SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or
Section 240.14a-12
United Wisconsin Services, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(5) Total fee paid:
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/ / 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:
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(4) Date Filed:
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[UWS LOGO]
UNITED WISCONSIN SERVICES, INC.
401 West Michigan Street
Milwaukee, Wisconsin 53203
(414) 226-6900
April 26, 2000
To All Shareholders:
You are cordially invited to attend the Company's 2000 Annual Meeting of
Shareholders on May 31, 2000 in Chicago, Illinois.
The Annual Meeting will begin promptly at 9:00 a.m. at the Chicago Marriott
O'Hare located at 8535 West Higgins Road, Chicago, Illinois.
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,
Thomas R. Hefty
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
[UWS LOGO]
UNITED WISCONSIN SERVICES, INC.
401 West Michigan Street
Milwaukee, Wisconsin 53203
(414) 226-6900
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF COMMON STOCK OF
UNITED WISCONSIN SERVICES, INC.:
The Annual Meeting of the Shareholders (the "Meeting") of United Wisconsin
Services, Inc. (the "Company") will be held at the Chicago Marriott O'Hare
located at 8535 West Higgins Road, Chicago, Illinois, on Wednesday, May 31, 2000
at 9:00 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;
2. To transact any other business as may properly come before the Meeting
or any adjournments or postponements thereof.
Only shareholders of record at the close of business on April 14, 2000, the
record date for the Meeting, are entitled to receive notice of and to vote at
the Meeting or any adjournments or postponements thereof.
A copy of the Proxy Statement furnished in connection with the solicitation
of proxies by the Company's Board of Directors for use at the Meeting
accompanies this Notice.
Shareholders who cannot attend in person are requested to date, fill in,
sign and return the enclosed proxy form in the envelope provided. You may revoke
your proxy at any time prior to the voting thereof by advising the Secretary of
the Company in writing (by subsequent proxy or otherwise) of such revocation at
any time before it is voted.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY
IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
Stephen E. Bablitch,
SECRETARY
Milwaukee, Wisconsin
April 26, 2000
[UWZ LOGO]
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of United Wisconsin Services, Inc. (the
"Company" or "UWS") for use at the second Annual Meeting of Shareholders (the
"Meeting") to be held at the Marriott O'Hare located at 8535 West Higgins Road,
Chicago, Illinois on Wednesday, May 31, 2000, at 9:00 a.m. local time, and at
any adjournments or postponements thereof. At the Meeting, shareholders of the
Company will consider and vote upon (i) the election of three directors of the
Company for terms expiring at the 2003 Annual Meeting of Shareholders; and (ii)
such other business as may be properly brought before the Meeting.
Only holders of record of shares of Common Stock at the close of business
on April 14, 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 31, 2000, there were issued and
outstanding 16,939,682 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 listed on page three. The Board of Directors expects all nominees for
directors to be available for election. In case any nominee for director is not
available, the proxy holders may vote for a substitute. Returning your completed
proxy form will not prevent you from voting in person at the Meeting should you
be present and wish to do so. You may revoke your proxy at any time before it is
voted by advising the Secretary of the Company of such revocation in writing (by
subsequent proxy or otherwise).
The Company knows of no specific matter to be brought before the Meeting
that is not referred to in the Notice of Annual Meeting. If any such matter
properly comes before the Meeting, it is the intention of the persons acting
pursuant to the enclosed appointment of proxy form to vote the shares
represented thereby in accordance with their best judgment.
Directors will be elected at the Meeting by a plurality of the votes cast
at the Meeting. Abstentions will be included in the determination of shares
present and voting for purposes of determining whether a quorum exists. Broker
non-votes will not be so included. Neither abstentions nor broker non-votes are
counted in determining whether a proposal has been approved.
Officers and other employees of the Company may solicit proxies by personal
interview, telephone and facsimile, in addition to the use of the mail, 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 April 26, 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of the
Common Stock as of March 31, 2000 by each shareholder known to the Company to
own beneficially more than 5% of the shares of the Common Stock outstanding, by
each director of the Company, each person nominated to be a director, each of
the executive officers of the Company who appear in the Summary Compensation
Table below, and all directors and officers of the Company as a group. Unless
otherwise indicated, each shareholder listed below has sole voting and
dispositive power with respect to shares of the Common Stock beneficially owned.
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(2) CLASS
- ---- --------------------- -----
Blue Cross & Blue Shield United of Wisconsin (1)...................... 7,746,915 46.3%
Putnam Investments, Inc. (1) (6)...................................... 1,312,053 7.8
Dimensional Fund Advisors, Inc. (1)................................... 868,900 5.2
Thomas R. Hefty (3) (4)............................................... 235,480 *
Stephen E. Bablitch (3) (4)........................................... 52,625 *
James E. Hartert, M.D. (4)............................................ 24,107 *
Mary I. Traver (4) ................................................... 74,313 *
C. Edward Mordy (4) (5)............................................... 70,618 *
Penny J. Siewert (4).................................................. 110,175 *
Richard A. Abdoo...................................................... 12,426 *
Barry K. Allen........................................................ 10,000 *
William R. Johnson.................................................... 9,726 *
James L. Forbes....................................................... 8,126 *
Eugene A. Menden...................................................... 8,126 *
Carol N. Skornicka.................................................... 6,926 *
James C. Hickman...................................................... 6,826 *
Michael D. Dunham..................................................... 6,626 *
William C. Rupp, M.D.................................................. 2,000 *
All directors, executive officers and nominees as a group (23 persons) (4) 891,548 5.3
- --------------------
* Amount represents less than 1% of the total shares of the Common Stock
issued and outstanding.
(1) Based on Schedules 13D and 13G filed with the Company pursuant to the
Exchange Act by such beneficial owner. Blue Cross & Blue Shield United
of Wisconsin's address is 401 West Michigan Street, Milwaukee,
Wisconsin 53203; Dimensional Fund Advisors, Inc.'s address is 1299
Ocean Avenue, 11th floor, Santa Monica, California 90401; and Putnam
Investments, Inc.'s address is One Post Office Square, Boston,
Massachusetts 02109.
(2) Includes the following number of shares covered under options
exercisable within 60 days of March 31, 2000: Mr. Hefty, 206,968; Mr.
Mordy 175,016; Ms. Siewert, 105,531; Mr. Bablitch, 88,021; Ms. Traver,
67,970; Dr. Hartert, 22,968; Mr. Abdoo, 6,626; Mr. Dunham, 6,626; Mr.
