<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
AMERICAN MEDICAL SECURITY GROUP, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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</TABLE>
<PAGE>
[LOGO]
3100 AMS Boulevard
Green Bay, WI 54313
(920) 661-1500
March 31, 2000
To All Shareholders:
You are cordially invited to attend the Company's 2000 Annual Meeting of
Shareholders on Wednesday, May 17, 2000, in Green Bay, Wisconsin.
The Annual Meeting will begin promptly at 11:00 a.m. at the Radisson Inn
located at 2040 Airport Drive, Green Bay, Wisconsin.
The official Notice of Annual Meeting, Proxy Statement and appointment of
proxy form are included with this letter. The matters listed in the Notice of
Annual Meeting are described in detail in the Proxy Statement.
The vote of every shareholder is important to us. Please note that returning
your completed proxy will not prevent you from voting in person at the Annual
Meeting if you wish to do so. Your cooperation in promptly signing, dating and
returning your proxy will be greatly appreciated.
Sincerely,
/s/ Samuel V. Miller
Samuel V. Miller
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Holders of Common Stock of
American Medical Security Group, Inc.:
The Annual Meeting of the Shareholders (the "Meeting") of American Medical
Security Group, Inc. (the "Company") will be held at the Radisson Inn located at
2040 Airport Drive, Green Bay, Wisconsin, on Wednesday, May 17, 2000, at
11:00 a.m. local time, for the following purposes:
1. To elect three directors of the Company for terms expiring at the 2003
Annual Meeting of Shareholders; and
2. To transact any other business as may properly come before the Meeting or
any adjournment or postponement thereof.
Only shareholders of record at the close of business on March 20, 2000, the
record date for the Meeting, are entitled to receive notice of and to vote at
the Meeting or any adjournment or postponement thereof.
A copy of the Proxy Statement furnished in connection with the solicitation
of proxies by the Company's Board of Directors for use at the Meeting
accompanies this Notice.
Shareholders who cannot attend in person are requested to complete and
return the enclosed proxy in the envelope provided. You may revoke your proxy at
any time prior to the voting thereof by advising the Secretary of the Company in
writing (by subsequent proxy or otherwise) of such revocation.
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
/s/ Timothy J. Moore
Timothy J. Moore
SECRETARY
Green Bay, Wisconsin
March 31, 2000
<PAGE>
[LOGO]
3100 AMS Boulevard
Green Bay, Wisconsin 54313
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 17, 2000
SOLICITATION AND VOTING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of American Medical Security Group, Inc. (the
"Company" or "AMS") for use at the Annual Meeting of Shareholders (the
"Meeting") to be held at the Radisson Inn located at 2040 Airport Drive, Green
Bay, Wisconsin, on Wednesday, May 17, 2000, at 11:00 a.m. local time, and at any
adjournment or postponement thereof. At the Meeting, shareholders of the Company
will consider and vote upon (1) the election of three directors of the Company
for terms expiring at the 2003 Annual Meeting of Shareholders, and (2) such
other business as may be properly brought before the Meeting.
Only holders of record of shares of common stock, no par value per share
("Common Stock"), of the Company at the close of business on March 20, 2000, the
record date for the Meeting, are entitled to receive notice of and to vote at
the Meeting. Shareholders will be entitled to one vote for each share of Common
Stock held. On March 20, 2000, there were issued and outstanding 15,474,115
shares of Common Stock.
When you sign and return the enclosed appointment of proxy form, shares of
the Common Stock represented thereby will be voted FOR the nominees for
directors named in this Proxy Statement, unless you specify otherwise on the
proxy form. In the event that any nominee for director is unable to serve, the
proxy holders may vote for a substitute designated by the Board of Directors of
the Company. Returning your completed proxy form will not prevent you from
voting in person at the Meeting should you be present and wish to do so. You may
revoke your proxy at any time before it is voted by advising the Secretary of
the Company of such revocation in writing (by subsequent proxy or otherwise).
Attendance at the meeting, in and of itself, will not revoke your proxy.
The Company knows of no other matters to come before the Meeting. If any
other matters properly come before the Meeting, it is the intention of the
persons acting pursuant to the accompanying appointment of proxy form to vote
the shares represented thereby in accordance with their best judgment.
A majority of the votes entitled to be cast by the shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting. Any
abstentions, shares for which authority is withheld to vote for director
nominees, and broker non-votes (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a matter with respect to
which the brokers or nominees do not have discretionary power to vote) will be
considered present for purposes of establishing a quorum.
Directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a shareholders' meeting at which a quorum is
present. "Plurality" means that the individuals who receive the largest number
of votes are elected as directors up to the maximum number of directors to be
chosen in
<PAGE>
the election. Therefore, any shares not voted, whether by withheld authority,
broker non-vote or otherwise, have no effect in the election of directors except
to the extent that the failure to vote for an individual results in another
individual receiving a larger number of votes. The Inspectors of Election
appointed under the authority of the Board of Directors will count the votes and
ballots at the Annual Meeting.
The expense of preparing, printing, and mailing this Proxy Statement and the
proxies solicited hereby will be borne by the Company. Officers and other
employees of the Company may solicit proxies by personal interview, telephone
and facsimile, in addition to the use of the mails, but will receive no
additional compensation for such activities. The Company also has made
arrangements with brokerage firms, banks, nominees and other fiduciaries to
forward proxy solicitation materials for shares of the Common Stock held of
record by them to the beneficial owners of such shares. The Company will
reimburse them for reasonable out-of-pocket expenses.
The Annual Report to Shareholders for the year ended December 31, 1999, the
Notice of the Meeting, this Proxy Statement and the accompanying appointment of
proxy form were first mailed to shareholders on or about March 31, 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership (as that term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934 (the "Exchange Act")) of shares of Common Stock by (1) each person
or entity known to the Company to own beneficially more than 5% of the shares of
the Common Stock outstanding, (2) each nominee for director and director of the
Company, (3) each executive officer of the Company named in the Summary
Compensation Table below, and (4) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each shareholder listed below
has sole voting and dispositive power with respect to shares of Common Stock
beneficially owned. Information is as of February 29, 2000, for nominees for
director, directors, and executive officers. Information for 5% shareholders
(other than Mr. Miller) is as disclosed in reports regarding such ownership
filed with the Securities and Exchange Commission (the "SEC") in accordance with
Sections 13(d) or 13(g) of the Exchange Act.
