
their fair value. Future annual principal amounts due for all notes are
$2,222,000 for 1999, $1,392,000 for 2001, $11,358,000 for 2002 and $36,200,000
for 2003. During 1998, 1997 and 1996 interest paid totaled $6,971,000,
$9,320,000 and $5,105,000, respectively.
35
<PAGE>
7. RELATED-PARTY TRANSACTIONS
The Company has loans and advances receivable from employees, agents and
joint venture partners of $2,517,000 and $2,204,000 at December 31, 1998 and
1997, respectively. The Company has a deferred compensation payable to
executives of $1,421,000 and $1,288,000 for 1998 and 1997, respectively.
Prior to the Company's acquisition of Old AMS on December 3, 1996, the
Company ceded to Old AMS, on a quota share basis, approximately 50% of the
premium revenue on small group health care and life business sold by Old AMS. As
a result, the Company retained 50% of the premium revenue and 50% of the profit
(loss) on the products sold by Old AMS.
8. INCOME TAXES
The Company and most of its subsidiaries file a consolidated federal income
tax return. The Company and its subsidiaries file separate state franchise,
income and premium tax returns as applicable.
The Company had a net federal income tax payable of $620,000 and a net
federal income tax receivable of $1,373,000 at December 31, 1998 and 1997,
respectively. The Company and its subsidiaries have state net business loss
carryforwards totaling $45,622,000 at December 31, 1998, which expire in the
year 2013. Federal and state income tax payments related to continuing
operations, net of refunds, were $710,000 in 1998 and $3,534,000 in 1997, while
1996 netted a refund of $1,495,000.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 5,295 $ 1,965 $ (4,874)
State 1,091 292 (9)
-------------- -------------- --------------
6,386 2,257 (4,883)
Deferred:
Federal (5,522) (137) 962
State (2,732) (1,088) (219)
-------------- -------------- --------------
(8,254) (1,225) 743
-------------- -------------- --------------
Income Tax Expense (Benefit) from Continuing
Operations (1,868) 1,032 (4,140)
Income Tax Expense from Discontinued Operations 9,028 9,918 10,986
-------------- -------------- --------------
Total Income Tax Expense $ 7,160 $ 10,950 $ 6,846
============== ============== ==============
</TABLE>
36
<PAGE>
The differences between taxes computed at the federal statutory rate and
recorded income taxes attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense (benefit) at federal statutory rate $ (1,714) $ 904 $ (3,796)
Goodwill amortization 878 844 96
State income and franchise taxes, net of federal
benefit (1,066) (559) (140)
Other, net 34 (157) (300)
-------------- -------------- --------------
Tax Expense (Benefit) From Continuing Operations $ (1,868) $ 1,032 $ (4,140)
============== ============== ==============
</TABLE>
Significant components of the Company's federal and state deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------------- ----------------------------
Federal State Federal State
------------- -------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Intangibles $ (6,685) $ 759 $ (13,275) $ (3,263)
Unrealized gains on investments (669) - (1,316) -
Other taxable temporary differences (2,228) (147) (3,573) (105)
------------- -------------- -------------- -------------
(9,582) 612 (18,164) (3,368)
Deferred tax assets:
Advance premium discounting 1,203 5 1,354 -
Basis in minority-owned subsidiaries 1,317 313 1,031 249
Medical and other benefits payable discounting
1,415 51 1,300 27
Unearned income 1,172 226 1,699 327
Bad debt reserve and other non-deductible
liabilities 1,756 371 457 148
Specified policy acquisition costs 802 - 1,701 -
Depreciation and amortization 544 299 1,647 440
State net business loss carryforwards - 2,646 - 3,159
Other deductible temporary differences 286 38 804 390
------------- -------------- -------------- -------------
8,495 3,949 9,993 4,740
Valuation allowance (519) (2,135) - (1,277)
------------- -------------- -------------- -------------
7,976 1,814 9,993 3,463
------------- -------------- -------------- -------------
Net Deferred Tax Assets (Liabilities) $ (1,606) $ 2,426 $ (8,171) $ 95
============= ============== ============== =============
</TABLE>
The federal deferred benefit arising from the deductibility of state
deferred tax is included as a component of other federal deferred taxes. The net
deferred tax assets and liabilities are included in other assets and
liabilities, as applicable in the accompanying balance sheets.
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions and other contingencies
occurring in the normal course of its business. In the opinion of management,
adequate provision has been made for losses which may result from these actions
and, accordingly, the outcome of these matters is not expected to have a
material adverse effect on the consolidated financial statements.
37
<PAGE>
As of December 31, 1998, aggregate minimum rental commitments under
noncancelable leases amount to $3,193,000 in 1999, $2,292,000 in 2000,
$1,555,000 in 2001, $350,000 in 2002 and $58,000 in 2003.
10. SHAREHOLDERS' EQUITY
STATUTORY FINANCIAL INFORMATION
Insurance companies are subject to state insurance regulations. These
regulations require, among other matters, the filing of financial statements
prepared in accordance with statutory accounting practices prescribed or
permitted for insurance companies. The combined statutory surplus of the
Company's insurance subsidiaries, United Wisconsin Life Insurance Company and
American Medical Security Insurance Company of Georgia, at December 31, 1998 and
1997, was $183,288,000 and $176,518,000, respectively.
State insurance regulations also require the maintenance of a minimum
compulsory surplus based on a percentage of premiums written. At December 31,
1998, the Company's insurance subsidiaries were in compliance with these
compulsory regulatory requirements.
RESTRICTIONS ON DIVIDENDS FROM SUBSIDIARIES
Dividends paid by the insurance subsidiaries to the Company are limited by
state insurance regulations. The insurance regulator in the state of domicile
may disapprove any dividend which, together with other dividends paid by an
insurance company in the prior twelve months, exceeds the regulatory maximum as
computed for the insurance company based on its statutory surplus and net
income. Based upon the financial statements of the Company's insurance
subsidiaries as of December 31, 1998, as filed with the insurance regulators,
the aggregate amount available for dividends in 1999 without regulatory approval
is $18,329,000.
11. EMPLOYEE BENEFIT PLANS
STOCK BASED COMPENSATION PLANS
The Company has a stock-based compensation plan, Equity Incentive Plan (the
"Plan"), for the benefit of eligible employees of the Company. The Plan permits
the grant of nonqualified stock options ("NQSO"), incentive stock options, stock
appreciation rights, restricted stock awards and performance awards. Persons
eligible to participate in the Plan include all full-time active employees,
including employees who are members of the board of directors, but excluding
directors who are not employees. The Plan allows for the granting of up to
4,000,000 shares of which 1,121,303 shares are available for grant as of
December 31, 1998. No benefits other than NQSOs have been granted under the
plan.
The terms of incentive stock options and nonqualified stock options granted
under the Plan cannot exceed more than 10 and 12 years, respectively, and the
option exercise price generally cannot be less than the fair market value of the
Company's common stock on the date of grant. Incentive stock options and NQSOs
are not exercisable in any event prior to six months following the grant date.
Stock appreciation rights generally have a grant price at least equal to
100% of the fair market value of the Company's common stock. The term of the
stock appreciation rights cannot exceed 12 years. Stock appreciation rights are
not exercisable prior to six months following the grant date.
Restricted stock generally may not be sold or otherwise transferred for
certain periods based on the passage of time, the achievement of performance
goals or the occurrence of other events. However, participants may exercise full
voting rights and are entitled to receive all dividends and other distributions
with respect to restricted stock. Restricted stock does not vest prior to six
months following the date of grant.
On November 17, 1998, the Company and a key executive entered into a
deferred stock agreement. Under the agreement the Company has an obligation to
issue 73,506 shares of AMSG common stock provided the
38
<PAGE>
executive remains continuously employed with AMSG through November 17, 2002. The
Company incurred expense of $28,000 in 1998 related to this agreement.
The Company also has a Director Stock Option Plan which permits the grant
of NQSOs. As of December 31, 1998, 29,000 shares are available for grant.
Stock option activity for all plans is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
----------------- ------------------ -----------------
<S> <C> <C> <C>
TOTAL NUMBER OF NQSOS
Outstanding at beginning of year 2,217,307 2,244,459 394,404
Granted 874,560 184,500 1,863,259
Exercised (114,028) (204,152) -
Forfeited (20,000) (7,500) (13,204)
Spin-off related:
Conversion to UWS options (a) (351,322) - -
AMSG modification (b) 312,376 - -
----------------- ------------------ -----------------
Outstanding at end of year 2,918,893 2,217,307 2,244,459
================= ================== =================
Exercisable at end of year 2,365,893 1,908,449 2,029,557
Available for grant at end of year 1,150,303 403,541 580,541
WEIGHTED AVERAGE EXERCISE PRICE OF NQSOS
Outstanding at beginning of year $27.02 $25.00 $26.36
Granted - Exercise price equals market price on grant date 10.75 27.32 24.26
Granted - Exercise price is less than market price on grant date - - 11.05
Granted - Exercise price exceeds market price on grant date 12.00 - 32.83
Exercised 4.15 4.95 -
Forfeited 18.44 32.67 27.78
Outstanding at end of year 15.18 27.02 25.00
Exercisable at end of year 16.23 27.16 25.02
NQSOS BY EXERCISE PRICE RANGE
Exercise price $3.01 $4.66 $4.66
Weighted average exercise price $3.01 $4.66 $4.66
Weighted average remaining contractual life (years) 3.93 4.93 5.93
Exercisable at end of year 47,960 104,044 305,696
Weighted average exercise price of options exercisable at end of
year $3.01 $4.66 $4.66
Range of exercise prices $10.25 - $14.38 $18.13 - $26.63 $18.13 - $26.00
Weighted average exercise price $11.38 $22.91 $22.33
Weighted average remaining contractual life (years) 10.62 10.24 11.07
Exercisable at end of year 595,765 708,582 657,895
Weighted average exercise price of options exercisable at end of
year $12.01 $22.30 $22.25
Range of exercise prices $15.76 - $22.74 $28.00 - $37.13 $28.00 - $35.00
Weighted average exercise price $18.06 $32.39 $32.39
Weighted average remaining contractual life (years) 5.69 4.64 5.52
Exercisable at end of year 1,722,168 1,095,823 1,065,966
Weighted average exercise price of options exercisable at end of
year $18.06 $32.44 $32.56
(a) Effective on the date of the Distribution, certain AMSG stock options held
by Newco/UWS employees were converted to Newco/UWS stock options.
(b) Immediately following the Distribution, the number of options was increased
and exercise prices were decreased (the "modification") to preserve the
economic value of those options that existed just prior to the Distribution
for the holders of certain AMSG stock options.
</TABLE>
39
<PAGE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Since the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The Company follows Accounting Principles Board Opinion No. 25 under which
no compensation expense is recorded when the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant. The Company's pro forma information regarding net income and net
income per share has been determined as if these options had been accounted for
since January 1, 1995, in accordance with the fair value method of SFAS No. 123,
"Accounting for Stock-Based Compensation".
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
------------------- ------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma net income $ 6,484 $ 17,719 $ 8,862
Pro forma earnings per common share:
Basic $ 0.39 $ 1.08 $ 0.69
Diluted $ 0.39 $ 1.06 $ 0.67
</TABLE>
In determining compensation cost pursuant to SFAS No. 123, the fair value
for these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for 1998
and 1997, respectively: risk-free interest rates of 4.53% and 5.71%; dividend
yields of 0.00% and 1.78%; volatility factors of the expected market price of
the Company's common stock of 0.39 and 0.38; and a weighted average expected
life of the options of 3.55 and 6.03 years. As calculated using the
Black-Scholes model, the weighted average, grant-date fair value of options
granted in which the exercise price equaled the market price on the date of the
grant was $4.83 per share for 1998 and $10.66 per share for 1997 and 1996. The
weighted average grant-date fair value of options granted in which the exercise
price was less than the market price on the date of the grant was $7.37 per
share for 1998 and $1.29 per share for 1996. The weighted average grant-date
fair value of options granted in which the exercise price was greater than
market price on the date of the grant was $1.77 per share for 1998.
The pro forma disclosures only include the effect of options granted
subsequent to January 1, 1995. Accordingly, the effects of applying the SFAS No.
123 pro forma disclosures to future periods may not be indicative of future
effects.
RETIREMENT SAVINGS PLAN
The Company's employees are included in a defined contribution plan (the
"Retirement Savings Plan") with profit sharing and discretionary savings
provisions covering all eligible salaried and hourly employees. Beginning in
1998, participant contributions up to 6% of the participants compensation are
matched 50% by the Company. Profit sharing contributions to the Retirement
Savings Plan are determined annually by the Company. Participants vest in
company contributions over seven years. The Company recognized expense
associated with the Retirement Savings Plan of $1,449,000 and $1,044,000 in 1998
and 1997, respectively.
40
<PAGE>
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected continuing operations quarterly financial data for the years ended
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Quarter
------------ -------------------------- ------------ ------------
First Second Third Fourth Total
------------ ------------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1998
Total Revenues $ 245,840 $ 237,354 $ 237,409 $ 240,266 $ 960,869
Income (Loss) From Continuing
Operations 1,551 392 1,637 (6,608) (3,028)
Net Income (Loss) 6,391 1,266 5,926 (6,608) 6,975
Earnings (Loss) Per Common Share -
Basic (1)
Continuing Operations 0.09 0.03 0.10 (0.40) (0.18)
Discontinued Operations 0.29 0.05 0.26 - 0.60
Net Income (Loss) Per Common Share 0.38 0.08 0.36 (0.40) 0.42
Earnings (Loss) Per Common Share -
Diluted (1)
Continuing Operations 0.09 0.03 0.10 (0.40) (0.18)
Discontinued Operations 0.29 0.05 0.26 - 0.60
Net Income (Loss) Per Common Share 0.38 0.08 0.36 (0.40) 0.42
1997
Total Revenues $ 265,455 $ 253,376 $ 234,168 $ 252,525 $1,005,524
Income (Loss) From Continuing
Operations (831) 1,471 2,349 (1,434) 1,555
Net Income 3,370 5,563 6,411 2,806 18,150
Earnings (Loss) Per Common Share -
Basic (1)
Continuing Operations (0.05) 0.09 0.15 (0.09) 0.10
Discontinued Operations 0.26 0.25 0.24 0.26 1.01
Net Income Per Common Share 0.21 0.34 0.39 0.17 1.11
Earnings (Loss) Per Common Share -
Diluted (1)
Continuing Operations (0.05) 0.09 0.14 (0.09) 0.10
Discontinued Operations 0.26 0.25 0.24 0.26 1.00
Net Income Per Common Share 0.21 0.34 0.38 0.17 1.10
(1) The sum of the four quarters does not equal the earnings (loss) per common
share for the year due to the change in the number of shares outstanding
during the year.
</TABLE>
41
<PAGE>
13. SEGMENTS OF THE BUSINESS
The Company has two reportable segments: 1) health insurance products and
2) life insurance products. The Company's health insurance products consist of
the following coverages related to small group PPO products: fully insured
medical, self funded medical, dental and short-term disability. Life products
consist primarily of group term-life insurance. The "All Other" segment includes
operations not directly related to the business segments and unallocated
corporate items (i.e., corporate investment income, interest expense on
corporate debt, amortization of goodwill and intangibles and unallocated
overhead expenses). The Company's all other segment also includes data for its
80% owned HMO subsidiary. The reportable segments are managed separately because
they differ in the nature of the products offered and in profit margins.
The Company evaluates segment performance based on profit or loss from
continuing operations before income taxes, not including gains and losses on the
Company's investment portfolio. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. Intercompany transactions have been eliminated prior to
reporting reportable segment information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998:
Health Life Consolidated
Insurance Insurance All Other Total
-------------- --------------- -------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 865,187 $ 24,488 $ 24,342 $ 914,017
Net investment income 8,463 214 15,543 24,220
Other revenue 17,317 268 5,047 22,632
-------------- --------------- -------------- -----------------
890,967 24,970 44,932 960,869
Benefits and Expenses:
Medical and other benefits 663,775 7,713 20,279 691,767
Selling, general and
administrative expenses 223,976 7,839 10,258 242,073
Interest - - 7,691 7,691
Amortization of goodwill and other
intangibles - - 8,781 8,781
Write-off of intangible assets and
related charges - - 15,453 15,453
-------------- --------------- -------------- -----------------
887,751 15,552 62,462 965,765
-------------- --------------- -------------- -----------------
Income (loss) from continuing
operations, before income taxes $ 3,216 $ 9,418 $ (17,530) $ (4,896)
============== =============== ============== =================
As of December 31, 1998:
Segment assets $ 153,965 $ 3,753 $ 341,004 $ 498,722
============== =============== ============== =================
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997:
Health Life Consolidated
Insurance Insurance All Other Total
-------------- --------------- -------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 918,566 $ 28,942 $ 9,696 $ 957,204
Net investment income 11,256 298 12,517 24,071
Other revenue 22,437 241 1,571 24,249
-------------- -------------- --------------- -----------------
952,259 29,481 23,784 1,005,524
Benefits and Expenses:
Medical and other benefits 712,059 10,226 11,206 733,491
Selling, general and
administrative expenses 233,613 8,907 9,640 252,160
Interest - - 9,311 9,311
Amortization of goodwill and other
intangibles - - 7,975 7,975
-------------- -------------- --------------- -----------------
945,672 19,133 38,132 1,002,937
-------------- -------------- --------------- -----------------
Income (loss) from continuing
operations, before income taxes $ 6,587 $ 10,348 $ (14,348) $ 2,587
============== ============== =============== =================
As of December 31, 1997:
Segment assets $ 158,008 $ 4,142 $ 362,370 $ 524,520
============== ============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996:
Health Life Consolidated
Insurance Insurance All Other Total
-------------- --------------- -------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 562,091 $ 33,613 $ 395 $ 596,099
Net investment income 8,821 218 15,531 24,570
Other revenue 2,369 29 537 2,935
-------------- --------------- -------------- -----------------
573,281 33,860 16,463 623,604
Benefits and Expenses:
Medical and other benefits 453,576 18,409 334 472,319
Selling, general and
administrative expenses 144,973 5,214 6,949 157,136
Interest - - 4,325 4,325
Amortization of goodwill and other
intangibles - - 670 670
-------------- --------------- -------------- -----------------
598,549 23,623 12,278 634,450
-------------- --------------- -------------- -----------------
Income (loss) from continuing
operations, before income taxes $ (25,268) $ 10,237 $ 4,185 $ (10,846)
============== =============== ============== =================
As of December 31, 1996:
Segment assets $ 173,055 $ 5,793 $ 390,548 $ 569,396
============== =============== ============== =================
</TABLE>
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item with respect to directors and executive
officers is incorporated herein by reference to the information included under
the headings "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement, to be dated
April 14, 1999, relating to the 1999 Annual Meeting of Shareholders currently
scheduled for May 27, 1999 (the "1999 Proxy Statement") and the information
under the heading "Executive Officers of the Registrant" in Part I of this
report. The 1999 Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is incorporated herein by reference to
the information included under the headings "Executive Compensation" and
"Election of Directors -- Compensation of Directors" in the 1999 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item is included under the heading "Security
Ownership of Certain Beneficial Owners and Management" in the 1999 Proxy
Statement, which section is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item is included under the heading "Certain
Transactions" in the 1999 Proxy Statement, which section is hereby incorporated
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1 AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
REPORT
<S> <C>
The following consolidated financial statements of American Medical Security
Group, Inc. and subsidiaries are included in Item 8:
Report of Independent Auditors.................................................................... 22
Consolidated Balance Sheets at December 31, 1998 and 1997......................................... 23
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996............ 25
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
for the years ended December 31, 1998, 1997, and 1996.......................................... 26
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996........ 27
Notes to Consolidated Financial Statements........................................................ 28
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
REPORT
<S> <C>
The following financial statement schedules of American Medical Security Group,
Inc. and subsidiaries are included in Item 14(d):
Schedule II - Condensed Financial Information of Registrant................................. 46
Schedule III - Supplementary Insurance Information.......................................... 49
Schedule IV - Reinsurance................................................................... 50
Schedule V - Valuation and Qualifying Accounts.............................................. 51
</TABLE>
All other schedules for which provision is made in applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
3. EXHIBITS
See the Exhibit Index following the Signature page of this report, which is
incorporated herein by reference. Each management contract and compensatory plan
or arrangement required to be filed as an exhibit to this report is identified
in the Exhibit Index by an asterisk following its exhibit number.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
(C) EXHIBITS
See the Exhibit Index following the Signature page of this report.
(D) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules referenced in Item 14(a) are as follows.
45
<PAGE>
<TABLE>
SCHEDULE II
AMERICAN MEDICAL SECURITY GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
<CAPTION>
December 31,
1998 1997
---------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 128 $ -
Other Assets:
Investment in consolidated subsidiaries 300,262 306,530
Goodwill and other intangibles, net 21,355 21,919
Other assets 1,421 1,528
----------------- -----------------
Total Other Assets 323,038 329,977
Net Assets of Discontinued Operations - 123,616
----------------- -----------------
Total Assets $ 323,166 $ 453,593
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 45,158 $ 114,878
Taxes payable 6,995 10,819
Payables and accrued expenses 532 41
Due to affiliates 3,158 -
Other liabilities 872 1,478
----------------- -----------------
Total Liabilities 56,715 127,216
Shareholders' Equity:
Common stock 16,653 16,510
Paid-in capital 188,981 186,768
Retained earnings 59,572 117,331
Accumulated other comprehensive income 1,245 5,768
----------------- -----------------
Total Shareholders' Equity 266,451 326,377
----------------- -----------------
Total Liabilities and Shareholders' Equity $ 323,166 $ 453,593
================= =================
</TABLE>
46
<PAGE>
<TABLE>
SCHEDULE II
AMERICAN MEDICAL SECURITY GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------- --- -------------- ---- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Fees from consolidated subsidiaries $ 2,013 $ 2,303 $ 213
Net investment income - - 1,054
Other 35 - -
--------------- -------------- --------------
Total revenues 2,048 2,303 1,267
Expenses:
General and administrative 888 1,620 3,242
Interest 5,960 8,371 4,043
Amortization of goodwill and intangibles 563 278 44
--------------- -------------- --------------
Total expenses 7,411 10,269 7,329
--------------- -------------- --------------
Loss from continuing operations before income tax
benefit and equity in net income of subsidiaries (5,363) (7,966) (6,062)
Income tax benefit (1,793) (3,031) (2,314)
--------------- -------------- --------------
Loss from continuing operations before
equity in net income (loss) of subsidiaries (3,570) (4,935) (3,748)
Equity in net income (loss) of subsidiaries 542 6,490 (2,958)
--------------- -------------- --------------
Income (loss) from continuing operations (3,028) 1,555 (6,706)
Income from discontinued operations, less
applicable income taxes 10,003 16,595 16,909
--------------- -------------- --------------
Net income $ 6,975 $ 18,150 $ 10,203
=============== ============== ==============
</TABLE>
47
<PAGE>
<TABLE>
SCHEDULE II
AMERICAN MEDICAL SECURITY GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------- --- -------------- ---- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (3,028) $ 1,555 $ (6,706)
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
(used in) operating activities:
Equity in the net (income) loss of subsidiaries (542) (6,490) 2,958
Dividends received (contributed to) subsidiaries 5,000 (10,330) -
Amortization of intangibles 563 278 44
Deferred income tax benefit (772) (407) 11,246
Changes in operating accounts:
Net other assets and liabilities 596 5,718 8,916
--------------- -------------- --------------
Net cash provided by (used in)
operating activities 1,817 (9,676) 16,458
INVESTING ACTIVITIES:
Acquisition of subsidiaries - - (195,751)
Investment in subsidiaries - (1,500) (66,677)
Proceeds from sale of security investments - - 70,000
--------------- -------------- --------------
Net cash used in investing activities - (1,500) (192,428)
FINANCING ACTIVITIES:
Cash dividends paid (5,956) (7,892) (6,491)
Issuance of common stock 2,356 2,965 98,720
Proceeds from noted payable borrowings 45,158 - -
Repayment of notes payable (44,878) (10) (10)
Proceeds from notes with affiliate - - 70,000
--------------- -------------- --------------
Net cash provided by (used in)
financing activities (3,320) (4,937) 162,219
Net cash provided by discontinued operations 1,631 16,113 13,751
--------------- -------------- --------------
Cash and cash equivalents:
Net increase (decrease) during year 128 - -
Balance at beginning of year - - -
--------------- -------------- --------------
Balance at end of year $ 128 $ - $ -
=============== ============== ==============
</TABLE>
48
<PAGE>
<TABLE>
SCHEDULE III
AMERICAN MEDICAL SECURITY GROUP, INC.
SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
Deferred Policy Medical and Other
Acquisition Other Benefits Advance Policyholder
Segment Costs Payable Premiums Funds
- ------------------------------ ---------------- ----------------- ----------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Health $ - $ 106,427 $ 16,778 $ -
Life - 2,189 927 -
All Other - 4,517 452 -
---------------- ----------------- ----------------- ----------------
Total $ - $ 113,133 $ 18,157 $ -
================ ================= ================= ================
DECEMBER 31, 1997:
Health $ - $ 118,730 $ 19,350 $ -
Life - 3,632 636 -
All Other - 4,520 - -
---------------- ----------------- ----------------- ----------------
Total $ - $ 126,882 $ 19,986 $ -
================ ================= ================= ================
DECEMBER 31, 1996:
Health $ - $ 151,561 $ 24,528 $ -
Life - 4,933 943 -
All Other - 2,569 - -
---------------- ----------------- ----------------- ----------------
Total $ - $ 159,063 $ 25,471 $ -
================ ================= ================= ================
</TABLE>
<TABLE>
<CAPTION>
Amortization
Medical and of Deferred
Net Other Policy Other
Premium Investment Benefit Acquisition Operating Premiums
Segment Revenue Income Expenses Costs Expenses Written
- ------------------------------ ------------- -------------- ------------- -------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1998:
Health $ 865,187 $ 8,463 $ 663,775 $ - $ 223,976 $ 862,615
Life 24,488 214 7,713 - 7,839
All Other 24,342 15,543 20,279 - 10,258 24,794
------------- -------------- ------------- -------------- -------------
Total $ 914,017 $ 24,220 $ 691,767 $ - $ 242,073
============= ============== ============= ============== =============
1997:
Health $ 918,566 $ 11,256 $ 712,059 $ - $ 233,613 $ 913,388
Life 28,942 298 10,226 - 8,907
All Other 9,696 12,517 11,206 - 9,640 9,696
------------- -------------- ------------- -------------- -------------
Total $ 957,204 $ 24,071 $ 733,491 $ - $ 252,160
============= ============== ============= ============== =============
1996:
Health $ 562,091 $ 8,821 $ 453,576 $ - $ 144,973 $ 568,312
Life 33,613 218 18,409 - 5,214
All Other 395 15,531 334 - 6,949 395
------------- -------------- ------------- -------------- -------------
Total $ 596,099 $ 24,570 $ 472,319 $ - $ 157,136
============= ============== ============= ============== =============
</TABLE>
49
<PAGE>
<TABLE>
SCHEDULE IV
AMERICAN MEDICAL SECURITY GROUP, INC.
