SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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
Indicate by check mark whether 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, no par value, outstanding as of April 30, 1999: 16,653,269 shares
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
March 31, 1999 and December 31, 1998..........................3
Condensed Consolidated Statements of Income--
Three months ended March 31, 1999 and 1998....................5
Condensed Consolidated Statements of Cash Flows--
Three months ended March 31, 1999 and 1998....................6
Notes to Condensed Consolidated Financial Statements--
March 31, 1999................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................16
Signatures.....................................................17
Exhibit Index................................................EX-1
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
------------------------------------
(000'S OMITTED)
ASSETS
Investments:
Securities available for sale, at fair value:
Fixed maturities $ 292,272 $ 293,096
Equity securities-preferred 2,130 2,457
Fixed maturity securities held to maturity, at amortized cost 3,541 3,361
------------------------------------
Total Investments 297,943 298,914
Cash and Cash Equivalents 24,262 10,648
Other Assets:
Property and equipment, net 35,093 35,356
Goodwill and other intangibles, net 115,060 116,093
Other assets 46,043 37,711
------------------------------------
Total Other Assets 196,196 189,160
------------------------------------
Total Assets $ 518,401 $ 498,722
====================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
-------------------------------------
(000'S OMITTED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Medical and other benefits payable $ 130,761 $ 113,133
Advance premiums 21,451 18,157
Payables and accrued expenses 23,864 23,439
Notes payable 53,763 55,064
Other liabilities 23,641 22,478
-------------------------------------
Total Liabilities 253,480 232,271
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, 16,653,262 and 16,653,179 issued and outstanding
at March 31, 1999 and December 31, 1998, respectively) 16,653 16,653
Paid-in capital 187,949 188,981
Retained earnings 62,567 59,572
Accumulated other comprehensive income (loss), net of taxes of $1,211,000
and $642,000 at March 31, 1999 and December 31, 1998, respectively (2,248) 1,245
---------------- -----------------
Total Shareholders' Equity 264,921 266,451
---------------- -----------------
Total Liabilities and Shareholders' Equity $ 518,401 $ 498,722
=====================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
4
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
--------------------------------------
1999 1998
--------------------------------------
(000'S OMITTED, EXCEPT PER SHARE DATA)
Revenues:
Insurance premiums $ 262,892 $ 234,959
Net investment income 4,975 6,081
Other revenue 6,186 4,800
--------------------------------------
Total Revenues 274,053 245,840
Expenses:
Medical and other benefits 198,407 179,285
Selling, general and administrative 68,681 59,042
Interest 894 2,371
Amortization of goodwill and other intangibles 1,048 2,240
--------------------------------------
Total Expenses 269,030 242,938
--------------------------------------
Income From Continuing Operations,
Before Income Taxes 5,023 2,902
Income Tax Expense 2,028 1,351
--------------------------------------
Income From Continuing Operations 2,995 1,551
Income from Discontinued Operations
Less Applicable Income Taxes - 4,840
--------------------------------------
Net Income $ 2,995 $ 6,391
======================================
Earnings Per Common Share - Basic
Income from continuing operations $ 0.18 $ 0.09
Income from discontinued operations - 0.29
--------------------------------------
Net Income Per Common Share $ 0.18 $ 0.38
Earnings Per Common Share - Diluted
Income from continuing operations $ 0.18 $ 0.09
Income from discontinued operations - 0.29
--------------------------------------
Net Income Per Common Share $ 0.18 $ 0.38
======================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
5
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
------------------------------------------
1999 1998
------------------------------------------
(000'S OMITTED)
OPERATING ACTIVITIES:
Income from continuing operations $ 2,995 $ 1,551
Adjustments to reconcile income from continuing operations to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,590 3,874
Net realized investment (gains) losses 61 (876)
Deferred income tax benefit (expense) (430) 334
Changes in operating accounts:
Other assets (8,347) (5,899)
Medical and other benefits payable 17,628 (10,830)
Advance premiums 3,293 1,962
Payables and accrued expenses 425 (6,886)
Other liabilities 2,442 10,509
------------------------------------------
Net Cash Provided by (Used in) Operating Activities 20,657 (6,261)
INVESTING ACTIVITIES:
Acquisition of subsidiaries (net of cash and cash
equivalents acquired of $2,773,000) - 2,623
Purchases of available for sale securities (147,926) (82,278)
Proceeds from sale of available for sale securities 142,590 66,001
Proceeds from maturity of available for sale securities 700 -
Purchases of held to maturity securities (200) -
Purchases of property and equipment (993) (395)
Proceeds from sale of property and equipment 85 54
------------------------------------------
Net Cash Used in Investing Activities (5,744) (13,995)
FINANCING ACTIVITIES:
Cash dividends paid - (1,982)
Issuance of common stock 1 893
Borrowings under line of credit agreement 5,000 -
Repayment on line of credit agreement (5,000) -
Repayment of notes payable (1,300) (408)
------------------------------------------
Net Cash Used in Financing Activities (1,299) (1,497)
Net Cash Provided by Discontinued Operations - 128
------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) 13,614 (21,625)
Balance at beginning of year 10,648 45,291
------------------------------------------
Balance at End of Period $ 24,262 $ 23,666
==========================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
6
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the American Medical
Security Group, Inc. ("AMSG" or the "Company") annual report or Form 10-K for
the year ended December 31, 1998.