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) CLASS
- ---------------- --------------------- ----------
<S> <C> <C>
Blue Cross & Blue Shield United of Wisconsin................ 6,309,525 40.7%
1515 N. RiverCenter Drive
Milwaukee, WI 53212
Heartland Advisors, Inc.(2)................................. 1,636,400 10.6
789 North Water Street
Milwaukee, WI 53202
Wellington Management Company, LLP(3)....................... 990,700 6.4
75 State Street
Boston, MA 02109
Samuel V. Miller(4)......................................... 1,003,675 6.1
3100 AMS Boulevard
Green Bay, WI 54313
Caxton International Limited(5)............................. 877,400 5.7
c/o Leeds Management Services Limited
129 Front Street
Hamilton HM12, Bermuda
Dimensional Fund Advisors Inc............................... 843,100 5.4
1299 Ocean Avenue, 11(th) Floor
Santa Monica, CA 90401
Roger H. Ballou............................................. 1,666 *
W. Francis Brennan.......................................... 11,666 *
James C. Hickman............................................ 1,866 *
William R. Johnson.......................................... 8,166 *
Eugene A. Menden............................................ 3,166 *
Michael T. Riordan(4)....................................... 6,666 *
Frank L. Skillern........................................... 11,666 *
J. Gus Swoboda.............................................. 3,166 *
Gary D. Guengerich.......................................... 77,688 *
James C. Modaff............................................. -- --
Thomas G. Zielinski......................................... 992 *
Christopher N. Earl......................................... 17,500 *
All directors and executive officers as a group: 16 1,200,949 7.2
persons...................................................
</TABLE>
- ------------------------
* Amount represents less than 1% of the total shares of the Common Stock
issued and outstanding.
(1) Includes the following number of shares which the individual has the right
to acquire within 60 days of February 29, 2000, upon the exercise of stock
options: Mr. Miller, 997,175 shares; Messrs. Ballou, Brennan, Hickman,
Johnson, Menden, Riordan, Skillern, and Swoboda, 1,666 shares each;
Mr. Guengerich, 62,788 shares; Mr. Earl, 17,500 shares; and all directors
and executive officers as a group, 1,134,339 shares.
(2) Heartland Advisors, Inc. has sole voting power with respect to 1,457,600
shares beneficially owned.
(3) Wellington Management Company, LLP has shared voting power with respect to
291,200 shares and shared dispositive power with respect to 990,700 shares
beneficially owned.
(4) Includes the following shares owned jointly with such person's spouse, with
respect to which such person shares voting power and dispositive power:
Mr. Miller, 6,500 shares; and Mr. Riordan, 5,000 shares.
3
<PAGE>
(5) The shares owned by Caxton International Limited ("Caxton International")
may be deemed to be beneficially owned by Bruce S. Kovner, whose address is
667 Madison Avenue, New York, NY 10021. Mr. Kovner is the Chairman and sole
shareholder of Caxton Corporation (which is the manager and majority owner
of Caxton Associates, LLC, the trading advisor to Caxton International) and,
as such, has voting and dispositive power with respect to investments made
by Caxton International. Mr. Kovner, through his relationship with Caxton
International, and Caxton International share voting and dispositive power
with respect to the shares beneficially owned.
Blue Cross & Blue Shield United of Wisconsin ("Blue Cross") owns 40.7% of
the issued and outstanding shares of the Common Stock. James C. Hickman, a
director of the Company, is also a director of Blue Cross. Mr. Hickman and two
other Company directors, Eugene A. Menden and William R. Johnson, are directors
of United Wisconsin Services (see "Certain Transactions" below). Blue Cross
beneficially owns more than 10% of the common stock of United Wisconsin
Services. It is anticipated that Blue Cross will vote its shares of Common Stock
in favor of each of the nominees for director.
ITEM 1--ELECTION OF DIRECTORS
Three directors are to be elected at the Annual Meeting to serve three year
terms expiring at the 2003 Annual Meeting and until their respective successors
are duly elected and qualified. The names of the persons nominated by the Board
of Directors and the continuing Board members are set forth below, along with
additional information regarding such persons. Each nominee is presently serving
as a director of the Company.
The election shall be determined by a plurality of the votes cast. Unless
otherwise specified, the shares of Common Stock represented by the proxies
solicited hereby will be voted in favor of the election of the nominees
described below. The three nominees have indicated that they are able and
willing to serve as directors. However, if any of the nominees should be unable
to serve, an eventuality which management does not contemplate, it is intended
that the proxies will vote for the election of such other person or persons as
the Board of Directors of the Company may recommend.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES FOR
DIRECTORS.
NOMINEES FOR ELECTION AT THIS MEETING WITH TERMS EXPIRING IN 2003
<TABLE>
<CAPTION>
DIRECTOR
SINCE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------- ------------------------------------------------------------
<S> <C> <C>
James C. Hickman 1991 Mr. Hickman has been an Emeritus Professor and Emeritus Dean
Age: 72 of the School of Business at the University of
Wisconsin-Madison ("UW School of Business") since July 1993.
He was a Professor at the UW School of Business from 1972 to
1993, serving as Dean of the UW School of Business from 1985
to 1990. He is a director of United Wisconsin Services, Blue
Cross, and Century Investment Management Company.
William R. Johnson 1993 Mr. Johnson has been Chairman of Johansen Capital
Age: 73 Associates, Inc., a financial and investment consulting
firm, since 1986. He is a director of United Wisconsin
Services and Campbell, Newman, Pottinger & Associates, an
investment consulting firm.
Frank L. Skillern 1998 Mr. Skillern was Chief Executive Officer of American Express
Age: 63 Centurion Bank, a consumer bank located in Salt Lake City,
Utah, from 1996 until his retirement in March 1999. He has
been Chairman of the Board of Directors of American Express
Centurion Bank since his retirement and a director of that
bank since 1991. From 1994 to 1996 he was President,
Consumer Card Group, USA, American Express Travel Related
Services Company ("TRS"), having served as an Executive Vice
President of TRS for the prior two years.
</TABLE>
4
<PAGE>
CONTINUING DIRECTORS
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 2001
<TABLE>
<CAPTION>
DIRECTOR
SINCE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------- ------------------------------------------------------------
<S> <C> <C>
Eugene A. Menden 1991 Mr. Menden is a retired Vice President and Director of
Age: 69 Marquette Medical Systems, Inc. (formerly known as Marquette
Electronics, Inc.), a manufacturer of medical electronic
products, where he also held various other senior management
positions in his over 20-year career with the company. He is
also a director of United Wisconsin Services.
Samuel V. Miller 1998 Mr. Miller has been Chairman of the Board, President and
Age: 54 Chief Executive Officer of the Company since September 1998.
He was an Executive Vice President of the Company from 1995
to 1998 and also served as President and Chief Executive
Officer of American Medical Security Holdings, Inc. since
1996. During 1994 to 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.
Michael T. Riordan 1998 Mr. Riordan was President and Chief Operating Officer of
Age: 49 Fort James Corporation, a consumer products company, from
1997 to August 1998. He was Chairman, President and Chief
Executive Officer of Fort Howard Corporation from 1996 to
1997, and President and Chief Operating Officer of Fort
Howard Corporation from 1992 to 1996. Fort Howard
Corporation merged with James River Corporation in 1997 to
become Fort James Corporation. He is also a director of The
Dial Corporation and Wallace Computer Services, Inc.
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 2002
Roger H. Ballou 1998 Mr. Ballou has been the Chairman of the Board and Chief
Age: 49 Executive Officer of Global Vacation Group since March 1998.
