SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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-12
AMERICAN MEDICAL SECURITY GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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(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)(4)
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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(4) Proposed maximum aggregate value of transaction:
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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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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[AMERICAN MEDICAL SECURITY LOGO]
3100 AMS BOULEVARD
GREEN BAY, WI 54313
(920) 661-1111
MARCH 30, 2001
To All Shareholders:
You are cordially invited to attend the Company's 2001 Annual Meeting of
Shareholders on Tuesday, May 15, 2001, in Green Bay, Wisconsin.
The Annual Meeting will begin promptly at 11:00 a.m. local time at the
Radisson Inn located at 2040 Airport Drive in 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,
[SAMUEL V. MILLER SIGNATURE]
Samuel V. Miller
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
[AMERICAN MEDICAL SECURITY 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 Tuesday, May 15, 2001, at
11:00 a.m. local time, for the following purposes:
1. To elect four directors of the Company for terms expiring at the 2004
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 19, 2001, 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,
[TIMOTHY J. MOORE SIGNATURE]
Timothy J. Moore
SECRETARY
Green Bay, Wisconsin
March 30, 2001
[AMERICAN MEDICAL SECURITY LOGO]
3100 AMS BOULEVARD
GREEN BAY, WISCONSIN 54313
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 15, 2001
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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 Tuesday, May 15, 2001, 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 four directors of the Company
for terms expiring at the 2004 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 19, 2001, 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. As of March 19, 2001, there were outstanding 14,183,983 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
1
largest number of votes are elected as directors up to the maximum number of
directors to be chosen in 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 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, 2000, the
Notice of the Meeting, this Proxy Statement and the accompanying appointment of
proxy form were first mailed to shareholders on or about March 30, 2001.
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 outstanding Common Stock, (2) each director and each nominee for 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 28, 2001, for directors,
nominees for director 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.
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NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) CLASS
- ---------------- --------------------- ----------
Blue Cross & Blue Shield United of Wisconsin................ 6,309,525 44.5%
1515 N. RiverCenter Drive
Milwaukee, WI 53212
Heartland Advisors, Inc.(2)................................. 1,154,000 8.1
789 North Water Street
Milwaukee, WI 53202
Dimensional Fund Advisors Inc............................... 1,129,500 8.0
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Caxton International Limited(3)............................. 1,092,400 7.7
c/o Leeds Management Services Limited
129 Front Street
Hamilton HM12, Bermuda
Wellington Management Company, LLP(4)....................... 1,079,000 7.6
75 State Street
Boston, MA 02109
Samuel V. Miller(5)......................................... 1,065,675 7.0
3100 AMS Boulevard
Green Bay, WI 54313
Roger H. Ballou............................................. 10,329 *
W. Francis Brennan.......................................... 18,666 *
Mark A. Brodhagen........................................... -- *
James C. Hickman............................................ 8,866 *
William R. Johnson.......................................... 15,166 *
Eugene A. Menden............................................ 10,166 *
Edward L. Meyer, Jr......................................... -- *
Michael T. Riordan(5)....................................... 13,666 *
H.T. Richard Schreyer(5).................................... 2,308 *
Frank L. Skillern........................................... 18,666 *
J. Gus Swoboda.............................................. 10,166 *
Gary D. Guengerich.......................................... 124,688 *
James C. Modaff............................................. 44,500 *
Thomas G. Zielinski......................................... 47,282 *
Christopher N. Earl......................................... 50,500 *
All directors and executive officers as a group: 19
persons................................................... 1,529,716 9.8
- ------------------------
* 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 28, 2001, upon the exercise of stock
options: Mr. Miller, 1,059,175 shares; Messrs. Ballou, Brennan, Hickman,
Johnson, Menden, Riordan, Skillern, and Swoboda, 8,666 shares each;
Mr. Guengerich, 109,788 shares; Mr. Modaff, 44,500 shares; Mr. Zielinski,
46,250 shares; Mr. Earl, 50,500 shares; and all directors and executive
officers as a group, 1,456,389 shares.
(2) The 1,154,000 shares may be deemed beneficially owned by Heartland Advisors,
Inc. ("Heartland") and by William J. Nasgovitz as a result of his position
as President and as a principal shareholder of Heartland and as an officer
and director of Heartland Group, Inc. Mr. Nasgovitz's address is 789 North
Water Street, Milwaukee, WI 53202. Heartland has sole voting power with
respect to 803,300 shares and sole dispositive power with respect to
1,154,000 shares beneficially owned. Mr. Nasgovitz has sole voting power
with respect to 100,000 shares beneficially owned.
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(3) 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.