NOTE B. DISCONTINUED OPERATIONS
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
"Spin-off"). In connection with the Spin-off, UWS 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. The net assets of Newco/UWS consisted of
assets and liabilities of the managed care and specialty business along with
$70.0 million in debt that was assumed by Newco/UWS in conjunction with the
Spin-off. 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 are reflected in discontinued operations through
September 25, 1998. All prior periods of the Company's financial statements have
been restated to reflect Newco/UWS operations as discontinued operations.
Interest expense on the $70.0 million in debt assumed by Newco/UWS is reflected
in continuing operations through September 11, 1998.
7
<PAGE>
NOTE C. EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
common share are computed by dividing net income by the weighted average number
of common shares outstanding, adjusted for the effect of dilutive employee stock
options.
The following table provides a reconciliation of the number of weighted
average basic and diluted shares outstanding:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
----------------------------------
1999 1998
---------------- -----------------
Weighted average common shares outstanding - Basic 16,653,226 16,515,874
Effect of dilutive stock options 173,473 171,410
---------------- -----------------
Weighted average common shares outstanding - Dilutive 16,826,699 16,687,284
================ =================
</TABLE>
Other options to purchase shares were not included in the computation of
earnings per diluted common share because the options' exercise prices were
greater than the average market price of the outstanding common shares for the
period. In addition, 1,000,000 options, which were at exercise prices greater
than the average market price of the common stock, were surrendered in the first
quarter of 1999.
NOTE D. COMPREHENSIVE INCOME
Comprehensive loss from continuing operations was $0.5 million for the
three months ended March 31, 1999. Comprehensive income from continuing
operations and discontinued operations was $0.8 million and $5.8 million,
respectively, for the three months ended March 31, 1998. Comprehensive income
for the Company is net income plus or minus unrealized gains or losses, net of
income tax effects, on certain investments in debt and equity securities.
NOTE E. SEGMENT INFORMATION
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 preferred provider organization
products: fully insured medical, self funded medical, dental and short-term
disability. Life products consist primarily of group term-life insurance.
Operations not directly related to the business segments (i.e., corporate
investment income, interest expense on corporate debt, amortization of goodwill
and intangibles, unallocated overhead expenses and health maintenance
organization ("HMO") operations) are included in "All Other". 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
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 used to report the Company's consolidated financial statements.
Intercompany transactions have been eliminated prior to reporting reportable
segment information.
8
<PAGE>
A reconciliation of segment income before income taxes to consolidated
income from continuing operations before income taxes is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
--------------------------------
1999 1998
---------------- ---------------
(000'S OMITTED)
Health $ 3,481 $ (393)
Life 1,876 2,426
All other (334) 869
---------------- ---------------
$ 5,023 $ 2,902
================ ===============
</TABLE>
Operating results and statistics for each of the Company's segments are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
-----------------------------------
1999 1998
----------------- -----------------
(000'S OMITTED, EXCEPT FINANCIAL
STATISTICS)
HEALTH SEGMENT
OPERATING RESULTS
Revenues:
Insurance premiums $ 246,652 $ 222,872
Net investment income 2,268 2,137
Other revenue 5,212 3,507
----------------- -----------------
Total Revenues 254,132 228,516
Expenses:
Medical and other benefits 187,420 174,145
Selling, general and administrative 63,231 54,764
----------------- -----------------
Total Expenses 250,651 228,909
----------------- -----------------
Income Before Income Taxes $ 3,481 $ (393)
================= =================
FINANCIAL STATISTICS
Loss ratio 76.0% 78.1%
Expense ratio 23.5% 23.0%
----------------- -----------------
Combined ratio 99.5% 101.1%
================= =================
Membership at End of Period:
Medical:
Fully insured 586,042 512,182
Self funded 49,264 68,746
----------------- -----------------
Total medical* 635,306 580,928
Dental 357,860 451,772
*Total medical membership of the Company includes HMO membership of 26,820 and
13,657 at March 31, 1999 and 1998 respectively. HMO operations are not included
in health segment operating results.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
-----------------------------------
1999 1998
----------------- -----------------
(000'S OMITTED, EXCEPT FINANCIAL
STATISTICS)
LIFE SEGMENT
OPERATING RESULTS
Revenues:
Insurance premiums $ 6,660 $ 6,470
Net investment income 51 55
Other revenue 72 40
----------------- -----------------
Total Revenues 6,783 6,565
Expenses:
Medical and other benefits 2,773 2,135
Selling, general and administrative 2,134 2,004
----------------- -----------------
Total Expenses 4,907 4,139
----------------- -----------------
Income Before Income Taxes $ 1,876 $ 2,426
================= =================
FINANCIAL STATISTICS
Loss ratio 41.6% 33.0%
Expense ratio 31.0% 30.4%
----------------- -----------------
Combined ratio 72.6% 63.4%
================= =================
Membership at end of period 307,674 238,824
</TABLE>
10
<PAGE>
ITEM 2. 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. 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. 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. The
Company thereupon adopted its current name of "American Medical Security Group,
Inc." and Newco/UWS changed its name to "United Wisconsin Services, Inc." 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 operations of
Newco/UWS are reflected in discontinued operations through September 25, 1998.