Immediately prior to that time, Mr. Ballou served as a
senior advisor to Thayer Capital Partners. Between May 1995
and September 1997, Mr. Ballou served as Vice Chairman and
Chief Marketing Officer and then as President and Chief
Operating Officer of Alamo Rent-a-Car. From 1989 to 1995,
Mr. Ballou was President of the Travel Services Group of
American Express Company.
W. Francis Brennan 1998 Mr. Brennan is a retired Executive Vice President of UNUM
Age: 63 Corporation, a life and health insurance company, where he
served on the boards of UNUM's insurance affiliates in the
United States, Canada, the United Kingdom and Japan. He
joined UNUM in 1984 and retired in 1995. Prior to joining
UNUM, Mr. Brennan was a Vice President with Connecticut
General Life Insurance Company.
J. Gus Swoboda 1998 Mr. Swoboda is Chairman of the Board of Directors of First
Age: 64 Northern Capital Corp., a publicly traded financial
institution, and a retired Senior Vice President of
Wisconsin Public Service Corporation, an electric and gas
utility, where he also held various other senior management
positions. He joined Wisconsin Public Service in 1959 and
retired in 1997.
</TABLE>
5
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
In fiscal 1999, the Board of Directors held five meetings. The Board of
Directors has standing Audit, Compensation, Finance, and Executive Committees.
During 1999, each director attended all Board meetings and all meetings of the
committees of the Board on which the director served.
The Audit Committee recommends to the Board the selection of the Company's
independent auditors; reviews the scope and results of the Company's audits with
the independent auditors; and reviews the adequacy and effectiveness of the
Company's operational, accounting, and financial controls with the independent
auditors and the Company's internal audit and accounting personnel. The Audit
Committee also reviews the audited financial statements of the Company and the
auditors' reports and management letter with the independent auditors. In
addition, the Audit Committee reviews and evaluates related-party transactions
and conflict of interest statements, and discharges certain other
responsibilities of the Board of Directors when so instructed by the Board. The
Audit Committee is composed entirely of outside directors. The members of the
Audit Committee are Messrs. Menden (Chairman), Hickman, Brennan, and Swoboda.
The Audit Committee held four meetings during 1999.
The Compensation Committee evaluates the performance of the Company's
executive officers; determines the compensation of the executive officers;
reviews the compensation of other key employees; acts as the nominating
committee for directors; makes recommendations to the Board of Directors
regarding the types, methods and levels of director compensation; administers
the Company's equity-based compensation plans; administers the other
compensation plans for executive officers and directors; and discharges certain
other responsibilities of the Board of Directors when so instructed by the
Board. The Compensation Committee will consider a nominee for election to the
Board of Directors recommended by a shareholder if the shareholder submits the
nomination in compliance with the requirements of the Company's Bylaws relating
to nominations by shareholders. The Compensation Committee is composed entirely
of outside directors. The members of the Compensation Committee are
Messrs. Riordan (Chairman), Brennan, Ballou, and Skillern. The Compensation
Committee held three meetings during 1999.
The Finance Committee approves investment policies and plans; monitors the
performance of the Company's investment portfolio; consults with management
regarding the Company's capital structure and material transactions involving
real estate, accounts receivable and other assets; monitors the amounts and
types of insurance carried by the Company; monitors the Company's relationship
with its lenders; and discharges certain other responsibilities of the Board of
Directors when so instructed by the Board. The members of the Finance Committee
are Messrs. Johnson (Chairman), Menden, Miller, and Skillern. The Finance
Committee held three meetings during 1999.
The Executive Committee discharges certain responsibilities of the Board of
Directors when so instructed by the Board. When the Board of Directors is not in
session, the Executive Committee may exercise all of the powers and authority of
the full Board in the management of the business and affairs of the Company to
the extent allowed by the Wisconsin Business Corporation Law. The members of the
Executive Committee met in executive session twice during 1999. The members of
the Executive Committee are Messrs. Miller (Chairman), Ballou, Hickman, and
Riordan.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the Company do not receive any
compensation for service as members of the Board of Directors or committees of
the Board. During 1999, a director who was not an officer or employee of the
Company received an $18,000 annual fee and $1,000 per day for attendance at
Board or committee meetings. In addition, each committee chairman received a
$3,600 annual fee and other committee members received a $1,800 annual fee. The
Company also reimburses directors for their travel expenses in connection with
their attendance at Board and committee meetings. The payment of a director's
annual fees and meeting fees may be deferred by any director at such director's
election pursuant to the Company's Directors Deferred Compensation Plan until
the later of the date of termination of such director's service as a
non-employee director or the date specified by such director in his deferred
election form.
6
<PAGE>
After reviewing competitive data, including the results of a competitive
compensation study prepared by the Company's executive compensation consultant,
Arthur Andersen LLP, the Company decided, beginning in 2000, to (1) increase the
annual fee for serving on the Board to $20,000, (2) increase the Board meeting
attendance fee to $1,200, and (3) pay directors $1,000 for each committee
meeting attended. The Company did not change the annual fees for serving on
Committees.
In 1999, the shareholders of the Company approved amendments to the
Company's Equity Incentive Plan (the "Executive Incentive Plan"), to allow
non-employee directors to participate in the Equity Incentive Plan. During 1999,
nonqualified stock options to purchase 16,000 shares of Common Stock of the
Company were granted to each director at an exercise price equal to the fair
market value of the Common Stock on the date of grant. The options will become
exercisable for one-third of the shares of Common Stock subject to the option on
each of the first three anniversaries of the date of grant. Exercisability of
unvested options is accelerated in the event of a non-employee director's death,
disability, or upon a change in control as defined in the Equity Incentive Plan
(see "Executive Compensation--Options/SAR Grants in Last Fiscal Year--Footnote
1"). The number of shares granted to the non-employee directors in 1999 was
based on a grant date present value of competitive annual stock option grant
amounts. The Compensation Committee of the Board of Directors does not expect to
grant options to non-employee directors in 2000.
NOMINATIONS FOR DIRECTORS BY SHAREHOLDERS
Article II, Section 2.01(B) of the Company's Bylaws provides that if a
shareholder desires to make a nomination for the election of directors at an
annual meeting, he or she must give timely written notice of the nomination to
the Secretary of the Company. Notice is timely if received by the Secretary at
the Company's principal office in the year of the applicable annual meeting not
less than 60 days nor more than 90 days prior to the date on which the Company
first mailed its proxy materials for the prior year's annual meeting of
shareholders. The annual meeting of shareholders is generally held in mid- to
late-May. The notice must set forth the shareholder's name and address as they
appear on the Company's books; the class and number of shares of Common Stock
beneficially owned by such shareholder; a representation that such shareholder
is a holder of record of shares entitled to vote at the meeting and intends to
appear at the meeting, in person or by proxy, to make the nomination; the name
and residential address of the nominee; a description of all arrangements or
understandings between the shareholder and the nominee (and any other person or
persons) pursuant to which the nomination is to be made; the written consent of
the nominee to serve, if elected; and certain other information. The notice must
be signed by the shareholder of record who intends to make the nomination (or
his or her duly authorized proxy or other representative) and must bear the date
of signature of such shareholder or representative. Article II, Section 2.02(B)
of the Bylaws provides that notices with respect to any nomination for a Board
election to be held at any special meeting must contain all the information set
forth above and must be received by the Secretary of the Company not earlier
than 90 days and not later than the later of 60 days prior to the special
meeting or ten days after notice of such meeting is first given to shareholders.