(4) Wellington Management Company, LLP has shared voting power with respect to
379,500 shares and shared dispositive power with respect to 1,079,000 shares
beneficially owned.
(5) 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; Mr. Riordan, 5,000 shares; and Mr. Schreyer, 2,000
shares.
As of the record date, March 19, 2001, Blue Cross & Blue Shield United of
Wisconsin ("BCBSUW") owned 44.5% of the issued and outstanding shares of the
Common Stock. At that time, James C. Hickman, a director of the Company, was a
director of BCBSUW. Mr. Hickman and Eugene A. Menden, another director of the
Company, also were directors of United Wisconsin Services (see "Certain
Transactions" below). As of March 19, 2001, BCBSUW beneficially owned more than
10% of the common stock of United Wisconsin Services. It is anticipated that
BCBSUW will vote its shares of Common Stock in favor of each of the nominees for
director.
ITEM 1--ELECTION OF DIRECTORS
Four directors are to be elected at the Meeting to serve three year terms
expiring at the 2004 Annual Meeting of Shareholders 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. Information below is provided as
of March 19, 2001.
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 four 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 2004
DIRECTOR
SINCE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------- ----------------------------------------------------------
Mark A. Brodhagen, DDS 2000 Dr. Brodhagen, a practicing dentist, is the owner and
Age: 52 President of Mark A. Brodhagen DDS, SC (d/b/a Brodhagen
Dental Care) in Green Bay, Wisconsin, which he founded in
1974. He is a member of the Wisconsin and American Dental
Associations. He has also served as a dental consultant to
a number of managed health care companies.
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DIRECTOR
SINCE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------- ----------------------------------------------------------
Eugene A. Menden 1991 Mr. Menden is a retired Vice President and director of
Age: 70 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 retired in 1993. He is also a
director of United Wisconsin Services.
Samuel V. Miller 1998 Mr. Miller has been Chairman of the Board, President and
Age: 55 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. From 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 is Chairman, President and Chief Executive
Age: 50 Officer of Paragon Trade Brands, Inc., a disposable diaper
manufacturer, having served as President and Chief
Executive Officer of Paragon Trade Brands since May 2000.
He was President and Chief Operating Officer of Fort James
Corporation, a consumer products company, from 1997 to
August 1998 and held various positions including Chairman,
President and Chief Executive Officer with Fort Howard
Corporation, a predecessor to Fort James Corporation, from
1992 to 1997. He is also a director of The Dial
Corporation and Wallace Computer Services, Inc.
CONTINUING DIRECTORS
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 2002
DIRECTOR
SINCE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------- ----------------------------------------------------------
Roger H. Ballou 1998 Mr. Ballou is the retired Chairman of the Board and Chief
Age: 49 Executive Officer of Global Vacation Group where he served
from March 1998 to September 2000. 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. Mr.
Ballou is a Director of Alliance Data Systems Corp., a
transaction, credit and database marketing services firm.
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DIRECTOR
SINCE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------- ----------------------------------------------------------
W. Francis Brennan 1998 Mr. Brennan is a retired Executive Vice President of UNUM
Age: 64 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.
Edward L. Meyer, Jr. 2000 Mr. Meyer is Chairman of the Board of Anamax Corporation,
Age: 63 a food by-products recycling company, and its affiliated
companies. He was named Chairman in 1997, after serving as
President and Secretary earlier in his 40-year career with
Anamax Corporation. Mr. Meyer is a director of Marshall &
Ilsley Corporation, a bank holding company.
J. Gus Swoboda 1998 Mr. Swoboda is a retired Senior Vice President of
Age: 65 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. Mr. Swoboda was the Chairman
of the Board of Directors of First Northern Capital Corp.
from 1995 until its acquisition by Bank Mutual Corporation
in November 2000. He is a director of Bank Mutual
Corporation, and Chairman of the Board of its subsidiary,
First Northern Saving Bank.
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 2003
James C. Hickman 1991 Mr. Hickman has been an Emeritus Professor and Emeritus
Age: 73 Dean 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 from 1985 to 1990. He is a
director of United Wisconsin Services, BCBSUW and Members
Capital Advisors, Inc., an investment firm.
William R. Johnson 1993 Mr. Johnson has been Chairman of Johansen Capital
Age: 74 Associates, Inc., a financial and investment consulting
firm, since 1986. Before establishing Johansen Capital, he
was founder, Chairman, President and Chief Executive
Officer and of National Investment Services of America,
Inc. He is a director of Campbell Newman Asset Management,
Inc., an investment firm.