Interest expense on the $70.0 million in debt assumed by Newco/UWS is reflected
in continuing operations through September 11, 1998. After the Spin-off, the
business of the Company consisted solely of the Company's small group insurance
business. The continuing operations of the Company reflect the historical small
group insurance portion of the Company's business.
RESULTS OF CONTINUING OPERATIONS
INSURANCE PREMIUMS
Insurance premiums for the three months ended March 31, 1999 increased
11.9% to $262.9 million from $235.0 million for the same period in 1998.
Effective January 1, 1999, the Company acquired the majority of the fully
insured group health business of Continental Assurance Company ("CNA"). The
results for the three months ended March 31, 1999 included $28.5 million of
premium related to the CNA acquired business.
Average fully insured medical premium per member per month during the three
month period ended March 31, 1999 increased 2.4% to $126 compared to $123 during
the same period in 1998. Medical membership (including HMO members) at March 31,
1999 increased 11.4% to 662,126 from 594,585 at March 31, 1998. New sales growth
combined with the addition of CNA business has caused the membership in force to
grow.
11
<PAGE>
NET INVESTMENT INCOME
Net investment income includes investment income and realized gains
(losses) on investments. Net investment income for the three months ended March
31, 1999 declined 18.2% to $5.0 million from $6.1 million for the three months
ended March 31, 1998. The decline is due to lower average annual investment
yields and a decrease in realized gains of $0.9 million. Average annual
investment yields, excluding realized gains and losses, were 6.7% and 7.5% for
the three months ended March 31, 1999 and 1998, respectively. Investment gains
and losses are realized in the normal investment process in response to market
opportunities. Average invested assets for the three months ended March 31, 1999
and March 31, 1998 were $299.2 million and $276.2 million, respectively.
OTHER REVENUE
Other revenue increased to $6.2 million for the three months ended March
31, 1999 from $4.8 million for the same period in 1998. The increase is
primarily due to an increase in fee revenue associated with the Pan American
Life Insurance Company business acquired July 1998 and CNA business acquired
January 1999, offset by lower self funded fee revenue on smaller self funded
membership. Management expects that other revenue will decline slightly during
the remainder of 1999 as the acquired blocks of business run off.
LOSS RATIO
The health segment loss ratio for the three months ended March 31, 1999 was
76.0% compared with 78.1% for the three months ended March 31, 1998. The
improved loss ratio for the quarter reflects the cancellation of unprofitable
business during the second half of 1998, including the one-life dental business
effective July 1, 1998, increased margin on new business, and the repricing of
existing business. The first quarter 1999 loss ratio reflects a higher loss
ratio on the business acquired from CNA than experienced on the Company's
existing business. The health loss ratio for the remainder of 1999 is dependent
upon future events including claim cost trends, membership utilization and
regulatory approvals and actions. Management continues to pursue rate increases
aggressively in various states where the loss ratio has not responded as quickly
as expected. However, there can be no guarantee that these actions will have the
desired effect on the health loss ratio in future periods or when such results
may be realized.
The life segment loss ratio for the three months ended March 31, 1999 was
41.6% compared to 33.0% for the three months ended March 31, 1998. The increase
in the life loss ratio for the first quarter of 1999 is due primarily to a
fluctuation in claims experience. Management expects the life loss ratio to
return to historical patterns during the remainder of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO
The selling, general and administrative ("SGA") expense ratio for health
segment products for the three months ended March 31, 1999 was 23.5% compared
with 23.0% for the three months ended March 31, 1998. The increase in the SGA
expense ratio is the result of higher commissions on new policy sales offset by
a lower administrative expense ratio resulting from a leveraging of the
Company's operations over increased revenues.