Forbes, 6,626; Mr. Hickman, 6,626; Mr. Johnson, 6,626; Mr. Menden,
6,626; and Ms. Skornicka, 6,626; and all directors and executive
officers as a group, 610,072.
(3) Includes the following shares owned jointly with such person's spouse,
with respect to which such person shares voting power and dispositive
power: Mr. Hefty, 9,000 shares; and Mr. Bablitch, 1,000 shares. Also
includes the following shares owned separately by such person's spouse
or child, with respect to which such person shares voting power and
dispositive power: Mr. Hefty, 450 shares owned by spouse.
(4) Includes the following shares held under the Company's 401(k) plan, as
to which such person has dispositive power: Mr. Hefty, 4,812; Mr.
Mordy, 4,106; Ms. Siewert, 3,294; Mr. Bablitch, 1,200; Ms. Traver,
4,343; Dr. Hartert, 1,139; and all directors and executive officers as
a group, 31,955.
(5) Mr. Mordy retired as Vice President and Chief Financial Officer of the
Company on August 1, 1999. Based upon the latest available
information, this amount represents the number of shares held by Mr.
Mordy as of August 1, 1999, as well as the number of options held by
Mr. Mordy and shows the number of shares held under the Company's
401(k) plan as of March 31, 2000.
(6) Includes the following shares with respect to which such person shares
voting power: 124,000 shares held by The Putnam Advisory Company, Inc.
Also includes the following shares to which such person shares
dispositive power: 146,448 shares held by Putnam Investment
Management, Inc. and 1,165,605 shares held by The Putnam Advisory
Company, Inc. Putnam Investments, Inc. wholly owns Putnam Investment
Management, Inc. and The Putnam Advisory Company, Inc. Marsh &
McLennan Companies, Inc. wholly owns Putnam Investments, Inc.
-2-
Blue Cross & Blue Shield United of Wisconsin ("Blue Cross" or "BCBSUW")
owns 46.3% of the issued and outstanding shares of the Common Stock. Three of
the Company's nine directors are also directors of Blue Cross. It is anticipated
that Blue Cross will vote its shares of the Common Stock in favor of each of the
nominees.
ITEM 1 - ELECTION OF DIRECTORS
The Company's bylaws fix the number of directors at nine. The Board of
Directors is divided into three classes, whose members each serve terms of three
years (and until their successors are elected and qualified). The terms of one
of the three classes expire at each annual meeting of shareholders. Messrs.
Abdoo, Johnson and Menden are in the class of directors whose terms expire at
the Meeting. Mr. Allen has been nominated to replace Mr. Johnson, who is
retiring from the Board of Directors. Messrs. Abdoo, Allen and Menden have been
nominated to serve as directors for terms expiring at the Annual Meeting of
Shareholders in 2003 and until their successors are elected and qualified. The
terms of Ms. Skornicka and Messrs. Hefty and Hickman will expire at the Annual
Meeting of the Shareholders in 2001. The terms of Messrs. Dunham, Forbes and
Rupp will expire at the Annual Meeting of Shareholders in 2002. There are no
family relationships among any of the directors, nominees and/or executive
officers of the Company.
For purposes of this Item 1, as well as references throughout the remainder
of the Proxy Statement, "Predecessor Corporation" refers to the Company's
predecessor corporation formerly named "United Wisconsin Services, Inc." and now
named "American Medical Security Group, Inc."
The nominees standing for election have been approved by the Board of
Directors. The Board of Directors has no reason to believe that any nominee will
be unable or unwilling to serve as a director if elected. The name and age as of
March 31, 2000, and certain additional information, as to each such nominee and
each director serving an unexpired term are as follows:
NOMINEES STANDING FOR ELECTION
NOMINEES FOR ELECTION AT THIS MEETING WITH TERMS EXPIRING IN 2003
Name and Age Principal Occupation During Past Five Years
- ------------ -------------------------------------------
Richard A. Abdoo Director of the Company since 1998.
Age: 56 Director of the Predecessor Corporation from
1991 through 1998; Chairman of the Board,
President and Chief Executive Officer of Wisconsin
Energy Corporation, a diversified energy services
holding company since May 1991; Chairman of the
Board and Chief Executive Officer of Wisconsin
Electric Power Company since 1990; Director of
Wisconsin Energy Corporation since 1988; Director
of Wisconsin Electric Power Company since 1989;
Chairman of the Board and Chief Executive Officer
of Wisconsin Natural Gas Company from 1990 to
1995; Director of Wisconsin Natural Gas Company
from 1989 to 1995; Director of Marshall & Ilsley
Corporation, a bank holding company, and Universal
Foods Corporation, an ingredient manufacturer.
Barry K. Allen
Age: 51 President of Ameritech since October of 1999;
Executive Vice President of Ameritech from 1997 to
1999; Senior Vice President of Ameritech from 1995
to 1997; President and Chief Operating Officer of
Marquette Electronics, Inc. from 1993 to 1995;
President and Chief Executive Officer of Wisconsin
Bell, Inc. from 1989 to 1993; President and Chief
Executive Officer of Ameritech Publishing, Inc.
from 1987 to 1989. Director of Harley-Davidson
Inc.; Fiduciary Management, Inc., an investment
advisory firm; and First Business Bank-Milwaukee.
Eugene A. Menden
Age: 69 Director of the Company since 1998. Director of
the Predecessor Corporation from 1991 through
1998; Director, American Medical Security Group,
Inc. Prior to retirement, Director of
International Finance for Marquette Medical
Systems, Inc. (formerly
-3-
Marquette Electronics, Inc.), a manufacturer of
medical electronic products. Served as Vice
President of Finance for Marquette Electronics,
Inc. from 1970 to 1991, as Treasurer from 1970 to
1989, and as a director from 1972 until June 1996.
CONTINUING DIRECTORS
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 2001
Thomas R. Hefty Director of the Company since 1998. Director of
Age: 52 the Predecessor Corporation from 1983 through
1998; Chairman of the Board, President and Chief
Executive Officer of the Company since 1998;
President of the Predecessor Corporation from 1986
through 1998 and Chairman of the Board and Chief
Executive Officer of the Predecessor Corporation
from 1991 through 1998; Chairman of the Board and
Director of Blue Cross since 1988; President of
Blue Cross since 1982; Deputy Insurance
Commissioner for the Office of the Commissioner of
Insurance for the State of Wisconsin from 1979 to
1982; Director of Artisan Funds, Inc., an
investment company registered under the Investment
Company Act of 1940, as amended.