H.T. Richard Schreyer 2000 Mr. Schreyer was managing partner and audit partner in
Age: 60 Ernst & Young LLP's Milwaukee office from 1985 until his
retirement from the accounting firm in 1998. He served in
various other management positions during his 35-year
career with Ernst & Young LLP.
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DIRECTOR
SINCE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
-------- ----------------------------------------------------------
Frank L. Skillern 1998 Mr. Skillern was Chief Executive Officer of American
Age: 64 Express Centurion Bank, a consumer bank located in Salt
Lake City, Utah, from 1996 until his retirement in March
1999. He was Chairman of the Board of Directors of
American Express Centurion Bank from his retirement to
December 2000, having served as a director 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.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
In fiscal 2000, the Board of Directors held seven meetings. During 2000,
each director attended at least 80% of the meetings of the Board and committees
of the Board on which the director was a member. The Board of Directors has
standing Audit, Compensation, Finance and Executive Committees.
The Audit Committee performs the functions set forth in the Audit Committee
Report contained in this proxy statement and the Audit Committee Charter
attached hereto as Appendix A. The Audit Committee is composed entirely of
"independent" directors as that term is defined by the New York Stock Exchange.
The members of the Audit Committee are Messrs. Menden (Chairman), Brennan,
Hickman, Schreyer and Swoboda. The Audit Committee held four meetings during
2000.
The Compensation Committee evaluates the performance of the Company's
executive officers; determines the compensation of the executive officers; 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), Ballou, Brennan and Skillern. The Compensation
Committee held six meetings during 2000.
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), Brodhagen, Menden, Meyer, Miller and Skillern.
The Finance Committee held three meetings during 2000.
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 four times during 2000. The members
of the Executive Committee are Messrs. Miller (Chairman), Ballou, Hickman and
Riordan.
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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 2000, directors who were not officers or employees of the
Company received a $20,000 annual fee, $1,200 per meeting for attendance at
Board meetings and $1,000 per meeting for attendance at 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.
Pursuant to the terms of the Company's 1995 Director Stock Option Plan, new
non-employee directors receive stock option grants upon their election to the
Board to purchase 5,000 shares of Common Stock. The three directors first
elected to the Board in 2000 received such grants. Non-employee directors of the
Company also participate in the Company's Equity Incentive Plan. During 2000,
stock options to purchase 10,000 shares of Common Stock were granted under the
Equity Incentive Plan to each of the eight non-employee directors of the Company
who was first elected to the Board prior to 2000. The exercise price of all
options granted to non-employee directors in 2000 was equal to the fair market
value of the Common Stock on the date of grant. Additionally, all of 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 retirement, or upon a "change in control" as
defined in the Equity Incentive Plan or a "triggering event" as defined in the
1995 Director Stock Option Plan. Determination of the number of shares granted
under the Equity Incentive Plan in 2000 to non-employee directors was based on a
grant date present value of competitive annual stock option grant amounts.
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
8
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.
AUDIT COMMITTEE REPORT
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial statements and the
reporting process including the systems of internal controls. In fulfilling its
oversight responsibilities, the Audit Committee reviewed and discussed the
audited financial statements with management. This included a discussion of the
quality, not just the acceptability, of the accounting principles applied, and
the reasonableness of significant judgments and the clarity of disclosures in
the financial statements.
The Company's independent auditors are responsible for expressing an opinion
on the conformity of the audited financial statements with generally accepted
accounting principles. The Audit Committee has discussed with the independent
auditors the judgments of the independent auditors as to the quality, not just
the acceptability, of the Company's accounting principles and such other matters
that the independent auditors are required to discuss with the Audit Committee
under generally accepted auditing standards, including Statement on Auditing
Standards No. 61, as amended, "Communications with Audit Committees." In
addition, the Audit Committee has discussed with the independent auditors the
independence of the auditors from management and the Company, including the
matters in the written disclosures and the letter from the independent auditors
required by the Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees." The Audit Committee considered the
compatibility of nonaudit services with the auditors' independence.
The Audit Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee meets with the independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls and the overall quality of the Company's financial
reporting. The Audit Committee also met with the internal auditor, with and
without management present, to discuss the results of internal audit
examinations.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended
December 31, 2000, for filing with the Securities and Exchange Commission. The
Audit Committee has also recommended, and the Board has approved, the selection
of Ernst & Young LLP ("Ernst & Young") as the Company's independent auditors for
2001.
AUDIT COMMITTEE
Eugene A. Menden, Chairman
W. Francis Brennan
James C. Hickman
H.T. Richard Schreyer
J. Gus Swoboda
9
AUDITORS AND PRINCIPAL ACCOUNTING FIRM FEES
The Board of Directors, upon recommendation of the Audit Committee of the
Board, has selected Ernst & Young as independent auditors for the Company for
the year ended December 31, 2000. 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.