OTHER EXPENSES
Interest expense decreased to $0.9 million for the three months ended March
31, 1999 from $2.4 million for the same period in the prior year. The decrease
in interest expense reflects the assumption of $70.0 million in debt by
Newco/UWS on September 11, 1998, as part of the spin-off transaction, as
described in Note B of the Notes to Condensed Consolidated Financial Statements.
Amortization of goodwill and other intangibles totaled $1.0 million for the
first quarter of 1999, compared with $2.2 million of amortization expense for
the first quarter of 1998. The decline in amortization is principally due to the
write-off of the Company's distribution system intangible asset at December 31,
1998, as described in
12
<PAGE>
the Company's annual report on Form 10-K for the year ended December 31, 1998.
Management believes that no other material impairment of goodwill and other
intangible assets existed at March 31, 1999.
The effective tax rate was 40.4% for the three months ended March 31, 1999
compared with 46.6% for the three months ended March 31, 1998. The effective tax
rate is impacted primarily by level amortization of non-deductible goodwill in
relation to varying pretax income.
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 medical and other benefits and operating expense payments. Positive cash
flows are invested pending future payments of medical and other benefits and
other operating expenses. The Company's investment policies are designed to
maximize yield, preserve principal and provide liquidity to meet anticipated
payment obligations.
The Company's cash flow from operations was positive at $20.7 million for
the three months ended March 31, 1999. This compares to negative cash flow from
operations of $6.3 million for the three months ended March 31, 1998. The
positive results are due to an increase in claims inventory, growth in
membership and lower debt costs as a result of the assumption of $70.0 million
in debt by Newco/UWS in September 1998.
The Company's investment portfolio from continuing operations consists
primarily of investment grade bonds and has limited exposure to equity
securities. At March 31, 1999, $295.8 or 99.3% of the Company's investment
portfolio was invested in bonds. At December 31, 1998, $296.5 or 99.2% of the
Company's investment portfolio was invested in bonds. The bond portfolio had an
average quality rating of Aa3 at March 31, 1999, and A1 at December 31, 1998, as
measured by Moody's Investor Service. The majority of the bond portfolio was
classified as available for sale. The Company has no investment 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.
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 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.
The Company has a five year revolving line of credit with a maximum
commitment of $70.0 million, and a $10.0 million sublimit for swingline loans.
The outstanding line of credit balance at March 31, 1999 was $45.2 million,
which is included in notes payable.
In addition to internally generated funds and periodic borrowings on its
bank line of credit, the Company believes that additional financing to
facilitate long-term growth could be obtained through equity offerings, debt
offerings, or bank borrowings, as market conditions may permit or dictate.
13
<PAGE>
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, 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 80% complete, is on schedule and is planned for
completion in September 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR 2000 PLAN PERCENT COMPLETE COMPLETION DATE
In-house Applications 100% March 1999
Customized Applications 76% September 1999
Third Party Products 80% September 1999
</TABLE>
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 March 31, 1999, the Company had incurred costs of $2.5 million ($0.5
million in 1999) relating to the Year 2000 project. For the remainder of 1999,
the Company anticipates an additional cost of $0.6 million which will be
expensed as incurred. The Company has made capital expenditures of $4.2 million
through March 31, 1999, and expects to make an additional $0.7 million in
capital expenditures to complete the project.
14
<PAGE>
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 dates 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.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure has not changed substantially from the
year ended December 31, 1998. See Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - "Market Risk Exposure" in the
Company's annual report or Form 10-K for the year ended December 31, 1998.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See the Exhibit Index following the Signature page of this report, which is
incorporated herein by reference.
(b) REPORTS ON FORM 8-K
The Company did not file any Form 8-K reports during the quarter ended
March 31, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: MAY 12, 1999
----------------
AMERICAN MEDICAL SECURITY GROUP, INC.
/s/ Gary D. Guengerich
---------------------------------------------------------
Gary D. Guengerich
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer
and duly authorized to sign on behalf of the Registrant)
17
<PAGE>
<TABLE>
AMERICAN MEDICAL SECURITY GROUP, INC.