James C. Hickman Director of the Company since 1998. Director of
Age: 72 the Predecessor Corporation from 1991 through
1998; Director of Blue Cross since December 1986;
Director, Century Investment Management Company;
Director, American Medical Security Group, Inc.;
Emeritus Professor and Emeritus Dean of the School
of Business of the University of Wisconsin-Madison
("UW School of Business") since July 1993;
Professor in the UW School of Business from 1990
to 1993; Dean of the UW School of Business from
1985 to 1990.
Carol N. Skornicka Director of the Company since 1998. Director of
Age: 58 the Predecessor Corporation from 1997 through
1998; Senior Vice President - Corporate
Development, Secretary and General Counsel of
Midwest Express Holdings, Inc. and Midwest Express
Airlines, Inc. since February 1998; Vice
President, Secretary and General Counsel of
Midwest Express Holdings, Inc. and Midwest Express
Airlines, Inc. since May 1996; Secretary of the
Wisconsin Department of Industry, Labor and Human
Relations from 1991 to May 1996; Director of
Astral Aviation, Inc. since May 1996; Director of
Johnson International, Inc., a bank holding
company, since April 1999; Director of Heritage
Mutual Insurance Company.
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 2002
Michael D. Dunham Director of the Company since 1998. Director of
Age: 54 the Predecessor Corporation from 1997 through
1998; Executive Vice President of Business
Development for Industrial & Financial Services, a
Swedish headquartered global provider of business
software and services to manufacturing companies,
since 1999; President and a Director of Effective
Management Systems, Inc., a developer of
integrated manufacturing and business management
software, from 1978 to 1999; Director of Merge
Technologies, Inc., a provider of clinical
information systems integration solutions for
health care organizations and Lincoln State Bank.
James L. Forbes Director of the Company since 1998. Director of
Age: 67 the Predecessor Corporation from 1991 through
1998; Director of Blue Cross since 1974; Chairman
and Chief Executive Officer and Director of Badger
Meter, Inc., a manufacturer of products using flow
measurement technology, since 1999; President and
Chief Executive Officer from 1987 to 1999;
Director of Universal Foods Corporation and
Journal Communications, Inc.
William C. Rupp, M.D. Director of the Company since 1998. Director of
Age: 53 the Predecessor Corporation from 1997 through
1998; President and Chief Executive Officer of
Luther/Midelfort Mayo Health System since 1994;
President of Midelfort Clinic since 1991;
practicing physician in oncology since 1982.
The affirmative vote of a plurality of the votes cast is required for the
election of directors. Unless otherwise specified, the shares of the Common
Stock represented by the proxies solicited hereby will be voted in favor of the
-4-
election of the above-described nominees. If, at or prior to their election, any
one or more of the nominees is unwilling or unable to serve, the proxies shall
have discretionary authority to select and/or vote for substituted nominees.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE NOMINEES FOR DIRECTORS.
---
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
In 1999, the Board of Directors held four meetings. Each director attended
at least 75% of these meetings. During 1999, each director also attended at
least 66% of the meetings of the committees of the Board of Directors
("Committees") held during his or her tenure as a Committee member. The Board of
Directors has standing Executive, Finance, Management Review and Audit
Committees.
The Executive Committee discharges certain responsibilities of the Board of
Directors when so instructed by the Board and studies proposals and makes
recommendations to the Board. Specifically, the Executive Committee has the
authority to approve long range corporate and strategic plans, advise and
consult with management on corporate policies, approve the annual operating plan
and approve major changes in policy affecting new services and programs. The
Executive Committee held one meeting during 1999. The members of the Executive
Committee are Messrs. Forbes (Chairman), Abdoo, Hefty, and Hickman.
The Finance Committee approves investment policies and plans and approves
the investment of funds of the Company, consults with management regarding real
estate, accounts receivable and other assets, determines the amounts and types
of insurance carried by the Company, advises and consults with management
regarding selection of insurance carriers and corporate tax policies and
discharges certain other responsibilities of the Board of Directors when so
instructed by the Board. The Finance Committee held five meetings during 1999.
The members of the Finance Committee are Messrs. Johnson (Chairman), Hefty,
Rupp, and Ms. Skornicka.
The Management Review Committee evaluates the performance of the Company's
executive officers, approves executive officer development programs, determines
the compensation of the executive officers and reviews management's
recommendations as to the compensation of other key personnel, acts as the
nominating committee for officers and directors and makes recommendations to the
Board of Directors regarding the types, methods and levels of director
compensation, administers the compensation plans for the officers, directors and
key employees, and discharges certain other responsibilities of the Board of
Directors when so instructed by the Board. The Management Review Committee will
consider a nominee for election to the Board of Directors recommended by a
shareholder if the shareholder submits the nomination in compliance with the
requirements of the Company's Bylaws relating to nominations by shareholders.
The Management Review Committee held four meetings during 1999. The members of
the Management Review Committee are Messrs. Forbes (Chairman), Abdoo, Dunham,
and Hickman.
The Audit Committee reviews the scope and timing of the audit of the
Company's financial statements and reviews with the Company's independent public
accountants, the Company's management policies and procedures with respect to
auditing and accounting controls. The Audit Committee also reviews with the
independent public accountants the audited financial statements for the Company
and the auditors' reports and management letter. The Audit Committee selects and
engages the Company's independent public accountants and reviews and approves
all related party transactions. In addition, it reviews and evaluates Conflict
of Interest statements and discharges certain other responsibilities of the
Board of Directors when so instructed by the Board. The Audit Committee held
three meetings during 1999. The members of the Audit Committee are Messrs.
Menden (Chairman), Abdoo, Dunham, and Hickman.
-5-
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the Company receive no
compensation as such for service as members of the Board of Directors or
Committees of the Board. A director who is not an officer or employee of the
Company receives a fee of $1,100 for each Board or Committee meeting attended,
and a monthly retainer of $1,250. In addition, each Committee Chairman receives
a monthly fee of $250. Also, pursuant to the United Wisconsin Services, Inc.
Equity Incentive Plan, each director is granted in connection with his or her
services as a director, an option to purchase 6,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant.
NOMINATIONS FOR DIRECTORS BY SHAREHOLDERS
The Board of Directors will consider a nominee for election to the Board
recommended by a shareholder if the shareholder submits the nomination in
compliance with the requirements of the Company's Bylaws relating to nominations
by shareholders. Article II, Section 1(B) of the Company's Bylaws provides that
if a shareholder desires to make a nomination for the election of directors at
an annual meeting, he or she must give timely written notice of the nomination
to the Secretary of the Company. Notice is timely if received by the Secretary
at the Company's principal office not less than 90 days nor more than 120 days
prior to the last Tuesday in May in the year of the applicable annual meeting.