REINSURANCE
<CAPTION>
Percentage
Ceded to Assumed from of Amount
Direct Other Other Net Assumed
Business Companies Companies Amount to Net
--------------- --------------- --------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Life insurance in force $ 13,467,780 $ 9,670,800 $ - $ 3,796,980
Premiums:
Accident and Health 859,560 14,680 44,649 889,529 5.0%
Life 26,337 2,256 407 24,488 1.7%
--------------- --------------- --------------- --------------
Total Premiums 885,897 16,936 45,056 914,017 4.9%
YEAR ENDED DECEMBER 31, 1997
Life insurance in force $ 11,750,841 $ 9,320,314 $ 2,033,624 $ ,464,151 45.6%
Premiums:
Accident and Health 878,369 3,097 52,990 928,262 5.7%
Life 29,527 585 - 28,942 -
--------------- --------------- --------------- --------------
Total Premiums 907,896 3,682 52,990 957,204 5.5%
YEAR ENDED DECEMBER 31, 1996
Life insurance in force $ 17,187,431 $ 321,528 $ - $ 16,865,903 -
Premiums:
Accident and Health 1,014,589 478,575 26,472 562,486 4.7%
Life 42,545 19,808 10,876 33,613 32.4%
--------------- --------------- --------------- --------------
Total Premiums 1,057,134 498,383 37,348 596,099 6.3%
</TABLE>
50
<PAGE>
<TABLE>
SCHEDULE V
AMERICAN MEDICAL SECURITY GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Balance at Additions
Beginning Charged to Cost Balance at End
of Period and Expenses Deductions of Period
---------------- ----------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Write-down of intangible asset $ - $ 12,833 $ 12,833 $ -
Allowance for bad debts 1,061 84 27 1,118
Valuation allowance for deferred taxes (a) 1,277 1,555 178 2,654
---------------- ----------------- ---------------- -----------------
Total $ 2,338 $ 14,472 $ 13,038 $ 3,772
================ ================= ================ =================
YEAR ENDED DECEMBER 31, 1997
Allowance for bad debts $ 1,439 $ 140 $ 518 $ 1,061
Valuation allowance for deferred taxes 636 641 - 1,277
---------------- ----------------- ---------------- -----------------
Total $ 2,075 $ 781 $ 518 $ 2,338
================ ================= ================ =================
YEAR ENDED DECEMBER 31, 1996
Allowance for bad debts (b) $ - $ 1,439 $ - $ 1,439
Valuation allowance for deferred taxes 294 342 - 636
================ ================= ================ =================
Total $ 294 $ 1,781 $ - $ 2,075
================ ================= ================ =================
(a) A valuation allowance for deferred taxes of approximately $1.5 million was
established in the first quarter of 1998 upon the consolidation of a
subsidiary previously accounted for under the equity method.
(b) Allowance for bad debts of $1.4 million was established with the purchase
of American Medical Security Group, Inc. ("Old AMS") on December 3, 1996.
</TABLE>
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICAN MEDICAL SECURITY GROUP, INC.
By: /s/ SAMUEL V. MILLER
-----------------------------
Samuel V. Miller, Chairman, President,
and Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.*
SIGNATURE TITLE
/s/ SAMUEL V. MILLER Chairman of the Board, President and Chief Executive
Samuel V. Miller Officer; Director
/s/ GARY D. GUENGERICH Executive Vice President and Chief Financial Officer
Gary D. Guengerich (Principal Financial Officer and Principal
Accounting Officer)
/s/ ROGER H. BALLOU Director
Roger H. Ballou
/s/ W. FRANCIS BRENNAN Director
W. Francis Brennan
/s/ JAMES C. HICKMAN Director
James C. Hickman
/s/ WILLIAM R. JOHNSON Director
William R. Johnson
/s/ EUGENE A. MENDEN Director
Eugene A. Menden
/s/ MICHAEL T. RIORDAN Director
Michael T. Riordan
/s/ FRANK L. SKILLERN Director
Frank L. Skillern
/s/ J. GUS SWOBODA Director
J. Gus Swoboda
- ---------------
*Each of the above signatures is affixed as of March 26, 1999.
52
<PAGE>
<TABLE>
<CAPTION>
EX-4
AMERICAN MEDICAL SECURITY GROUP, INC.
(COMMISSION FILE NO. 1-13154)
EXHIBIT INDEX
TO
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C>
EXHIBIT NUMBER INCORPORATED HEREIN FILED
DOCUMENT DESCRIPTION BY REFERENCE TO HEREWITH
2.1 Distribution and Indemnity Agreement Exhibit 2.1 to Newco/UWS'
between the United Wisconsin Registration Statement on Form 10,
Services, Inc., now known as as amended (File No. 1-14177)
American Medical Security Group,
Inc. ("AMSG f/k/a UWS or
Registrant") and Newco/UWS, Inc.
("Newco/UWS") dated as of September
11, 1998
2.2 Employee Benefits Agreement dated as Exhibit 10.1 to Newco/UWS'
of September 11, 1998, by and Registration Statement on Form 10,
between AMSG f/k/a UWS and Newco/UWS as amended (File No. 1-14177)
2.3 Tax Allocation Agreement, entered Exhibit 10.2 to Newco/UWS'
into as of September 11, 1998, by Registration Statement on Form 10,
and between AMSG f/k/a UWS and as amended (File No. 1-14177)
Newco/UWS
3.1 Restated Articles of Incorporation X
of Registrant dated as February 17,
1999
3.2 Bylaws of Registrant as amended and X
restated February 17, 1999
4.1 Amended and Restated Credit Exhibit 4 to the Registrant's Form
Agreement dated as of October 15, 10-Q for the quarter ended
1998 among the Registrant, United September 30, 1998 (the "9/30/98
Wisconsin Life Insurance Company and 10-Q")
the First National Bank of Chicago
and other Lenders
4.2 Dividend Reinvestment and Direct Exhibit 4.1 to AMSG f/k/a UWS' Form
Stock Purchase Plan S-3 Registration Statement
(No. 333-29425)
10.1* Equity Incentive Plan as amended and X
restated March 15, 1999
10.2* Form of Nonqualified Stock Option X
Award Agreement
EX-1
<PAGE>
10.3* Deferred Stock Agreement between the X
Registrant and Samuel V. Miller
10.4* 1995 Director Stock Option Plan as Exhibit 10.2 to the 9/30/98 10-Q
amended and restated September 25,
1998
10.5* Deferred Compensation Plan for Exhibit 10.3 to the 9/30/98 10-Q
Directors as amended and restated
September 25, 1998
10.6* Voluntary Deferred Compensation Plan Exhibit 10.47 to AMSG f/k/a UWS'
Form 10-K for the year ended
December 31, 1998 (the "1998 10-K")
10.7* Deferred Compensation Trust Exhibit 10.48 to the 1998 10-K
10.8* Executive Reimbursement Group X
Insurance Policy
10.9* Change of Control Severance Benefit Exhibit 10.4 to the 9/30/98 10-Q
Plan
10.10* Severance Benefit for Certain X
Executive Officers
10.11* Executive Management Incentive Plan X
10.12* Employment and Noncompetition Exhibit 10.1 to the AMSG f/k/a UWS'
Agreement of Samuel V. Miller dated Form 10-Q for the quarter ended
April 7, 1998 March 31, 1998
10.13* Amendment No. 1 to Employment and X
Noncompetition Agreement of Samuel
V. Miller dated as of September 25,
1998
10.14* Employment Agreement of Scott X
Westphal dated August 21, 1996
10.15 Employment and Noncompetition Exhibit 4.1 to the AMSG f/k/a UWS'
Agreement between American Medical Form 10-K for the year ended
Security Holdings, Inc. and Wallace December 31, 1996 (the "1996 10-K")
J. Hilliard
EX-2
<PAGE>
10.16 Employment and Noncompetition Exhibit 4.2 to the 1996 10-K
Agreement between American Medical
Security Holdings, Inc. and Ronald
A. Weyers
10.17 Settlement Agreement between AMSG Exhibit 10.3 to Newco/UWS'
f/k/a UWS, Wallace J. Hilliard and Registration Statement on Form 10,
Ronald A. Weyers dated April 1, 1998 as amended (File No. 1-14177)
10.18 Registration Rights and Stock Exhibit 2.1 to AMSG f/k/a UWS'
Restriction Agreement between AMSG Registration Statement on Form S-4,
f/k/a UWS, Wallace J. Hilliard and as amended (No. 333-10935)
Ronald A. Weyers dated December 3,
1996
10.19 Registration Rights Agreement X
between the Registrant and Blue
Cross Blue Shield United of
Wisconsin ("BCBSUW") dated as of
September 1, 1998
10.20 Agreement for Electronic Data Exhibit 10.20 to AMSG f/k/a UWS'
Processing Services between BCBSUW Registration Statement on Form S-1,
and EDS Federal Corporation (as as amended (No. 33-42571) and
amended). As amended by Settlement Exhibit 10.20 to AMSG f/k/a UWS'
Agreement and Amendment No. 5 dated Registration Statement on Form S-1
October 19, 1992. (No. 33-59798)
10.21* BCBSUW/UWS Long Term Incentive Plan Exhibit 10.44 to AMSG f/k/a UWS'
(1997-1999) Form 10-K for the year ended
December 31, 1997 ("1997 10-K")
10.22* BCBSUW/UWS Long Term Incentive Plan Exhibit 10.25 to 1996 10-K
(1996-1998)
10.23 Various service agreements between Exhibits 10.13 to 10.25 and Exhibit
BCBSUW and AMSG f/k/a UWS and/or its 10.27 to the 1998 10-K
subsidiaries (assigned to Newco/UWS)
21 Subsidiaries of the Registrant X
23 Consent of Ernst & Young LLP X
27.1 Financial Data Schedule X
27.2 Restated Financial Data Schedule (12 X
months ended 12/31/97)
EX-3
<PAGE>
27.3 Restated Financial Data Schedule (12 X
months ended 12/31/96)
* Indicates compensatory plan or arrangement.
</TABLE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN MEDICAL SECURITY GROUP, INC.
The following Restated Articles of Incorporation, duly adopted pursuant to
the authority and provisions of Chapter 180 of the Wisconsin Statutes, supersede
and take the place of the existing Articles of Incorporation and all amendments
thereto:
ARTICLE I - NAME
The name of the corporation shall be AMERICAN MEDICAL SECURITY GROUP, INC.
ARTICLE II - PURPOSES
The purposes of this Corporation are to engage in any lawful activity
within the purposes for which corporations may be organized under the Wisconsin
Business Corporation Law, Chapter 180 of the Wisconsin Statutes.
ARTICLE III - CAPITAL STOCK
a. The aggregate number of authorized shares of Common Stock of the
Corporation shall be Fifty Million (50,000,000) shares, designed as "Common
Stock", and having no par value per share.
b. The aggregate number of authorized shares of Preferred Stock of the
Corporation shall be Five Hundred Thousand (500,000) shares, designed as
"Preferred Stock", and having no par value per share. Authority is hereby vested
in the Board of Directors from time to time to issue the Preferred Stock as
Preferred Stock in one or more series of any number of shares and, in connection
with the creation of each such series, to fix, by resolution providing for the
issue of shares thereof, the voting rights, if any; the designations,
preferences, limitations and relative rights of such series in respect to the
rate of dividend, the price, the terms and conditions of redemption; the amounts
payable upon such series in the event of voluntary or involuntary liquidation;
sinking fund provisions for the redemption or purchase of such series of shares;
and, if the shares of any series are issued with the privilege of conversion,
the terms and conditions on which such series of shares may be converted. In
addition to the foregoing, to the full extent now or hereafter permitted by
Wisconsin law, in connection with each issue thereof, the Board of Directors may
at its discretion assign to any series of the Preferred Stock such other terms,
conditions, restrictions, limitations, rights and privileges as it may deem
appropriate. The aggregate number of preferred shares issued and not canceled of
any and all preferred series shall not exceed the total number of shares of
Preferred Stock hereinabove authorized. Each series of Preferred Stock shall be
distinctively designated by letter or descriptive words or both.
Pursuant to the authority expressly granted and vested in the Board of
Directors of the Corporation and in accordance with the provisions of the
Restated and Amended Articles of Incorporation, as amended as of July 31, 1991,
the Board of Directors hereby designates 25,000 shares of the Corporation's
authorized and unissued Preferred Stock, no par value per share, as Series A
Adjustable Rate Nonconvertible Preferred Stock, $1,000 stated value per share,
which shall have the following powers, designations, preferences and relative
participating, optional or other special rights and qualifications, limitations
or restrictions:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as the "Series A Adjustable Rate Nonconvertible Preferred Stock" and
the number of shares constituting such series shall be Twenty Five Thousand
(25,000), which number, subject to the Restated and Amended Articles of
Incorporation, may be increased or decreased by the Board of Directors without a
vote of the shareholders; PROVIDED, HOWEVER, such number may not be decreased
below the number of the then currently outstanding shares of Series A Adjustable
Rate Nonconvertible Preferred Stock plus the number of shares that may be
reserved for issuance upon the exercise of any options, warrants, or rights or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Adjustable Rate Nonconvertible Preferred Stock. Upon
the issuance of any shares of Series A Adjustable Rate Nonconvertible Preferred
Stock, an amount equal to the aggregate stated value of the shares so issued
will be assigned to the capital of the Corporation representing such shares.
SECTION 2. FRACTIONAL SHARES. The Corporation may issue fractions and
certificates representing fractions of a share of Series A Adjustable Rate
Nonconvertible Preferred Stock in integral multiples of one one-thousandth
(1/1000) of a share of Series A Adjustable Rate Nonconvertible Preferred Stock.
In the event that fractional shares of Series A Adjustable Rate Nonconvertible
Preferred Stock are issued, the holders thereof shall have all the rights
provided herein for holders of full shares of Series A Adjustable Rate
Nonconvertible Preferred Stock in the proportion which such fraction bears to a
full share.
SECTION 3. VOTING RIGHTS. Except as required by law, holders of shares of
Series A Adjustable Rate Nonconvertible Preferred Stock shall have no right to
vote.
SECTION 4. CONVERSION OR EXCHANGE. The holders of shares of Series A
Adjustable Rate Nonconvertible Preferred Stock shall not have any right to
convert such shares into or exchange such shares for shares of any other class
or classes or any other series of any class or classes of capital stock of the
Corporation.
SECTION 5. DIVIDENDS.
A. When and as declared by the Board of Directors, the Corporation
shall pay, out of any funds legally available for the payment of dividends,
cumulative cash dividends to the holders of the shares of Series A
Adjustable Rate Nonconvertible Preferred Stock from the date of issuance as
provided in this paragraph. The dividend rate on the shares of Series A
Adjustable Rate Nonconvertible Preferred Stock shall be fixed on a yearly
basis ("Yearly Dividend Period") and shall be payable quarterly, out of any
funds legally available for the payment of dividends, in cash on March 31,
June 30, September 30 and December 31 in each year ("Quarterly Dividend
Period"). The dividend rate for each Yearly Dividend Period, payable each
Quarterly Dividend Period in that year, shall be at a rate per annum equal
to the Applicable Rate (as defined in Section 5(B)). Such dividends shall
be cumulative from the date of original issuance of such shares of Series A
Adjustable Rate Nonconvertible Preferred Stock and shall be payable out of
funds legally available therefor, when and as declared by the Board of
Directors in March, June, September and December of each year. Such
dividends will accrue whether or not they have been declared and whether or
not there are funds of the Corporation legally available for the payment of
dividends. Each of such dividends shall be paid to the holders of record of
shares of Series A Adjustable Rate Nonconvertible Preferred Stock as they
appear on the stock register of the Corporation on such record date as
shall be fixed by the Board of Directors or a committee of the Board of
Directors duly authorized to fix such date. Dividends on account of arrears
(accrued but not declared) for any past Quarterly Dividend Period may be
declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date as may be fixed by the
Board of Directors or a committee of the Board of Directors duly authorized
to fix such date. If at any time the Corporation pays less than the total
amount of dividends then accrued with respect to the shares of Series A
Adjustable Rate Nonconvertible Preferred Stock, such payment shall be
distributed ratably among the holders of Series A Adjustable Rate
Nonconvertible Preferred Stock based upon the aggregate accrued but unpaid
dividends on the shares held by each such holder.
B. The "Applicable Rate" for any Yearly Dividend Period shall be the
Treasury Bill Rate plus 150 basis points. The "Treasury Bill Rate" for each
Yearly Dividend Period shall be the weekly per annum market discount rate
for one-year U.S. Treasury bills, as published weekly by the Federal
Reserve Board, during the last full week in the month of September in the
year prior to the Yearly Dividend Period for which the Applicable Rate is
being determined. In the event the Federal Reserve Board does not publish
such a weekly per annum market discount rate for one-year U.S. Treasury
bills during the last full week in the month of September in the year prior
to the Yearly Dividend Period for which the Applicable Rate is being
determined, then the Applicable Rate shall mean the weekly per annum market
discount rate for one-year U.S. Treasury bills as published weekly by any
Federal Reserve Bank or by any U.S. Government department or agency
selected by the Corporation, during the last full week in the month of
September in the year prior to the Yearly Dividend Period for which the
Applicable Rate is being determined. In the event the Corporation
determines in good faith that for any reason no such U.S. Treasury bill
rates are published as provided above during the last full week in the
month of September in the year prior to the Yearly Dividend Period for
which the Applicable Rate is being determined, then the Applicable Rate
shall be the average weekly per annum market discount rate for one-year
U.S. Treasury bills, as quoted to the Corporation by a recognized U.S.
Government securities dealer selected by the Corporation. Anything herein
to the contrary notwithstanding, the Applicable Rate for any Yearly
Dividend Period shall in no event be less than 7.00% or greater than 10.00%
per annum.
C. The Applicable Rate shall be rounded to the nearest one thousandth
(1/1000) of a percentage point.
D. Dividends payable on the Series A Adjustable Rate Nonconvertible
Preferred Stock for each full Quarterly Dividend Period shall be computed
by annualizing the Applicable Rate and dividing by four and multiplying the
quotient so obtained by the stated value per share of the Series A
Adjustable Rate Nonconvertible Preferred Stock. Dividends payable on the
Series A Adjustable Rate Nonconvertible Preferred Stock for any period less
than a full Quarterly Dividend Period shall be computed on the basis of a
360-day year of 30-day months and the actual number of days elapsed in the
period for which dividends are payable.
E. Holders of shares of Series A Adjustable Rate Nonconvertible
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends on the
Series A Adjustable Rate Nonconvertible Preferred Stock as provided in this
Section 5. Accrued but unpaid dividends shall not bear interest, and no
interest, or sum of money in lieu of interest, shall be payable in respect
of any dividend payment or payments on the Series A Adjustable Rate
Nonconvertible Preferred Stock which may be in arrears.
F. Anything herein to the contrary notwithstanding, dividends may be
declared and paid upon any of the equity securities of the Corporation even
if all accrued dividends on the Series A Adjustable Rate Nonconvertible
Preferred Stock have not yet been declared and/or paid in full.
SECTION 6. LIQUIDATION. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Series A
Adjustable Rate Nonconvertible Preferred Stock will be entitled to be paid,
whether from capital or surplus, before any distribution or payment is made upon
the then outstanding shares of Common Stock or any other class of stock of the
Corporation ranking junior to the Series A Adjustable Rate Nonconvertible
Preferred Stock upon liquidation, an amount in cash equal to the stated value
of, together with all accrued but unpaid dividends on, the Series A Adjustable
Rate Nonconvertible Preferred Stock (the "Liquidation Price"). To the extent any
accrued dividends have not been paid by the Corporation as of the date the
Corporation pays to the holders of the shares of Series A Adjustable Rate
Nonconvertible Preferred Stock the Liquidation Price hereunder, and to the
extent the Corporation has at that time funds legally available for the payment
of dividends, the Board of Directors shall, prior to the payment of the
Liquidation Price, declare and cause such dividends to be paid. If upon any such
liquidation, dissolution, or winding up of the Corporation, the Corporation's
assets to be distributed among the holders of the shares of Series A Adjustable
Rate Nonconvertible Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid, then the
entire assets to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Price of the shares of Series A Adjustable
Rate Nonconvertible Preferred Stock held by each such holder. Upon receipt of
the aggregate Liquidation Price for each share of Series A Adjustable Rate
Nonconvertible Preferred Stock, holders of shares of Series A Adjustable Rate
Nonconvertible Preferred Stock shall have no further rights to participate in
any liquidation, dissolution or winding up of the Corporation.
SECTION 7. RANKING OF CLASSES OF STOCK. The Series A Adjustable Rate
Nonconvertible Preferred Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets in liquidation, unless the terms of any such series shall
provide otherwise. Nothing contained herein shall be deemed to restrict the
ability of the Corporation to create and issue additional classes or series of
its Preferred Stock or other capital stock ranking senior or junior to, or on a
parity with, the Series A Adjustable Rate Nonconvertible Preferred Stock as to
the payment of dividends or the distribution of assets upon liquidation, or
both. Specifically, any stock of any class or classes of the Corporation shall
be deemed to rank:
i. prior to the shares of Series A Adjustable Rate Nonconvertible
Preferred Stock, either as to dividends or upon liquidation, if the
holders of such class or classes shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in preference of or
in priority to the holders of shares of Series A Adjustable Rate
Nonconvertible Preferred Stock;
ii. on a parity with shares of Series A Adjustable Rate
Nonconvertible Preferred Stock, either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment rates
or redemption or liquidation prices per share or sinking fund
provisions, if any, are different from those of the Series A
Adjustable Rate Nonconvertible Preferred Stock, if the holders of such
stock shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in proportion to their respective
dividend rates or liquidation prices, without preference or priority,
one over the other, as between the holders of such stock and the
holders of shares of Series A Adjustable Rate Nonconvertible Preferred
Stock; and
iii. junior to shares of Series A Adjustable Rate Nonconvertible
Preferred Stock, either as to dividends or upon liquidation, if such
class shall be Common Stock or if the holders of shares of Series A
Adjustable Rate Nonconvertible Preferred Stock shall be entitled to
receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in
preference of or priority to the holders of shares of such class or
classes.
SECTION 8. REDEMPTION OF SHARES.
A. The shares of Series A Adjustable Rate Nonconvertible Preferred
Stock shall be subject to the following redemption rights:
i. At any time or from time to time following issuance, the
Corporation, at its option, may redeem shares of Series A Adjustable
Rate Nonconvertible Preferred Stock in whole or in part. The
redemption price per share in such event shall be paid in cash and
shall be equal to the greater of the following: (aa) $1,000, plus in
each case an amount equal to accrued (whether or not declared) and
unpaid dividends to the redemption date (out of funds legally
available therefor); or (bb) the fair market value per share as of the
end of the quarter preceding the quarter during which the redemption
is to occur, as determined in good faith by the Board of Directors in
accordance with a written appraisal which is prepared by an
independent appraiser selected by the Board and which meets the
requirements of applicable law. Upon the date of notice to the holder
of shares of Series A Adjustable Rate Nonconvertible Preferred Stock
of the Corporation's election to redeem shares, notwithstanding that
any certificates for such shares have not been surrendered for
cancellation, the shares of Series A Adjustable Rate Nonconvertible
Preferred Stock represented thereby shall no longer be deemed
outstanding, the rights to receive dividends thereon shall cease to
accrue from and after the date of notice and all rights of the holder
of shares so redeemed shall cease and terminate, excepting only the
right to receive the redemption price therefor; and
ii. The Corporation shall redeem shares of Series A Adjustable
Rate Nonconvertible Preferred Stock which are beneficially owned by
any of its employees, or employees of any of the Corporation's
Affiliates, pursuant to the Corporation's or any of its Affiliates'
employees pre-tax savings plans (the "401(k) Plans"), immediately
prior to any distribution or withdrawal of shares of Series A
Adjustable Rate Nonconvertible Preferred Stock from any of the 401(k)
Plans for any reason. For purposes of this Section 8, an "Affiliate"
of the Corporation means a "person" that directly, or through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the Corporation, and a "person" means an individual, a
corporation, a partnership, an associate, a joint-stock company, a
business trust or an unincorporated organization. The redemption price
per share in such event shall be paid in cash and shall be equal to
the greater of the following: (aa) $1,000, plus in each case an amount
equal to accrued (whether or not declared) and unpaid dividends to the
redemption date (out of funds legally available therefor); or (bb) the
fair market value per share as of the end of the quarter preceding the
quarter during which the redemption is to occur, as determined in good
faith by the Board of Directors in accordance with a written appraisal
which is prepared by an independent appraiser selected by the Board
and which meets the requirements of applicable law. Upon such
attempted withdrawal, notwithstanding that any certificates for such
shares have not been surrendered for cancellation, the shares of
Series A Adjustable Rate Nonconvertible Preferred Stock represented
thereby shall no longer be deemed outstanding, the rights to receive
dividends thereon shall cease to accrue from and after the date of
attempted withdrawal and all rights of the employee as a holder shall
cease and terminate, excepting only the right to receive the
redemption price therefor. In the event the Corporation is unable to
redeem all such shares of Series A Adjustable Rate Nonconvertible
Preferred Stock upon the occurrence of such an attempted withdrawal,
the obligation of the Corporation to so redeem pursuant to this
subparagraph (ii) shall continue and funds legally available therefor
shall be applied for such purpose until such obligation is discharged.