(COMMISSION FILE NO. 1-13154)
EXHIBIT INDEX
TO
FORM 10-Q QUARTERLY REPORT
for quarter ended March 31, 1999
<CAPTION>
<S> <C> <C> <C>
INCORPORATED HEREIN FILED
EXHIBIT NO. DESCRIPTION BY REFERENCE TO HEREWITH
3.1 Restated Articles of Incorporation of Exhibit 3.1 to the Company's Annual
American Medical Security Group, Inc. Report on Form 10-K for the year
(the "Company") dated as of February 17, ended December 31, 1998 (the "1998
1999 10-K")
3.2 Bylaws of the Company as amended and Exhibit 3.2 to 1998 10-K
restated February 17, 1999
10.1 Equity Incentive Plan as amended and Exhibit 10.1 to 1998 10-K
restated March 15, 1999
10.2 Amendment dated March 30, 1999 to X
Employment and Noncompetition Agreement
between American Medical Security
Holdings, Inc. ("AMS Holdings") and
Wallace J. Hilliard
10.3 Option Surrender Agreement dated March X
30, 1999 between AMS Holdings and Wallace
J. Hilliard
10.4 Amendment dated March 30, 1999 to X
Employment and Noncompetition Agreement
between AMS Holdings and Ronald A. Weyers
10.5 Option Surrender Agreement dated March X
30, 1999 between AMS Holdings and Ronald
A. Weyers
27.1 Financial Data Schedule X
27.2 Restated Financial Data Schedule X
(three months ended March 31, 1998)
EX-1
</TABLE>
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Amendment") is
executed this 30th day of March, 1999, by and between AMERICAN MEDICAL SECURITY
HOLDINGS, INC., a Wisconsin corporation, (the "Company") and a wholly-owned
subsidiary of American Medical Security Group, Inc., a Wisconsin corporation
("AMSG"), and WALLACE J. HILLIARD, an individual ("Employee").
RECITALS
WHEREAS, the Company and Employee are party to that certain Employment and
Noncompetition Agreement dated December 3, 1996 (the "Employment Agreement");
and
WHEREAS, the Company and Employee have entered into that certain Option
Surrender Agreement of even date herewith; and
WHEREAS, pursuant to Section 5.3 of the Employment Agreement, the parties
desire to amend the Employment Agreement to extend the terms of the Employment
Agreement for a period of two years and three months.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows.
1. AMENDMENT TO TERM OF EMPLOYMENT. Section 1.1 of the Employment
Agreement shall be deleted in its entirety, and the following shall be
inserted in its place:
1.1 TERM OF EMPLOYMENT. The Company hereby employs Employee,
and Employee hereby accepts employment by the Company, for the
period commencing on the date hereof and ending on March 3, 2005,
subject to earlier termination as hereinafter set forth in
Article III (the "Employment Term").
2. AMENDMENT TO POSITION AND DUTIES. The last sentence of Section 1.2 of
the Employment Agreement shall be deleted and the following inserted
in its place.
The Company shall provide such secretarial assistance and office space
to Employee during the first five (5) years of the employment term as
may be reasonably requested by Employee; provided that the Company
shall be required to provide secretarial assistance and office space
only to the extent consistent with its practice during the first two
(2) years of this Agreement.
3. AMENDMENT TO BASE SALARY PROVISION. Section 2.1 of the Employment
Agreement shall be deleted in its entirety, and the following shall be
inserted in its place:
2.1 BASE SALARY. The Company shall pay Employee an annual
salary as follows: (i) $750,000 per year during the first year;
(ii) $500,000 per year thereafter for the shorter of two years or
such time as Employee is not available to devote Employee's
entire business time, attention and energies exclusively to the
business of the Company (as such determination is made by the
Board of Directors including by reason of "disability" as set
forth in Section 3.1(c) hereof); (iii) $500,000 per year
thereafter for a period of two years and three months ($41,667
per month); and $100,000 per year thereafter for a period of
three years ("Base Salary"), payable in accordance with the
normal payroll practices of the Company.
4. OTHER TERMS AND CONDITIONS. Except as set forth in this Amendment, all
other terms and conditions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
on the date first set forth above.
AMERICAN MEDICAL SECURITY HOLDINGS, INC.
By: /S/ TIMOTHY J. MOORE
-----------------------------------------------
Sr. Vice President of Corporate Affairs,
Its: Secretary & General Counsel
-----------------------------------------------
EMPLOYEE
/S/ WALLACE J. HILLIARD
---------------------------------------------------
Wallace J. Hilliard
EXHIBIT 10.3
OPTION SURRENDER AGREEMENT
THIS OPTION SURRENDER AGREEMENT ("Agreement") is executed this 30th day of
March, 1999, by and among AMERICAN MEDICAL SECURITY HOLDINGS, INC., a Wisconsin
corporation ("Company"), AMERICAN MEDICAL SECURITY GROUP, INC. ("AMSG") and
WALLACE J. HILLIARD, an individual ("Employee").