The Bylaws require similar notice with respect to shareholder proposals for
other action to be taken at a meeting of shareholders. See "Shareholder
Proposals." Shareholders wishing to submit a nomination should review the Bylaw
requirement regarding nominations by shareholders and should communicate with
the Secretary of the Company at American Medical Security Group, Inc., 3100 AMS
Boulevard, Green Bay, Wisconsin 54313, for further information. Compliance with
the Bylaw advance notice requirements does not confer any right to have a
shareholder nomination or proposal included in the Company's proxy statement or
form of proxy unless the Board of Directors determines to adopt or recommend the
nomination or proposal for such inclusion.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the total compensation paid by the Company to
the Chief Executive Officer and the four other most highly compensated executive
officers of the Company (the "Named Executive Officers") for services rendered
to the Company for the fiscal years ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- -------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSA- STOCK OPTIONS/ COMPENSA-
POSITION YEAR SALARY ($) BONUS ($)(1) TION ($)(2) AWARDS ($) SARS (#)(3) TION ($)(4)
- --------------------------- -------- ---------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Samuel V. Miller........... 1999 $500,000 $500,000 $18,628 -- 148,000 $ 2,000
CHAIRMAN OF THE BOARD, 1998 500,000 650,000 14,200 $ 900,449(5) 201,113 2,000
PRESIDENT & CHIEF 1997 500,000 600,000 -- -- -- --
EXECUTIVE OFFICER
Gary D. Guengerich(6)...... 1999 260,000 67,600 5,226 -- 68,000 --
EXECUTIVE VICE PRESIDENT & 1998 225,000 110,000 -- -- 152,788 --
CHIEF FINANCIAL OFFICER 1997 37,262 85,000 -- -- -- 50,000(7)
James C. Modaff(6)......... 1999 108,000 130,000 6,741 -- 178,000 3,060
EXECUTIVE VICE PRESIDENT & 1998 -- -- -- -- -- --
CHIEF ACTUARY 1997 -- -- -- -- -- --
Thomas G. Zielinski(6)..... 1999 93,000 200,000 980 -- 185,000 1,400
EXECUTIVE VICE PRESIDENT 1998 -- -- -- -- -- --
OF OPERATIONS 1997 -- -- -- -- -- --
Christopher N. Earl(6)..... 1999 192,981 107,000 12,174 -- 132,000 5,229
SENIOR VICE PRESIDENT, 1998 -- -- -- -- -- --
SALES & MARKETING 1997 -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Bonus amounts for Mr. Miller represent amounts earned by him pursuant to the
terms of his employment agreement with the Company. Bonus amounts for other
executive officers represent amounts earned under incentive bonus plans, and
for Mr. Guengerich for 1997 and for Messrs. Modaff and Zielinski for 1999
include new hire recruitment bonuses and minimum guaranteed bonuses for
services during the year in which they were first employed (see footnote 6).
(2) Amounts represent reimbursement for the payment of taxes related to
compensation recognized in connection with moving expenses and the personal
use of Company vehicles and airplane. The amounts indicated do not include
perquisites and other personal benefits to the Named Executive Officers,
which, for each officer, did not exceed the lesser of $50,000 or 10% of the
officer's total annual salary and bonus.
(3) These options are granted under the Company's Equity Incentive Plan, as
amended, which permits limited transfers of nonqualified stock options to
certain members of the optionee's immediate family or to a trust for their
benefit. Numbers reflect adjustments made in 1998, as a result of the
Spin-off (see "Certain Transactions") to the number of stock options granted
prior to the Spin-off.
(4) Except for Mr. Guengerich, amounts represent the Company's matching
contributions to the Company's retirement savings plan.
(5) Consists of a grant of 73,506 shares of deferred Common Stock pursuant to an
agreement entered into with Mr. Miller on November 17, 1998. The deferred
stock will vest on November 17, 2002, or his earlier death, disability, or
the occurrence of a change in control while he is employed by the
8
<PAGE>
Company, or upon the Company's termination of his employment for any reason
other than cause if the fair market value of the Common Stock on the date of
termination exceeds $12.00 per share. If the vesting requirements are
satisfied, the deferred stock will be issued on January 2 of the year
following Mr. Miller's termination of employment. Prior to the issuance of
the deferred stock, Mr. Miller is not entitled to receive any dividend
equivalents or other distributions which might be paid with respect to the
Company's Common Stock, but the number of shares of deferred stock to be
issued to him would be equitably adjusted as appropriate to reflect any
stock dividend, stock split or other capital change which affects the Common
Stock. As of December 31, 1999, the 73,506 shares of deferred stock had a
value of $441,036 based on the $6.00 per share closing price of the
Company's Common Stock on December 31, 1999.
(6) Messrs. Guengerich, Modaff, Zielinski, and Earl became employees of the
Company on November 3, 1997, August 2, 1999, August 23, 1999 and
February 22, 1999, respectively.
(7) The amount represents payment in lieu of commission reimbursement upon sale
of home, which Mr. Guengerich chose not to sell.
The following table details the stock options granted pursuant to the Equity
Incentive Plan during 1999 to the Named Executive Officers. No SARs were granted
during 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED VALUE
---------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTION/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ------------ ---------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Samuel V. Miller................ 148,000 17.0% $5.8125 11/16/11 $684,633 $1,839,581
Gary D. Guengerich.............. 68,000 7.8 5.8125 11/16/11 314,561 845,213
James C. Modaff................. 110,000 12.6 10.75 8/1/11 941,105 2,528,691
68,000 7.8 5.8125 11/16/11 314,561 845,213
Thomas G. Zielinski............. 117,000 13.4 8.875 8/22/11 826,394 2,220,496
68,000 7.8 5.8125 11/16/11 314,561 845,213
Christopher N. Earl............. 70,000 8.0 14.125 2/21/11 786,905 2,114,371
62,000 7.1 5.8125 11/16/11 286,806 770,635
</TABLE>
- ------------------------
(1) The grants consisted entirely of nonqualified stock options granted pursuant
to the Equity Incentive Plan. All options granted to the Named Executive
Officers have a term of 12 years, subject to earlier expiration in certain
events related to the termination of employment, were granted at 100% of the
fair market value of the Company's Common Stock on the date of grant, and
become exercisable as to 25% of such options on each of the first four
anniversaries of the date of grant. Exercisability of unvested options is
accelerated in the event of the optionee's death or disability, or upon a
change in control. A change in control generally occurs when (1) a majority
of the 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 result of or in connection with
(a) any person, or group as defined in Section 13(d)(3) of the Exchange Act,
becoming the beneficial owner of 40% or more of the Company's outstanding
voting securities, (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 of the assets of the Company, (e) a contested election of
directors, or (f) any combination of the foregoing events; or (2) the
shareholders approve a plan of liquidation or dissolution of the Company.