B. Anything herein to the contrary notwithstanding, in accordance with
Section 180.0640 of the Wisconsin Business Corporation Law, the Corporation
may not redeem shares of Series A Adjustable Rate Nonconvertible Preferred
Stock pursuant to Section 8(A) (i) or (ii) if, after giving effect to the
redemption, either of the following would occur:
i. The Corporation would not be able to pay its debts as they
become due in the usual course of business; or
ii. The Corporation's total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if the
Corporation were to be dissolved at the time of the redemption, to
satisfy the preferential rights upon dissolution to shareholders whose
preferential rights are superior to those of the holders of the Series
A Adjustable Rate Nonconvertible Preferred Stock.
SECTION 9. REACQUIRED SHARES. Any shares of Series A Adjustable Rate
Nonconvertible Preferred Stock redeemed or otherwise acquired by the Corporation
in any manner whatsoever shall be retained and canceled promptly after the
redemption or acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock which may be created by resolutions of
the Board of Directors.
SECTION 10. NO SINKING FUND. The shares of Series A Adjustable Rate
Nonconvertible Preferred Stock are not subject or entitled to the operation of a
retirement or sinking fund.
ARTICLE IV - REGISTERED OFFICE AND REGISTERED AGENT
The registered office is 3100 AMS Boulevard, Green Bay, Wisconsin, 54313,
and the registered agent at such address is Timothy J. Moore.
ARTICLE V - BOARD OF DIRECTORS
a. The number of directors of the Corporation shall be as is provided in
the bylaws. The general powers, number, classification, and requirements for
nomination of directors shall be as set forth in Articles II and III of the
bylaws of the Corporation (and as such sections shall exist from time to time).
The Board of Directors of the Corporation shall be divided into three (3)
classes of not less than three (3) nor more than five (5) directors each. The
term of office of the first class of directors shall expire at the first annual
meeting after their initial election under the provisions of this Article V, the
term of office of the second class shall expire at the second annual meeting
after their initial election under the provisions of this Article V, and the
term of office of the third class shall expire at the third annual meeting after
their initial election under the provisions of this Article V. At each annual
meeting after the initial classification of the Board of Directors under this
Article V, the class of Directors whose term expires at the time of such
election shall be elected to hold office until the third succeeding annual
meeting.
b. A director may be removed from office only by affirmative vote of at
least 80% of the outstanding shares entitled to vote for the election of such
director, taken at an annual meeting or a special meeting of shareholders called
for that purpose, and any vacancy so created may be filled by the affirmative
vote of at least 80% of such shares.
c. Notwithstanding any other provision of these Restated Articles of
Incorporation (and notwithstanding the fact that a lesser affirmative vote may
be specified by law), the affirmative vote of shareholders possessing at least
75% of the voting power of the then outstanding shares of all classes of stock
of the Corporation generally possessing voting rights in elections of directors,
considered for this purpose as one class, shall be required to amend, alter,
change or repeal, or adopt any provision inconsistent with, the provisions of
this Article V.
d. Notwithstanding the foregoing and provisions in the bylaws of the
Corporation, whenever the holders of any one or more series of Preferred Stock
issued by the Corporation pursuant to Article III hereof have the right, voting
separately as a class or by series, to elect directors at an annual or special
meeting of shareholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of the
series of Preferred Stock applicable thereto, and such directors so elected
shall not be divided into classes unless expressly provided by the terms of the
applicable series.
ARTICLE VI - AMENDMENTS
These articles may be amended in the manner provided by law at the time of
adoption of the amendment.
* * * * *
<PAGE>
CERTIFICATE
This is to certify that the foregoing Restated Articles of Incorporation do
not contain any amendments requiring shareholder approval, and were adopted on
February 17, 1999 by the Board of Directors of the corporation.
Dated as of the 17th day of February, 1999.
AMERICAN MEDICAL SECURITY GROUP, INC.
By: /S/ TIMOTHY J. MOORE
-----------------------------------------
Name: TIMOTHY J. MOORE
---------------------------------------
Senior Vice President of Corporate
Title: AFFAIRS, SECRETARY & GENERAL COUNSEL
--------------------------------------
This document was drafted by:
Bruce C. Davidson
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee WI 53202-4497
EXHIBIT 3.2
BYLAWS OF
AMERICAN MEDICAL SECURITY GROUP, INC.
(AS AMENDED AND RESTATED FEBRUARY 17, 1999)
ARTICLE I. OFFICES
1.01. PRINCIPAL AND BUSINESS OFFICES. The Corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
1.02. REGISTERED OFFICE. The registered office of the Corporation required
by the Wisconsin Business Corporation Law to be maintained in the State of
Wisconsin may be, but need not be, identical to the principal office in the
state of Wisconsin; and the address of the registered office may be changed from
time to time by any officer or by the registered agent. The business office of
the registered agent of the Corporation shall be identical to the registered
office.
ARTICLE II. SHAREHOLDERS
2.01. ANNUAL MEETING. The Annual Meeting of the Shareholders shall be held
at the principal office of the Corporation in the City of Green Bay, Brown
County, Wisconsin, unless the Board of Directors shall designate another
location either within or without the State of Wisconsin. The Annual Meeting
shall take place on the last Thursday of May each year or at such other time and
date as may be fixed by or under the authority of the Board of Directors. If the
day fixed for the Annual Meeting shall be a legal holiday in the State of
Wisconsin, such meeting shall be held on the next succeeding business day. At
such meeting the Shareholders shall elect directors and transact such other
business as shall lawfully come before them.
A. ELECTIONS AND OTHER BUSINESS. Nominations of persons for election
to the Board of Directors of the Corporation and the proposal of business
to be considered by the Shareholders may be made at the Annual Meeting:
1. Pursuant to the Corporation's notice of meeting;
2. By or at the direction of the Board of Directors; or
3. By any Shareholder of the Corporation who is a Shareholder of
record at the time of the giving of the notice provided for in these
Bylaws and who is entitled to vote at the meeting and complies with
the notice procedures set forth below.
B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. For nominations or
other business to be properly brought before an Annual Meeting by a
Shareholder, the Shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. Timely notice is that notice
which is received by the Secretary at the Corporation's principal office
not less than sixty (60) days nor more than ninety (90) days prior to the
date on which the Corporation first mailed its proxy materials for the
prior year's Annual Meeting, provided, however, that in the event the date
of the Annual Meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from the last Thursday in May, notice by the
Shareholder, to be timely, must be received, as provided above, not earlier
than the ninetieth (90th) day prior to the date of such Annual Meeting and
not later than the close of business on the later of (x) the sixtieth (60)
day prior to such Annual Meeting, or (y) the tenth (10th) day on which
public announcement of the date of such a meeting is first made. Such
Shareholder's notice shall be signed by the Shareholder of record who
intends to make the nomination or introduce the other business (or his or
her duly authorized proxy or other representative), shall bear the date of
signature of such Shareholder or representative, and shall set forth:
1. The name and address, as they appear on the Corporation's
books, of such Shareholder and the beneficial owner(s), if any, on
whose behalf the nomination or proposal is made;
2. The class and number of shares of the Corporation which are
beneficially owned by such Shareholder or beneficial owner(s);
3. A representation that such Shareholder is a holder of record
of shares entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to make the nomination or introduce
the other business specified in the notice;
4. In the case of any proposed nomination for election or
reelection as a director:
(a) The name and residence address of the nominee;
(b) A description of all arrangements or understandings
between such Shareholder or beneficial owner(s) and each nominee
and any other person(s) (naming such person(s)) pursuant to which
the nomination is to be made by the Shareholder;
(c) Such other information regarding each nominee proposed
by such Shareholder as would be required to be disclosed in
solicitations of proxies for elections of directors, or would be
otherwise required to be disclosed, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended, including any information that would be required to be
included in a proxy statement filed pursuant to Regulation 14A
had the nominee been nominated by the Board of Directors; and
(d) The written consent of each nominee to be named in a
proxy statement and to serve as a director of the Corporation if
so elected; and
5. In the case of any other business that such Shareholder
proposes to bring before the meeting,
(a) A brief description of the business desired to be
brought before the meeting, and, if the business includes a
proposal to amend these Bylaws, the language of the proposed
amendment;
(b) Such Shareholder's and beneficial owner's(s') reasons
for conducting such business at such time; and
(c) Any material interest in such business of such
Shareholder or beneficial owners(s).
Notwithstanding anything in the above paragraph to the
contrary, in the event that the number of directors to be elected
to the Board of Directors of this Corporation is increased and
there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of
Directors made by the Corporation at least seventy (70) days
prior to the last Thursday in May, a Shareholder's notice
required by this Section shall also be considered timely, but
only with respect to nominees for new positions created by such
increase, if it is received by the Secretary at the Corporation's
principal office not later than the close of business on the
tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
2.02. SPECIAL MEETINGS. Special meetings of the Shareholders may be called
by the Chairman of the Board, and shall be called by the Secretary on written
request of a majority of members of the Board of Directors, or on written
request of the holders of at least ten (10%) percent of the Corporation's shares
entitled to vote on a matter. The request shall be signed, dated and delivered
to the Secretary describing one (1) or more purposes for which the meeting is to
be held. The Board of Directors shall set the place of the meeting. If no such
designation is made, the place of the meeting shall be the principal business
office of the Corporation in the State of Wisconsin, but any meeting may be
adjourned to reconvene at any place designated by a vote of a majority of the
shares represented thereat.
A. ELECTIONS AND OTHER BUSINESS. Nominations of persons for election
to the Board of Directors may be made at a Special Meeting at which
directors are to be elected pursuant to such notice of meeting:
1. By or at the direction of the Board of Directors; or
2. By any Shareholder of the Corporation who:
(a) Is a Shareholder of record at the time of giving notice
of the meeting,
(b) Is entitled to vote at the meeting, and
(c) Complies with the notice procedures set forth below.
B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. Only such business
as shall have been described in such notice shall be conducted at the
Special Meeting. Any Shareholder desiring to nominate persons for election
to the Board of Directors at a Special Meeting shall cause written notice
to be received by the Secretary of the Corporation at its principal office
not earlier than ninety (90) days prior to such Special Meeting and not
later than the close of business on the later of (x) the sixtieth (60th)
day prior to such Special Meeting or (y) the tenth (10th) day following the
day on which public announcement is first made of the date of such Special
Meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. Such written notice shall be signed by the
Shareholder of record who intends to make the nomination (or his or her
duly authorized proxy or other representative), shall bear the date of
signature of such Shareholder or other representative, and shall set forth:
1. The name and address, as they appear on the Corporation's
books, of such Shareholder and the beneficial owner(s), if any, on
whose behalf the nomination is made;
2. The class and number of shares of the Corporation which are
beneficially owned by such Shareholder or beneficial owner(s);
3. A representation that such Shareholder is a holder of record
of shares of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to make the
nomination specified in the notice;
4. The name and residence address of the person(s) to be
nominated;
5. A description of all arrangements or understandings between
such Shareholder or beneficial owner(s) and each nominee and any other
person(s) (naming such person(s)) pursuant to which the nomination is
to be made by such Shareholder;
6. Such other information regarding each nominee proposed by such
Shareholder as would be required to be disclosed in solicitations of
proxies for elections of directors, or would be otherwise required to
be disclosed, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, including any information
that would be required to be included in a proxy statement filed
pursuant to Regulation 14A had the nominee been nominated by the Board
of Directors; and
7. The written consent of each nominee to be named in a proxy
statement and to serve as a director of the Corporation if so elected.
2.03. NOTICE OF ANNUAL OR SPECIAL MEETING. Notice may be communicated by
telegraph, teletype, facsimile or other form of wire or wireless communication,
or by mail or private carrier, and, if these forms of personal notice are
impracticable, notice may be communicated by public announcement. Such notice
stating the place, day and hour of the meeting and, in case of a special
meeting, a description of each purpose for which the meeting is called, shall be
communicated or sent not less than ten days nor more than sixty (60) days before
the date of the meeting, by or at the direction of the Chairman of the Board or
the Secretary, or other officer or persons calling the meeting, to each
Shareholder of record entitled to vote at such meeting. Written notice by the
Corporation to its Shareholders is effective when mailed and may be addressed to
the Shareholder's address shown in the Corporation's current record of
Shareholders.
2.04. UNANIMOUS CONSENT WITHOUT MEETING. Any action that may be taken at a
meeting of the Shareholders may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
Shareholders entitled to vote with respect to the subject matter thereof.
2.05. FIXING OF RECORD DATE. A "Shareholder" of the Corporation shall mean
the person in whose name shares are registered in the stock transfer books of
the Corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee certificate on file with the Corporation. Such nominee
certificates, if any, shall be reflected in the stock transfer books of the
Corporation. The Board of Directors may fix, in advance, a date as the record
date for one or more voting groups for any determination of Shareholders
entitled to notice of a Shareholder's meeting, to demand a special meeting, to
vote, or to take any other action, such date in any case to be not more than
seventy (70) days prior to the meeting or action requiring such determination of
Shareholders, and may fix the record date for determining Shareholder entitled
to share a dividend or distribution. If no record date is fixed for the
determination of Shareholders entitled to demand a Shareholder meeting, to
notice of or to vote at a meeting of Shareholders, or to consent to action
without a meeting, (a) the close of business on the day before the Corporation
received the first written demand for a Shareholder meeting, (b) the close of
business on the day before the first notice of the meeting is mailed or
otherwise delivered to Shareholders, or (c) the close of business on the day
before the first written consent to Shareholder action without a meeting is
received by the Corporation, as the case may be, shall be the record date for
the determination of Shareholders. If no record date is fixed for the
determination of Shareholders entitled to receive a share dividend or
distribution (other than a distribution involving a purchase, redemption or
other acquisition of the Corporation's shares), the close of business on the day
on which the resolution of the Board of Directors is adopted declaring the
dividend or distribution shall be the record date. When a determination of
Shareholders entitled to vote at any meeting of Shareholders has been made as
provided in this Section, such determination shall be applied to any adjournment
thereof unless the Board of Directors fixes a new record date and except as
otherwise required by law. A new record date must be set if a meeting is
adjourned to a date more than one-hundred twenty (120) days after the date fixed
for the original meeting.
2.06. VOTING RECORD. The Secretary shall, before each meeting of
Shareholders, make a complete list of the Shareholders entitled to vote at such
meeting, or any adjournment thereof, with the address of and the number of
shares held by each. Such record shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any Shareholder
during the whole time of the meeting for the purposes of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
Shareholders entitled to examine such record or transfer books or to vote at any
meeting of Shareholders. Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at such meeting.
2.07. QUORUM. Shares entitled to vote as a separate voting group as defined
in the Wisconsin Business Corporation Law may take action on a matter at a
meeting only if a quorum of those shares exists with respect to that matter.
Unless the Articles of Incorporation or the Wisconsin Business Corporation Law
provide otherwise, a majority of the votes entitled to be cast on the matter by
a voting group constitutes a quorum of that voting group for action on that
matter.
Once a share is represented for any purposes at a meeting, other than for
the purpose of objecting to holding the meeting or transacting business at the
meeting, it is considered present for purposes of determining whether a quorum
exists for the remainder of the meeting and for any adjournment of that meeting
unless a new record date is or must be set for that adjourned meeting.
If a quorum exists, action on a matter by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation or the Wisconsin
Business Corporation Law require a greater number of affirmative votes.
"Voting group" means any of the following:
A. All shares of one or more classes or series that under the Articles
of Incorporation or the Wisconsin Business Corporation Law are entitled to
vote and be counted together collectively on a matter at a meeting of
Shareholders.
B. All shares that under the Articles of Incorporation or the
Wisconsin Business Corporation Law are entitled to vote generally on a
matter.
Though less than a quorum of the outstanding shares are represented at
a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. At such adjourned meeting at
which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
2.08. PROXIES. At all meetings of Shareholders, a Shareholder entitled to
vote may vote in person or by proxy. A Shareholder may appoint a proxy to vote
or otherwise act for the Shareholder by signing an appointment form, either
personally, by his or her attorney-in-fact, or in any other manner authorized by
the Wisconsin Business Corporation Law. Such proxy appointment is effective when
received by the Secretary or other officer or agent of the Corporation
authorized to tabulate votes. Unless otherwise provided in the appointment form
of proxy, a proxy appointment may be revoked at any time before it is voted, by
written notice filed with the Secretary or the acting Secretary of the meeting,
by oral notice given by the Shareholder to the presiding officer during the
meeting, or in any other manner authorized by the Wisconsin Business Corporation
Law. The presence of a Shareholder who has filed his or her proxy appointment
shall not of itself constitute a revocation. No proxy appointment shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the appointment form of proxy. The Board of Directors shall have the power and
authority to make rules establishing presumptions as to the validity and
sufficiency of proxy appointments.
2.09. VOTING OF SHARES. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at a meeting of Shareholders, except
to the extent that the voting rights of the shares of any voting group or groups
are enlarged, limited or denied by the Articles of Incorporation.
2.10. VOTING OF SHARES BY CERTAIN HOLDERS.
A. OTHER CORPORATIONS. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president of
such corporation or any other officer appointed by such president. An
appointment form of proxy executed by any principal officer of such other
corporation or assistant thereto shall be conclusive evidence of the
signer's authority to act, in the absence of express notice to this
Corporation, given in writing to the Secretary of this Corporation, or the
designation of some other person by the Board of Directors or by the Bylaws
of such other corporation.
B. LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by an
administrator, executor, guardian, conservator, trustee in bankruptcy,
receiver or assignee for creditors may be voted by him or her, either in
person or by proxy, without a transfer of such shares into his or her name,
provided that there is filed with the Secretary before or at the time of
meeting proper evidence of his or her incumbency and the number of shares
held by him or her, either in person or by proxy. An appointment form of
proxy executed by a fiduciary shall be conclusive evidence of the signer's
authority to act, in the absence of express notice to this Corporation,
given in writing to the Secretary, that such manner of voting is expressly
prohibited or otherwise directed by the document creating the fiduciary
relationship.
C. PLEDGEES. A Shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of
the pledgee, and thereafter the pledgee shall be entitled to vote the
shares so transferred; provided, however, a pledgee shall be entitled to
vote shares held of record by the pledgor if the Corporation receives
acceptable evidence of the pledgee's authority to sign.
D. TREASURY STOCK AND SUBSIDIARIES. Neither treasury shares, nor
shares held by another corporation if a majority of the shares entitled to
vote for the election of directors of such other corporation is held by
this Corporation, shall be voted at any meeting or counted in determining
the total number of outstanding shares entitled to vote, but shares of its
own issue held by this Corporation in a fiduciary capacity, or held by such
other corporation in a fiduciary capacity, may be voted and shall be
counted in determining the total number of outstanding shares entitled to
vote.
E. MINORS. Shares held by a minor may be voted by such minor in person
or by proxy and no such vote shall be subject to disaffirmance or
avoidance, unless prior to such vote the Secretary of the Corporation has
received written notice or has actual knowledge that such Shareholder is a
minor. Shares held by a minor may be voted by a personal representative,
administrator, executor, guardian or conservator representing the minor if
evidence of such fiduciary status, acceptable to the Corporation, is
presented.
F. INCOMPETENTS AND SPENDTHRIFTS. Shares held by an incompetent or
spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such vote shall be subject to disaffirmance or avoidance,
unless prior to such vote the Secretary of the Corporation has actual
knowledge that such Shareholder has been adjudicated an incompetent or
spendthrift or actual knowledge of judicial proceedings for appointment of
a guardian. Shares held by an incompetent or spendthrift may be voted by a
personal representative, administrator, executor, guardian or conservator
representing the minor if evidence of such fiduciary status, acceptable to
the Corporation, is presented.
G. JOINT TENANTS. Shares registered in the names of two (2) or more
individuals who are named in the registration as joint tenants may be voted
in person or by proxy signed by any one (1) or more of such individuals if
either (i) no other such individual or his or her legal representative is
present and claims the right to participate in the voting of such shares or
prior to the vote files with the Secretary of the Corporation a contrary
written voting authorization or direction or written denial of authority of
the individual present or signing the appointment form of proxy proposed to
be voted, or (ii) all such other individuals are deceased and the Secretary
of the Corporation has no actual knowledge that the survivor has been
adjudicated not to be the successor to the interests of those deceased.
2.11. CONDUCT OF MEETINGS. The Chairman of the Board, or in the Chairman's
absence, the President, or, in their absence such Vice President as is
designated by the Board of Directors, shall call the meeting to order and act as
Chairman of the meeting. Only persons nominated in accordance with the
procedures set forth in Sections 2.01 and 2.02, shall be eligible to serve as
directors. Only such business as shall have been brought before a meeting in
accordance with the procedures set forth in Section 2.01 and 2.02, shall be
eligible to be conducted. The Chairman of the meeting shall have the power and
duty to determine whether any nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in
Sections 2.01 and 2.02, and, if any proposed nomination or business is not in
compliance therewith, to declare that such defective proposal shall be
disregarded.
2.12. PUBLIC ANNOUNCEMENT. For purposes of Sections 2.01 and 2.02, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press, or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15(d) of the Securities Exchange Act
of 1934, as amended.
2.13. INVALIDITY. The Chairman, upon recommendation of the Secretary, may
reject a vote, consent, waiver, or proxy appointment, if the Secretary or other
officer or agent of the Corporation who is authorized to tabulate votes, acting
in good faith, has reasonable doubt about the validity of the signature on it or
about the signatory's authority to sign for the Shareholder. The Corporation and
its officer or agent who accepts or rejects a vote, consent, waiver or proxy
appointment in good faith and in accordance with the Wisconsin Business
Corporation Law shall not be liable for damages to the Shareholders for
consequences of the acceptance or rejection.
2.14. WAIVER OF NOTICE. A Shareholder may waive any notice required by the
Wisconsin Business Corporation Law, the Articles of Incorporation, or these
Bylaws before or after the date and time stated in the notice. The waiver shall
be in writing and signed by the Shareholder entitled to the notice, contain the
same information that would have been required in the notice under the Wisconsin
Business Corporation Law (except that the time and place of meeting need not be
stated), and be delivered to the Corporation for inclusion in the corporate
records. A Shareholder's attendance at any Annual Meeting or Special Meeting, in
person or by proxy, waives objection to all of the following: (a) lack of notice
or defective notice of the meeting, unless the Shareholder promptly upon arrival
or at the beginning of the meeting objects to holding, or transacting business
at, the meeting; and (b) consideration of a particular matter at the meeting
that is not within the purpose described in the meeting notice, unless the
Shareholder objects to considering the matter when it is presented.
ARTICLE III. BOARD OF DIRECTORS
3.01. NUMBER OF DIRECTORS. Within the limits established in the Articles of
Incorporation, the number of directors of the Corporation shall be such number
as shall be determined by the Board of Directors from time to time.
3.02. TERM OF OFFICE. Elected directors shall hold office for a term of
three (3) years and until their successors are elected and qualified, except as
otherwise provided in this Section or until their death, resignation or removal.
The Board of Directors shall be divided into three (3) classes of three (3) or
more directors each, with, as nearly as possible, an equal number of directors
in each class. The term of office of the first class of directors shall expire
at the first annual meeting after their initial election and when their
successors are elected and qualified, the term of office of the second class
shall expire at the second annual meeting after their initial election and when
their successors are elected and qualified, and the terms of office of the third
class shall expire at the third annual meeting after their initial election and
when their successors are elected and qualified. At each annual meeting after
the initial classification of the Board of Directors, the class of directors
whose term expires at the time of such election shall be elected to hold office
until the third succeeding annual meeting and until their successors are elected
and qualified.
3.03. NOMINATIONS. Nominations for the election of directors shall be made
in accordance with the provisions of Sections 2.01 and 2.02 hereof, which
requirements are hereby incorporated by reference in this Section 3.03.
3.04. REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held without other notice than this Bylaw immediately after, and at the same
place as, the Annual Meeting of Shareholders, for election of corporate officers
and transaction of other business. The Board of Directors may provide by
resolution the time and place for holding additional meetings without other
notice than such resolution.
3.05. SPECIAL MEETINGS. Special Meetings of the Board of Directors shall be
held whenever called by the Chairman of the Board or the Secretary upon written
request of any three (3) directors. The Secretary shall give sufficient notice
of such meeting, to be not less than two (2) days, in person or by mail or by
telephone, telegraph, teletype, facsimile or other form of wire or wireless
communication as to enable the directors so notified to attend such meeting. The
Chairman or Secretary who calls the meeting may fix any place, within or without
the State of Wisconsin, as the place for holding any Special Meeting of the
Board of Directors.
3.06. WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given to any director of the Corporation under the Articles of Incorporation or
Bylaws or any provisions of law, a waiver thereof in writing, signed at any
time, whether before or after the time of meeting, by the director entitled to
such notice, shall be deemed equivalent to the giving of such notice, and the
Corporation shall retain copies of such waivers in its corporate records. A
director's attendance at or participation in a meeting waives any required
notice to him or her of the meeting unless the director at the beginning of the
meeting or promptly upon his or her arrival objects to holding the meeting and
does not thereafter vote for or assent to action taken at the meeting. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
3.07. QUORUM. Except as otherwise provided by the Wisconsin Business
Corporation Law, a majority of the number of directors (determined as provided
in Section 3.01) shall constitute a quorum of the Board of Directors. Except as
otherwise provided by the Wisconsin Business Corporation Law, a majority of the
number of directors appointed to service on a committee shall constitute a
quorum of the committee.
3.08. VACANCIES. Vacancies, including those created by an increase in the
number of directors in the Board of Directors, may be filled by the remaining
directors. A director elected to fill a vacancy shall serve for the unexpired
term of his or her predecessor. In the absence of action by the remaining
directors, the Shareholders may fill such vacancy at a Special Meeting in
accordance with the Articles of Incorporation, or by unanimous consent according
to these Bylaws.
3.09. REMOVAL. The Shareholders may remove one (1) or more directors, with
or without cause, at a meeting called for that purpose, the notice of which
reflects that purpose, in accordance with the Articles of Incorporation of this
Corporation.