RECITALS
WHEREAS, Employee is a party to that certain Equity Incentive Plan
Nonqualified Stock Option Award Agreement with AMSG f/k/a United Wisconsin
Services, Inc. dated December 3, 1996, (the "Option Agreement"), a copy of which
is attached hereto as EXHIBIT A; and
WHEREAS, subsequent to the date of the Option Agreement, AMSG effected a
spin-off (the "Spin-off") of its managed care business to a new formed
corporation, Newco/UWS, Inc. n/k/a United Wisconsin Services, Inc. ("New UWSI");
WHEREAS, the Spin-off resulted in Employee having stock options with AMSG
for 530,000 shares of AMSG stock (the "AMZ Stock Options"), and stock options
with New UWSI for 530,000 shares of New UWSI stock (the "UWZ Stock Options");
and
WHEREAS, Company and Employee are parties to that certain Employment and
Noncompetition Agreement dated December 3, 1996, by and between AMSH and
Employee (the "Employment Agreement"), a copy of which is attached hereto as
EXHIBIT B; and
WHEREAS, Company has, at all times since December 3, 1996, been a
subsidiary of AMSG; and
WHEREAS, Employee desires to surrender the AMZ Stock Options in exchange
for an extended term of employment under the Employment Agreement; and
WHEREAS, the Company desires to accept such surrender and extend such
employment.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows.
1. SURRENDER OF THE OPTIONS. Employee hereby surrenders the AMZ Stock
Options to AMSG which consist of 530,000 options to purchase common
stock of AMSG pursuant to the Option Agreement, as amended as a
consequence of the Spin-off. Employee further acknowledges that the
AMZ Stock Options represent all of the options to purchase shares of
AMSG held by Employee and that this surrender of the AMZ Stock Options
fully waives Employee's rights in and to the AMZ Stock Options and all
rights derived therefrom or appertaining thereto, including, but not
limited to, any and all vested rights. Notwithstanding the foregoing,
the surrender hereunder of the AMZ Stock Options shall in no way
affect employee's rights under the UWZ Stock Options; it being the
understanding of the parties that whatever rights the Employee has
under the UWZ Stock Options shall remain in full force and effect.
2. AMENDMENT OF THE EMPLOYMENT AGREEMENT. In consideration of Employee's
surrender of the Options, the Company hereby extends Employee's
employment with the Company in accordance with the Amendment to
Employment and Noncompetition Agreement in the form attached hereto as
EXHIBIT C.
3. NOTICES. Any notice required to be given pursuant to the terms and
provisions hereof, unless otherwise indicated herein, shall be in
writing and shall be hand-delivered or sent by certified mail, return
receipt requested, postage prepaid as follows:
If to the Company:
American Medical Security Holdings, Inc.
3100 AMS Blvd.
Green Bay, WI 54313
Attn: General Counsel
If to American Medical Security Group, Inc.:
American Medical Security Group, Inc.
3100 AMS Blvd.
Green Bay, WI 54313
Attn: General Counsel
If to Employee:
Wallace J. Hilliard
Hilliard Limited Partnership
840 Willard Drive
Green Bay, WI 54313
Notices shall be deemed given when mailed to the address indicated
above, or to such other address as either party may indicate to the
other by written notice as herein requested.
4. ENTIRE AGREEMENT. This Agreement contains the entire understanding and
the full and complete agreement of the parties, and supersedes and
replaces any prior understandings and agreements between the parties,
with respect to the subject matter hereof.
5. AMENDMENT. This Agreement may not be altered, amended, assigned or
modified except in writing, signed by all of the parties hereto.
6. ASSIGNABILITY. This Agreement and the rights and duties set forth
herein may not be assigned by the Employee or the Company, in whole or
in part. This Agreement shall be binding on and inure to the benefit
of each party and each party's respective heirs, legal
representatives, successors and permitted assigns.
7. SEVERABILITY. If any court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then such
invalidity or unenforceability shall have no effect on the other
provisions hereof, which shall remain valid, binding and enforceable
and in full force and effect, and such invalid or unenforceable
provision shall be construed in a manner so as to give the maximum
valid and enforceable effect to the intent of the parties expressed
therein.
8. WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any other party.
9. HEADINGS. Headings included in this Agreement are for convenience only
and are not intended to limit or expand the rights of the parties
hereto.
10. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Wisconsin without regard to conflicts of law
provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
AMERICAN MEDICAL SECURITY HOLDINGS, INC.
By: /S/ TIMOTHY J. MOORE
-----------------------------------------------
Sr. Vice President of Corporate Affairs,
Its: Secretary & General Counsel
-----------------------------------------------
AMERICAN MEDICAL SECURITY GROUP, INC.
By: /S/ TIMOTHY J. MOORE
-----------------------------------------------
Sr. Vice President of Corporate Affairs,
Its: Secretary & General Counsel
-----------------------------------------------
EMPLOYEE
/S/ WALLACE J. HILLIARD
---------------------------------------------------
Wallace J. Hilliard
EXHIBIT 10.4
AMENDMENT TO EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Amendment") is
executed this 30th day of March, 1999, by and between AMERICAN MEDICAL SECURITY
HOLDINGS, INC., a Wisconsin corporation, (the "Company") and a wholly-owned
subsidiary of American Medical Security Group, Inc., a Wisconsin corporation
("AMSG"), and RONALD A. WEYERS, an individual ("Employee").