Notwithstanding the foregoing, no option may be exercised within the first
six months following the
9
<PAGE>
date of grant. The options permit limited transfers to certain members of
the optionee's immediately family or to a trust for their benefit.
(2) The ultimate values of the options will depend on the future market price of
the Company's stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon exercise of an option
will depend on the excess of the market value of the Company's Common Stock
over the exercise price on the date the option is exercised. There is no
assurance that the value realized by an optionee will be at or near the
assumed 5% and 10% annual rates of stock price appreciation shown in this
table.
No stock options or SARs were exercised by any of the Named Executive
Officers during 1999. The number of unexercised options and the total value of
unexercised in-the-money options at December 31, 1999, are shown in the
following table. No SARs were outstanding at December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTION/SARS AT FY-END (#) AT FY-END ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Samuel V. Miller............................... 997,175 223,000 $ -- $27,750
Gary D. Guengerich............................. 62,788 158,000 -- 12,750
James C. Modaff................................ -- 178,000 -- 12,750
Thomas G. Zielinski............................ -- 185,000 -- 12,750
Christopher N. Earl............................ -- 132,000 -- 11,625
</TABLE>
- ------------------------
(1) The value of unexercised in-the-money options represents the positive spread
between the $6.00 per share closing price of the Company's Common Stock as
reported on the New York Stock Exchange composite tape on December 31, 1999,
and the exercise price of unexercised options. The actual amount, if any,
realized upon exercise of options will depend on the market price of the
Common Stock relative to the per share exercise price at the time the option
is exercised.
EMPLOYMENT AND RELATED AGREEMENTS
Mr. Miller is a party to an Employment and Noncompetition Agreement (the
"Miller Agreement") with the Company dated as of April 7, 1998, which supersedes
an Employment and Noncompetition Agreement dated as of October 30, 1995. The
Miller Agreement contains customary employment terms. The terms of the Miller
Agreement, which expires on December 31, 2000, provide for automatic one-year
extensions (unless notice not to extend is given by either party at least
30 days prior to the end of the effective term), and provide for an annual base
salary of $500,000 and annual performance bonuses of not less than $500,000 or
more than $1,000,000. Portions of Mr. Miller's performance bonuses are deferred
so that his W-2 compensation for a calendar year does not exceed $990,000. In
the event of termination of the employment of Mr. Miller by the Company without
"cause" (as defined in the Miller Agreement), Mr. Miller will be entitled to
receive a severance payment of $3,000,000 if his employment is terminated during
the initial term of the Miller Agreement or $1,000,000 if his employment is
terminated during a renewal term of the Miller Agreement, provided that such
severance amount shall not exceed 2.99 multiplied by Mr. Miller's "base amount"
(as defined in Internal Revenue Code Section 280G). The Miller Agreement also
includes noncompetition and confidentiality provisions.
Messrs. Guengerich, Modaff, Zielinski, and Earl participate in the American
Medical Security Group, Inc. Change of Control Severance Benefit Plan (the
"Severance Plan"). Benefits are payable under
10
<PAGE>
the Severance Plan if, during a period beginning six months prior to a "change
of control" and ending on the second anniversary of a change of control,
(1) the participant's employment is terminated by the Company, except for
"cause," as defined in the Severance Plan, death or disability, or (2) the
participant voluntarily terminates employment with "good reason," as defined in
the Severance Plan. For purposes of the Severance Plan, a "change of control"
shall have occurred when (1) a majority of the directors of the Company cease to
continue to serve as directors of the Company and/or the chief executive officer
of the Company ceases to serve as the chief executive of the Company as the
result of or in connection with (a) any person, or group as defined in
Section 13(d)(3) of the Exchange Act, becoming the beneficial owner of 40% of
the Company's outstanding voting securities, (b) a cash tender or exchange
offer, (c) a merger or other business combination, (d) a sale of substantial
assets of the Company, (e) a contested election of directors, or (f) any
combination of the foregoing events; or (2) the shareholders approve a plan of
liquidation or dissolution of the Company. Plan benefits include the payment of
severance equal to three times the average salary and bonus for the prior two
years for Executive and Senior Vice Presidents and one and one-half times the
average salary and bonus for the prior two years for participants who are not
Executive or Senior Vice Presidents. In addition, the Company would also provide
health, dental, long-term disability and life insurance coverage for comparable
periods of time. In the event the executive qualifies for severance benefits
under any other agreement with the Company, benefits payable under the Severance
Plan are reduced by the amount of the benefits paid pursuant to the other
agreement.
In connection with the employment offers accepted by Messrs. Guengerich,
Modaff, and Zielinski, the Company has also agreed to provide Messrs.,
Guengerich, Modaff, and Zielinski with severance benefits in the event of
termination of their employment by the Company without cause. These benefits
include payments equal to one year's salary and medical insurance coverage for
one year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
INTRODUCTION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is comprised of four independent, non-employee directors. The
Compensation Committee establishes and directs the administration of all
programs under which executive compensation is paid or awarded to the Company's
executive officers. In addition, the Compensation Committee evaluates executive
officer performance and assesses the overall effectiveness of the Company's
executive compensation programs.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's compensation and benefit programs are designed:
- To attract and retain top level executive talent required to attain the
Company's short and long-term goals.
- To motivate these executives to achieve the goals of the Company's
business strategy.
- To link executive and shareholder financial interests through appropriate
equity-based long-term incentive plans.
- To provide a compensation package that recognizes individual contributions
and overall business results.
ELEMENTS OF EXECUTIVE COMPENSATION
The elements of executive compensation include base salary, an annual
incentive program, and an equity incentive plan. The Compensation Committee's
decisions with respect to each of these elements are discussed below. While the
elements of compensation described in this report are considered separately, the
Compensation Committee takes into account the full compensation package afforded
by the Company to the individual, including salary, incentive compensation,
retirement, and other benefits. In reviewing the
11
<PAGE>
individual performance of the executives whose compensation is detailed in this
proxy statement, other than the Chief Executive Officer (CEO), the Compensation
Committee takes into account the views of the CEO.
Each year the Compensation Committee reviews the Company's executive
compensation program to ensure that pay opportunities are competitive with the
current market and that there is appropriate linkage between Company performance
and executive compensation. This process includes consultation with a national
compensation and benefits consultant on issues of base salary, annual incentive
awards, stock options and other long-term equity awards, and overall
compensation. The Compensation Committee's review includes a comparison of the
Company's executive compensation against an appropriate peer group.
In mid-year 1999, the Committee revised the group of companies in the peer
group to more closely reflect the companies against which the Company competes
in the marketplace and competes for executive talent. The peer group includes a
composite of health and life insurance companies as surveyed by Arthur Andersen
LLP. Because many of the peer group companies are significantly larger than the
Company, peer group compensation data is statistically regressed for purposes of
compensation comparisons in order to ascertain the predicted level of
compensation for an organization with annual revenue comparable to the
Company's. The companies in the peer group comprise the peer index included in
the Performance Graph contained in this proxy statement.