The notice must set forth the shareholder's name and address as they appear on
the Company's books; the class and number of shares of Common Stock beneficially
owned by such shareholder; a representation that such shareholder is a holder of
record of shares entitled to vote at the meeting and intends to appear at the
meeting, in person or by proxy, to make the nomination; the name and residence
address of the nominee; a description of all arrangements or understandings
between the shareholder and the nominee (and any other person or persons)
pursuant to which the nomination is to be made; the written consent of the
nominee to serve if elected and certain other information. The notice must be
signed by the shareholder of record who intends to make the nomination (or his
or her duly authorized proxy or other representative) and must bear the date of
signature of such shareholder or representative. Article II, Section 2(B) of the
Bylaws provides that notices with respect to any nomination for a Board election
to be held at any special meeting must contain all the information set forth
above and must be received by the Secretary of the Company not earlier than 90
days and not later than the later of 60 days prior to the special meeting or ten
days after notice of such meeting is first given to shareholders. Shareholders
wishing to submit a nomination should review the Bylaw requirements regarding
nominations by shareholders and should communicate with the Secretary, United
Wisconsin Services, Inc., 401 West Michigan Street, Milwaukee, Wisconsin 53203,
for further information.
EXECUTIVE COMPENSATION
Pursuant to the Service Agreement (as hereinafter described), certain
executive officers of the Company provide services to Blue Cross, and expenses
associated with those services are shared in accordance with the Service
Agreement. See "Certain Transactions." Compensation information includes total
compensation paid by the Company for services rendered to the Company and Blue
Cross. Also, the Predecessor Corporation had a similar Service Agreement with
Blue Cross. The following table summarizes the total compensation paid by the
Company or its subsidiaries to the Chief Executive Officer, the four other most
highly compensated officers of the Company, and one former executive officer of
the Company for services rendered to the Company and Blue Cross for the years
ended December 31, 1999. Information for 1998 reflects the total compensation
for the Chief Executive Officer, the four other most highly compensated officers
of the Company, and one former executive officer of the Company for services
rendered in all capacities to the Predecessor Corporation and Blue Cross and to
the Company and Blue Cross. Information for 1997 reflects the total compensation
for the Chief Executive Officer, the four other most highly compensated officers
of the Company, and one former executive officer of the Company at December 31,
1999 for services rendered in all capacities to the Predecessor Corporation and
Blue Cross for the year ended December 31, 1997. Those executive officers
performed substantially identical services for the Predecessor Corporation and
Blue Cross during 1998 and 1997.
-6-
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------- -------------------------
Awards Payouts
------ -------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY(1) BONUS(1,2) COMPENSATION(3) OPTIONS PAYOUTS(1,4) COMPENSATION(5)
Thomas R. Hefty 1999 $577,506 -- $28,887 $147,500 -- $4,000
CHAIRMAN OF THE 1998 525,000 $154,350 11,570 198,200 $64,985 4,000
BOARD, PRESIDENT & 1997 475,008 97,377 7,885 35,000 5,294 4,000
CHIEF EXECUTIVE
OFFICER
Penny J. Siewert 1999 229,077 -- 12,425 49,200 -- 4,000
VICE PRESIDENT OF 1998 206,784 44,873 6,659 90,217 26,536 4,000
REGIONAL SERVICES 1997 174,576 18,190 -- 33,130 2,061 4,000
C. Edward Mordy (6) 1999 226,587 -- 49,446 49,200 -- 4,000
VICE PRESIDENT & 1998 211,080 39,261 3,555 70,000 28,095 4,000
CHIEF FINANCIAL 1997 184,848 20,333 3,385 18,000 2,370 4,000
OFFICER
Stephen E. Bablitch 1999 214,761 -- 11,678 41,000 -- 4,000
VICE PRESIDENT & 1998 184,044 36,073 -- 79,174 11,646 4,000
GENERAL COUNSEL 1997 166,416 21,634 615 33,130 -- 1,040
James E. Hartert, M.D. 1999 210,006 -- -- 18,000 -- 4,000
VICE PRESIDENT & 1998 193,740 37,954 -- 29,700 -- 4,000
CHIEF MEDICAL 1997 182,004 18,928 -- 5,522 -- 1,517
OFFICER AND
PRESIDENT OF
INNOVATIVE RESOURCE
GROUP, INC.
Mary I. Traver 1999 185,997 -- 4,417 -- -- 4,000
VICE PRESIDENT AND 1998 168,836 48,963 4,332 -- 55,166 3,985
PRESIDENT OF 1997 162,516 9,751 2,134 -- -- 4,000
COMPCARE HEALTH
SERVICES INSURANCE
CORPORATION
- ------------------------
(1) Amounts include compensation earned and deferred at the election
of the named executive officer during the fiscal years indicated
and paid subsequently to the end of each fiscal year.
(2) Amounts represent bonuses earned under the Company's Profit
Sharing Plan and Management Incentive Plan.
(3) Amounts represent reimbursement for the payment of taxes, the
payout for unused personal days and a lump sum payment for
deferring a merit increase. Mr. Mordy's other compensation also
includes a payout due to his retirement for unused vacation days.
The amounts indicated do not include perquisites and the other
personal benefits to the named executive officers which for each
such officers did not exceed the lesser of $50,000 or 10% of the
officer's total annual salary and bonus.
(4) Amounts represent payments for the 1995-1997 LTIP Plan and
prorata payments for the 1996-1998 and 1997-1999 LTIP Plans which
were discontinued effective December 31, 1997.
(5) Amounts represent the Company's matching contributions to the
UWSI/BCBSUW 401(k) Plan.
(6) Mr. Mordy retired as the Vice President and Chief Financial
Officer of the Company on August 1, 1999.
-7-
The following table details the options granted to the executive officers listed
in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------
% OF TOTAL
# OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR POTENTIAL REALIZABLE VALUE AT
OPTIONS IN FISCAL BASE PRICE ASSUMED ANNUAL RATES OF STOCK
EXECUTIVE GRANTED(1) YEAR ($/SHARE) EXPIRATION DATE PRICE APPRECIATION FOR OPTION TERM
5% ($) 10%($)
---------------- ---------------
Thomas R. Hefty 147,500 31.01% 8.50 01/25/2011 $ 997,805 $ 2,681,055
Penny J. Siewert 49,200 10.34% 8.50 01/25/2011 332,827 894,291
C. Edward Mordy (2) 49,200 10.34% 8.50 01/25/2011 332,827 894,291
Stephen E. Bablitch 41,000 8.62% 8.50 01/25/2011 277,356 745,242
James E. Hartert, M.D. 18,000 3.78% 8.50 01/25/2011 121,766 327,180
Mary I. Traver -0- -0- N/A N/A N/A N/A
- -----------------------
(1) All options granted vest at the rate of 25% each year on the
anniversary of the grant date. All options for Messrs. Hefty,
Mordy, Bablitch, Hartert, and Ms. Siewert were granted on
01/26/1999.