3.10. COMPENSATION. A director may receive such compensation for services
as is determined by resolution of the Board irrespective of any personal
interest of its members. A director also may serve the Corporation in any other
capacity and receive compensation therefore. The Board of Directors also shall
have authority to provide for or to delegate authority to an appropriate
committee to provide for reasonable pensions, disability or death benefits and
other benefits or payments, to directors, officers and employees and to their
estates, families, dependents or beneficiaries on account of prior services
rendered to the Corporation by such directors, officers and employees.
3.11. GENERAL POWERS. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors, subject to any
limitation set forth in these Bylaws or the Articles of Incorporation.
3.12. CONDUCT OF MEETINGS. The Chairman of the Board, or in the Chairman's
absence the President, or in their absence such Vice President as is designated
by the Board of Directors, shall call meetings of the Board of Directors to
order and shall act as Chairman of the meeting. The Secretary of the Corporation
shall act as Secretary of all meetings of the Board of Directors, but in the
absence of the Secretary, the presiding officer may appoint an Assistant
Secretary or any director or other person present or participating to act as
Secretary of the meeting.
3.13. MANNER OF ACTING. If a quorum is present or participating when a vote
is taken, the affirmative vote of a majority of directors present or
participating is the act of the Board of Directors or a committee of the Board
of Directors, unless the Wisconsin Business Corporation Law or the Articles of
Incorporation or these Bylaws require the vote of a greater number of directors.
3.14. PRESUMPTION OF ASSENT. A director of the Corporation who is present
at or participates in a meeting of the Board of Directors or a committee thereof
which he or she is a member, at which action on any corporate matter is taken,
shall be presumed to have assented to the action taken unless his or her dissent
shall be entered in the minutes of the meeting or unless he or she shall file
his or her written dissent to such action with the person acting as the
Secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
3.15. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or permitted
by the Articles of Incorporation or Bylaws or any provision of law to be taken
by the Board of Directors at a meeting or by resolution may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors then in office.
3.16. MEETING BY TELEPHONE OR BY OTHER COMMUNICATION TECHNOLOGY. Meetings
of the Board of Directors or committees may be conducted by telephone or by
other communication technology in accordance with Section 180.0820 of the
Wisconsin Business Corporation Law.
3.17. COMMITTEES.
A. REGULAR COMMITTEES.
1. GENERAL DESCRIPTION. In order to facilitate the work of the
Board of Directors of this Corporation, the following regular
committees shall be elected from the membership of the Board of
Directors at the regular meeting held in May of each year (or at such
other time as the Board of Directors may determine):
Executive Committee
Finance Committee
Compensation Committee
Audit Committee
Each committee shall consist of such number of members, not less
than three (3), as shall be determined by the Board of Directors. The
Chairman of the Board of Directors, and in the Chairman's absence the
President, and in their absence, such Vice President as is designated
by the Board of Directors, shall submit nominations for such committee
memberships. Committee members shall hold office until the next board
meeting at which committee elections are conducted in accordance with
these Bylaws, and until their successors are elected and qualified.
Each Regular Committee of the Board of Directors may exercise the
authority of the full Board within the scope of the duties and powers
delegated to it in these Bylaws, except that no committee of this
Board shall do any of the following:
(a) Authorize distributions;
(b) Approve or propose to Shareholders action that the
Wisconsin Business Corporation Law requires to be approved by
Shareholders;
(c) Fill vacancies on the Board of Directors or, except as
provided herein, on any of its committees;
(d) Amend the Articles of Incorporation;
(e) Adopt, amend or repeal the Bylaws;
(f) Approve a plan of merger not requiring Shareholder
approval;
(g) Authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the full Board; or
(h) Authorize or approve the issuance or sale or contract
for sale of shares or determine the designation and relative
rights, preferences and limitations of a class or series of
shares, except that the Board of Directors may authorize a
committee or a senior executive officer of the Corporation to do
so within limits prescribed by the Board of Directors.
2. THE EXECUTIVE COMMITTEE. When the Board of Directors is not in
session, the Executive Committee shall have and may exercise all of
the powers and authority of the full Board in the management of the
business and affairs of the Corporation to the extent allowed by the
Wisconsin Business Corporation Law.
3. THE FINANCE COMMITTEE. When the Board of Directors is not in
session, the Finance Committee shall have and may exercise all of the
powers of the full Board of Directors solely with regard to those
matters which are within the scope of the Finance Committee's
designated duties, as provided herein. The Chairman of the Board of
Directors shall be a member of the Finance Committee.
The Finance Committee shall:
(a) Review and approve the Corporation's investment policies
and guidelines:
(b) Monitor performance of the Corporation's investment
portfolio;
(c) Consult with management regarding material transactions
involving real estate, accounts receivable and other assets;
(d) Monitor the amount and types of all insurance that
should be carried by this Corporation;
(e) Monitor the Corporation's relationship with its lenders
and its compliance with financing agreements including debt
covenants;
(f) Consult with management concerning the capital structure
of the Corporation;
(g) Monitor investment options and performance offered in
the Corporation's retirement plan; and
(h) Carry out such special assignments as the Board of
Directors may, from time to time, give to the Finance Committee.
4. THE COMPENSATION COMMITTEE. When the Board of Directors is not
in session, the Compensation Committee shall have and may exercise all
of the powers of the full Board solely with regard to those matters
which are within the scope of the Compensation Committee's designated
duties, as provided herein.
The Compensation Committee shall:
(a) Evaluate the performance of the Chief Executive Officer
and other executive officers against objectives;
(b) Review and approve the compensation (including salary,
bonus, stock options and other appropriate equity or long-term
incentives, and any severance benefits) of the Chairman of the
Board, the Chief Executive Officer and other executive officers;
(c) Administer compensation plans for executive officers and
directors; and
(d) Review, on a general policy level basis, the
compensation and benefits of officers, managers and employees for
appropriateness;
(e) Act as the Nominating Committee for directors and make
recommendations to the Board of Directors for types, methods and
levels of directors' compensation;
(f) Administer the Corporation's equity incentive plan or
any other equity-based plans, including the review and approval
of all grants hereunder; and
(g) Carry out such special assignments as the Board of
Directors may, from time to time, give to the Compensation
Committee.
5. THE AUDIT COMMITTEE. The Audit Committee shall have and may
exercise all of the powers of the full Board of Directors solely with
regard to those matters which are within the scope of the Audit
Committee's designated duties, as provided herein.
The Audit Committee shall:
(a) Select and engage the independent certified public
accountants to audit the financial statements of the Corporation
and its subsidiaries;
(b) Meet with the independent auditors and financial
management of the Corporation to review the scope of the proposed
audit for the current year and the audit procedures to be
utilized, and at the conclusion thereof, review such audit
including any comments or recommendations of the independent
auditors;
(c) Review the internal audit function of the Corporation
including the independence and authority of its reporting
obligations, the proposed audit plans for the coming year, the
coordination of such plans with the independent auditors, and
summaries of findings of completed audits;
(d) Review with the independent accountants and management
the financial statements to determine that the independent
auditors are satisfied with the disclosure and content of the
financial statements;
(e) Review with the independent auditors, the Corporation's
internal auditor, and financial and accounting personnel, the
adequacy and effectiveness of the accounting and financial
controls of the Corporation;
(f) Provide sufficient opportunity for the internal and
independent auditors to meet with the members of the Audit
Committee without members of management present;
(g) Review related party transactions and conflict of
interest statements for appropriateness;
(h) Carry out such special assignments as the Board of
Directors may, from time to time, give to the Audit Committee.
B. SPECIAL COMMITTEES. In addition to the foregoing Regular
Committees, the Board of Directors may, from time to time, establish
Special Committees and specify the composition, functions and authority of
any such Special Committee.
C. VACANCIES; TEMPORARY APPOINTMENTS. When, for any cause, a vacancy
occurs in any Regular Committee, the remaining committee members, by
majority vote, may fill such vacancy by a temporary appointment of a
director on the Board of Directors not on the subject committee to fill the
vacancy until the next Board Meeting at which time the full Board of
Directors shall fill the vacancy.
D. ALTERNATE COMMITTEE MEMBERS. All members of the Board of Directors
who are not members of a given committee shall be alternate members of such
committee and may take the place of any absent member or members at any
meeting of such committee, upon request by the Chairman of the Board of
Directors, if there is one, the President or upon request by the chairman
of such meeting.
E. COMMITTEE MINUTES AND REPORTS. All of the foregoing committees
shall keep minutes and records of all of their meetings and activities and
shall report the same to the Board of Directors at its next regular
meeting. Such minutes and records shall be available for inspection by the
directors at all times.
ARTICLE IV. OFFICERS
4.01. GENERALLY. The principal officers of the Corporation shall be a
Chairman of the Board (Chief Executive Officer), a President, one (1) or more
Vice Presidents, a Secretary and a Treasurer. The Board of Directors shall elect
the principal officers annually at the Annual Meeting. All officers shall hold
office for a period of one (1) year and until their successors are duly elected
and qualified, or until their prior death, resignation or removal.
4.02. REMOVAL. Any officer or agent may be removed by the Board of
Directors with or without cause whenever in its judgment the best interests of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment shall not of itself create contract rights.
4.03. VACANCIES. A vacancy in any principal office because of death,
resignation, removal, or otherwise, shall be filled by the Board of Directors
for the unexpired portion of the term. The Board of Directors may, from time to
time, omit to elect one (1) or more officers, or may omit to fill a vacancy, and
in such case, the designated duties of such officer, unless otherwise provided
in these Bylaws, shall be discharged by the Chairman of the Board or such other
officers as he or she may designate.
4.04. CHAIRMAN OF THE BOARD. The Chairman of the Board, who shall also be
the Chief Executive Officer, shall preside at all meetings of the Shareholders
and of the directors and shall do and perform such other duties as from time to
time may be assigned to that office by the Board of Directors.
4.05. PRESIDENT. The President shall have general supervision of the
business and affairs of the Corporation. The President may sign and execute all
authorized bonds, notes, checks, contracts, or other obligations in the name of
the Corporation. The President shall perform such other duties as from time to
time may be assigned to him or her by the Board of Directors.
4.06. VICE PRESIDENTS. Should the Chairman of the Board or the President be
absent or unable to act, the Board of Directors shall designate a Vice President
or other officer to discharge the duties of the vacant office with the same
power and authority as is vested in that office. The Vice Presidents shall
perform such other duties as from time to time may be assigned to them by the
President or the Board of Directors.
4.07. SECRETARY. The Secretary shall keep a record of the minutes of the
meetings of the Shareholders, the Board of Directors and any committees of the
Board of Directors. He or she shall countersign all instruments and documents
executed by the Corporation; affix to instruments and documents the seal of the
Corporation; keep in books therefore the transactions of the Corporation; see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; and perform such other duties as usually are
incident to such office or may be assigned by the Chairman of the Board, the
President or the Board of Directors.
4.08. TREASURER. The Treasurer, subject to the control of the Board of
Directors, shall collect, receive, and safely keep all monies, funds and
securities of the Corporation, and attend to all its pecuniary affairs. He or
she shall keep full and complete accounts and records of all its transactions,
of sums owing to or by the Corporation, and all rents and profits in its behalf.
4.09. ASSISTANTS AND ACTING OFFICERS. The Chairman of the Board, the
President and the Board of Directors shall have the power to appoint any person
to act as assistant to any officer, or as agent for the Corporation in the
officer's stead, or to perform the duties of such officer whenever for any
reason it is impracticable for the officer to act personally, and the assistant
or acting officer or other agent so appointed by the Chairman of the Board, the
President or the Board of Directors shall have the power to perform all the
duties of the office to which he or she is so appointed to be assistant, or as
to which he or she is so appointed to act, except as such power otherwise may be
defined or restricted by the Chairman of the Board, the President or the Board
of Directors.
ARTICLE V. FUNDS OF THE CORPORATION
5.01. FUNDS. All funds of the Corporation shall be deposited or invested in
such depositories or in such securities as may be authorized from time to time
by the Board of Directors or appropriate committee under authorization of the
Board of Directors.
5.02. NAME. All investments and deposits of funds of the Corporation shall
be made and held in its corporate name, except that securities kept under a
custodial agreement or trust arrangement with a bank or banking and trust
company may be issued in the name of a nominee of such bank or banking and trust
company and except that securities may be acquired and held in bearer form.
5.03. LOANS. All loans contracted on behalf of the Corporation and all
evidences of indebtedness that are issued in the name of the Corporation shall
be under the authority of a resolution of the Board of Directors. Such
authorization may be general or specific.
5.04. CONTRACTS. The Board of Directors may authorize one (1) or more
officers, or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such authorization
may be general or specific. In the absence of other designation, all deeds,
mortgages and instruments of assignment or pledge made by the Corporation shall
be executed in the name of the Corporation by the Chairman of the Board, the
President or one of the Vice Presidents and by the Secretary or Treasurer; the
Secretary, when necessary or required, shall affix the corporate seal thereto;
and when so executed no other party to such instrument or any third party shall
be required to make any inquiry into the authority of the signing officer or
officers.
5.05. DISBURSEMENTS. All monies of the Corporation shall be disbursed by
check, draft, or written order only, and all checks and orders for the payment
of money shall be signed by such officer or officers as may be designated by the
Board of Directors. The officers and employees of the Corporation handling funds
and securities of the Corporation shall give surety bonds in such sums as the
Board of Directors or appropriate committee may require.
5.06. PROHIBITED TRANSACTIONS. No directors or officer of the Corporation
shall borrow money from the Corporation, or receive any compensation for
selling, aiding in the sale, or negotiating for the sale of any property
belonging to the Corporation, or for negotiating any loan for or by the
Corporation.
5.07. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always to the
specific directions of the Board of Directors:
A. Any shares or other securities issued by any other corporation and
owned or controlled by this Corporation may be voted at any meeting of
security holders of such other corporation by the Chairman of the Board,
the President or in their absence any Vice President of this Corporation
who may be present and designated by the Board of Directors; and
B. Whenever, in the judgment of the Chairman of the Board, the
President, or in their absence, a designated Vice President, it is
desirable for this Corporation to execute a proxy or written consent in
respect to any shares or other securities issued by any other corporation
and owned by this Corporation, such proxy or consent shall be executed in
the name of this Corporation by the Chairman of the Board, the President,
or a designated Vice President of this Corporation in the order as provided
in Subsection A, without necessity of any authorization by the Board of
Directors, affixation of corporate seal or countersignature or attestation
by another officer. Any person or persons designated in the manner above
stated as the proxy or proxies of this Corporation shall have full right,
power and authority to vote the shares or other securities issued by such
other corporation and owned by this Corporation the same as such shares or
other securities might be voted by this Corporation.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such Certificates shall be signed by the Chairman of
the Board, the President, or a Vice President, and the Secretary, or by another
officer designated by the Chairman of the Board, the President or the Board of
Directors. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except as provided in
Section 6.06.
6.02. FACSIMILE SIGNATURES AND SEAL. The seal of the Corporation on any
certificates for shares may be a facsimile. The signature of the Chairman of the
Board, the President or other authorized officer upon a certificate may be a
facsimile if the certificate is manually signed on behalf of a transfer agent,
or a registrar, other than the Corporation itself or an employee of the
Corporation.
6.03. SIGNATURE BY FORMER OFFICER. In case any officer who has signed or
whose facsimile signature has been placed upon any certificate for shares shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he or she were such officer
at the date of its issue.
6.04. TRANSFER OF SHARES. Prior to due presentment of a certificate for
shares for registration of transfer, the Corporation may treat the Shareholder
of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to have and exercise all the rights and powers of an
owner. Where a certificate for shares is presented to the Corporation with a
request to register for transfer, the Corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if:
A. There were on or with the certificate the necessary endorsements;
and
B. The Corporation had no duty to inquire into adverse claims or has
discharged any such duty.
The Corporation may require reasonable assurance that said endorsements are
genuine and effective and in compliance with such other regulations as may be
prescribed by or under the authority of the Board of Directors:
6.05. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
6.06. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims that
his or her certificate for shares has been lost, destroyed or wrongfully taken,
a new certificate shall be issued in place thereof if the owner:
A. So requests before the Corporation has notice that such shares have
been acquired by a bona fide purchaser;
B. If required by the Corporation, files with the Corporation a
sufficient indemnity bond; and
C. Satisfies such other reasonable requirements as may be prescribed
by or under the authority of the Board of Directors.
6.07. CONSIDERATION FOR SHARES. The shares of the Corporation may be issued
for such consideration as shall be fixed from time to time by the Board of
Directors, provided that any shares having a par value shall not be issued for a
consideration less than the par value thereof. The consideration to be received
for shares may consist of any tangible or intangible property or benefit to the
Corporation, including cash, promissory notes, services performed, contracts for
services to be performed or other securities of the Corporation. When the
Corporation receives the consideration for which the Board of Directors
authorized the issuance of shares, the shares issued for that consideration are
fully paid and nonassessable, except as provided by Section 180.0622 of the
Wisconsin Business Corporation Law which may require further assessment for
unpaid wages to employees under certain circumstances. The Corporation may place
in escrow shares issued for a contract for future services or benefits or a
promissory note, or make other arrangements to restrict the transfer of the
shares, and may credit distributions in respect of the shares against their
purchase price, until the services are performed, the benefits are received or
the note is paid. If the services are not performed, the benefits are not
received or the note is not paid, the Corporation may cancel, in whole or in
part, the shares escrowed or restricted and the distributions credited.
6.08. UNCERTIFICATED SHARES. In accordance with Section 180.0626 of the
Wisconsin Business Corporation Law, the Board of Directors may issue any shares
of any of its classes or series without certificates. The authorization does not
affect shares already represented by certificates until the certificates are
surrendered to the Corporation. Within a reasonable time after the issuance or
transfer of shares without certificates, the Corporation shall send the
Shareholder a written statement of the information required on share
certificates by Sections 180.0625 and 180.0627, if applicable, of the Wisconsin
Business Corporation Law, and by the Bylaws of the Corporation.
The Corporation shall maintain at its offices, or at the office of its
transfer agent, an original or duplicate stock transfer book containing the
names and addresses of all Shareholders and the number of shares held by each
Shareholder. If the shares are uncertificated, the Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as such, as
the owner of shares for all purposes, and shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Wisconsin.
6.09. TRANSFER AGENT AND REGISTRAR. The Corporation may maintain one (1) or
more transfer offices or agencies, each in charge of a transfer agent designated
by the Board of Directors, where the shares of stock of the Corporation shall be
transferable. The Corporation also may maintain one (1) or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered. The same person or entity may be
both a transfer agent and registrar.
6.10. STOCK REGULATIONS. The Board of Directors shall have the power and
authority to make all such further rules and regulations not inconsistent with
the laws of the State of Wisconsin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the
Corporation.
ARTICLE VII. INDEMNIFICATION
7.01. INDEMNIFICATION FOR SPECIAL DEFENSE. Within twenty (20) days after
receipt of a written request pursuant to Section 7.03, the Corporation shall
indemnify a director or officer, to the extent he or she has been successful on
the merits or otherwise in the defense of a proceeding, for all reasonable
expenses incurred in the proceeding if the director or officer was a party
because he or she is a director or officer of the Corporation.
7.02. OTHER INDEMNIFICATION.
A. In cases not included under Section 7.01, the Corporation shall
indemnify a director or officer against all liabilities and expenses
incurred by the director or officer in a proceeding to which the director
or officer was a party because he or she is a director or officer of the
Corporation, unless liability was incurred because the director or officer
breached or failed to perform a duty he or she owes to the Corporation and
the breach or failure to perform constitutes any of the following:
1. A willful failure to deal fairly with the Corporation or its
Shareholders in connection with a matter in which the director or
officer has a material conflict of interest.
2. A violation of criminal law, unless the director or officer
had reasonable cause to believe that his or her conduct was lawful or
no reasonable cause to believe that his or her conduct was unlawful.
3. A transaction from which the director or officer derived an
improper personal profit.
4. Willful conduct.
B. Determination of whether indemnification is required under the
Section shall be made pursuant to Section 7.05.
C. The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does not,
by itself, create a presumption that indemnification of the director or
officer is not required under this Section.
7.03. WRITTEN REQUEST. A director or officer who seeks indemnification
under Section 7.01 or 7.02 shall make a written request to the Corporation.
7.04. NONDUPLICATION. The Corporation shall not indemnify a director or
officer under Sections 7.01 or 7.02 to the extent the director or officer has
previously received indemnification or allowances of expenses from any person,
including the Corporation, in connection with the same proceeding. However, the
director or officer has no duty to look to any other person for indemnification.
7.05. DETERMINATION OF RIGHT TO INDEMNIFICATION.
A. Unless otherwise provided by the Articles of Incorporation or by
written agreement between the director or officer and the Corporation, the
director or officer seeking indemnification under Section 7.02 shall select
one (1) of the following means for determining his or her right to
indemnification:
1. By a majority vote of a quorum of the Board of Directors
consisting of directors not at the time parties to the same or related
proceedings. If a quorum of disinterested directors cannot be
obtained, by majority vote of a committee duly appointed by the Board
of Directors and consisting of two (2) or more directors who are not
at the time parties to the same or related proceedings. Directors who
are parties to the same or related proceedings may participate in the
designation of members of the committee.
2. By independent legal counsel selected by a quorum of the Board
of Directors or its committee in the manner prescribed in 1 of
Subsection A, if unable to obtain such a quorum or committee, by a
majority vote of the full Board of Directors, including directors who
are parties to the same or related proceedings.
3. By a panel of three (3) arbitrators consisting of one (1)
arbitrator selected by those directors entitled under 2 of Subsection
A to select independent legal counsel, one (1) arbitrator selected by
the director or officer seeking indemnification and one (1) arbitrator
selected by two (2) arbitrators previously selected.
4. By an affirmative vote of shares represented at a meeting of
Shareholders at which a quorum of the voting group entitled to vote
thereon is present. Shares owned by, or voted under the control of,
persons who are at the time parties to the same or related
proceedings, whether as plaintiffs or defendants or in any other
capacity, may not be voted in making the determination.
5. By a court under Section 7.08.
6. By any other method provided for in any additional right to
indemnification permitted under Section 7.07.
B. In any determination under Subsection A, the burden of proof is on
the Corporation to prove by clear and convincing evidence that
indemnification under Section 7.02 should not be allowed.
C. A written determination as to a director's or officer's
indemnification under Section 7.02 shall be submitted to both the
Corporation and the director or officer within sixty (60) days of the
selection made under Subsection A.
D. If it is determined that indemnification is required under Section
7.02, the Corporation shall pay all liabilities and expenses not prohibited
by Section 7.04 within ten (10) days after receipt of the written
determination under Subsection C. The Corporation shall also pay all
expenses incurred by the director or officer in the determination of
process under Subsection A.
7.06. ADVANCE OF EXPENSES. Within ten (10) days after receipt of a written
request by a director or officer who is a party to a proceeding, the Corporation
shall pay or reimburse his or her reasonable expenses incurred if the director
or officer provides the Corporation with all of the following:
A. A written affirmation of his or her good faith belief that he or
she has not breached or failed to perform his or her duties to the
Corporation.
B. A written undertaking, executed personally or on his or her behalf,
to repay the allowance to the extent that it is ultimately determined under
Section 7.05 that indemnification under Section 7.02 is not required and
that indemnification is not ordered by a court under Section 7.08(B)(2).
The undertaking under this subsection shall be an unlimited general
obligation of the director or officer and may be accepted without reference
to his or her ability to repay the allowance. The undertaking may be
secured or unsecured.
7.07. NONEXCLUSIVITY.
A. Except as provided in Subsection B, Sections 7.01, 7.02 and 7.06 do
not preclude any additional right to indemnification or allowance of
expenses that a director or officer may have under any of the following:
1. The Articles of Incorporation.
2. A written agreement between the director or officer and the
Corporation.
3. A resolution of the Board of Directors.
4. A resolution, after notice, adopted by a majority vote of all
of the Corporation's voting shares then issued and outstanding.
B. Regardless of the existence of an additional right under Subsection
A, the Corporation shall not indemnify a director or officer, or permit a
director or officer to retain any allowance of expenses unless it is
determined by or on behalf of the Corporation that the director or officer
did not breach or fail to perform a duty he or she owes to the Corporation
which constitutes conduct under Section 7.02(A)(1), (2), (3) or (4). A
director or officer who is a party to the same or related proceeding for
which indemnification or an allowance of expenses is sought may not
participate in a determination under this subsection.
C. Sections 7.01 to 7.13 do not affect the Corporation's power to pay
or reimburse expenses incurred by a director or officer in any of the
following circumstances.
1. As a witness in a proceeding to which he or she is not a
party.
2. As a plaintiff or petitioner in a proceeding because he or she
is or was an employee, agent, director or officer of the Corporation.
7.08 COURT-ORDERED INDEMNIFICATION.
A. Except as provided otherwise by written agreement between the
director or officer and the Corporation, a director or officer who is a
party to a proceeding may apply for indemnification to the court conducting
the proceeding or to another court of competent jurisdiction. Application
shall be made for an initial determination by the court under Section
7.05(a)(5) or for review by the court of an adverse determination under
Section 7.05(A)(1), (2), (3), (4), or (6). After receipt of an application,
the court shall give any notice it considers necessary.
B. The court shall order indemnification if it determines any of the
following:
1. That the director or officer is entitled to indemnification
under Sections 7.01 or 7.02.
2. That the director or officer is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances,
regardless of whether indemnification is required under Section 7.02.
C. If the court determines under Subsection B that the director or
officer is entitled to indemnification, the Corporation shall pay the
director's or officer's expenses incurred to obtain the court-ordered
indemnification.
7.09. INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES AND AGENTS.
The Corporation shall indemnify an employee of the Corporation who is not a
director or officer of the Corporation, to the extent that he or she has been
successful on the merits or otherwise in defense of a proceeding, for all
reasonable expenses incurred in the proceeding if the employee was a party
because he or she was an employee of the Corporation. In addition, the
Corporation may indemnify and allow reasonable expenses of an employee or agent
who is not a director or officer of the Corporation to the extent provided by
(i) the Articles of Incorporation, (ii) these Bylaws, (iii) general or specific
action of the Board of Directors, or (iv) by contract; provided however, that
the Corporation may not provide such indemnification to the extent prohibited by
law.