BASE SALARY
Base salaries are set in a context of total direct pay (base salary plus
targeted annual incentive) such that total direct pay is competitive with
current market levels of the comparable group and that there is appropriate
linkage between Company performance and executive compensation. Base salaries
for executive officers are initially determined by evaluating and comparing the
responsibilities of their positions and experiences and by reference to the
competitive marketplace for executive talent. Base salary adjustments, which
were considered in late 1998 and became effective January 1, 1999, resulted in
salaries slightly below market levels for comparable positions at the companies
then comprising the peer group.
ANNUAL INCENTIVE COMPENSATION
Except for the CEO, the Company's executive officers are eligible for an
annual performance bonus under the Company's executive management incentive
program (the "Annual Program"). In 1999, the Committee redesigned the Company's
Annual Program to place a greater emphasis on the achievement of internal
financial goals that are aligned with the interest of the Company's
shareholders. The bonus paid under the Annual Program has two components:
(1) achievement of corporate performance goals and (2) an assessment of specific
job performance characteristics. The corporate performance factor is either
earnings before interest, taxes, depreciation and amortization ("EBITDA") or a
sales objective, depending on the executive's position. Performance bonuses are
generally weighted 60% on achievement of corporate performance goals and 40% on
a qualitative evaluation of individual job performance based on pre-planned
objectives.
The Annual Program is designed to align executive compensation with the
profitability of the Company and to reward those executives who made significant
contributions to the Company's business objectives. Participants in the Annual
Program are high performers around whom the Company's high performance work
culture is built. Not all individual performance objectives are quantifiable.
Therefore, the Compensation Committee used discretion in evaluating an
executive's achievement of individual performance objectives.
For 1999, the potential range of bonus awards was 0% to 100% of annual base
salary with the actual payout ranging from 11% to 50% of base salary. While
corporate performance goals based on sales objectives were achieved during 1999,
minimum EBITDA corporate performance goals were not achieved.
12
<PAGE>
As a result, executives with EBITDA performance goals did not receive bonus
awards for the corporate performance component of the Annual Program. They only
received bonus awards for the portion of the Annual Program based on an
evaluation of individual job performance. As reflected in the Summary
Compensation Table, certain executives that joined the Company in 1999 received
new hire bonuses and minimum guaranteed performance bonuses agreed to in
connection with their employment offers. The performance awards for fiscal 1999
were paid in the first quarter of 2000.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentives are provided primarily pursuant to the Company's Equity
Incentive Plan, as amended and restated March 15, 1999 (the "Equity Incentive
Plan"), which provides for the grant of stock options, stock appreciation
rights, restricted stock, and performance units and performance shares.
The purpose of the Equity Incentive Plan is to promote the success, and
enhance the value of the Company by linking the personal interests of employees
to those of the Company shareholders, and by further providing employees that
receive an award under the Equity Incentive Plan with an incentive for
outstanding performance. When awarding long-term incentives, the Compensation
Committee considers compensation practices at peer group companies, the
executive's level of responsibility, prior experience, and historical award
data.
The Compensation Committee is responsible for administering the Equity
Incentive Plan. Currently, only nonqualified stock option grants are outstanding
under the Equity Incentive Plan. The option grants are designed to motivate
employees to maximize shareholder value and maintain a medium to long-term
perspective. Option grants are made at no less than the fair market price on the
date of grant and generally become exercisable in equal annual installments over
a four-year term, expiring no later than 12 years after the date of grant. All
full-time active employees of the Company are eligible to participate in the
Equity Incentive Plan.
When determining the size of annual option grants made to executive officers
in 1999, the Compensation Committee considered the results of the peer group
survey performed by Arthur Andersen LLP. Based on the commonly used
Black-Scholes valuation methodology, annual stock option award sizes for 1999
were positioned at the 50(th)percentile of competitive practice. To provide
executive officers who joined the Company in 1999 with an immediate stake in the
long-term performance of the Company, the Committee also granted stock options
to these executives upon joining the Company. These grants were based on the
executive's level of responsibility and anticipated contribution to the success
of the Company, as well as historical option award data for similarly positioned
executives.
Nonqualified stock options to purchase a total of 563,000 shares were
granted to the Company's executive officers (other than the CEO) named in the
compensation table for fiscal 1999. The award to the CEO is discussed below.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Miller became the CEO of the Company during 1998. His employment and
noncompetition agreement with the Company was renewed effective as of April 7,
1998, with a term ending on December 31, 2000 (the "Miller Agreement"). Under
the terms of the Miller Agreement, Mr. Miller's annual base salary is $500,000
and he is eligible for an annual performance bonus of not less than $500,000 or
more than $1 million.
In determining the individual performance portion of Mr. Miller's annual
incentive award, the Compensation Committee considered the financial performance
of the Company, as well as Mr. Miller's leadership in the implementation of the
overall strategic direction of the Company. Mr. Miller received an annual
incentive award of $500,000 or 100% of base salary, which is the minimum bonus
amount provided for under the Miller Agreement.
13
<PAGE>
In 1999, Mr. Miller received options to purchase 148,000 shares at an
exercise price of $5.8125 per share as detailed in the option grant table
contained in this proxy statement. This equity interest recognizes Mr. Miller's
leadership and provides an appropriate link to the interests of shareholders.
When determining the size of the CEO's option grant, the Compensation Committee
considered the results of the peer group survey performed by Arthur Andersen
LLP. Based on the commonly used Black-Scholes valuation methodology,
Mr. Miller's 1999 stock option grant was positioned at the 50(th) percentile of
competitive practice.
Mr. Miller participates in a deferral program whereby a portion of his
annual performance bonus is deferred until he is no longer an employee of the
Company or he is no longer considered a "covered employee" within the meaning of
Section 162(m)(3) of the Internal Revenue Code of 1986, as amended, (the
"Internal Revneue Code"). The deferred amounts are held in a rabbi trust and are
credited at an interest rate equal to 60% of the prime rate as reported in the
Wall Street Journal.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits the Company's federal
income tax deduction for compensation to its CEO and any of its four other
highest paid executive officers to $1 million. Qualified performance-based
compensation is not subject to the $1 million limitation, provided certain
requirements of Section 162(m) are satisfied. In 1999, none of the Company's
executives received compensation in excess of $1 million for purposes of
Section 162(m) and all executive compensation paid in fiscal 1999 is fully
deductible. In order to preserve the deductibility of Mr. Miller's compensation,
a portion of his annual incentive for 1999 was deferred pursuant to the deferral
program described above. The Compensation Committee has, however, reviewed
Section 162(m) and considered its impact on the Company's future executive
compensation plans.
CONCLUSION
After its review of the total compensation program for the executives of the
Company, the Compensation Committee continues to believe that these executive
compensation policies and practices serve the interests of the shareholders and
the Company effectively. We also believe that the various compensation programs
offered are appropriately balanced to provide increased motivation for executive
officers to contribute to the Company's overall future successes, thereby
increasing the value of the Company for the shareholders' benefit. The
Compensation Committee will continue to monitor the effectiveness of the
Company's total compensation program to meet the ongoing needs of the Company.