(2) Mr. Mordy retired as Vice President and Chief
Financial Officer of the Company on August 1, 1999.
No options or Stock Appreciation Rights ("SARs") were exercised by any of the
executive officers listed in the Summary Compensation Table during 1999. The
number of unexercised options and SARs and the total value of unexercised
in-the-money options and SARs at December 31, 1999 are shown in the following
table.
-8-
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FY-END (#) FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE (1) EXERCISABLE/UNEXERCISABLE
---- ----------------------------- -------------------------
Thomas R. Hefty 211,354 / 321,150 -0- / -0-
Penny J. Siewert 67,280 / 137,293 -0- / -0-
C. Edward Mordy (2) 208,146 / -0- -0- / -0-
Stephen E. Bablitch 52,923 / 122,468 -0- / -0-
James E. Hartert, M.D. 18,468 / 45,797 -0- / -0-
Mary I. Traver 79,013 / 5,522 -0- / -0-
- -----------------------
(1) Options become immediately exercisable upon change in control of
the Company. A change in control includes: the acquisition by
certain persons or groups of 25% or more of the outstanding
Common Stock; a change in the membership of a majority of the
Board of Directors, if not approved by the incumbent Directors;
or the approval by the Company's shareholders of a plan of
liquidation, an agreement to sell substantially all of the
Company's assets, or certain mergers, consolidations, or
reorganizations.
(2) Mr. Mordy retired as Vice President and Chief Financial Officer
of the Company on August 1, 1999.
DEFINED BENEFIT PENSION PLANS
The Company has provided a non-contributory defined benefit plan to its
employees pursuant to the UWS/BCBSUW Pension Plan ("Pension Plan"). The Pension
Plan utilizes a cash balance formula which provides annual pay credits of 4%
plus transition credits of 4% for the number of years of service on December 31,
1996 (up to 15 years). Interest is credited monthly on the cash balance account
based on the yield on 10-year Treasury securities for the month of October of
the previous year. The Company has assumed sponsorship (with Blue Cross) of the
Pension Plan and the related trust and will continue to provide benefits for all
individuals who were participants in the Pension Plan with the Predecessor
Corporation, taking into account all service with the Predecessor Corporation.
In addition, the Company provides to executives defined benefits from the
UWSI/BCBSUW Supplemental Executive Retirement Plan ("SERP"). The SERP provides a
total benefit (taking into account Pension Plan benefits and Social Security
benefits) of 2% of final five-year average pay per year of service (up to 30
years). The Company has assumed sponsorship (with Blue Cross) of the SERP and
all liabilities with respect thereto. The approximate annual benefits for the
following pay classifications and years of service are expected to be as
follows:
-9-
PENSION PLAN TABLE
YEARS OF SERVICE
--------------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 or more
$125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000
150,000 45,000 60,000 75,000 90,000
175,000 52,500 70,000 87,500 105,000
200,000 60,000 80,000 100,000 120,000
225,000 67,500 90,000 112,500 135,000
250,000 75,000 100,000 125,000 150,000
275,000 82,500 110,000 137,500 165,000
300,000 90,000 120,000 150,000 180,000
400,000 120,000 160,000 200,000 240,000
500,000 150,000 200,000 250,000 300,000
600,000 180,000 240,000 300,000 360,000
The persons named in the Summary Compensation Table have the following years of
credited service which includes all years of service with the Predecessor
Corporation: Mr. Hefty, seventeen years; Ms. Siewert, twenty-three years; Mr.
Mordy (retired as of 8/1/99), fourteen years; Mr. Bablitch, three years; Dr.
Hartert, three years; and Ms. Traver, sixteen years.
MANAGEMENT REVIEW COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
INTRODUCTION
The Management Review Committee of the Board of Directors ("Committee")
which is comprised of four independent, non-employee directors, establishes and
directs the administration of all programs under which executive benefits are
provided and compensation is paid or awarded to the Company's executive
officers. In addition, the Committee evaluates executive officer performance and
assesses the overall effectiveness of the Company's executive compensation
programs.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's executive compensation program is designed to align closely
executive compensation with corporate performance and total return to
shareholders. The Company has developed an overall compensation philosophy and
implemented Plans that are designed to tie a significant portion of executive
compensation to the Company's success in meeting specified performance goals and
appreciation in the Common Stock price.
-10-
The overall objectives of this compensation philosophy are:
- - To attract and retain the executive talent required to attain the Company's
goals;
- - To motivate these executives to achieve the goals of the Company's current
and future business strategy;
- - To link executive and shareholder financial interests through equity-based
long-term incentive plans; and
- - To provide a compensation package that recognizes individual contributions
and overall business results.
Accordingly, the Committee sets compensation opportunities at the 50th
percentile of the market for comparable positions at comparable companies. The
Company's compensation programs are designed to be dependent on performance, and
individual pay delivered from these programs may be higher or lower than the
50th percentile of the market depending on that performance.
Each year the Committee conducts a full review of 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. During 1999, this process included consultation with
Hewitt Associates ("Hewitt") throughout the year on such issues as base
salaries, annual incentives, stock option awards, and overall compensation. The
Committee's review included a comparison of the Company's executive compensation
against a peer group with which the Company competes for business and executive
talent. The Committee believes that the Company's competitors for executive
talent include many types of companies. Therefore, the Committee evaluates all
relevant sources for executive talent in assessing overall competitiveness.
Consequently, the peer group used for compensation analysis will include, but
extend beyond, the companies noted in the Performance Graph included in this
Proxy Statement.