RECITALS
WHEREAS, the Company and Employee are party to that certain Employment and
Noncompetition Agreement dated December 3, 1996 (the "Employment Agreement");
and
WHEREAS, the Company and Employee have entered into that certain Option
Surrender Agreement of even date herewith; and
WHEREAS, pursuant to Section 5.3 of the Employment Agreement, the parties
desire to amend the Employment Agreement to extend the terms of the Employment
Agreement for a period of two years and three months.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows.
1. AMENDMENT TO TERM OF EMPLOYMENT. Section 1.1 of the Employment
Agreement shall be deleted in its entirety, and the following shall be
inserted in its place:
1.1 TERM OF EMPLOYMENT. The Company hereby employs Employee,
and Employee hereby accepts employment by the Company, for the
period commencing on the date hereof and ending on December 2,
2004, subject to earlier termination as hereinafter set forth in
Article III (the "Employment Term").
2. AMENDMENT TO POSITION AND DUTIES. The last sentence of Section 1.2 of
the Employment Agreement shall be deleted and the following inserted
in its place.
The Company shall provide such secretarial assistance and
office space to Employee during the first five (5) years of the
employment term as may be reasonably requested by Employee;
provided that the Company shall be required to provide
secretarial assistance and office space only to the extent
consistent with its practice during the first two (2) years of
this Agreement.
3. AMENDMENT TO BASE SALARY PROVISION. Section 2.1 of the Employment
Agreement shall be deleted in its entirety, and the following shall be
inserted in its place:
2.1 BASE SALARY. The Company shall pay Employee an annual
salary as follows: (i) $750,000 per year during the first year;
(ii) $500,000 per year thereafter for the shorter of two years or
such time as Employee is not available to devote Employee's
entire business time, attention and energies exclusively to the
business of the Company (as such determination is made by the
Board of Directors including by reason of "disability" as set
forth in Section 3.1(c) hereof); (iii) $500,000 per year
thereafter for a period of two years; and $100,000 per year
thereafter for a period of three years ("Base Salary"), payable
in accordance with the normal payroll practices of the Company.
4. OTHER TERMS AND CONDITIONS. Except as set forth in this Amendment, all
other terms and conditions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
on the date first set forth above.
AMERICAN MEDICAL SECURITY HOLDINGS, INC.
By: /S/ TIMOTHY J. MOORE
-----------------------------------------------
Sr. Vice President of Corporate Affairs,
Its: SECRETARY & GENERAL COUNSEL
-----------------------------------------------
EMPLOYEE
/S/ RONALD A. WEYERS
---------------------------------------------------
Ronald A. Weyers
4
EXHIBIT 10.5
OPTION SURRENDER AGREEMENT
THIS OPTION SURRENDER AGREEMENT ("Agreement") is executed this 30th day of
March, 1999, by and among AMERICAN MEDICAL SECURITY HOLDINGS, INC., a Wisconsin
corporation ("Company"), AMERICAN MEDICAL SECURITY GROUP, INC. ("AMSG") and
RONALD A. WEYERS, an individual ("Employee").
RECITALS
WHEREAS, Employee is a party to that certain Equity Incentive Plan
Nonqualified Stock Option Award Agreement with AMSG f/k/a United Wisconsin
Services, Inc. dated December 3, 1996, (the "Option Agreement"), a copy of which
is attached hereto as EXHIBIT A; and
WHEREAS, subsequent to the date of the Option Agreement, AMSG effected a
spin-off (the "Spin-off") of its managed care business to a new formed
corporation, Newco/UWS, Inc. n/k/a United Wisconsin Services, Inc. ("New UWSI");
WHEREAS, the Spin-off resulted in Employee having stock options with AMSG
for 470,000 shares of AMSG stock (the "AMZ Stock Options"), and stock options
with New UWSI for 470,000 shares of New UWSI stock (the "UWZ Stock Options");
and
WHEREAS, Company and Employee are parties to that certain Employment and
Noncompetition Agreement dated December 3, 1996, by and between AMSH and
Employee (the "Employment Agreement"), a copy of which is attached hereto as
EXHIBIT B; and
WHEREAS, Company has, at all times since December 3, 1996, been a
subsidiary of AMSG; and
WHEREAS, Employee desires to surrender the AMZ Stock Options in exchange
for an extended term of employment under the Employment Agreement; and
WHEREAS, the Company desires to accept such surrender and extend such
employment.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows.