7.10. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of an individual who is an employee, agent, director or officer of the
Corporation against liability asserted against or incurred by the individual in
his or her capacity as an employee, agent, director or officer, regardless of
whether the Corporation is required or authorized to indemnify or allow expenses
to the individual against the same liability.
7.11. SECURITIES LAW CLAIMS.
A. Pursuant to the public policy of the State of Wisconsin, the
Corporation shall provide indemnification and allowance of expenses and may
insure for any liability incurred in connection with a proceeding involving
securities regulation described under Subsection B to the extent required
or permitted under Sections 7.01 to 7.10.
B. Sections 7.01 to 7.10 apply, to the extent applicable to any other
proceeding, to any proceeding involving federal or state statute, rule or
regulation regulating the offer, sale or purchase of securities, securities
brokers or dealers, or investment companies or investment advisers.
7.12. LIBERAL CONSTRUCTION. In order for the Corporation to obtain and
retain qualified directors, officers and employees, the foregoing provisions
shall be liberally administered in order to afford maximum indemnification of
directors, officers and, where Section 7.09 of these Bylaws applies, employees.
The indemnification above provided for shall be granted in all applicable cases
unless to do so would clearly contravene law, controlling precedent or public
policy.
7.13. DEFINITIONS APPLICABLE TO THIS ARTICLE. For purposes of the Article:
A. "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust or other
enterprise that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the
Corporation.
B. "Corporation" means this Corporation and any domestic or foreign
predecessor of this Corporation where the predecessor corporation's
existence ceased upon the consummation of a merger or other transaction.
C. "Director or Officer" means any of the following:
1. An individual who is or was a director or officer of this
Corporation.
2. An individual who, while a director or officer of this
Corporation, is or was serving at the Corporation's request as a
director, officer, partner, trustee, member of any governing or
decision-making committee, employee or agent of another corporation or
foreign corporation, partnership, joint venture, trust or other
enterprise.
3. An individual who, while a director or officer of this
Corporation, is or was serving an employee benefit plan because his or
her duties to the Corporation also impose duties on, or otherwise
involve service by, the person to the plan or to participants in or
beneficiaries of the plan.
4. Unless the context requires otherwise, the estate or personal
representative of a director or officer.
For purposes of this Article, it shall be conclusively presumed
that any director or officer serving as a director, officer, partner,
trustee, member of any governing or decision-making committee,
employee or agent of an Affiliate shall be so serving at the request
of the Corporation.
D. "Expenses" include fees, costs, charges, disbursements, attorney
fees and other expenses incurred in connection with a proceeding.
E. "Liability" includes the obligation to pay a judgment, settlement,
penalty, assessment, forfeiture or fine, including an excise tax assessed
with respect to an employee benefit plan, and reasonable expenses.
F. "Party" includes an individual who was or it, or who is threatened
to be made, a named defendant or respondent in a proceeding.
G. "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or
other proceeding, whether formal or informal, which involves foreign,
federal, state or local law and which is brought by or in the right of the
Corporation or by any other person.
ARTICLE VIII. CORPORATE DIVIDENDS
The Board of Directors may from time to time declare dividends on its
outstanding shares in the manner and upon the terms and conditions provided by
law and its Articles of Incorporation.
ARTICLE IX. CORPORATE SEAL
The Board of Directors may provide a corporate seal which may be circular
in form and may have inscribed thereon the name of the Corporation and the state
of incorporation and the words "Corporate Seal."
ARTICLE X. FISCAL YEAR
The fiscal year shall be set by the Board of Directors.
ARTICLE XI. AMENDMENTS
11.01. BY SHAREHOLDERS. These Bylaws may be altered, amended or repealed
and new Bylaws may be adopted by the Shareholders by affirmative vote of not
less than a majority of the shares present or represented at an annual or
special meeting of the Shareholders at which a quorum is in attendance.
11.02. BY DIRECTORS. These Bylaws may also be altered, amended or repealed
and new Bylaws may be adopted by the Board of Directors by affirmative vote of a
majority of the number of directors present at or participating in any meeting
at which a quorum is in attendance; but no bylaw adopted by the Shareholders
shall be amended or repealed by the Board of Directors if the bylaw so adopted
so provides.
11.03. IMPLIED AMENDMENTS. Any action taken or authorized by the
Shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by affirmative vote of not less
than the number of shares or the number of directors required to amend the
Bylaws so that the Bylaws would be consistent with such action, shall be given
the same effect as though the Bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
EXHIBIT 10.1
EQUITY INCENTIVE PLAN
AMERICAN MEDICAL SECURITY GROUP, INC.
FEBRUARY 1993
(As Amended and Restated March 15, 1999)
THIS DOCUMENT CONSTITUTES PART
OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
EQUITY INCENTIVE PLAN
(As Amended and Restated March 15, 1999)
TABLE OF CONTENTS
PAGE
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION................................1
1.1 Establishment of the Plan..........................................1
1.2 Purpose of the Plan................................................1
1.3 Duration of the Plan...............................................1
ARTICLE 2. DEFINITIONS........................................................2
ARTICLE 3. ADMINISTRATION.....................................................6
3.1 The Committee......................................................6
3.2 Authority of the Committee.........................................7
3.3 Decisions Binding..................................................7
ARTICLE 4. SHARES SUBJECT TO THE PLAN.........................................8
4.1 Number of Shares...................................................8
4.2 Lapsed Awards......................................................9
4.3 Adjustments in Authorized Shares...................................9
ARTICLE 5. ELIGIBILITY AND PARTICIPATION......................................9
5.1 Eligibility........................................................9
5.2 Actual Participation..............................................10
ARTICLE 6. STOCK OPTIONS.....................................................10
6.1 Grant of Options..................................................10
6.2 Option Award Agreement............................................10
6.3 Option Price......................................................10
6.4 Duration of Options...............................................11
6.5 Exercise of Options...............................................11
6.6 Payment...........................................................11
6.7 Restrictions on Share Transferability.............................11
6.8 Termination of Employment Due to Death, Disability or Retirement.12
6.9 Termination of Employment for Other Reasons.......................13
6.10 Exercise of Options With Respect to Directors.....................13
6.11 Restrictions on Transferability...................................13
ARTICLE 7. STOCK APPRECIATION RIGHTS.........................................14
7.1 Grant of SARs.....................................................14
7.2 Exercise of Tandem SARs...........................................14
7.3 Exercise of Affiliated SARs.......................................15
7.4 Exercise of Freestanding SARs.....................................15
7.5 SAR Agreement.....................................................15
7.6 Term of SARs......................................................15
7.7 Payment of SAR Amount.............................................15
7.8 Rule 16b-3 Requirements...........................................15
7.9 Termination of Employment Due to Death, Disability, or Retirement.16
7.10 Termination of Employment for Other Reasons.......................17
7.11 Exercise of SARs With Respect to Directors........................17
7.12 Non-transferability of SARs.......................................17
ARTICLE 8. RESTRICTED STOCK..................................................17
8.1 Grant of Restricted Stock.........................................17
8.2 Restricted Stock Agreement........................................18
8.3 Transferability...................................................18
8.4 Other Restrictions................................................18
8.5 Certificate Legend................................................18
8.6 Removal of Restrictions...........................................19
8.7 Voting Rights.....................................................19
8.8 Dividends and Other Distributions.................................19
8.9 Termination of Employment Due to Death, Disability, or Retirement.19
8.10 Termination of Employment for Other Reasons.......................20
8.11 Restricted Stock Granted to Directors.............................20
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES..........................20
9.1 Grant of Performance Units/Shares.................................20
9.2 Value of Performance Units/Shares.................................20
9.3 Earning of Performance Units/Shares...............................21
9.4 Form and Timing of Payment of Performance Units/Shares............21
9.5 Termination of Employment Due to Death, Disability, Retirement,
or Involuntary Termination (Without Cause)........................21
9.6 Termination of Employment for Other Reasons.......................22
9.7 Performance Units/Shares Granted to Directors.....................22
9.8 Non-transferability...............................................22
ARTICLE 10. BENEFICIARY DESIGNATION..........................................22
ARTICLE 11. DEFERRALS........................................................23
ARTICLE 12. RIGHTS OF EMPLOYEES..............................................23
12.1 Employment.......................................................23
12.2 Participation....................................................23
ARTICLE 13. CHANGE IN CONTROL................................................24
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION.........................24
14.1 Amendment, Modification and Termination..........................24
14.2 Awards Previously Granted........................................24
ARTICLE 15. WITHHOLDING......................................................25
15.1 Tax Withholding..................................................25
15.2 Share Withholding................................................25
ARTICLE 16. INDEMNIFICATION..................................................25
ARTICLE 17. SUCCESSORS.......................................................26
ARTICLE 18. LEGAL CONSTRUCTION...............................................26
18.1 Gender and Number................................................26
18.2 Severability.....................................................26
18.3 Requirements of Law..............................................26
18.4 Securities Law Compliance........................................26
18.5 Governing Law....................................................27
<PAGE>
5
AMERICAN MEDICAL SECURITY GROUP, INC.
EQUITY INCENTIVE PLAN
(As Amended and Restated March 15, 1999)
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. American Medical Security Group, Inc., a
Wisconsin corporation formerly known as United Wisconsin Services, Inc. (the
"Company"), established this incentive compensation plan known as the "American
Medical Security Group, Inc. Equity Incentive Plan" (herein referred to as the
"Plan") effective as of February 24, 1993 (the "Effective Date") upon approval
by its Board of Directors, and ratification by an affirmative vote of a majority
of Shares at an annual shareholders' meeting of the Company. (The validity of
any awards granted prior to shareholder ratification of the Plan were contingent
upon such ratification.)
The Plan, as set forth in this document, remains in effect as provided in
Section 1.3 herein and permits the grant of Non-qualified Stock Options
("NQSOs"), Incentive Stock Options ("ISOs"), SARs, Restricted Stock, Performance
Units, and Performance Shares.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success,
and enhance the value, of the Company by linking the personal interests of
Participants to those of Company shareholders, and by providing Participants
with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants upon whose
judgment, interest, and special effort the successful conduct of its operation
is dependent.
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
commenced 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 of the Company
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, to the extent required by the Internal Revenue Code,
no ISO may be granted under the Plan on a date that is more than ten years from
the date the Plan is adopted, or, if earlier, the date the Plan is approved by
shareholders.
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 American Medical
Security Group, Inc. which is designated as an Affiliate by the Board. For
purposes of this Plan, United Wisconsin Services, Inc. (f/k/a Newco/UWS,
Inc.) and Blue Cross & Blue Shield United of Wisconsin shall each be
considered an Affiliate only with respect to Stock Options issued prior to
September 11, 1998.
(b) "AFFILIATED SAR" means an 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.
(c) "AWARD" means, individually or collectively, a grant under this
Plan of Non-qualified Stock Options, Incentive Stock Options, SARs,
Restricted Stock, Performance Units, or Performance Shares.
(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 in connection with any Award
Agreement entered into before March 15, 1999 shall mean a "Change in
Control" as defined in the Plan prior to its amendment and restatement on
March 15, 1999 and "Change in Control" of the Company in connection with
any Award Agreement entered into on or after March 15, 1999 shall be deemed
to have occurred as of the date that:
(i) a majority of Directors of the Company cease to continue to
serve as Directors of the Company and the Chief Executive Officer of
the Company ceases to serve as the Chief Executive of the Company as
the direct or indirect result of, or in connection with the occurrence
of:
(a) any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becoming,
directly or indirectly, the beneficial owner of securities of the
Company, or any other subsidiary, representing forty percent
(40%) or more of the combined voting power of the then
outstanding securities of the Company that may be cast for the
election of Directors of the Company (other than as a result of
an issuance of securities initiated by the Company or open market
purchases approved by the Board of Directors of the Company as
long as the majority of the Directors at the time of such
approval are also Directors at the time the purchases are made);
(b) a cash tender or exchange offer;
(c) a hostile or involuntary merger or other business
combination;
(d) a sale of all or substantially all assets of the
Company;
(e) a contested election of directors; or
(f) any combination of the aforementioned events; or
(ii) the shareholders approve a plan of liquidation or
dissolution of the Company.
(i) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
(j) "COMMITTEE" means the Compensation Committee of American Medical
Security Group, Inc., as appointed by the Board to administer the Plan, or
such other committee as may be appointed by the Board consistent with
Section 3.1.
(k) "COMPANY" means American Medical Security Group, Inc., a Wisconsin
corporation or any successor thereto as provided in Article 17 herein.
(l) "COVERED EMPLOYEE" means a Participant designated prior to the
grant of an award of Restricted Stock, Performance Units, or Performance
Shares by the Committee who is or may be a "covered employee" within the
meaning of Section 162(m)(3) of the Internal Revenue Code in the year in
which such Restricted Stock, Performance Units or Performance Awards are
taxable to such Participant.
(m) "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary or Affiliate.
(n) "DISABILITY" means with respect to any ISOs, a permanent and total
disability within the meaning of Code Section 22(e)(3), and with respect to
all other Awards under the Plan, a medically determinable mental or
physical impairment which renders a Participant totally and presumably
permanently unable to continue in employment with the Company and all
Affiliates. The determination of disability shall be made 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) "EMPLOYEE" means any full-time employee of the Company or of the
Company's Subsidiaries or Affiliates.
(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor Act thereto.
(q) "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.
(r) "FREESTANDING SAR" means an SAR that is granted independently of
any Options.
(s) "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.
(t) "INSIDER" shall mean an Employee or Participant who is, on the
relevant date, an officer, director of the Company, as defined in Rule 16
under the Exchange Act.
(u) "NON-QUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.
(v) "OPTION" means an Incentive Stock Option or a Non-qualified Stock
Option.
(w) "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option, as determined by the Committee.
(x) "PARTICIPANT" means a person who has outstanding an Award granted
under the Plan.
(y) "PERFORMANCE GOALS" means the performance goals established by the
Committee prior to the grant of any Award of Restricted Stock, Performance
Units, or Performance Shares that are based on the attainment of goals
relating to one or more of the following business criteria measured on an
absolute basis or in terms of growth or reduction: net income (pre-tax or
after-tax and with adjustments as stipulated), earnings per share, return
on equity, return on assets, return on tangible book value, operating
income, earnings before depreciation, interest, taxes and amortization
(EBDITA), loss ratio, expense ratio, increase in stock price, total
shareholder return, economic value added and operating cash flow. With
respect to Covered Employees, all Performance Goals shall be objective
performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m)(4) of the Internal
Revenue Code and shall be established by the Committee within the time
prescribed by Section 162(m) of such Code and related regulations. With
respect to Participants who are not Covered Employees, the Committee may
establish other subjective or objective performance goals, including
individual goals, which it deems appropriate.
(z) "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.
(aa) "PERFORMANCE SHARE" means an Award granted to a Participant, 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 under the
Company's tax qualified retirement plan.
(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) "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone
or in connection with a related Option, designated as an SAR, pursuant to
the terms of Article 7 herein.
(ii) "TANDEM SAR" means an 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, an SAR shall similarly be canceled).
(jj) "WINDOW PERIOD" means a window period of time as defined in the
Company's then current insider trading policy.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board of American Medical Security Group, Inc., 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.
It is intended that at all times, the Committee shall be comprised solely
of Directors who are both: (i) Non-Employee Directors, as defined in Rule 16b-3
under the Exchange Act; and (ii) Outside Directors, as defined in Treas. Reg.
1.162-27. However, the failure to so comply with Rule 16b-3 and/or Treas. Reg.
1.162-27 shall not affect the validity of any Awards made by the Committee in
accordance with the provisions of the Plan.
3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power except
as limited by law or by the Articles of Incorporation or By-laws of the Company,
and subject to the provisions herein, to determine the size and types of Awards;
to determine the terms and conditions of such Awards in a manner consistent with
the Plan; to construe and interpret the Plan and any agreement or instrument
entered into under the Plan; to establish, amend, or waive rules and regulations
for the Plan's administration; and (subject to the provisions of Article 14
herein) to amend the terms and conditions of any outstanding Award to the extent
such terms and conditions are within the discretion of the Committee as provided
in the Plan. Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan. As permitted
by law, the Committee may delegate its authority as identified hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all Persons, including the Company, its stockholders, Employees, Participants,
and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan may not
exceed 4,000,000. These 4,000,000 Shares may be either authorized but unissued
or reacquired Shares.
The following rules will apply for purposes of the determination of the
number of Shares available for grant under the Plan:
(a) While an Award is outstanding, it shall be counted against the
authorized pool of Shares, regardless of its vested status.
(b) The grant of an Option or Restricted Stock shall reduce the Shares
available for grant under the Plan by the number of Shares subject to such
Award.
(c) The grant of a Tandem SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the related Option
(i.e., there is no double counting of Options and their related Tandem
SARs).
(d) The grant of an Affiliated SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the SAR, in addition
to the number of Shares subject to the related Option.
(e) The grant of a Freestanding SAR shall reduce the number of Shares
available for grant by the number of Freestanding SARs granted.
(f) The Committee shall in each case determine the appropriate number
of Shares to deduct from the authorized pool in connection with the grant
of Performance Units and/or Performance Shares.
(g) To the extent that an Award is settled in cash rather than in
Shares, the authorized Share pool shall be credited with the appropriate
number of Shares represented by the cash settlement of the Award, as
determined at the sole discretion of the Committee (subject to the
limitation set forth in Section 4.2 herein).
The maximum number of Shares with respect to which Awards may be made to
any Participant annually (in any one calendar year) shall not exceed 250,000
shares. Notwithstanding the foregoing, if the Participant receives the Award
prior to March 31, 1997 in connection with the Employee's initial employment by
the Company or in connection with a merger or acquisition by the Company, the
maximum number of Shares with respect to which Awards may be made during the
three (3) year period ended March 31, 1997 shall be 850,000 Shares. No
Participant may be granted Performance Units in any one calendar year that when
payable would exceed $3,000,000.
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, separation, liquidation, stock
dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made in
the number of class of Shares which may be delivered under the Plan, and in the
number and class of and/or price of Shares subject to outstanding Options, SARs,
and Restricted Stock granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; 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
Directors and all full-time, active Employees of the Company, its Subsidiaries
and Affiliates, as determined by the Committee.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Participants, those
to whom Awards shall be granted and shall determine the nature and amount of
each award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each Participant.
The Committee may grant ISOs, NQSOs, or a combination thereof.
If required by applicable tax rules regarding a particular grant of ISOs,
to the extent that the aggregate fair market value (determined as of the date an
ISO is granted) of Shares with respect to which ISOs are exercisable for the
first time by a Participant during any calendar year exceeds $100,000 (or such
other limit as prescribed by the Code) such option grant shall be treated as a
grant of NQSOs rather than ISOs.
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 an NQSO whose grant is intended not to fall under
the Code provisions of Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option shall be
determined by the Committee; provided that the Option Price shall not be less
than one hundred percent (100%) of the Fair Market Value of a Share on the date
the Option is granted.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no ISO
shall be exercisable later than the tenth (10th) anniversary date of its grant,
and no NQSO shall be exercisable later than the twelfth (12th) anniversary date
of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant. However, in no event may any Option granted
under this Plan become exercisable prior to six (6) months following the date of
its grant.
6.6 PAYMENT. Options shall be exercised by the delivery of a written notice
of exercise to the Secretary of the Company, setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by payment in
full of the Option Price.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), or (c) by a combination of
(a) and (b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option under
the Plan, as it may deem advisable, including, without limitation, restrictions
under applicable Federal securities laws, under the requirements of any Stock
exchange or market upon which such Shares are then listed and/or traded, and
under any Blue Sky or state securities laws applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of a Participant
is terminated by reason of death, all outstanding Options granted to that
Participant shall immediately vest one hundred percent (100%), and shall
remain exercisable at any time prior to their expiration date, or for one
(1) year after the date of death, whichever period is shorter, by such
person or persons as shall have been named as the Participant's
beneficiary, or by such persons that have acquired the Participant's rights
under the Option by will or by the laws of descent and distribution.
(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all outstanding Options
granted to that Participant shall immediately vest one hundred percent
(100%) as of the date the Committee determines the definition of Disability
to have been satisfied, and shall remain exercisable at any time prior to
their expiration date, or for one (1) year after the date that the
Committee determines the definition of Disability to have been satisfied,
whichever period is shorter.
(c) TERMINATION BY RETIREMENT. In the event the employment of a
Participant is terminated by reason of Retirement, the Committee shall
retain discretion over the treatment of Options.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that a
Participant's employment terminates by reason of Disability or Retirement,
and within the exercise period allowed by the Committee following such
termination the Participant dies, then the remaining exercise period under
outstanding Options shall equal the longer of: (i) one (1) year following
death; or (ii) the remaining portion of the exercise period which was
triggered by the employment termination. Such Options shall be exercisable
by such person or persons who shall have been named as the Participant's
beneficiary, or by such persons who have acquired the Participant's rights
under the Option by will or by the laws of descent and distribution.
(e) EXERCISE LIMITATIONS ON ISOS. In the case of ISOs, the tax
treatment prescribed under Section 422 of the Internal Revenue Code of
1986, as amended, may not be available if the Options are not exercised
within the Section 422 prescribed time periods after each of the various
types of employment termination.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant shall terminate for any reason other than the reasons set forth in
Section 6.8 (and other than for Cause), all Options held by the Participant
which are not vested as of the effective date of employment termination
immediately shall be forfeited to the Company (and shall once again become
available for grant under the Plan). However, the Committee, in its sole
discretion, shall have the right to immediately vest all or any portion of such
Options, subject to such terms as the Committee, in its sole discretion, deems
appropriate.
Options which are vested as of the effective date of employment termination
may be exercised by the Participant for a period of up to six (6) months
following termination, or for such longer period up to one (1) year as the
Committee determines with respect to a particular Participant.
If the employment of a Participant shall be terminated by the Company for
Cause, all outstanding options held by the Participant immediately shall be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the Option.
For purposes of this Section and Section 6.8, a termination of employment
shall occur only after the Employee ceases to be an Employee of the Company and
all Subsidiaries or Affiliates.
6.10 EXERCISE OF OPTIONS WITH RESPECT TO DIRECTORS. Options granted to
Directors 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 such Participant. However, in no event
may any such Option become exercisable prior to six (6) months following the
date of its grant.
6.11 RESTRICTIONS ON TRANSFERABILITY. No Option 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, and shall be
exercisable by a Participant during his or her lifetime only by the Participant
except that NQSOs may be transferred by a Participant to the Participant's
spouse, children or grandchildren or to a trust for the benefit of such spouse,
children or grandchildren.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, an SAR
may be granted to a Participant at any time and from time to time as shall be
determined by the Committee. The Committee may grant Affiliated SARs,
Freestanding SARs, Tandem SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Article 4 herein) and consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs. However, the grant price of a Freestanding SAR shall be
at least equal to one hundred percent (100%) of the Fair Market Value of a Share
on the date of grant of the SAR. The grant price of Tandem SARs 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 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 an 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 an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon the exercise of an SAR
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 an 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.
Further, unless the Committee determines otherwise, if the Participant is
an Insider, the ability of the Participant to exercise SARs for cash may be
limited to the Window Period or otherwise as provided in the Company's then
current insider trading policy.
7.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of a Participant
is terminated by reason of death, all outstanding SARs granted to that
Participant shall immediately vest one hundred percent (100%), and shall
remain exercisable at any time prior to their expiration date, or for one
(1) year after the date of death, whichever period is shorter, by such
person or persons as shall have been named as the Participant's
beneficiary, or by such persons that have acquired the Participant's rights
under the SAR by will or by the laws of descent and distribution.
(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all outstanding SARs
granted to that Participant shall immediately vest one hundred percent
(100%) as of the date the Committee determines the definition of Disability
to have been satisfied, and shall remain exercisable at any time prior to
their expiration date, or for one (1) year after the date that the
Committee determines the definition of Disability to have been satisfied,
whichever period is shorter.
(c) TERMINATION BY RETIREMENT. In the event the employment of a
Participant is terminated by reason of Retirement, the Committee shall
retain discretion over the treatment of SARs.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that a
Participant's employment terminates by reason of Disability or Retirement,
and within the exercise period allowed by the Committee following such
termination, the Participant dies, then the remaining exercise period under
outstanding SARs shall equal the longer of: (i) one (1) year following
death; or (ii) the remaining portion of the exercise period which was
triggered by the employment termination. Such SARs shall be exercisable by
such person or persons who shall have been named as the Participant's
beneficiary, or by such persons who have acquired the Participant's rights
under the SAR by will or by the laws of descent and distribution.
7.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant shall terminate for any reason other than the reasons set forth in
Section 7.9 (and other than for Cause), all SARs held by the Participant which
are not vested as of the effective date of employment termination immediately
shall be forfeited to the Company (and shall once again become available for
grant under the Plan). However, the Committee, in its sole discretion, shall
have the right to immediately vest all or any portion of such SARs, subject to
such terms as the Committee, in its sole discretion, deems appropriate.
SARs which are vested as of the effective date of employment termination
may be exercised by the Participant within the period beginning on the effective
date of employment termination, and ending six (6) months after such date.
If the employment of a Participant shall be terminated by the Company for
Cause, all outstanding SARs held by the Participant immediately shall be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the SARs.
7.11 EXERCISE OF SARS WITH RESPECT TO DIRECTORS. SARs granted to Directors
may be exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes on them.
7.12 NON-TRANSFERABILITY OF SARS. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all SARs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to eligible Participants in such amounts as the Committee shall
determine.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or Periods, the number of Restricted Stock Shares granted, and such
other provisions as the Committee shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Agreement, or upon earlier satisfaction of any other conditions, as specified by
the Committee in its sole discretion and set forth in the Restricted Stock
Agreement. However, in no event may any Restricted Stock granted under the Plan
become vested in a Participant prior to six (6) months following the date of its
grant. All rights with respect to the Restricted Stock granted to a Participant
under the Plan shall be available during his or her lifetime only to such
Participant.
8.4 OTHER RESTRICTIONS. The Committee shall in the case of Covered
Employees, and may in the case of other Participants, condition the vesting of
Shares of Restricted Stock upon the attainment of Performance Goals established
before or at the time of the grant. The Committee may impose such other
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable, 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. The provisions of Restricted
Stock Award need not be the same with respect to each Participant.