ELEMENTS OF EXECUTIVE COMPENSATION
The elements of executive compensation include base salary, profit sharing,
an annual performance-based management incentive plan and long-term incentives,
exclusively nonqualified Common Stock options. The Committee's decisions with
respect to each of these elements are discussed below. The Committee did not
decide any of the elements of Ms. Traver's compensation. While the elements of
compensation described in this Report are considered separately, the Committee
takes into account the full compensation package afforded by the Company to the
individual, including salary, incentive compensation, pension benefits,
supplemental retirement benefits, insurance and other benefits. In reviewing the
individual performance of the executives whose compensation is detailed in this
Proxy Statement, the Committee takes into account the views of Mr. Hefty, the
Company's Chief Executive Officer, for positions other than his own.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits a
publicly held corporation's deductions for certain executive compensation in
excess of $1 million in taxable years beginning after December 31, 1993. Certain
performance-based compensation is excepted from the $1 million limitation. In
1999, none of the Company's executives received compensation in excess of $1
million for purposes of Section 162 (m) and all 1999 executive compensation is
fully deductible. The Committee has, however, reviewed Section 162 (m) and
considered its impact on the Company's future executive compensation Plans.
BASE SALARY
Base salaries for executive officers are determined initially by evaluating
and comparing the responsibilities of their positions and experiences relative
to the competitive marketplace for executive talent. Salary adjustments are
determined by evaluating the performance of the Company and of each executive
and by surveying the industry to determine the average industry change in
executive base salary. In the case of executives with responsibility for a
particular business unit, such unit's financial results were also a major
consideration. The Committee, where appropriate, considers non-financial
performance measures such as increase in market share, gains in administrative
cost efficiency, improvements in product quality, and improvements in relations
with customers, suppliers, and employees.
-11-
In establishing 1999 base salaries for the Company's executives, the
Committee considered competitive data which indicated that the base salaries of
the Company's executives were below competitive levels. Accordingly, the
executive officers, excluding the CEO and Ms. Traver, received base salary
increases of between 9.8% and 22.3%.
ANNUAL INCENTIVE COMPENSATION
PROFIT SHARING PROGRAM
The Company annually establishes a Profit Sharing Plan for all employees
who are employed with the Company for the entire calendar year. The United
Wisconsin Services, Inc. 1999 Profit Sharing Plan (the "Profit Sharing Plan")
compensated employees based on corporate profitability, on individual business
unit or regional area profitability and on the attainment of high levels of
customer satisfaction, all measured against targets set at the beginning of the
year.
Under the corporate profitability goal, the Profit Sharing Plan pays each
employee from 0% to 7% of base salary depending on the attainment of specified
profit levels. For employees to receive the 7% payout in 1999, the Company and
Blue Cross had to attain combined net income, excluding net income or loss from
extraordinary items, of $31.4 million or more. Since the specified minimum level
of profitability ($0) was not attained, no awards were made under the corporate
profitability component of the Profit Sharing Plan.
Individual business unit or regional area financial performance also was
measured under the "Local Component" of the Plan, with employees eligible to
receive an additional payout of up to 7% of compensation on the "Local
Component." The Profit Sharing Plan also contained a customer satisfaction
component which enabled employees to earn up to an additional 7% of annual
compensation for achievement of high customer satisfaction levels, generally in
excess of 94.9%. The Profit Sharing Plan is designed such that there will not be
any awards under either the Local Component or the customer satisfaction
component if there is not an award under the corporate profitability component.
Therefore, none of the executives received any incentive award from the 1999
Profit Sharing Plan.
MANAGEMENT INCENTIVE PLAN
The Company's executive officers are eligible for an annual performance
bonus under the Management Incentive Plan. The bonus paid from this Plan has two
components: the Corporate Component and the Individual Performance/Profit
Sharing Component. The Corporate Component is equal to one times the executives'
total payout from the Profit Sharing Plan (two times the Profit Sharing payout
for the CEO) as described above.
The Individual Performance/Profit Sharing Component has two parts. First,
individual performance objectives are established for each eligible executive.
These individual objectives can include both financial and non-financial
measures related to the performance of the business units or corporate
departments for which the executive is responsible. To determine how well
executives other than the CEO have performed on their individual performance
objectives, the Committee considers input from the CEO as well as other relevant
factors. Not all individual performance objectives are quantifiable and the
Committee did not assign quantitative relative weights to different factors or
follow mathematical formulae. Therefore, the Committee used discretion in
evaluating the executives' achievements of their individual performance
objectives. Individual performance objectives are also established for the CEO.
The Committee evaluates all relevant data to determine to what extent Mr. Hefty
has met his performance expectations. Again, the Committee uses its discretion
in making this determination.
The second part of the Individual Performance/Profit Sharing Component is
based on the executives' payout from the Local Component of the 1999 Profit
Sharing Plan. Bonus payments are made according to a schedule that correlates
percentages of base salary paid under the Local Component of the Profit Sharing
Plan with specific bonus amounts.
Bonus amounts could range from 0% to 39% of annual compensation for
executives other than the CEO (up to 21% from the Corporate Component and up to
18% from the Individual Performance/Profit Sharing Component) and from 0% to 72%
of annual compensation for the CEO (up to 42% from the Corporate Component and
up to 30% from the Individual Performance/Profit Sharing Component). For
executives to earn the maximum award, they must have achieved outstanding
results on each of their individual goals; the profitability of the business
unit or regional area to
-12-
which they are assigned must have reached an exceptional level; and the Company
and Blue Cross must have achieved a combined return on equity, excluding net
income or loss from extraordinary items, of 22.0% or more. However, the
Management Incentive Plan is also designed such that there will not be an award
from the Management Incentive Plan if there is not an award from the Profit
Sharing Plan. Therefore, none of the executives received any incentive award
from the 1999 Management Incentive Plan.
A one year supplemental shareholder-based performance plan (the "Plan") was
implemented for select participants in 1999. This Plan was designed to
supplement the 1999 Management Incentive Plan and was intended to heighten
participant awareness of factors that influence the Company's stock price and
total shareholder returns and to motivate participants to perform those
activities most critical to the influence of stock performance and total return
and the influence of financial analysts' and investors' perception of the
Company. Like the 1999 Management Incentive Plan, this Plan was also designed
such that there would not be an award from this Plan if there was not an award
from the Profit Sharing Plan. Therefore, none of the executives received any
incentive award from this Supplemental Shareholder-Based Performance Plan.
LONG-TERM INCENTIVE COMPENSATION
The Company's executive compensation strategy is to provide long-term
compensation at a competitive level for the managed care market.
STOCK OPTIONS
The Committee is responsible for administering the Company's stock option
program, which is designed to motivate employees to maximize shareholder value
and maintain a medium to long-term perspective. Option grants are made at the
fair market price on the date of grant and become exercisable in equal annual
installments over a four-year term, expiring 12 years after the date of grant.
When determining the size of the option grants made to executives, the
Committee considered the results of the competitive market compensation survey
performed by Hewitt which focused on the managed care and Blue Cross markets.