COMPENSATION COMMITTEE
Michael T. Riordan, Chairman
Roger H. Ballou
W. Francis Brennan
Frank L. Skillern
PERFORMANCE GRAPH
Two performance graphs are presented below to provide cumulative shareholder
return information for the Company on (1) a post-Spin-off basis reflecting
continuing operations and (2) a five-year historical basis, as is require by
Exchange Act reporting regulations. See "Certain Transactions" for a description
of the Spin-off.
The first graph compares the cumulative shareholder return of the Company's
Common Stock for the period from September 28, 1998, (the first day of trading,
following the completion of the Spin-off, on the New York Stock Exchange)
through December 31, 1999, to the cumulative total returns of the NYSE/
AMEX/Nasdaq Stock Market, a peer group of issuers selected by the Company, and
the Morgan Stanley
14
<PAGE>
Healthcare Payor Index. The second performance graph compares the cumulative
shareholder return, for the five year period ended December 31, 1999, of the
Company's Common Stock (traded on the New York Stock Exchange prior to the
Spin-off under the listing of United Wisconsin Services and after the Spin-off
under the listing of American Medical Security Group, Inc.) to the cumulative
total returns of the same market, peer group and industry index as the
short-period graph.
In 1999 the Company revised the peer group of issuers used for executive
compensation comparison purposes and decided to use the revised group to report
shareholder return information. The revised peer group was developed to include
companies in the insurance industry that best reflect the Company's current and
desired state in terms of performance level and size. The peer group consists of
a composite of life and health insurance companies against which the Company
competes in the marketplace. The following companies are included in the peer
group: Aetna Inc.; United Healthcare Corporation; Humana, Inc.; Pacificare
Health Systems, Inc.; Foundation Health Systems, Inc.; Wellpoint Health Networks
Inc.; Oxford Health Plans, Inc.; Jefferson-Pilot Corporation; Unitrin, Inc.;
Trigon Healthcare, Inc.; Sierra Health Services, Inc.; and Rightchoice Managed
Care, Inc.
The graphs assume an investment of $100 in each of the Company's Common
Stock, the NYSE/ AMEX/Nasdaq Stock Market, the peer group of issuers, and the
Morgan Stanley Healthcare Payor Index at the beginning of the periods
(September 28, 1998, and December 31, 1994, as the case may be), and assume
reinvestment of dividends. In the five-year graph, the Spin-off of the Company's
managed care and specialty products business was treated as a special dividend
of $7.19 per share that was reinvested in Company Common Stock on September 28,
1998, the first day of trading following the Spin-off. The line graphs are not
intended to be indicative of future stock performance.
COMPARISON OF CUMULATIVE TOTAL RETURNS
FROM SEPTEMBER 28, 1998 THROUGH DECEMBER 31, 1999
PERFORMANCE GRAPH
AMERICAN MEDICAL SECURITY GROUP, INC.
<TABLE>
<CAPTION>
9/28/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
American Medical Security Group, Inc............ $100.00 $139.63 $136.58 $84.15 $63.42 $58.54
NYSE/AMEX/Nasdaq Stock Market (US Companies).... 100.00 118.05 122.47 132.28 124.18 146.01
Peer Group...................................... 100.00 116.09 116.38 126.55 90.69 100.89
Morgan Stanley Health Care Payor Index.......... 100.00 118.36 117.11 130.55 100.06 105.67
</TABLE>
15
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURNS
FROM DECEMBER 31, 1994 THROUGH DECEMBER 31, 1999
PERFORMANCE GRAPH
AMERICAN MEDICAL SECURITY GROUP, INC.
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
American Medical Security Group, Inc.............. $100.00 $62.50 $76.11 $75.87 $72.83 $30.53
NYSE/AMEX/Nasdaq Stock Market (US Companies)...... 100.00 136.33 165.28 216.35 267.11 330.38
Peer Group........................................ 100.00 140.56 135.54 131.50 148.35 128.93
Morgan Stanley Health Care Payor Index............ 100.00 125.51 109.45 113.79 121.40 108.38
</TABLE>
CERTAIN TRANSACTIONS
On May 27, 1998, the Board of Directors of the Company, then known as United
Wisconsin Services, Inc., approved a plan to spin off its managed care companies
and specialty products business to its shareholders. 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 (the
"Spin-off"). In connection with the Spin-off, the Company adopted its current
name of American Medical Security Group, Inc. and Newco/UWS changed its name to
United Wisconsin Services, Inc. (referred to herein as "United Wisconsin
Services"). As a result of the transactions entered into in connection with the
Spin-off, United Wisconsin Services owns the businesses and assets of, and is
responsible for the liabilities associated with, the managed care and specialty
products business formerly conducted by the Company. The Company continues to
own the business and assets of, and is responsible for the liabilities
associated with, the Company's small group business described in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
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<PAGE>
SERVICE AGREEMENTS
Blue Cross, a 40.7% beneficial shareholder of the Company, beneficially owns
more than 10% of the common stock of United Wisconsin Services. The Company and
United Wisconsin Services were parties to a service agreement (the "UWS Service
Agreement") dated September 25, 1998, pursuant to which United Wisconsin
Services provided investment management and investment accounting services to
the Company following the Spin-off. Fees under the UWS Service Agreement were
based on a percentage of the investment portfolio plus a flat rate for each
corporate entity whose investments were being managed by United Wisconsin
Services. The Company paid United Wisconsin Services $116,977 for such services
in fiscal 1999 and $48,407 in fiscal 1998. The UWS Service Agreement, which
otherwise would have expired on December 31, 1999, was terminated on August 31,
1999, as permitted by its terms.
REINSURANCE AGREEMENTS
During 1998, the Company and United Wisconsin Services, or their
subsidiaries, entered into various quota share reinsurance agreements
("Reinsurance Agreements") pursuant to which each company cedes to the other
certain risks related to life insurance, health insurance, dental insurance,
point-of-service and other insurance plans. In addition, each company acting as
the reinsurer provides administrative services to the other company acting as
the ceding company. As consideration for such reinsurance, the ceding company
receives a ceding commission of approximately 0.5% of the gross premiums
reinsured under each applicable agreement. For fiscal 1999 and 1998, the Company
received $115,449 and $28,360, respectively, from United Wisconsin Services or
its subsidiaries and paid $78,025 and $42,590, respectively, to United Wisconsin
Services or its subsidiaries pursuant to the Reinsurance Agreements.
REGISTRATION RIGHTS AGREEMENTS
The Company and Blue Cross have entered into a Registration Rights Agreement
dated as of September 1, 1998, which contains certain registration rights
granted by the Company with respect to shares of Company Common Stock owned by
Blue Cross. Pursuant to the terms of the agreement, Blue Cross is entitled to
certain demand registration rights until the earlier of July 31, 2008, or the
date on which Blue Cross owns in the aggregate less than three percent of the
Company's outstanding Common Stock. In addition, Blue Cross is entitled, subject
to certain limitations, to include its shares of Common Stock in a registration
statement prepared by the Company for another offering. Also, if Blue Cross
proposes to sell its Common Stock to a third party, Blue Cross may request that
the Company register its shares prior to such sale, and the Company shall use
its best efforts to register all of the shares that Blue Cross proposes to sell.