8.5 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 8.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation
of law, is subject to certain restrictions on transfer as set
forth in the American Medical Security Group, 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 American Medical Security Group, Inc."
8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article
8, Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the Participant after the last day
of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 8.5 removed from his or her Share certificate.
8.7 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares while they are so held. If any such dividends or distributions are
paid in Shares, the Shares shall be subject to the same restrictions on
transferability and forfeitability as the Shares of Restricted Stock with
respect to which they were paid.
8.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the event the employment of a Participant is terminated by reason of death or
Disability, all outstanding Shares of Restricted Stock shall immediately vest
one hundred percent (100%) as of the date of employment termination (in the case
of Disability, the date employment terminates shall be deemed to be the date
that the Committee determines the definition of Disability to have been
satisfied). The Committee retains discretion over the treatment of Restricted
Stock upon Retirement. In the event of full vesting, the holder of the
certificates of Restricted Stock shall be entitled to have any
non-transferability legends required under Sections 8.4 and 8.5 of this Plan
removed from the Share certificates.
8.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant shall terminate for any reason other than those specifically set
forth in Section 8.9 herein, all Shares of Restricted Stock held by the
Participant which are not vested as of the effective date of employment
termination immediately shall be forfeited and returned to the Company (and,
subject to Section 4.2 herein, shall once again become available for grant under
the Plan).
With the exception of a termination of employment for Cause, the Committee,
in its sole discretion, shall have the right to provide for lapsing of the
restrictions of Restricted Stock following employment termination, upon such
terms and provisions as it deems proper.
8.11 RESTRICTED STOCK GRANTED TO DIRECTORS. Restricted Stock granted to
Directors shall be subject to all of the provisions in this Article 8 other than
Section 8.9 and 8.10. The Committee, in its sole discretion, shall have the
right to provide for the lapsing of the restrictions on the Restricted Stock
following the Director's cessation of service as a director, 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 Participants
at any time and from time to time, as shall be determined by the Committee.
Subject to Section 4.1, the Committee shall have complete discretion in
determining the number of Performance Units and Performance Shares granted to
each Participant.
9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set Performance Goals in its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Units/Shares that will be paid out to the
Participants. The time period during which the Performance Goals must be met
shall be called a "Performance Period." Performance Periods shall, in all cases,
exceed six (6) months in length.
9.3 EARNING OF PERFORMANCE UNITS/SHARES. After the applicable Performance
Period has ended, the holder of Performance Units/Shares shall be entitled to
receive payout on the number of Performance Units/Shares earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding Performance Goals have been achieved.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned Performance Units/Shares shall be made in a single lump sum, within
forty-five (45) calendar days following the close of the applicable Performance
Period. The Committee, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash or in Shares (or in a combination thereof),
which have an aggregate Fair Market Value equal to the value of the earned
Performance Units/Shares at the close of the applicable Performance Period.
Prior to the beginning of each Performance Period, Participants may elect
to defer the receipt of Performance Unit/Share payout upon such terms as the
Committee deems appropriate.
9.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT, OR
INVOLUNTARY TERMINATION (WITHOUT CAUSE). In the event the employment of a
Participant is terminated by reason of death or Disability or involuntary
termination without Cause during a Performance Period, the Participant shall
receive a prorated payout of the Performance Units/Shares. The Committee retains
discretion over the treatment of Performance Units/Shares upon Retirement. Any
prorated payout shall be determined by the Committee, in its sole discretion,
and shall be based upon the length of time that the Participant held the
Performance Units/Shares during the Performance Period, and shall further be
adjusted based on the achievement of the pre-established Performance Goals.
Timing of payment of earned Performance Units/Shares shall be determined by
the Committee at its sole discretion.
9.6 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment terminates for any reason other than those reasons set
forth in Section 9.5 herein, all Performance Units/Shares shall be forfeited by
the Participant to the Company, and shall once again be available for grant
under the Plan.
9.7 PERFORMANCE UNITS/SHARES GRANTED TO DIRECTORS. Performance Units and
Performance Shares granted to Directors shall be subject to all provisions of
this Article 9 other than Sections 9.5 and 9.6. The Committee, in is sole
discretion, shall have the right to provide for the treatment of Performance
Units/Shares following the Director's cessation of services as a director, upon
such terms and conditions as it deems proper.
9.8 NON-TRANSFERABILITY. 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 a Participant's
rights under the Plan shall be exercisable during the Participant's lifetime
only by the Participant or the Participant's legal representative.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit and who is eligible to exercise
vested Options and SARs in the event of the Participant's death prior to such
exercise. Each such designation shall revoke all prior designations by the same
Participant, shall be in the form prescribed by the Company and will be
effective only when any necessary spousal consent is obtained and filed by the
Participant in writing with the Secretary of the Company during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate and any vested Options and/or SARs not previously exercised prior to the
Participant's death may be exercised by the administrator of the Participant's
estate.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer such Participant's receipt
of the payment of cash or the delivery of Shares that would otherwise be due to
such Participant by virtue of the exercise of the Option or SAR, the lapse or
waiver of restrictions with respect to Restricted Stock, or the satisfaction of
any requirements or goals with respect to Performance Units/Shares. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
For purposes of the Plan, transfer of employment of a Participant between
the Company and any one of its Subsidiaries or Affiliates (or between
Subsidiaries and/or Affiliates) shall not be deemed a termination of employment.
12.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or having been so selected, to be selected to
receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless otherwise specifically
prohibited by the terms of Section 18, herein:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable;
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse, and within ten (10) business days after the occurrence
of a Change in Control, the stock certificates representing Shares of
Restricted Stock, without any restrictions or legend thereon, shall be
delivered to the applicable Participants;
(c) The target value attainable under all Performance Units and
Performance Shares shall be deemed to have been fully earned for the entire
Performance Period as of the effective date of the Change in Control, and
shall be paid out in cash to Participants within thirty (30) days following
the effective date of the Change in Control; provided, however, that there
shall not be an accelerated payout with respect to Performance Units or
Performance Shares which were granted less than six (6) months prior to the
effective date of the Change in Control;
(d) Subject to Article 14 herein, the Committee shall have the
authority to make any modifications to the Awards as determined by the
Committee to be appropriate before the effective date of the Change in
Control.
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 affected Participant
(or if the Participant is not then living, the affected beneficiary); provided
that adjustments pursuant to Section 4.3 shall not be subject to the foregoing
limitations of this Section 14.2.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising or as a result of this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event hereunder, Participants may elect, subject to
the approval of the Committee, to satisfy the 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 and signed by the Participant, and elections by Insiders shall
additionally comply with any applicable requirements of Rule 16b-3 of the
Exchange Act.
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 Articles of Incorporation or By-laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
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.
18.4 SECURITIES LAW COMPLIANCE. Transactions under this Plan are intended
to comply with all applicable conditions or Rule 16b-3 or its successors under
the Exchange 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.
EXHIBIT 10.2
AMERICAN MEDICAL SECURITY GROUP, INC.
EQUITY INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
You have been selected to be a Participant in the American Medical Security
Group, Inc. Equity Incentive Plan (the "Plan"), as specified below:
PARTICIPANT: ____________________
DATE OF GRANT: ____________________
DATE OF EXPIRATION: _____________________
NUMBER OF SHARES COVERED BY THIS OPTION: __________________ Shares
OPTION PRICE: $__________ per Share
THIS AGREEMENT, effective as of the Date of Grant set forth above, is
between American Medical Security Group, Inc., a Wisconsin corporation (the
"Company") and the Participant named above pursuant to the provisions of the
Plan. Unless otherwise indicated, capitalized terms used herein shall have the
meanings assigned to such terms under the Plan. The parties hereto agree as
follows:
1. GRANT OF STOCK OPTION. The Company hereby grants to Participant the
option (the "Option(s)") to purchase the number of shares of common stock of the
Company ("Common Stock") set forth above at the stated Option Price, which is
one hundred percent (100%) of the Fair Market Value on the Date of Grant,
subject to the terms and conditions of the Plan and this Agreement. This award
is intended to be Nonqualified Stock Option, and therefore is not subject to
Section 422 of the Code.
2. VESTING OF STOCK OPTION. Except as hereinafter provided, with respect to
the Options granted hereunder, vesting shall occur at a rate of twenty-five
percent (25%) per year beginning on the first anniversary of the Date of Grant
and each subsequent anniversary date thereafter.
3. EXERCISABILITY OF OPTION. The Options are exercisable at any time after
the Date of Grant, in whole or in part, but only if all of the following
conditions are met at the time of exercise:
(a) The Options to be exercised are vested as described in Section 2
above;
(b) The date of exercise is on or before the Date of Expiration set
forth above;
(c) The Options to be exercised are exercised only in compliance with
the Company's then current Insider Trading Policy; and
(d) Participant is employed by the Company or any present or future
parent, subsidiary or Affiliate of the Company; or, if he or she is no
longer so employed, the date of exercise is in accordance with the
provisions of this Agreement and the Plan.
4. TERMINATION OF EMPLOYMENT BY DEATH. In the event the employment of the
Participant is terminated by reason of death, all outstanding Options granted
pursuant to this Agreement shall immediately vest one hundred percent (100%),
and shall remain exercisable for a period ending on the earlier of (i) the Date
of Expiration identified above, or (ii) one (1) year after the date of the
Participant's death.
5. TERMINATION OF EMPLOYMENT BY DISABILITY. In the event the employment of
the Participant is terminated by reason of Disability, all outstanding Options
granted pursuant to this Agreement shall immediately vest one hundred percent
(100%) as of the date the Compensation Committee (the "Committee") determines
the definition of Disability to have been satisfied, and shall remain
exercisable for a period ending on the earlier of (i) the Date of Expiration
identified above, or (ii) one (1) year after the date the Committee determines
the definition of Disability to have been satisfied.
6. TERMINATION OF EMPLOYMENT BY RETIREMENT. In the event the employment of
Participant is terminated by reason of Retirement (as defined under the
then-established rules of the Company's tax-qualified retirement plan), the
Committee shall retain discretion over the treatment of any unvested Options.
However, at the date of termination of employment by reason of Retirement, any
vested Options shall remain exercisable for a period ending on the earlier of
(i) the Date of Expiration identified above, or (ii) the end of the third (3rd)
year following the date of termination of the Participant's employment by reason
of Retirement.
7. EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event Participant's
employment terminates by reason of Disability or Retirement, and within the
exercise period allowed by the Committee following such termination the
Participant dies, then the remaining exercise period under outstanding 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.
8. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of
Participant shall terminate for any reason other than his or her death,
Disability, or Retirement (and other than for Cause), all Options held by the
Participant which are not vested as of the effective date of employment
termination immediately shall be forfeited to the Company. However, the
Committee, in its sole discretion, shall have the right to immediately vest all
or any portion of such Options subject to such terms as the Committee, in its
sole discretion, deems appropriate.
Options which are vested as of the effective date of employment termination
may be exercised by the Participant within the period beginning on the effective
date of employment termination, and ending on the earlier of (i) the Date of
Expiration identified above, or (ii) six (6) months after the date of employment
termination.
If the employment of Participant shall be terminated by the Company for
Cause, all outstanding Options held by the Participant immediately shall be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the Options.
9. CHANGE IN CONTROL. In the event of a Change in Control (as defined in
the Plan) which occurs prior to the Participant's termination, Participant's
right to exercise the Options shall vest fully as of the first date that the
definition of Change in Control has been fulfilled, and shall become immediately
exercisable in accordance with the terms of this Agreement and the Plan.
10. RESTRICTIONS ON TRANSFER. The Options may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution and shall be exercisable during
Participant's lifetime only by Participant or Participant's legal
representative, except that the Options may be transferred by the Participant to
the Participant's spouse, children or grandchildren or a trust for the benefit
of such spouse, children or grandchildren. In the event the Options are
transferred, they shall remain subject to this Agreement and the Plan.
11. RECAPITALIZATION. In the event there is any change in the Common Stock
of the Company through the declaration of stock dividends or through
recapitalization resulting in stock split-ups or through merger, consolidation,
exchange of shares, or otherwise, the number and class of shares of Common Stock
subject to the Options, as well as the Option Price, shall be equitably adjusted
by the Committee, in its sole discretion, to prevent dilution or enlargement of
rights.
12. PROCEDURE FOR EXERCISE OF OPTIONS. The Options may be exercised by
giving written notice to the Company at its executive offices, addressed to the
attention of its Secretary. Such notice is to be received by the Secretary on or
before the date on which the Options are to be exercised. Such notice (a) shall
be signed by the Participant or his or her legal representative; (b) shall
specify the number of full shares then elected to be purchased with respect to
the Option; and (c) unless a Registration Statement under the Securities Act of
1933 is in effect with respect to the Shares to be purchased, shall contain a
representation of Participant that the Shares are being acquired by him or her
for investment purposes only, and that he or she will not sell or otherwise
transfer the Shares except in compliance with all applicable securities laws and
requirements of any stock exchange upon which the shares of Common Stock may
then be listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares; and (d) shall be accompanied by payment in full of
the Option Price of the Shares to be purchased.
The Option Price upon exercise of the Options shall be payable to the
Company in full either (a) in cash or its equivalent (acceptable cash
equivalents shall be determined at the sole discretion of the Committee); (b) by
tendering previously acquired Shares (held at least six months) having an
aggregate Fair Market Value at the time of exercise equal to the total price of
the Shares for which the Option is being exercised; (c) through a "cashless
exercise" procedure pursuant to the terms and conditions specified in the Plan;
or (d) by a combination of (a), (b) and (c).
As promptly as practicable after receipt of such notice and payment, the
Company shall cause to be issued and delivered to the Participant or his or her
legal representative, as the case may be, certificates for the Shares so
purchased, which may, if appropriate, be endorsed with appropriate restrictive
legends. The Company shall maintain a record of all information pertaining to
Participant's rights under this Agreement, including the number of Shares for
which the Option is exercisable. If the Option shall have been exercised in
full, this Agreement shall be returned to the Company and canceled.
13. RIGHTS AS A STOCKHOLDER. Participant shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject to
this Option Agreement until such time as the purchase price has been paid and
the Shares have been issued and delivered to him or her.
14. CONTINUATION OF EMPLOYMENT. This Agreement shall not confer upon
Participant any right to continuation of employment by the Company, nor shall
this Agreement interfere in any way with the Company's right to terminate his or
her employment at any time.
15. MISCELLANEOUS.
(a) This Agreement and the rights of Participant hereunder are subject
to all the terms and conditions of the Plan, as the same may be amended
from time to time, as well as to such rules and regulations as the
Compensation Committee may adopt for administration of the Plan. The
Committee shall have the right to impose such restrictions on any Share
acquired pursuant to the exercise of the Options, 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.
It is expressly understood that the Committee is authorized to
administer, construe, and make all determinations necessary or appropriate
to the administration of the Plan and this Agreement, all of which shall be
binding upon Participant. Any inconsistency between this Agreement and the
Plan shall be resolved in favor of the Plan.
(b) With the approval of the Board of Directors of the Company, the
Committee may terminate, amend, or modify the Plan; provided, however, that
no such termination, amendment, or modification of the Plan may in any
material way adversely affect Participant's vested rights with respect to
Options granted under this Agreement.
(c) The Company shall have the authority to deduct or withhold, or
require Participant to remit to the Company, an amount sufficient to
satisfy federal, state, and local taxes (including Participant's FICA
obligation) required by law to be withheld with respect to any exercise of
Participant's rights under this Agreement.
Participant may elect, unless otherwise determined by the Committee in
its sole discretion, to satisfy the withholding requirement, in whole or in
part, by having the Company withhold shares of Common Stock having an
aggregate Fair Market Value, on the date the tax is to be determined, equal
to the minimum amount required to be withheld. All elections shall be
irrevocable and in writing, and shall be signed by Participant, and shall
be made in accordance with rules set forth in Section 15.2 of the Plan.
(d) Participant agrees to take all steps necessary to comply with all
applicable provisions of federal and state securities law in exercising
Participant's rights under this Agreement.
(e) The Plan and this Agreement are not intended to qualify for
treatment under the provisions of the Employee Retirement Income Security
Act of 1974, as amended, ("ERISA").
(f) This Agreement 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.
(g) To the extent not preempted by federal law, this Agreement shall
be governed by, and construed in accordance with the laws of the State of
Wisconsin without regard to principles of conflicts of law.
IN WITNESS WHEREOF, the parties have caused this Option Agreement to
be executed as of the Date of Grant.
AMERICAN MEDICAL SECURITY GROUP, INC.
By:__________________________________
John R. Wirch
Vice President, Human Resources
_______________________________
Participant
EXHIBIT 10.3
DEFERRED STOCK AGREEMENT
BETWEEN
AMERICAN MEDICAL SECURITY GROUP, INC.
AND
SAMUEL V. MILLER
THIS AGREEMENT, effective as of November 17, 1998 (the "Effective Date"),
is by and between American Medical Security Group, Inc., a Wisconsin corporation
("AMSG") and Samuel V. Miller (the "Executive"), parties to this Agreement.
RECITALS
The Executive is a key employee performing valuable services for AMSG, and
AMSG desires to retain the Executive in its service.
It is to the mutual benefit of the parties to this Agreement that the
relationship continue and that the Executive continue to contribute to the
operations of AMSG.
AMSG desires to reward Executive for his past service, loyalty and counsel,
and wishes to provide an inducement to encourage Executive's continued efforts
on behalf of AMSG.
AMSG desires to provide such reward and inducement by promising to issue
shares of AMSG common stock to the Executive upon the Executive's termination of
employment after the satisfaction of certain vesting requirements.
AGREEMENT
NOW THEREFORE, AMSG and the Executive agree, in consideration of the mutual
promises set forth in this Agreement, as follows:
1. AMSG DEFERRED STOCK. As of the Effective Date, AMSG shall
recognize an obligation to issue to the Executive, in accordance
with Section 2 of the Agreement, 73,506 shares of AMSG common
stock (the "Deferred Stock"), provided that the Executive
acquires a vested interest in such Deferred Stock pursuant to the
provisions of Section 3 of the Agreement.
2. ISSUANCE OF DEFERRED STOCK. Subject to the Executive's
satisfaction of the vesting requirements set forth in Section 3
of the Agreement, upon the Executive's termination of employment
for any reason, AMSG shall issue to the Executive the Deferred
Stock promised under Section 1 of the Agreement. The issuance of
such Deferred Stock to the Executive (or to the Executive's
designated beneficiary in the event of the Executive's death
before such Deferred Stock is issued) shall occur in a single
issuance of shares of AMSG common stock on January 2nd of the
year following the calendar year during which the Executive
terminates employment with AMSG.
At AMSG's option, the shares of Deferred Stock to be issued to
the Executive under the Agreement shall be authorized but as yet
unissued shares, treasury shares or shares of AMSG common stock
acquired on the open market.
3. VESTING IN DEFERRED STOCK. The Executive shall have a
nonforfeitable and vested interest in the Deferred Stock promised
under Section 1 of the Agreement on the earliest of the
following:
(a) November 17, 2002, provided that the Executive remains
continuously employed with AMSG through November 17, 2002;
(b) the Executive's death while employed by AMSG;
(c) the Executive's Disability while employed by AMSG;
(d) the occurrence of a Change in Control while the Executive is
employed by AMSG;
(e) AMSG's termination of the Executive for any reason other
than Cause if the Fair Market Value of a share of AMSG's
common stock exceeds $12.00 on the date of the Executive's
termination.
If the Executive terminates employment prior to the occurrence of
one of the events specified in (a) through (e) above, the
Executive shall have no vested interest in any Deferred Stock
hereunder and no shares of AMSG common stock shall be issued to
the Executive under this Agreement.
For purposes of this Agreement, the terms "Cause," "Disability,"
"Change in Control" and "Fair Market Value" shall have the same
meanings as provided in the American Medical Security Group, Inc.
Equity Incentive Plan, as amended as of the date of this
Agreement.
4. NO TRUST CREATED. Nothing in this Agreement, and no action taken
pursuant to the provisions of this Agreement, shall create or be
construed to create a trust of any kind, or a fiduciary
relationship between AMSG and the Executive, his designated
beneficiary or any other person. The right of any person to
receive Deferred Stock under the provisions of this Agreement
shall be an unsecured claim against AMSG, and no person shall by
virtue of the provisions of this Agreement have any interest in
such Deferred Stock. To the extent that any person acquires a
right to receive Deferred Stock under this Agreement, such right
shall be no greater than the right of any unsecured general
creditor of AMSG.
5. DESIGNATED BENEFICIARY. The Executive shall designate one or more
beneficiaries to receive any Deferred Stock issued under this
Agreement in the event of the Executive's death prior to such
issuance. The Executive may change the designated beneficiary at
any time by filing a new beneficiary designation with AMSG in a
form as prescribed by AMSG. The beneficiary designation form on
file with AMSG at the Executive's death shall be controlling. If
the Executive fails to validly designate a beneficiary, any
Deferred Stock to be issued after the death of the Executive
shall be issued to the Executive's estate.
6. ASSIGNMENT PROHIBITED. The Deferred Stock promised hereunder may
not be sold transferred, pledged, assigned or otherwise alienated
or hypothecated, other than by will or by the laws of descent and
distribution.
7. DIVIDENDS, OTHER DISTRIBUTIONS. Prior to the issuance of Deferred
Stock hereunder, the Executive shall not be entitled to receive
any dividend equivalents or other distributions which may be paid
with respect to AMSG's common stock, except as provided in
Section 11.
8. BINDING AGREEMENT. This Agreement constitutes the entire
agreement between the parties, may be amended only in writing
with the consent of both parties, and shall be binding upon the
parties hereto, their heirs, executors, administrators,
successors and assigns, including any successor of AMSG resulting
from a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or
assets of AMSG.
9. WITHHOLDING.
(a) AMSG shall have the power and the right to deduct or
withhold, or require the Executive to remit to AMSG, an
amount sufficient to satisfy federal, state and local taxes
(including the Executive's FICA obligations) required by law
to be withheld with respect to any taxable event occurring
in connection with the issuance of Deferred Stock hereunder.
(b) With respect to any withholding required upon the issuance
of Deferred Stock, the Executive may elect, subject to the
approval of AMSG, to satisfy the withholding requirement, in
whole or in part, by having AMSG withhold shares of Deferred
Stock having a Fair Market Value on the date the tax is to
be determined equal to the minimum statutory tax liability
which could be imposed on the transaction. Any election
shall be irrevocable, made in writing, and signed by the
Executive.
10. AMSG AFFILIATES. For purposes of the Agreement (including the
issuance and vesting provisions in Sections 2 and 3 of the
Agreement, respectively), employment with AMSG shall include
employment with any AMSG Affiliate (as such term is defined in
the American Medical Security Group, Inc. Equity Incentive Plan),
and a transfer of the Executive's employment among AMSG and any
of its Affiliates shall not be deemed a termination of the
Executive's employment.
11. ADJUSTMENTS IN DEFERRED STOCK SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation,
liquidation, partial liquidation, stock dividend, extra-ordinary
dividend, split-up, spin-off, share combination, or other change
in the corporate structure of AMSG which affects the AMSG common
stock, an appropriate and equitable adjustment shall be made in
the number of shares of Deferred Stock, to prevent dilution or
enlargement of rights and to preserve the benefit of the
Agreement to AMSG and the Executive.
12. IMPACT ON OTHER AMSG BENEFITS. Neither the promise to issue
Deferred Stock, nor the issuance of such Deferred Stock under
this Agreement, shall be taken into account in determining the
Executive's benefits under any other pension, profit sharing,
deferred compensation or welfare benefit plan maintained by AMSG,
unless specifically provided to the contrary in such other plan.
13. EXECUTIVE'S EMPLOYMENT. Nothing in this Agreement shall interfere
with or limit in any way the right of AMSG to terminate the
Executive's employment at any time, nor confer upon the Executive
any right to continue in the employ of the AMSG for any given
period or upon any specific terms or conditions.
14. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the internal laws of the State of Wisconsin
to the extent not preempted by federal law.
15. REQUIREMENTS OF LAW. The issuance of Deferred Stock under this
Agreement shall be subject to all applicable laws, rules, and
regulations, and to any approvals by governmental agencies or
national securities exchanges as may be required, and the parties
shall make a good faith effort to implement this Agreement in
compliance with such applicable laws, rules, regulations and
approvals.
16. ACCOUNTING TREATMENT. The parties intend that the issuance of
Deferred Stock under this Agreement result in fixed, rather than
variable, accounting treatment to AMSG and shall implement this
Agreement in a manner consistent with such intent.
IN WITNESS WHEREOF, the parties have executed this Agreement on this _____
day of _______________, 1999, with an Effective Date of November 17, 1998.
AMERICAN MEDICAL SECURITY GROUP, INC.
By:
----------------------------------
Title:
-------------------------------
EXECUTIVE:
-------------------------------------
Samuel V. Miller
<PAGE>
2
BENEFICIARY DESIGNATION FORM
DEFERRED STOCK AGREEMENT
BETWEEN
AMERICAN MEDICAL SECURITY GROUP, INC.
AND
SAMUEL V. MILLER
Pursuant to the terms of the November 17, 1998 Deferred Stock Agreement
Between American Medical Security Group, Inc. ("AMSG") and myself (the
"Agreement"), I hereby revoke any prior beneficiary designation I may have made
and designate the following person(s) as my beneficiary(ies) for any Deferred
Stock which may be issued under the Agreement after my death:
Name:
Soc. Sec. No.:
Address:
Relationship:
[If more than one beneficiary is named, attach a separate sheet and
identify the percentage to go to each beneficiary.]
I reserve the right to revoke or change my beneficiary designation by
filing a new Beneficiary Designation Form with AMSG.
I understand that if I am married and a Wisconsin resident, my spouse may
have an interest in any Deferred Stock issued under the Agreement after my death
pursuant to Wisconsin marital property law and that such interest may impact
upon my beneficiary designation. I further understand that if I fail to validly
designate a beneficiary or leave no designated beneficiary surviving me, any
Deferred Stock issued under the Agreement after my death will be issued to my
estate.