Hewitt presented its competitive market equity results for 1999 in the form of
option grant ranges as opposed to a specific grant number. The use of grant
ranges reinforced the Committee's desire for flexibility to tailor actual grants
to individual or Company circumstances. The Committee also considered its own
evaluation of the executives' past and prospective contributions to the success
of the Company, anticipated performance requirements and contributions of each
executive officer, and historical option award data. Furthermore, the Committee
deliberated at great length regarding the impact of stock option awards on
overall dilution. The Committee noted that a major contributing factor to
dilution concerns is the December 1996 stock option grant to the two founders of
American Medical Security Group, Inc. Those options, currently totaling
1,000,000 in number, have an exercise price significantly above the current
trading price of the Company's stock. The options expire on December 2, 2001,
five years following the date of grant. Based on all of this information, the
Committee awarded options on January 26, 1999 exercisable for 49,200 shares of
Common Stock to Ms. Siewert and Mr. Mordy, 41,000 shares of Common Stock to Mr.
Bablitch and 18,000 shares of Common Stock to Dr. Hartert. Ms. Traver did not
receive an option award in 1999.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Hefty's annual cash compensation for 1999 included only his base
salary. Mr. Hefty did not receive an incentive payment from either the 1999
Profit Sharing Plan, the 1999 Management Incentive Plan, or the 1999
Supplemental Shareholder-Based Performance Plan.
Mr. Hefty's base salary in 1998 was approximately 76% of the average base
salary for comparable positions, according to the previously mentioned Hewitt
compensation survey. Mr. Hefty's base salary for 1999 was increased to an amount
which represented approximately 86% of the December 1998 estimated market value
of his position.
In 1999, Mr. Hefty received an option to purchase 147,500 shares of Common
Stock on January 26, 1999.
-13-
CONCLUSION
After its review of the total compensation program for the executives of
the Company, the Committee continues to believe that these executive
compensation policies and practices serve the interests of 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 success, thereby
increasing the value of the Company for the shareholders' benefit. We will
continue to monitor the effectiveness of the Company's total compensation
program to meet the ongoing needs of the Company.
Submitted by: James L. Forbes, Chairman
Richard A. Abdoo
Michael D. Dunham
James C. Hickman
-14-
PERFORMANCE GRAPH
The following performance graph compares the cumulative shareholder return of
the Company's common stock in the cumulative shareholder return of the NYSE
Composite and the Morgan Stanley Health Care Payor Index for the period of
September 28, 1998 through December 31, 1999. The graph assumes an investment
of $100 in each of the Company's common stock, the NYSE Composite Index, and
the Morgan Stanley Healthcare Payor Index on September 28, 1998, and assumes
reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
UNITED WISCONSIN SERVICES, INC.
[PERFORMANCE GRAPH]
09/28/98 12/31/98 12/31/99
United Wisconsin Services, Inc. $100.00 $121.59 $ 61.97
NYSE Composite $100.00 $115.83 $128.50
Morgan Stanley Health Care Payor Index $100.00 $118.36 $105.67
-15-
CERTAIN TRANSACTIONS
SERVICE AGREEMENT. The Company and Blue Cross have entered into the Service
Agreement with respect to the reciprocal provision of certain services,
including sales and marketing, rental of office space, computerized data
processing, claims processing, and legal, investment, actuarial, and other
management services. The company receiving a service is obligated to pay the
provider thereof the approximate cost for the service which varies depending
upon the particular service rendered, determined on either an allocated cost
basis or based upon direct costs. If the recipient can obtain any of the
services under more favorable terms by performing the services itself or by
procuring them from a third party, it is not obligated to renew the Service
Agreement for those services if the provider is unwilling to substantially match
such terms. However, the Company agreed to purchase claims processing services
from Blue Cross pursuant to certain arrangements with Electronic Data Systems
Corporation ("EDS"). Pursuant to the Service Agreement, the Company received net
payments of $5.3 million, $5.8 million, and $0.3 million from Blue Cross for the
years ended December 31, 1997, 1998 and 1999, respectively. The Service
Agreement is in effect until December 31, 1998 and automatically renews for a
period of one year on each succeeding January 1, subject to negotiation of the
services to be provided and the rates and allocations set forth therein.
Pursuant to Wisconsin law, the Service Agreement is filed with the Office of the
Commissioner of Insurance for the State of Wisconsin for its review to determine
whether the agreement is reasonable and fair to the interests of the insurance
companies which are parties to the agreement.
In 1984, Blue Cross entered into with Electronic Data Corporation ("EDS") a
servicing agreement (the "EDS Servicing Agreement") whereby EDS would develop
integrated processing systems, maintain computer hardware and software, and
provide data processing personnel. Key systems covered by this agreement
included claims, membership, actuarial, commission, general ledger, accounts
payable, and fixed assets. The term of the EDS Servicing Agreement runs through
December 31, 1999, with an option to terminate upon one year's prior written
notice, deliverable at any time. Blue Cross exercised its early termination
rights for the claims, actuarial, commission, general ledger, accounts payable,
and fixed assets. Blue Cross will continue to receive membership services from
EDS. All claims processing functions were converted to the computer system
operated by BlueCross and BlueShield of South Carolina ("BSSC") effective
September 30, 1998. Blue Cross purchased software and began processing the
general ledger, accounts payable and fixed asset systems on January 1, 1998. For
the years ended December 31, 1997, 1998, and 1999, the Company paid
approximately $3.7 million, $2.7 million and $1.3 million, respectively, for
services pursuant to the EDS Servicing Agreement. The Company paid approximately
$1.6 million and $3.2 million, respectively, for claims processing services
obtained from BSSC for the years ended December 31, 1998 and 1999.
HEALTH AND OTHER BENEFITS TO THE EMPLOYEES OF BLUE CROSS. Certain
subsidiaries of the Company provide health, life and other insurance benefits to
the employees of Blue Cross. Premium revenue received from Blue Cross for these
services totaled $4.5 million, $4.5 million and $4.9 million in 1997, 1998 and
1999, respectively. In addition, Blue Cross provides health insurance to certain
of the Company's employees.
BCBSUW LOAN. The Company has a debt obligation to Blue Cross in the
principal amount of $70.0 million. On October 30, 1996, the Predecessor
Corporation borrowed $70.0 million from Blue Cross to fund the cash portion of
the merger consideration in connection with the merger of American Medical
Security, Inc. into the Predecessor Corporation. The Company assumed that
obligation and has pledged the common stock of certain of its subsidiaries as
collateral for the loan. Interest only is payable quarterly at a rate equal to
LIBOR plus 125 basis points, adjusted quarterly. On October 13, 1999, the
maturity date of the principal balances was extended from October 30, 1999 to
April 30, 2001.