Blue Cross has agreed not to acquire any additional Common Stock of the Company,
other than as a result of any stock dividend or distribution, without the
consent of the Company, for a period of ten years.
Wallace J. Hilliard, who ceased to be a 5% beneficial shareholders of the
Company in 1999, and another former greater than 5% shareholder of the Company,
(together, the "Holders") have entered into a Registration Rights and Stock
Restriction Agreement with the Company dated as of December 3, 1996, which
contains certain registration rights granted by the Company with respect to
shares owned by the Holders. Pursuant to the terms of the agreement, the Holders
are entitled to certain demand registration rights until the earlier of
December 3, 2001, or the date on which the Holders own in the aggregate less
than three percent of the Company's outstanding Common Stock. In addition, the
Holders are entitled, subject to certain limitations, to include their shares of
Common Stock in a registration statement prepared by the Company for another
offering. The Holders have also agreed not to acquire any securities of the
Company without the consent of the Company for a period of ten years if such
acquisition would require regulatory approval, application or notification other
than as required by the Exchange Act. Further, the Holders have agreed not to
(1) initiate any shareholder proposals with respect to the Company, (2) make any
proposals with respect to a merger or other business combination, sale or
transfer of assets, liquidation or other extraordinary corporate transaction of
the Company, or (3) participate in a
17
<PAGE>
group (within the meaning of Section 13(d)(3) of the Exchange Act) with respect
to the Company's securities or seek to exercise control over the Company.
OTHER AGREEMENTS
Mr. Hilliard is a party to an Employment and Noncompetition Agreement with
the Company entered into as of December 3, 1996, and amended March 30, 1999,
pursuant to which Mr. Hilliard continues to receive payments. The agreement
provides for the payment of (1) $750,000 per year during the first year,
(2) $500,000 per year for the next four years and three months, and
(3) $100,000 per year thereafter for a period of three years. The agreement
contains noncompetition and nonsolicitation provisions applicable during the
term of the agreement and for a period of two years thereafter. Mr. Hilliard's
agreement expires on March 3, 2005. On March 30, 1999, Mr. Hilliard entered into
an Option Surrender Agreement with the Company pursuant to which he surrendered
stock options to purchase 530,000 shares of Company Common Stock. As a result,
Mr. Hilliard ceased to be a greater than 5% beneficial shareholder of the
Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and any persons who beneficially own in excess of ten percent of
the shares of the Common Stock to file reports of ownership and changes in
ownership of the Common Stock with the Securities and Exchange Commission, the
New York Stock Exchange and the Company.
Based upon a review of the information furnished to the Company, the Company
believes that during the fiscal year ended December 31, 1999, its executive
officers and directors and Blue Cross complied with all applicable
Section 16(a) filing requirements, except that one report on Form 4 for William
R. Johnson, reporting one transaction, was filed late.
AUDITORS
The Audit Committee of the Board of Directors has selected Ernst & Young LLP
as independent auditors for the Company for the year ended December 31, 1999.
Ernst & Young LLP has examined the accounts of the Company since 1988.
Representatives of Ernst & Young LLP will be present at the Meeting, will be
available to respond to questions and may make a statement if they so desire.
OTHER MATTERS
The Company knows of no other matters to come before the Meeting. If any
other matters properly come before the Meeting, it is the intention of the
persons acting pursuant to the accompanying appointment of proxy form to vote
the shares represented thereby in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 2001 Annual Meeting of Shareholders of the
Company must be received no later than December 1, 2000, at the Company's
principal executive offices, 3100 AMS Boulevard, Green Bay, Wisconsin 54313,
directed to the attention of the Secretary, in order to be considered for
inclusion in next year's annual meeting proxy material under the Securities and
Exchange Commission's proxy rules.
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Under the Company's Bylaws, written notice of shareholder proposals for the
2001 Annual Meeting of Shareholders of the Company which are not intended to be
considered for inclusion in next year's proxy material (shareholder proposals
submitted outside the processes of SEC Rule 14a-8) must be received no later
than January 30, 2001, and no earlier than December 31, 2000, at the Company's
offices, directed to the attention of the Secretary, and such notice must
contain the information specified in the Company's Bylaws.
AMERICAN MEDICAL SECURITY GROUP, INC.
/s/ Timothy J. Moore
Timothy J. Moore
SECRETARY
Green Bay, Wisconsin
March 31, 2000
A COPY (WITHOUT EXHIBITS) OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1999, WILL BE PROVIDED WITHOUT CHARGE TO EACH RECORD OR
BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK AS OF MARCH 20, 2000, ON THE
WRITTEN REQUEST OF SUCH PERSON DIRECTED TO: TIMOTHY J. MOORE, SECRETARY,
AMERICAN MEDICAL SECURITY GROUP, INC., 3100 AMS BOULEVARD, GREEN BAY, WISCONSIN
54313.
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<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SAMUEL V. MILLER, GARY D GUENGERICH, AND TIMOTHY J. MOORE, and each of them, are
hereby authorized as Proxies, with full power of substitution, to represent and
vote the Common Stock of the undersigned at the Annual Meeting of Shareholders
of American Medical Security Group, Inc., a Wisconsin corporation, to be held on
Wednesday, May 17, 2000, or any adjournment or postponement thereof, with like
effect as if the undersigned were personally present and voting, upon the
matters indicated on the reverse side of this card.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
(SEE REVERSE SIDE TO VOTE)
<PAGE>
AMERICAN MEDICAL SECURITY GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 2000
(SEE REVERSE SIDE)
PLEASE SIGN, DATE, DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
PLEASE DO NOT FOLD
AMERICAN MEDICAL SECURITY GROUP, INC. 2000 ANNUAL MEETING
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS 1--James C. Hickman / / FOR all nominees / / WITHOUT AUTHORITY
2--William R. Johnson listed to the left to vote for all nominees
3--Frank L. Skillern (except as specified below). listed to the left.
</TABLE>
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box provided
to the right). / /
2. In their discretion, upon such other business as may properly come
before the Meeting or any adjournments thereof; all as set out in the
Notice and Proxy Statement relating to the Meeting, receipt of which is
hereby acknowledged.
Date ___________________
<TABLE>
<CAPTION>
<S> <C> <C>
NO. OF SHARES
Check appropriate box
Indicate changes below:
Address Change? / / Name Change? / / / /
SIGNATURE(S) IN BOX
PLEASE SIGN PERSONALLY AS NAME APPEARS AT LEFT.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, PERSONAL
REPRESENTATIVE, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF
SIGNER IS A CORPORATION, SIGN FULL CORPORATE NAME BY DULY AUTHORIZED
OFFICER. IF STOCK IS HELD IN THE NAME OF TWO OR MORE PERSONS, ALL SHOULD
SIGN.
</TABLE>