Dated:
------------------------- --------------------------------
Samuel V. Miller
Received on behalf of American Medical
Security Group, Inc.:
Dated: By:
------------------------- ----------------------------
Signature
EXHIBIT 10.8
UWG | UNITED WISCONSIN GROUP POST OFFICE BOX 2013
MILWAUKEE, WI 53201-2013
- --------------------------------------------------------------------------------
UNITED WISCONSIN INSURANCE COMPANY
EXECUTIVE REIMBURSEMENT GROUP INSURANCE POLICY
POLICYHOLDER: American Medical Security
POLICY NUMBER: 0045137 0000
POLICY EFFECTIVE DATE: May 1, 1997
POLICY RENEWAL DATE: May 1, 1998
GOVERNING JURISDICTION: Wisconsin
This group insurance policy is issued to the named policyholder in the state
specified and is governed by the laws of that state.
Risk assumed under this policy will be insured from the effective date of this
policy, subject to all policy provisions.
The initial term of this policy is the period specified except that if this
policy is issued as a successor contract to provide continuous coverage of the
risk assumed by any prior policy issued by the company, subsequent revision of
coverage or premium rate notwithstanding, the initial policy period specified
above will be deemed to have occurred under that prior policy.
All of the following articles, schedules, and amendments are part of this policy
and available benefits are dependent upon them. Altogether this policy is issued
on our authority.
United Wisconsin Insurance Company
/s/ Mark H. Granoff
President
The policyholder agrees to all of the terms of this policy.
- --------------------------------------------------------------------------------
Authorized Signature Title Date
<PAGE>
TABLE OF CONTENTS
Policy Schedule................................................................3
Definitions....................................................................4
Benefit Payment................................................................6
Benefit Changes................................................................6
Benefit Administration.........................................................6
Limitations and Exclusions.....................................................7
Right of Recovery..............................................................7
Continuation and Termination of Insurance......................................8
Premium Computation and Payment................................................9
General Provisions............................................................10
<PAGE>
POLICY SCHEDULE
SCHEDULE OF BENEFITS
Class Class Annual Policy Proceeds
NUMBER DESCRIPTION MAXIMUM AMOUNT PAYABLE
- ------ ----------- ----------------------
01 All Actively at Work $5,000
Full-Time Vice-Presidents,
Presidents & CEO
Service Waiting Period: Effective first of the month coinciding with or
following thirty (30) days of employment
AMENDMENTS: None
PREMIUM SCHEDULE
Billed Premium Rate (per insured person per month).......................$202.50
Initial Policy Fee.......................................................$ 50.00
Retrospective Premium Adjustment Limit
(as a fraction of annual billed premium)......................150%
<PAGE>
DEFINITIONS
The following terms, when used in this policy and in any articles, schedules,
and amendments attached to the policy, are defined as follows and are limited to
that meaning only:
ACTIVELY AT WORK OR ACTIVE WORK means that the eligible member is working for
you:
1) in the usual course of your business;
2) full time at his principal place of employment; and
3) for at least the greater of:
a) the number of hours per week that you stated on your
application as the normal work week; or
b) 30 hours per week.
BILLED PREMIUM means the charge based on the premium rates established by the
company prior to the settlement period, which has been invoiced and paid or is
payable by the policyholder during the current settlement period, and which does
not include a retrospective premium amount for the current period.
CERTIFICATE means a document given to the insured person as proof of this
coverage under the policy. It is not part of the entire contract of insurance.
It contains all statements required by law.
CHILDREN mean the Insured Person's:
1) natural child; or
2) legally adopted child; or
3) step-child or foster child.
Each child must depend on the insured for support and either:
1) live with insured; or
2) be a full time student.
Each child must also be:
1) unmarried; and
2) under age 25.
CLASS means a grouping of insureds:
1) based on their job positions; and
2) determined by you.
CONTROLLING AUTHORITY means the policyholder's administrator who is responsible
for submission of claims under this policy.
COVERAGE means all the terms and provisions of this policy and any amendments.
COVERED means insured under this policy.
COVERED EXPENSES means those expenses which are specified in Section 213(e),
Part VII, Chapter 1B, Subtitle A of the Internal Revenue Code of 1954 as
amended.
DEDUCTIBLE means the amount of loss incurred by an insured which is not
indemnified by this policy.
DEPENDENT means the spouse and children of the insured who are not:
1) insured employees themselves under this policy; or
2) in full time military service.
A dependent can only be insured under one insured employee.
EFFECTIVE DATE means the date coverage is put in force.
ELIGIBLE MEMBER means a person who:
1) is a member of a class specified on the policy schedule;
2) is within the age requirements of the policy;
3) has satisfied any waiting period shown on your application;
and
4) is actively at work on the member's effective date.
EMPLOYER includes divisions and associated companies unless excluded in your
application.
HE, HIS, AND HIM refer to both genders.
INCURRED CLAIMS means the dollar amount of indemnity for an insured loss which
occurred under this policy.
IN FORCE means that this policy is in effect, as premiums are paid and all
insuring conditions are met.
INSURED PERSON means an eligible member who:
1) has fulfilled all conditions under this Policy to become
insured; and
2) has insurance in force under the Policy.
NOTICE means written notice in a form satisfactory to us for that purpose.
POLICYHOLDER means the legal entity to whom this policy is issued.
PAID CLAIMS means the dollar amount of indemnity for an insured loss which
occurred under this policy and which has been satisfied.
PROCEEDS means the amount of funds we will pay to indemnify the insured person
for covered expenses incurred under this policy. This amount is:
1) shown in the Policy and Certificate schedules; and
2) subject to the amount that the insured person is eligible
for as shown in the policy schedule for his class.
PROOF means a properly completed claim form, plus:- written documentation of the
loss which is acceptable to us.
RETENTION means that amount of operational charges which, together with claim
expenses, is used to calculate all premium amounts.
RETROSPECTIVE PREMIUM ADJUSTMENT LIMIT means the maximum amount of premium which
may be called for by the company following the end of any settlement period and
which is comprised of paid claims, incurred claims, and current retention
amounts.
RETROSPECTIVE PREMIUM AMOUNT means the amount of premium that may be called for
by the company following the end of any settlement period and which is comprised
of paid claims, and/or incurred claims, and/or current retention amounts.
SETTLEMENT PERIOD means one year, during which coverage is in force; or, in the
event the policy terminates before the end of a full year, that period of
coverage which extends from the effective date of the policy or the end of the
prior settlement period, if later, through the termination date of the policy.
SPOUSE means the legal husband or wife of the insured person.
USUAL, CUSTOMARY AND REASONABLE AND U.C.R. describes rates charged for a service
or item provided to an insured which do not exceed the rates charged to the
majority of persons by the institution or individual providing the service or
item nor do those rates exceed level of rates for similar services or items
charged by others within the community where the service or item was provided.
WE, US, AND OUR means United Wisconsin Insurance Company.
YOU AND YOURS means the group who is:
1) also the policyholder; and
2) named in the application.
BENEFIT PAYMENT
For the covered expenses incurred by the insured person, spouse, or
dependents which are in excess of any deductible amounts, proceeds are
paid subject to policy provisions to the insured person.
At the option of the insured person proceeds may be assigned to the
provider of the service for which that expense was incurred.
The sum of all proceeds paid to an insured person during a settlement
period may not exceed the proceeds maximum specified in the policy
schedule.
Proceeds available to an insured person who is eligible for less than
one year or less than the full settlement period are prorated for the
number of months the insured person is covered.
BENEFIT CHANGES
An insured person, spouse or dependent will not be eligible for any
benefit change whatsoever under this or any successor policy issued by
the company until the insured person has been actively at work for one
month.
Benefit changes will apply only to indemnity for loss that occurred
after the effective date of the benefit change.
BENEFIT ADMINISTRATION
A. Claim Forms
The company will provide the policyholder with a supply of
claim forms. An insured person may request claim forms from
the policyholder or the company. If the insured person does
not receive a claim form within a thirty day period from the
date of a written request then he will be deemed to have
complied with the requirements for proof of claim when notice
is received by the company that establishes the date of claim,
the basis for the incurred charges, and the eligibility of the
claimant. That proof should be forwarded to the controlling
authority.
B. Proof of Claim
Claims under this policy should be submitted on the claim form
provided or with such statements as may be required to
establish the validity of such claim to the controlling
authority of the policyholder. The controlling authority will
certify the eligibility of the insured person and approve the
claim for submission to the company.
Notice of claim should be given to the company as soon as is
reasonably possible after the claim has been incurred but no
later than ninety days after the end of any settlement period.
Failure of an insured person to submit any claim within that
specified period will cause the late claim to:
1) be paid in and charged to the next following
settlement period; or,
2) become ineligible for payment if this policy
has terminated.
C. Timely Payment of Claims
Claims submitted in accord with the provisions of this policy
will be processed and proceeds paid within thirty days of
receipt of such claims unless notice to the contrary is given
to the insured prior to the expiry of that thirty day period.
LIMITATIONS AND EXCLUSIONS
Claims for any loss incurred during a settlement period must be
submitted for payment during that settlement period or the ninety day
closing period which follows the settlement period. If coverage remains
in force during the subsequent settlement period then claims not
submitted from that prior settlement period will be accepted for
payment; however, such late claims will be charged to the then current
settlement period and be subject to the policy maximum for that period.
Claims for loss incurred in any other period of time are not eligible
for payment.
The sum of all proceeds paid to or on behalf of the insured person, the
spouse, and any children is limited to the amount specified in the
policy schedule as the proceeds maximum.
Benefits are not payable and covered expenses do not include any
expense: which is eligible for payment or for reimbursement under any
insurance policy or policyholder sponsored plan which provided covered
expense indemnity to the insured person, the spouse, or to any
children; which is not medically necessary; and which does not qualify
under the Internal Revenue Code of 1954 as amended in Subtitle A.,
Chapter 1B, Part VII, Section 213 (e).
RIGHT OF RECOVERY
Whenever any benefit payments may have been made by the Company in
excess of the payment amounts required, the Company shall deem the
excess payment amount a debt of the Insured person which is due the
Company. The Company shall have the right to recover that debt from
the Insured person or to reduce future benefits payable in order to
recover that debt.
CONTINUATION AND TERMINATION OF INSURANCE
A. Renewal Of Policy By Company
This policy will initially be in effect for one year
commencing on the effective date. This policy may be renewed
by the policyholder for additional periods, specified by and
subject to the consent of the company.
Each subsequent renewal will be in accord with the
eligibility, premium computation and payment provisions of
this policy.
B. Termination Of Policy By Company
The company may cancel this policy on the first policy
anniversary or thereafter on the first day of any period of
coverage for which premium is due, by giving written notice to
the policyholder at least 31 days in advance of the
cancellation date.
If premium payment is in default then this provision will be
without force or effect.
If the ratio of insured persons covered under this policy, to
persons eligible for coverage, is less than that shown in the
policy schedule as the participation ratio, then the company
may cancel this policy by giving written notice at least
thirty-one days in advance of the cancellation date.
C. Termination Of Policy By Policyholder
The policyholder may cancel this policy on the first day of
any period of coverage for which premium is due, by giving
written notice of the cancellation to the company prior to the
premium due date.
D. Termination Of Individual Insurance Coverage
Insurance will terminate in accord with this section except
when the Extension Of Benefits provision is operative.
1. The insurance coverage of any insured person will
terminate upon the first to occur of any of the
following events:
a) cancellation of the policy;
b) modification of the policy to exclude
insurance coverage for the class to which
the insured person belongs;
c) failure of the insured person to make, when
due, any required contribution toward the
cost of the insurance coverage;
d) termination of employment or termination
as a member of the class of employees
eligible for insurance coverage as defined
in this policy;
2. The insurance coverage of any insured person will
immediately terminate on the date the insured person
is laid off, leaves, is dismissed from employment,
or is retired.
3. The insurance coverage of an insured person who is
granted a leave of absence, except disability leave,
will terminate on the day immediately preceding the
start of the leave of absence.
4. The insurance coverage of an insured person who is
placed on part-time employment basis will continue in
effect through the end of the policy month in which
the change in employment status occurs. The
policyholder may notify the company to cancel
insurance coverage for that employee as of an earlier
date or may discontinue forwarding premium payment
to the company for that employee for a period ending
on an earlier date.
5. The insurance coverage under this policy will not
remain in force during the course of a work stoppage
which is the result of a labor dispute.
PREMIUM COMPUTATION AND PAYMENT
A. Billed Premium
Premium will be charged to the Policyholder at the Billed
Premium rate; subject to a Retrospective Premium call by the
company following the close of the Settlement Period.
B. Predecessor Policies
If the policyholder was insured by the company under a
predecessor policy, then any remaining balance of income or
expense which accrued under such a policy may be
incorporated in the premium calculations under this policy.
Should any balance of income or expense accrue in excess of
retrospective adjustments, that remainder may be carried
forward to future policy years.
C. Retrospective Adjustment
Ninety days after the close of each Settlement Period the
company will compare the total amount of billed premium with
the total amount of Paid Claims, Reserves for Incurred
Claims, and Retention, then if the total premium is in
excess of the total charges the company will not call for a
Retrospective Premium Amount.
The excess Premium may be applied to reduce premium rates in
subsequent years or may, at the sole discretion of the
Company, be returned to the Policyholder; however, if the sum
of the charges exceeds the total premium amount then the
excess charges will become the Retrospective Premium Amount
and will be invoiced to the policyholder. The Retrospective
Premium Amount will not exceed the Retrospective Premium
Adjustment limit.
D. Grace Period
If, after payment of the first premium, premium amounts due
are in default and the policyholder has not given the company
notice of policy cancellation, then a grace period of 31 days
will be extended from the last day of paid coverage.
During the grace period coverage under the insurance policy
will continue to be in force until the first to occur of the
following: either,
1. written notice to cancel the policy is received from
the policyholder, which will terminate on the later
of either the date the notice is received or the
requested termination date; the policyholder will be
liable for premium payments prorated for the time the
policy remained in force during the grace period; or,
2. expiration of the grace period without payment of
premium due, in which case the policyholder is liable
for the payment of all premium amounts due for policy
coverage which was extended during the grace period.
GENERAL PROVISIONS
A. Entire Contract Changes
This policy, including all provisions, schedules, and
amendments, the application of the policyholder and the
individual applications, if any, of the insured persons will
constitute the entire contract of insurance between the
policyholder and the company.
Any statement made by the policyholder or by any insured
person will be deemed a representation and not a warranty. No
such statement will void the insurance coverage, reduce the
benefits under this policy, nor be used in defense of a claim
under this policy, unless it is contained in a written
application signed by the policyholder or the insured person,
a copy of which has been furnished to the policyholder or to
the insured person or his beneficiary.
No change in this policy will be valid unless approved in
writing by an executive officer of the company and attached to
this policy. No agent has the authority to change this policy,
or to waive any of its provisions.
B. Legal Actions
No action at law or in equity will be brought to recover on
this policy prior to the expiration of the 60 day period,
which will extend from the date that submission of written
proof of claims has been provided to the company in accord
with the requirements of this policy.
No action, at law or in equity, may be brought after the
expiration of the three year period which will extend from the
insured's date of disability, for which written proof of claim
is required to be provided to the company by that insured.
C. Statements By The Policyholder or Persons Insured
A statement made by the policyholder or a person insured under
this policy will not be used in any legal contest unless a
copy of the instrument containing the statement is or has been
furnished to that policyholder, person, or other party to such
a contest.
D. Time Limits On Certain Defenses
Except for fraudulent misstatements, no statement made by any
person insured under this policy relating to that person's
insurability will be used to contest the validity of the
coverage extended to that person after the coverage has been
in force for a period of two years prior to the contest.
E. Data Required From Policyholder
The policyholder will furnish to the company timely
information about persons who become insured, changes in
insurance coverage and termination of insurance coverage as
may be required for the administration of this policy. The
company will have the right to inspect any records of the
policyholder which relate to the insurance coverage under this
policy at any reasonable time.
F. Clerical Error
Failure of the policyholder, due to clerical error, to report
the name of any person who has qualified for insurance
coverage under this policy or to report the name of any person
whose classification has been changed will not deprive that
person of insurance coverage. Failure of the policyholder to
report the termination of insurance coverage for any insured
will not continue that insurance coverage beyond the date of
termination determined in accord with the provisions of this
policy.
G. Certificates For Insured Persons
The company will issue to the policyholder, for delivery to
each person insured under this policy, an individual
certificate, or certificate substitute, that describes the
insurance coverage for which that person is eligible, how and
to whom the policy benefits are paid, and which contains the
principal provisions of this policy that affect the insureds.
H. Worker's Compensation, Not Affected
The insurance provided under this policy is entirely separate
from and does not satisfy any statutory requirement for
coverage by worker's compensation insurance.
I. Pronouns
All personal pronouns used in this policy will include either
gender; unless, the context clearly indicates to the contrary.
J. Conformity With State Statutes
Any provision of this policy which, on its effective date, is
in conflict with the statutes of the state in which it is
issued, or issued for delivery, is amended by this section to
conform to the minimum requirements of that state statute.
K. Severability
Any provision of this policy which may be prohibited by law,
will be and will become without force or effect within that
jurisdiction; however, the void provision will neither
invalidate nor impair the enforceability of any other
provision of this policy.
L. Benefit Assignment
Benefits under this policy may be assigned.
M. Hold Harmless
During the term of this policy the Policyholder agrees to
indemnify the Company and hold the Company harmless against
all loss, damage, and expense including attorney's fees
occasioned by claims, demands, or lawsuits brought against the
Company with respect to coverage provided by this policy which
may result from or arise out of any change to the Internal
Revenue Code of 1954 as amended.
EXHIBIT 10.10
DESCRIPTION OF SEVERANCE BENEFIT FOR
CERTAIN EXECUTIVE OFFICERS
American Medical Security Group, Inc. and/or its subsidiaries (the
"Company") has agreed to provide executive officers who do not have employment
contracts with the Company with severance benefits in the event of involuntary
termination of employment by the Company, other than for cause, such as theft,
fraud or malfeasance ("Involuntary Termination"). In the event of Involuntary
Termination, the Company will pay the executive officer his regular salary then
in effect for a period of 12 months. In addition, the Company will pay the
executive officers' Consolidated Omnibus Budget Reconciliation Act (COBRA)
continuation premium for a period of 12 months.
EXHIBIT 10.11
DESCRIPTION OF AMERICAN MEDICAL SECURITY GROUP, INC.
EXECUTIVE MANAGEMENT INCENTIVE PLAN
PURPOSE.
The purpose of the American Medical Security Group, Inc. Executive Management
Incentive Plan (the "Plan") is to (i) provide motivation for executives to
attain and maintain the highest standards of performance, (ii) attract and
retain executives of outstanding competence, (iii) maintain a competitive
compensation package for highly motivated key management employees and, (iv)
direct the energies of executives toward the achievement of specific business
goals and personal objectives which are of the utmost importance in the
attainment of corporate goals and objectives.
ELIGIBILITY AND PARTICIPATION.
Except for the Chief Executive Officer ("CEO"), who participates in a
contractual plan, and, unless otherwise determined by the CEO or the Committee
(as defined below), the Senior Vice President of Sales and Marketing, who
participates in a stand-alone sales performance plan, all members of the
Executive Management Group, as determined by the CEO, (the "Participants")
participate in the Plan.
ADMINISTRATION AND INTERPRETATION.
The Plan is administered by the Compensation Committee (the "Committee") of the
Board of Directors of American Medical Security Group, Inc. Action taken by the
Committee in the administration and interpretation of the Plan is final and
binding on all concerned. The Committee maintains overall responsibility for the
Plan and is given complete discretion to administer the Plan and to interpret
and/or modify all terms and conditions of the Plan.
COMPONENTS OF THE PLAN.
Bonus awards are determined by the following components:
1. Company Performance Component - 60%
2. Individual Performance Component - 40%
For each Plan year, the Committee establishes one or more specified percentages
of base salary ("Target Bonus"), to be used to calculate awards under the Plan.
The Committee also establishes minimum and maximum range spread around the
Target Bonus, to be used (i) if the Company's actual financial performance
differs from the performance goals in specified amounts, and (ii) for varying
levels of individual performance.
From year to year, the Committee may change the percentage of bonus awards
attributable to the two components described above.
COMPANY PERFORMANCE COMPONENT. The company performance component of the Plan is
based on earnings before depreciation, interest, taxes and amortization (EBIDTA)
or such other appropriate corporate performance measures determined by the
Committee, including individual measures of performance. Actual financial
performance is measured by reference to the Company's financial records and the
consolidated financial statements of the Company. In determining performance,
the Committee in its discretion may direct that adjustments to the performance
goals or actual financial performance as reported be made to reflect
extraordinary organizational, operational or other changes that have occurred
during such year, such as (without limitation) acquisitions, dispositions,
expansions, contractions, material non-recurring items of income or loss, or
events that might create unwarranted hardships or windfalls to Participants.
The percentage of Target Bonus achieved for the company performance component is
determined by the Committee by comparing actual financial performance to the
corporate performance goals for the preceding Plan year and the range of
percentages of Target Bonus adopted by the Committee for such year.
INDIVIDUAL PERFORMANCE COMPONENT. The percentage of Target Bonus achieved for
the individual performance component is a function of a discretionary evaluation
of the performance of the individual executive. After each Plan year, the CEO
provides the Committee with an overall performance evaluation for each
Participant. The Committee uses this evaluation in determining the amount of a
Participant's bonus award for the individual performance component of the Plan.
PAYMENT OF BONUS AWARDS.
Bonus awards under the Plan are paid in cash promptly following approval of the
bonus award amount by the Committee (generally paid in February).
Bonus awards are not considered as compensation in calculating any insurance,
profit-sharing, retirement, or other benefit for which the recipient is eligible
unless any such insurance, profit-sharing, retirement or other benefit is
granted under a plan which expressly provides that incentive compensation is
considered as compensation under such plan.
There is no requirement that the maximum amount available for bonus awards in
any year be awarded.
EXHIBIT 10.13
AMERICAN MEDICAL SECURITY GROUP, INC.
EMPLOYMENT AND NONCOMPETITION AGREEMENT OF SAMUEL V. MILLER
AMENDMENT NUMBER ONE
An Employment and Noncompetition Agreement (the "Agreement") was entered
into on April 7, 1998, effective January 1, 1997, between United Wisconsin
Services, Inc. ("UWS"), American Medical Security Holding, Inc. (the "Company"),
and Samuel V. Miller ("Employee"). The Agreement replaced a prior agreement
dated as of October 30, 1995 between UWS and Employee.
Effective September 11, 1998, UWS was renamed American Medical Security
Group, Inc., UWS transferred its managed care business to Newco/UWS, Inc. a
wholly-owned subsidiary of UWS ("Newco"), and that subsidiary was renamed United
Wisconsin Services, Inc. On September 25, 1998, UWS distributed the shares of
Newco to the shareholders of UWS.
To reflect these and certain other events, the Agreement is hereby amended
as follows, effective September 25, 1998:
1. The following paragraphs are hereby added immediately after the second
paragraph of the recitals:
Since the date this Agreement was executed, UWS has established a new
subsidiary ("Newco"), UWS has transferred its managed care business to
Newco, UWS has been renamed American Medical Securities Group, Inc., Newco
has been renamed United Wisconsin Service, Inc., and the stock of Newco has
been distributed to shareholders of UWS (the "Spinoff").
UWS shall be a party to the Agreement in connection with Employee's
options to purchase stock of UWS, and Newco shall be a party to the
Agreement in connection with Employee's options to purchase stock of Newco.
2. Section 1.2 (Positions and Duties) is hereby amended to replace the
phrase "President and Chief Executive Officer" with the phrase "Chairman,
President and Chief Executive Officer" both times it occurs, and the following
sentence is hereby added at the end of Section 1.2:
Employee shall also occupy the position of Chairman, President and
Chief Executive Officer of UWS.
3. Section 3.2(c) is amended to delete the word "and" prior to clause (iv)
and to add at the end thereof: "and (v) any rights Employee may have under the
American Medical Security Group, Inc. Change of Control Severance Benefit Plan."
4. Section 5.1(a) and Section 5.1(b) are amended and Section 5.1(c) and
Section 5.1(d) are added to read as follows:
(a) If to the Company: (d) If to Employee:
American Medical Security Holdings, Inc. Samuel V. Miller
3100 AMS Boulevard 3100 AMS Boulevard
Green Bay, WI 54313 or Green Bay, WI 54313 or
P.O. Box 19032 P.O. Box 19032
Green Bay, WI 54307-9032 Green Bay, WI 54307-9032
Attn.: General Counsel
With a copy to:
(b) If to UWS: David S. Foster
Thelen Reid & Priest LLP
American Medical Security Group, Inc. 2 Embarcadero Center
3100 AMS Boulevard San Francisco, CA 94111
Green Bay, WI 54313 or
P.O. Box 19032
Green Bay, WI 54307-9032
Attn.: General Counsel
(c) If to Newco:
United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, Wisconsin 53203
Attn: General Counsel
IN WITNESS WHEREOF, the parties have executed this Amendment Number One as
of September 25, 1998.
AMERICAN MEDICAL SECURITY AMERICAN MEDICAL SECURITY
HOLDINGS, INC. GROUP, INC.
By:______________________________ By:___________________________
UNITED WISCONSIN SERVICES, INC.
By:______________________________ ______________________________
Thomas R. Hefty, Chairman, President Samuel V. Miller
and Chief Executive Officer
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made and entered into this 21 day of August,
1996, by and between AMERICAN MEDICAL SECURITY, INC., a Delaware corporation
(the "Corporation") and SCOTT B. WESTPHAL (the "Employee").
WITNESSETH:
WHEREAS, the Employee desires to be employed by the Corporation and the
Corporation desires to employ the Employee; and
WHEREAS, the Corporation and the Employee desire to set forth in this
Agreement the terms and conditions under which the Employee is to be employed by
the Corporation.
NOW, THEREFORE, the Corporation and the Employee, in consideration of the
mutual promises hereinafter set forth, do hereby promise and agree as follows:
ARTICLE I
TERM
The term of the Employee's employment under this Agreement shall commence
effective as of the date hereof and shall continue until terminated by either
party as set forth in Article V, below.
ARTICLE II
EMPLOYMENT DUTIES
During the term of the Employee's employment hereunder, the Corporation
shall employ the Employee and the Employee shall serve the Corporation as a Vice
President of the Corporation. The Employee shall be subject to the authority and
direction of the President of the Corporation and those persons appointed by the
President of the Corporation to have authority and direction over the Employee.