1. SURRENDER OF THE OPTIONS. Employee hereby surrenders the AMZ Stock
Options to AMSG which consist of 470,000 options to purchase common
stock of AMSG pursuant to the Option Agreement, as amended as a
consequence of the Spin-off. Employee further acknowledges that the
AMZ Stock Options represent all of the options to purchase shares of
AMSG held by Employee and that this surrender of the AMZ Stock Options
fully waives Employee's rights in and to the AMZ Stock Options and all
rights derived therefrom or appertaining thereto, including, but not
limited to, any and all vested rights. Notwithstanding the foregoing,
the surrender hereunder of the AMZ Stock Options shall in no way
affect employee's rights under the UWZ Stock Options; it being the
understanding of the parties that whatever rights the Employee has
under the UWZ Stock Options shall remain in full force and effect.
2. AMENDMENT OF THE EMPLOYMENT AGREEMENT. In consideration of Employee's
surrender of the Options, the Company hereby extends Employee's
employment with the Company in accordance with the Amendment to
Employment and Noncompetition Agreement in the form attached hereto as
EXHIBIT C.
3. NOTICES. Any notice required to be given pursuant to the terms and
provisions hereof, unless otherwise indicated herein, shall be in
writing and shall be hand-delivered or sent by certified mail, return
receipt requested, postage prepaid as follows:
If to the Company:
American Medical Security Holdings, Inc.
3100 AMS Blvd.
Green Bay, WI 54313
Attn: General Counsel
If to American Medical Security Group, Inc.
American Medical Security Group, Inc.
3100 AMS Blvd.
Green Bay, WI 54313
Attn: General Counsel
If to Employee:
Ronald A. Weyers
P. O. Box 12057
Green Bay, Wisconsin 54307-2057
Notices shall be deemed given when mailed to the address indicated
above, or to such other address as either party may indicate to the
other by written notice as herein requested.
4. ENTIRE AGREEMENT. This Agreement contains the entire understanding and
the full and complete agreement of the parties, and supersedes and
replaces any prior understandings and agreements between the parties,
with respect to the subject matter hereof.
5. AMENDMENT. This Agreement may not be altered, amended, assigned or
modified except in writing, signed by all of the parties hereto.
6. ASSIGNABILITY. This Agreement and the rights and duties set forth
herein may not be assigned by the Employee or the Company, in whole or
in part. This Agreement shall be binding on and inure to the benefit
of each party and each party's respective heirs, legal
representatives, successors and permitted assigns.
7. SEVERABILITY. If any court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then such
invalidity or unenforceability shall have no effect on the other
provisions hereof, which shall remain valid, binding and enforceable
and in full force and effect, and such invalid or unenforceable
provision shall be construed in a manner so as to give the maximum
valid and enforceable effect to the intent of the parties expressed
therein.
8. WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any other party.
9. HEADINGS. Headings included in this Agreement are for convenience only
and are not intended to limit or expand the rights of the parties
hereto.
10. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Wisconsin without regard to conflicts of law
provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
AMERICAN MEDICAL SECURITY HOLDINGS, INC.
By: /S/ TIMOTHY J. MOORE
-----------------------------------------------
Sr. Vice President of Corporate Affairs,
Its: Secretary & General Counsel
-----------------------------------------------
AMERICAN MEDICAL SECURITY GROUP, INC.
By: /S/ TIMOTHY J. MOORE
-----------------------------------------------
Sr. Vice President of Corporate Affairs,
Its: Secretary & General Counsel
EMPLOYEE
/S/ RONALD A. WEYERS
---------------------------------------------------
Ronald A. Weyers
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDICAL
SECURITY GROUP, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 294,402
<DEBT-CARRYING-VALUE> 3,541
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 297,943
<CASH> 24,262
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 518,401
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 21,451
<POLICY-OTHER> 130,761
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 53,763
0
0
<COMMON> 16,653
<OTHER-SE> 248,268
<TOTAL-LIABILITY-AND-EQUITY> 518,401
262,892
<INVESTMENT-INCOME> 4,975
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 6,186
<BENEFITS> 198,407
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 68,681
<INCOME-PRETAX> 5,023
<INCOME-TAX> 2,028
<INCOME-CONTINUING> 2,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,995
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<RESERVE-OPEN> 0
<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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN
MEDICAL SECURITY GROUP, INC. (F/K/A UNITED WISCONSIN SERVICES, INC.) FOR THE
THREE MONTHS ENDED MARCH 31, 1998, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 283,509
<DEBT-CARRYING-VALUE> 3,917
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 287,426
<CASH> 23,666
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 651,111
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 22,123
<POLICY-OTHER> 117,214
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 126,442
0
0
<COMMON> 16,544
<OTHER-SE> 315,255
<TOTAL-LIABILITY-AND-EQUITY> 651,111
234,959
<INVESTMENT-INCOME> 6,081
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 4,800
<BENEFITS> 179,285
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 59,042
<INCOME-PRETAX> 2,902
<INCOME-TAX> 1,351
<INCOME-CONTINUING> 1,551
<DISCONTINUED> 4,840
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,391
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