REGISTRATION RIGHTS. Pursuant to an agreement with the Company, Messrs.
Wallace J. Hilliard and Ronald A. Weyers have the following rights:
(i) Messrs. Hilliard and Weyers are entitled to make up to two
requests that the Company register at least 50% of the then
outstanding shares of Common Stock held by them, which the Company is
obligated to use its best efforts to do unless (a) the request comes
during the period 45 days prior to the estimated date of filing and
180 days following the effective date of the Company's own
registration of shares of Common Stock pertaining to an underwritten
public offering; (b) the
-16-
Company has already effected two such registrations pursuant to
Messrs. Hilliard's and Weyers's requests; (c) the filing of the
registration statement could jeopardize or delay a material
transaction contemplated by the Company or would require the
disclosure of material information that the Company needs to preserve
as confidential; or (d) the Company is unable to comply with the
requirements of the Commission; and
(ii) Messrs. Hilliard and Weyers are entitled to make up to two
requests that the Company include Messrs. Hilliard's and Weyers's
shares of Common Stock in an offering of shares of Common Stock
otherwise being registered upon being notified by the Company that the
Company is registering shares of Common Stock in connection with a
public offering for case on a form that also would permit the
registration of Messrs. Hilliard's and Weyers's shares of Common
Stock.
These registration rights expire upon the earlier of April 1, 2001 or upon
the date on which Messrs. Hilliard and Weyers in the aggregate own less than
three percent of the outstanding shares of Common Stock. As reported on
Schedules 13G dated February 14, 2000, for the year-ended December 31, 1999,
Messrs. Hilliard and Weyers in the aggregate own less than 3% of the outstanding
shares of Common Stock.
Messrs. Hilliard and Weyers have also agreed that, until December 3, 2006,
they will not acquire, or propose to acquire (i) any Company securities (other
than pursuant to the exercise of stock options) with the power to vote for the
election of directors (the "Voting Securities"), or (ii) any rights or options
to acquire any Voting Securities, if any of such acquisitions would require
regulatory approval, application or notification other than as required by the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition,
Messrs. Hilliard and Weyers agreed that, until December 3, 1999, they will not
(i) make or participate in any solicitation of proxies (within the meaning of
Rule 14a-1 of the Exchange Act) or initiate any shareholder proposals with
respect to the Company; (ii) 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 (iii) form, join, or
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to Company securities or seek to exercise control or influence
over management, the Board of Directors, or the corporate policies of the
Company. Finally, Messrs. Hilliard and Weyers agreed that, until December 3,
2006, they will vote their shares of Common Stock in accordance with Blue
Cross's directions on matters submitted to a shareholder vote which pertain to,
or are a result of, BlueCross BlueShield Association rules, regulations, or
marketing issues.
SECTION 16 COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons owning in excess of ten percent of the shares of the
Common Stock outstanding to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and the exchange on which the Common
Stock is traded. Officers, directors and ten percent shareholders are also
required to furnish the Company with copies of all Section 16(a) forms they
file.
Based upon a review of the information furnished to the Company, the
Company believes that during the fiscal year ended December 31, 1999, its
officers and directors and Blue Cross complied with all applicable Section 16(a)
filing requirements except that Blue Cross inadvertently did not file a report
on Form 4 reflecting purchases of Common Stock it made in August 1999 but has
subsequently filed that report.
AUDITORS
The Audit Committee of the Board of Directors has selected Ernst & Young
LLP as independent auditors for the Company for the year ending December 31,
1999. Ernst & Young has examined the accounts of the Company since 1988.
Representatives of Ernst & Young will be present at the Meeting, will be
available to respond to questions and may make a statement if they so desire.
-17-
OTHER MATTERS
The Company knows of no other matters to come before the Meeting. If any
other matters properly come before the Meeting, or any adjournments or
postponements thereof, 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
Pursuant to Article II of the Company's Bylaws which provides procedures by
which shareholders may raise matters at annual meetings, proposals which
shareholders intend to present at the 2001 Annual Meeting of Shareholders must
be received by the Company between January 30, 2001 and March 1, 2001 to be
presented at that meeting. To be eligible for inclusion in the proxy material
for that meeting, shareholder proposals must be received by December 29, 2000.
UNITED WISCONSIN SERVICES, INC.
Stephen E. Bablitch
SECRETARY
Milwaukee, Wisconsin
April 26, 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 APRIL 14, 2000, ON THE
WRITTEN REQUEST OF SUCH PERSON DIRECTED TO: STEPHEN E. BABLITCH, SECRETARY,
UNITED WISCONSIN SERVICES, INC., 401 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN
53203.
-18-
UNITED WISCONSIN SERVICES, INC.
401 West Michigan Street, Milwaukee, WI 53203
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. Hefty and Gail Hanson, and
each of them, proxies of the undersigned with power of substitution, to vote
all shares of the common stock the undersigned is entitled to vote at the
Annual Meeting of the Shareholders of United Wisconsin Services, Inc. to be
held on May 31, 2000 at 11:00 a.m., and at any adjournments thereof, as
indicated below.
The shares of common stock represented by this proxy will be voted as
directed. If no direction is specified, the shares of common stock will be
voted FOR Item 1.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
TRIANGLE DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED TRIANGLE
UNITED WISCONSIN SERVICES, INC. 2000 ANNUAL MEETING
1. ELECTION OF DIRECTORS: 1 - RICHARD A. ABDOO 2 - BARRY K. ALLEN / / FOR all nominees / / WITHHOLD AUTHORITY
(FOR TERM EXPIRING IN 2003) 3 - EUGENE A. MENDEN listed to the left to vote for all
(except as specified nominees listed to
below). the left.
(Instructions: to withhold authority to vote for any indicated nominee, write
the number(s) of the nominee(s) in the box provided to the right.) ---) / /
2. With discretionary power upon all other business that may properly come before the meeting and upon matters incident to the
conduct of the meeting.
The Board of Directors recommends a vote FOR the nominees as directors.
Check appropriate box Date NO. OF SHARES
indicate change below: -----------
Address Change? / / Name Change? / / / /
Signature(s) in Box
Please sign exactly as your name appears on this
proxy giving your full title if signing as
attorney or fiduciary. If shares are held jointly,
each joint owner should sign. If a corporation,
please sign in full corporate name, by duly
authorized officer, if a partnership, please sign
in partnership name by authorized person.