The Employee shall devote his entire working time and efforts to the business
affairs of the Corporation and shall faithfully and to the best of his ability
perform his duties hereunder.
ARTICLE III
COMPENSATION
3.1 BASE SALARY. The Corporation shall pay to the Employee an annual base
salary in an amount equal to One Hundred Thousand Dollars ($100,000). The
Employee's base salary shall be payable in equal installments not less
frequently than bi-weekly.
3.2 ADJUSTMENT TO BASE SALARY. From time to time, but not less than
annually, Employee's base salary shall be reviewed and any salary increases will
be given based upon merit as determined by a performance evaluation.
3.3 PERFORMANCE BONUS. Any additional compensation payable to the Employee
under this Article III shall be in the form of a bonus or bonuses and the time
or times payable and the amount or amounts thereof shall be a matter solely
within the discretion of the President of the Corporation. Nothing contained
herein shall be deemed to require the Corporation to pay any bonus to the
Employee at any time during the term of this Agreement or any extension thereof.
3.4 OTHER COMPENSATION. In addition to the compensation referred to in
Paragraphs 3.1, 3.2 and 3.3, above, the Employee shall be eligible to
participate in any other compensation plan which may become available to most
other employees of a similar supervisory level (e.g., deferred compensation,
stock option or shadow stock plans), provided, however, that the levels of the
Employee's participation in such plans shall be solely within the discretion of
the Corporation.
3.5 WITHHOLDING TAXES. The Corporation shall deduct from all payments to
the Employee hereunder any federal, state or local withholding or other taxes or
charges which the Corporation has from time-to-time been required to deduct
under applicable law, and all amounts payable to the Employee hereunder are
stated herein before any such deductions. The Corporation shall have the right
to rely upon a written opinion of local counsel, which may be independent legal
counsel or legal counsel regularly employed by the Corporation, if any questions
should arise as to any such deductions.
ARTICLE IV
CONFIDENTIALITY AND NON-SOLICITATION
4.1 CONFIDENTIAL INFORMATION: INTELLECTUAL PROPERTY.
(i) Employee acknowledges that Employee will be required to use his
personal intellectual skills on behalf of the Corporation and that it is
reasonable and fair that the fruits of such skills should inure to the sole
benefit of the Corporation. Employee further acknowledges that Employee
already has and will acquire information of a confidential nature relating
to the operation, finances, business relationships and trade secrets of the
Corporation. During Employee's employment and for a period of one (1) year
following termination thereof, within the geographical area in which such
use, publication or disclosure could harm the Corporation's existing or
potential business interests, Employee will not use (except for use in the
course of the Employee's regular authorized duties on behalf of the
Corporation), publish, disclose or authorize anyone else to use, publish or
disclose, without the prior written consent of the Corporation, any
confidential information pertaining to the Corporation or its affiliated
entities, including, without limitation, any information relating to
existing or potential business, customers, trade or industrial practices,
plans, costs, processes, technical or engineering data, or trade secrets;
PROVIDED, HOWEVER, that following termination of the Employee's employment,
Employee shall be prohibited from ever using, publishing, disclosing or
authorizing anyone else to use, publish or disclose any confidential
information which constitutes a trade secret under applicable law. Employee
shall not remove or retain any figures, calculations, formulae, letters,
papers, software, abstracts, summaries, drawings, blueprints, diskettes, or
any other material, or copies thereof, which contain or embody any
confidential information of the Corporation, except for the use in the
course of Employee's regular authorized duties on behalf of the Corporation
or with the prior written consent of the Corporation. Notwithstanding the
foregoing, the Employee has no obligation to refrain from using, publishing
or disclosing any confidential information which is or hereafter shall
become available to the public otherwise than by use, publication or
disclosure by Employee. This prohibition also does not prohibit Employee's
use of general skills and know-how acquired during and prior to employment,
as long as such use does not involve the use, publication or disclosure of
the Corporation's confidential information.
(ii) AGREEMENT TO TRANSFER. Employee shall, without further payment,
assign, transfer and set over, and does hereby assign, transfer and set
over, to the Corporation, its successors and assigns, all Employee's
rights, title and interest in and to all trade secrets, secret processes,
inventions, improvements, patents, patent applications, trademarks,
trademark applications, copyrights and any and all intellectual property
rights which Employee solely or jointly with others has conceived, made,
acquired or suggested at any time during employment or within a one (1)
year period after termination of employment and which relate to the
existing or potential products, processes, work, research or other
activities of the Corporation.
4.2 NON-SOLICITATION. For a period of one (1) year after termination of
Employee's employment,Employee will not solicit, or assist any person or entity
to solicit, any employee, customer, supplier or other person having business
relations with the Corporation to terminate such employee's employment or
terminate or curtail such customer's, supplier's or other person's business
relationship with the Corporation.
4.3 RETURN OF DOCUMENTS. Immediately upon termination of employment,
Employee will return to the Corporation, and upon request, so certify in writing
to the Corporation, that Employee has returned to the Corporation all the
Corporation's papers, documents and things, including information stored for use
in or with the computers and software applicable to the Corporation's business
(and all copies thereof), which are in Employee's possession or under Employee's
control, regardless of whether such papers, documents or things contain
confidential information or trade secrets.
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 MANNER AND EFFECT OF TERMINATION. Employee's employment hereunder may
be terminated by the Corporation or the Employee at any time.
5.2 CONSEQUENCES OF TERMINATION. In the event that the Employee voluntarily
terminates his employment or the Corporation terminates his employment for
cause, the Employee shall be entitled to receive only his base salary, as
adjusted from time to time pursuant to Section 3.2, above (the "Base Salary"),
accrued to the date of termination of his employment. In the event that the
Employee's employment is terminated by the Corporation not for cause, the
Employee shall continue to receive the Base Salary for a period commencing on
the date of termination and ending on the later of: (i) one year after the date
of termination; or (ii) two years after the date of the UWS Buyout. For purposes
of this Agreement, the date of the UWS Buyout shall be the date that United
Wisconsin Services, Inc. purchases a majority of the stock of the Corporation or
otherwise acquires majority control of the Corporation. For purposes of this
Agreement, only the occurrence of one or more of the following acts shall be a
basis for termination for cause:
(i) the willful and continued failure of the Employee to substantially
perform his duties for the Corporation;
(ii) use of alcohol or non-prescription drugs in such a manner as to
interfere with the performance of the Employee's duties for the
Corporation;
(iii) willful conduct by the Employee which is demonstrably and
materially injurious to the Corporation, monetarily or otherwise; or
(iv) conviction of the Employee of a felony or misdemeanor which, in
the reasonable judgment of the board of directors of the Corporation, is
likely to have a material adverse effect on the business or reputation of
the Employee or the Corporation, or which substantially impairs the
Employee's ability to perform his duties for the Corporation.
ARTICLE VI
EXPENSES
During the term of the Employee's employment hereunder, the Corporation
shall pay or reimburse the Employee for all reasonable and necessary business
expenses incurred by the Employee in the interest of the Corporation. The
Employee shall be required to submit an itemized account of such expenditures
and such proof as may be necessary to establish to the satisfaction of the
Corporation that the expenses incurred by the Employee were ordinary and
necessary business expenses incurred on behalf of the Corporation.
ARTICLE VII
FRINGE BENEFITS
During the term of the Employee's employment hereunder, he shall be
entitled to participate in any individual or group life insurance, health
insurance, qualified pension or profit sharing plan or any other fringe benefit
program which the Corporation may from time-to-time make available to its
similarly situated employees, and in particular to its executive level officers,
but the Employee acknowledges that he shall have no vested rights in any such
program except as expressly provided under the terms thereof and that such
programs may be terminated as well as supplemented.
ARTICLE VIII
WAIVER OF BREACH
The waiver by the Corporation of any breach of any provision of this
Agreement by the Employee shall not be deemed a waiver by the Corporation of any
subsequent breach.
ARTICLE IX
NOTICE
Any notice required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given and received in all respects when
personally delivered or when deposited in the United States mail, certified
mail, postage prepaid, return receipt requested and addressed to the principal
office of the Corporation or the residence of the Employee, as the case may be.
ARTICLE X
ASSIGNMENT
The Employee may not assign, pledge or encumber any interest in this
Agreement or any part thereof without the prior written consent of the
Corporation.
ARTICLE XI
COMPLETE AGREEMENT; AMENDMENT
This Agreement contains the full and complete understanding and agreement
of the parties and supersedes all prior agreements or understandings, whether
oral or written, between the parties with respect to the subject matter hereof.
This Agreement may not be modified, amended or discharged orally.
ARTICLE XII
GOVERNING LAW
This Agreement and all questions of its interpretation, performance,
enforceability and the rights and remedies of the parties hereto shall be
governed by and determined in accordance with the laws of the State of
Wisconsin.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day, month and year first above written.
AMERICAN MEDICAL SECURITY, INC.
By: /S/ WALLACE J. HILLIARD
---------------------------------
Its: PRESIDENT
/S/ SCOTT B. WESTPHAL
---------------------------------
Scott B. Westphal
EXHIBIT 10.19
REGISTRATION RIGHTS AGREEMENT
This Agreement ("Agreement") is made and entered into as of this 1ST day of
September, 1998 by and between UNITED WISCONSIN SERVICES, INC., a Wisconsin
corporation ("UWS") and BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN, a
Wisconsin service insurance corporation ("BCBSUW").
RECITALS
WHEREAS, BCBSUW organized UWS in 1983;
WHEREAS, until 1991, BCBSUW owned all of the issued and outstanding stock
of UWS and since that date has continued to be the largest shareholder of UWS;
WHEREAS, UWS has organized Newco/UWS, Inc., a Wisconsin corporation
("Newco") and intends to (a) contribute its managed care and specialty products
operations to Newco; and (b) distribute all of the outstanding shares of Newco
to UWS shareholders (the "Spin-Off");
WHEREAS, since 1986 the Chief Executive Officer of BCBSUW and UWS have been
the same person;
WHEREAS, following the Spin-Off Newco will be managed by the existing
management of UWS, and UWS will be managed by the personnel who have been
responsible for the operations of the small group products businesses located in
Green Bay, Wisconsin; and
WHEREAS, in connection with the Spin-Off, BCBSUW desires to obtain
registration rights with respect to its UWS Common Stock ("UWS Common Stock"),
and UWS desires to agree with BCBSUW regarding its future ownership of UWS
Common Stock.
NOW THEREFORE, the parties agree as follows:
ARTICLE I
REGISTRATION RIGHTS
Section 1.01 GENERAL. For purposes of Article I: (I) the terms "register",
"registered" and "registration" refer to a registration effected by preparing
and filing a registration statement (a "registration statement") in compliance
with the Securities Act of 1933, as amended (the "1933 Act"), and the
declaration or ordering of effectiveness of such registration statement; and
(ii) the term "Registrable Securities" means the shares of UWS Common Stock held
by BCBSUW from time to time immediately after the Spin-Off.
Section 1.02 DEMAND REGISTRATION. Subject to Section 1.08(a) hereof, at
anytime on or after the date hereof if UWS shall receive a written request
(specifying that it is being made pursuant to this Section 1.02) from BCBSUW
that UWS register at least fifty percent (50%) of the then outstanding
Registrable Securities, then UWS shall use its best efforts to cause to be
registered all Registrable Securities that BCBSUW have requested be registered.
Notwithstanding the foregoing, UWS shall not be obligated to effect a
registration pursuant to this Section 1.02 during the period starting with the
date forty-five (45) days prior to UWS's estimated date of filing of, and ending
on a date one-hundred-eighty (180) days following the effective date of,
registration statement pertaining to an underwritten public offering of UWS
Common Stock for the account of UWS. UWS shall be obligated to effect not more
than two (2) registrations pursuant to this Section 1.02. Any request for
registration under this Section must be for a firmly underwritten public
offering in accordance with terms agreed upon between the underwriter or
underwriters and BCBSUW to be managed by an underwriter or underwriters
designated by BCBSUW and reasonably acceptable to UWS. Notwithstanding anything
else in this Agreement to the contrary, all of UWS's obligations under this
Section shall expire on the earlier of July 31, 2008, or the date on which
BCBSUW owns in the aggregate less than three percent of the outstanding UWS
Common Stock. Subject to the provisions of Section 1.07(a) hereof, UWS shall be
permitted to cause to be registered additional shares of UWS Common Stock
(whether previously unissued or owned by a person or entity designated by UWS)
in connection with any registration effected pursuant to this Section 1.02. If,
while a registration request is pending pursuant to this Section 1.02, UWS has
determined in good faith that (A) the filing of a registration statement could
jeopardize or delay any contemplated material transaction other than a financing
plan involving UWS or would require the disclosure of material transaction other
than a financing plan involving UWS or would require the disclosure of material
information that UWS had a bona fide business purpose for preserving as
confidential; or (B) UWS then is unable to comply with requirements of the
Securities and Exchange Commission ("SEC") applicable to the requested
registration (notwithstanding its best efforts to so comply), UWS shall not be
required to effect a registration pursuant to this Section 1.02 until the
earlier of (1) the date upon which such contemplated transaction is completed or
abandoned or such material information is otherwise disclosed to the public or
ceases to be material or UWS is able to so comply with applicable SEC
requirements, as the case may be, and (2) 45 days after UWS makes such
good-faith determination.
Section 1.03 PIGGYBACK REGISTRATION. Subject to Section 1.08(b) hereof, if
at any time UWS determines to register any UWS Common Stock under the 1933 Act
in connection with the public offering of such securities solely for cash, on a
form that would also permit the registration of any of the Registrable
Securities, UWS shall promptly give BCBSUW written notice thereof. Upon the
written request of BCBSUW received by UWS within thirty (30) days after the
giving of any such notice by UWS, UWS shall use its best efforts to cause to be
registered all of the Registrable Securities that BCBSUW has requested be
registered together with the registration of UWS Common Stock otherwise being
registered by UWS or its shareholders, as the case may be. UWS may, for any
reason or for no reason, elect to either not file or withdraw the filing of any
registration statement relating to a registration described in this Section 1.03
at any time prior to the effectiveness thereof.
Section 1.04 RESALE REGISTRATIONS. If at any time in the future BCBSUW
proposes to sell Registrable Securities to one or more third parties, BCBSUW may
request in writing that UWS register such Registerable Securities on Form S-3
prior to such sale ("Resale Registration"). Upon receipt by UWS of such written
request, UWS shall use its best efforts to come to be registered all of the
Registrable Securities that BCBSUW proposes to sell. At UWS's election, UWS may
maintain an effective shelf registration in Form S-3 for the purpose of
effecting Resale Registrations. Notwithstanding anything else in this Agreement
to the contrary, all of UWS's obligations under this Section shall expire on the
earlier of July 31, 2008, or the date on which BCBSUW owns in the aggregate less
than three percent of the outstanding UWS Common Stock. BCBSUW shall be entitled
to unlimited registrations under this Section.
Section 1.05 OBLIGATIONS OF UWS. Whenever UWS shall be required under
Sections 1.02, 1.03 or 1.04 hereof to use its best efforts to effect the
registration of any Registrable Securities, UWS shall:
(a) as expeditiously as possible, prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
reasonable efforts to cause such registration statement to become and remain
effective under the 1933 Act, except that UWS shall in no event be obligated to
cause any such registration to remain effective for more than three months;
(b) as expeditiously as possible, prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the 1933 Act with respect to the disposition of
all securities covered by such registration statement;
(c) as expeditiously as possible, furnish to BCBSUW such numbers of copies
of a prospectus, including a preliminary prospectus, and such other documents as
they may reasonable request in order to facilitate the disposition of
Registrable Securities owned by it;
(d) as expeditiously as possible, use its reasonable efforts to register
and qualify the securities covered by such registration statement under such
securities or Blue Sky laws of such jurisdictions as shall be reasonably
appropriate or requested by BCBSUW, except that UWS shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such jurisdiction;
(e) advise BCBSUW, promptly after it shall receive notice or obtain
knowledge thereof, of (i) the issuance of any stop order by the SEC suspending
the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose, and (ii) any similar action by
any regulatory agency of competent jurisdiction under the securities or Blue Sky
laws of any jurisdiction, and in any such case promptly use its reasonable best
efforts to prevent the issuance of any stop order or the taking of any such
similar action or to obtain its withdrawal if such stop order should be issued
or any such similar action shall be taken; and
(f) furnish to BCBSUW copies of all documents proposed to be filed with
respect to any amendment or supplement to such registration statement or
prospectus at a reasonable time prior to such filing.
Section 1.06 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of UWS to take any action pursuant to this Article I that BCBSUW
shall furnish to UWS such information regarding BCBSUW, the Registrable
Securities held by BCBSUW, and the intended method of disposition of such
securities and such other matters as may be required by the 1933 Act and other
applicable law and regulation as UWS shall request and as shall be required in
connection with the action to be taken by UWS.
Section 1.07 EXPENSES OF REGISTRATION. In connection with a registration
pursuant to Section 1.02, all underwriter's discounts and commissions, all
registration and qualification fees, printers' and any extraordinary accounting
fees, required as a result of BCBSUW's registration, shall be borne by BCBSUW.
All such expenses incurred in connection with a registration pursuant to Section
1.03 shall be borne by UWS, BCBSUW and any other sellers pro rata in relation to
the number of shares of UWS Common Stock being registered by each such party.
All expenses incurred in connection with Section 1.04 shall be borne by BCBSUW.
For any registrations pursuant to Sections 1.02, 1.03 or 1.04, all parties shall
pay all of their own respective attorneys' fees.
Section 1.08 UNDERWRITING REQUIREMENTS.
(a) In connection with any registration requested by BCBSUW under Section
1.02, UWS shall not be required under Section 1.02 to register any Registrable
Securities of BCBSUW unless BCBSUW accepts the terms of the underwriting
required by Section 1.02, and then only in such quantity as will not, in the
written opinion of the managing underwriters, exceed the maximum number of
shares that can be marketed at a price reasonably related to the then current
market price for such shares, or otherwise materially and adversely affect such
offering or the trading market for such shares (the "Maximum Feasible
Quantity"). All securities sold to cover any over-allotment shall be apportioned
between BCBSUW and UWS in proportion to the total number of shares being sold by
each, provided, however, that any such over-allotment shall first be allocated
to BCBSUW to the extent any of the Registrable Securities of BCBSUW were not
included in such registration because the total number of Registrable Securities
requested to be registered by BCBSUW exceeded the Maximum Feasible Quantity for
such registration, and shall thereafter be allocated to UWS to the extent that
the shares requested to be registered by UWS were not included in such
registration because such shares, when added to the shares being registered by
BCBSUW, exceeded the Maximum Feasible Quantity for such registration.
(b) In connection with any registration in which Registerable Securities
are included pursuant to Section 1.03 hereof, UWS shall not be required to
include any Registrable Securities in such registration unless BCBSUW accepts
the terms of the underwriting as agreed upon between UWS and the underwriters
selected by it, and then only in such quantity as will not, when added to the
shares otherwise being registered by UWS, in the written opinion of the managing
underwriters, exceed the Maximum Feasible Quantity for such registration. All
securities sold to cover any over-allotment shall be apportioned between BCBSUW
and UWS in proportion to the total number of shares being sold by each;
provided, however, that any such over-allotment shall first be allocated to UWS
to the extent any of the securities of UWS were not included in such
registration because the total number of Registrable Securities included in such
registration by BCBSUW, when added to the shares otherwise being registered by
UWS, exceeded the Maximum Feasible Quantity for such registration, and shall
thereafter be allocated to BCBSUW to the extent that the Registrable Securities
requested to be registered by BCBSUW were not included in such registration
because such shares when added to the shares being requested by UWS, included
the Maximum Feasible Quantity for such registration.
ARTICLE II
STANDSTILL
BCBSUW agrees that until July 31, 2008, it, without the written consent of
UWS, will not purchase or otherwise acquire any additional shares of UWS Common
Stock other than as the result of any stock dividend or distribution or pursuant
to the reinvestment of dividends under the United Wisconsin Services, Inc.
Dividend Reinvestment and Direct Stock Purchase Plan.
ARTICLE III
GENERAL PROVISIONS
Section 3.01 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given (i) when delivered personally; (ii) the
second business day after being deposited in the United States mail registered
or certified (return receipt requested); (iii) the first business day after
being deposited with Federal Express or any other recognized national overnight
courier service or (iv) on the business day on which it is sent and received by
facsimile, in each case to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to UWS:
American Medical Security Group, Inc.
3100 AMS Boulevard
Green Bay, WI 54313
Attention: President
(b) If to BCBSUW:
401 West Michigan Street
Milwaukee, WI 53203
Attention: Thomas R. Hefty, President
Section 3.02 MISCELLANEOUS. This Agreement (including the exhibits,
documents and instruments referred to herein or therein):
(a) constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, between the parties,
or either of them, with respect to the subject matter hereof;
(b) is not intended to confer upon any person which is not a party
hereto any rights or remedies hereunder;
(c) may be assigned by BCBSUW by operation of law or otherwise; and
(d) may be executed in two or more counterparts which together shall
constitute a single agreement.
Section 3.03 WAIVER: REMEDIES. No delay or failure on the part of any party
hereto to exercise any right, power, or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party hereto of any
right, power, or privilege hereunder operate as a waiver of any other right,
power, or privilege hereunder, nor shall any single or partial exercise of any
right, power, or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege hereunder.
Section 3.04 SEVERABILITY. If any provision of this Agreement shall be held
by any court of competent jurisdiction to be illegal, invalid or unenforceable,
such provision shall be construed and enforced as if it had been more narrowly
drawn so as not to be illegal, invalid or unenforceable, and such illegality,
invalidity or unenforceability shall have no effect upon and shall not impair
the enforceability of any other provision of this Agreement.
Section 3.05 GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of Wisconsin (without regard to principles of
conflicts of laws) applicable to contracts made and to be performed in
Wisconsin.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
UNITED WISCONSIN SERVICES, INC.
By: /S/ STEPHEN E. BABLITCH
--------------------------------
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
By: /S/ GAIL L. HANSON
--------------------------------
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
American Medical Security Holdings, Inc., a Wisconsin corporation
American Medical Security, Inc., a Delaware corporation
American Medical Security Insurance Company of Georgia, a Georgia corporation
U & C Real Estate Partnership, a Wisconsin general partnership
United Wisconsin Life Insurance Company, a Wisconsin insurance corporation
Continental Plan Services, Inc., a Wisconsin corporation
Nurse Healthline, Inc., a Wisconsin corporation
Accountable Health Plans, Inc., a Texas corporation
d/b/a Accountable Health Plans of Texas, Inc. and
d/b/a Plaines Health Networks, Inc.
AMS HMO Holdings, Inc., a Delaware corporation
Unity HMO of Illinois, Inc., an Illinois corporation
American Medical Security Health Plan, Inc., a Florida corporation
d/b/a American Medical Healthcare
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in the Registration Statement
(Form S-8 No. 333-21857) pertaining to the Equity Incentive Plan, the
Registration Statement (Form S-8 No. 333-22673) pertaining to the 1995 Director
Stock Option Plan, and the Registration Statement (Form S-3 No. 333-29425)
pertaining to the Dividend Reinvestment and Direct Stock Purchase Plan of
American Medical Security Group, Inc. (f/k/a United Wisconsin Services, Inc. )
of our report dated February 5, 1999, with respect to the consolidated financial
statements and schedules of American Medical Security Group, Inc. included in
the Annual Report on Form 10-K for the year ended December 31, 1998.
/s/ Ernst & Young LLP
------------------------------
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDICAL SECURITY
GROUP, INC. FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 293,096
<DEBT-CARRYING-VALUE> 3,361
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,457
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<TOTAL-INVEST> 298,914
<CASH> 10,648
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 498,722
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 18,157
<POLICY-OTHER> 113,133
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 55,064
0
0
<COMMON> 16,653
<OTHER-SE> 249,798
<TOTAL-LIABILITY-AND-EQUITY> 498,722
914,017
<INVESTMENT-INCOME> 24,220
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<INCOME-PRETAX> (4,896)
<INCOME-TAX> (1,868)
<INCOME-CONTINUING> (3,028)
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<EPS-PRIMARY> .42
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDICAL
SECURITY GROUP, INC. (F/K/A UNITED WISCONSIN SERVICES, INC.) FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1997, AS ADJUSTED TO REFLECT THE RESTATEMENT OF THE
CONSOLIDATED FINANCIAL STATEMENTS FOR CONTINUING OPERATIONS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 266,976
<DEBT-CARRYING-VALUE> 3,804
<DEBT-MARKET-VALUE> 0
<EQUITIES> 787
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 271,567
<CASH> 45,291
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 648,136
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 19,986
<POLICY-OTHER> 126,882
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 124,578
0
0
<COMMON> 16,510
<OTHER-SE> 309,867
<TOTAL-LIABILITY-AND-EQUITY> 648,136
957,204
<INVESTMENT-INCOME> 24,071
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 24,249
<BENEFITS> 733,491
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 252,160
<INCOME-PRETAX> 2,587
<INCOME-TAX> 1,032
<INCOME-CONTINUING> 1,555
<DISCONTINUED> 16,595
<EXTRAORDINARY> 0
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<NET-INCOME> 18,150
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
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<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDICAL
SECURITY GROUP, INC. (F/K/A UNITED WISCONSIN SERVICES, INC.) FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1996, AS ADJUSTED TO REFLECT THE RESTATEMENT OF THE
CONSOLIDATED FINANCIAL STATEMENTS FOR CONTINUING OPERATIONS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 278,340
<DEBT-CARRYING-VALUE> 5,930
<DEBT-MARKET-VALUE> 0
<EQUITIES> 19,570
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 303,840
<CASH> 31,999
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 693,278
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 25,471
<POLICY-OTHER> 159,063
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 125,788
0
0
<COMMON> 16,294
<OTHER-SE> 297,361
<TOTAL-LIABILITY-AND-EQUITY> 693,278
596,099
<INVESTMENT-INCOME> 24,570
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 2,935
<BENEFITS> 472,319
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 157,136
<INCOME-PRETAX> (10,846)
<INCOME-TAX> (4,140)
<INCOME-CONTINUING> (6,706)
<DISCONTINUED> 16,909
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,203
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