FEES BILLED TO THE COMPANY BY ERNST & YOUNG DURING FISCAL 2000
AUDIT FEES
The aggregate fees billed by Ernst & Young for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2000, and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for that
fiscal year were $202,000.
ALL OTHER FEES
The aggregate fees billed by Ernst & Young for services rendered to the
Company, other than for services described above under "Audit Fees," for the
fiscal year ended December 31, 2000 were $67,000. Included in these fees is
$50,000 for audit related fees. Ernst & Young did not provide any professional
services to the Company for information technology services relating to
financial information systems design and implementation for the fiscal year
ended December 31, 2000.
10
EXECUTIVE COMPENSATION
The following table summarizes the total compensation paid by the Company to
the Chief Executive Officer and the four other most highly compensated executive
officers of the Company (the "Named Executive Officers") for services rendered
to the Company for the fiscal years ended December 31, 2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- -----------------------------------------
AWARDS
---------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSA- STOCK OPTIONS/ COMPENSA-
POSITION YEAR SALARY ($) BONUS ($) (1) TION ($)(2) AWARDS ($) SARS (#)(3) TION ($)(4)
- ---------------------------- -------- ---------- ------------- ----------- ---------- ----------- -----------
Samuel V. Miller............ 2000 $500,004 $500,000 $ 3,372 -- 200,000 $34,620
CHAIRMAN OF THE BOARD, 1999 500,000 500,000 18,628 -- 148,000 2,000
PRESIDENT & CHIEF 1998 500,000 650,000 14,200 $900,449(5) 201,113 2,000
EXECUTIVE OFFICER
Gary D. Guengerich.......... 2000 273,272 75,000 4,889 -- 55,000 7,678
EXECUTIVE VICE PRESIDENT & 1999 260,000 67,600 5,226 -- 68,000 --
CHIEF FINANCIAL OFFICER 1998 225,000 110,000 -- -- 152,788 --
James C. Modaff(6).......... 2000 271,174 75,000 6,307 -- 55,000 12,683
EXECUTIVE VICE PRESIDENT & 1999 108,000 130,000 6,741 -- 178,000 3,060
CHIEF ACTUARY 1998 -- -- -- -- -- --
Thomas G. Zielinski(6)...... 2000 270,898 100,000 9,646 -- 55,000 11,636
EXECUTIVE VICE PRESIDENT OF 1999 93,000 200,000 980 -- 185,000 1,400
OPERATIONS 1998 -- -- -- -- -- --
Christopher N. Earl(6)...... 2000 234,903 85,000 -- -- 40,000 11,288
SENIOR VICE PRESIDENT, 1999 192,981 107,000 12,174 -- 132,000 5,229
SALES & MARKETING 1998 -- -- -- -- -- --
- ------------------------
(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 Messrs. Modaff and Zielinski include new hire recruitment bonuses and
minimum guaranteed bonuses for services during 1999, 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 for 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, 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) Amounts represent the Company's matching contributions to the Company's
retirement savings plan and nonqualified executive retirement plan.
11
(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 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 that affects the Common
Stock. As of December 31, 2000, the 73,506 shares of deferred stock had a
value of $441,036 based on the $6.00 per share closing price of the
Company's Common Stock on December 31, 2000.
(6) Messrs. Modaff, Zielinski and Earl became employees of the Company on
August 2, 1999, August 23, 1999 and February 22, 1999, respectively.
The following table details the stock options granted to the Named Executive
Officers during 2000, each of which was granted pursuant to the Equity Incentive
Plan. No SARs were granted during 2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
INDIVIDUAL GRANTS POTENTIAL REALIZED VALUE
---------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTION/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM (2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ------------ ---------------- ----------- ---------- ---------- ------------
Samuel V. Miller................ 200,000 32.3% $5.1875 11/16/12 $825,700 $2,218,620
Gary D. Guengerich.............. 55,000 8.9 5.1875 11/16/12 227,068 610,121
James C. Modaff................. 55,000 8.9 5.1875 11/16/12 227,068 610,121
Thomas G. Zielinski............. 55,000 8.9 5.1875 11/16/12 227,068 610,121
Christopher N. Earl............. 40,000 6.5 5.1875 11/16/12 165,140 443,724
- ------------------------
(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 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 date of grant. The options permit limited transfers
to certain members of the optionee's immediately family or to a trust for
their benefit.
12
(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 2000. The number of unexercised options and the total value of
unexercised in-the-money options at December 31, 2000, are shown in the
following table. No SARs were outstanding at December 31, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTION/SARS IN-THE-MONEY OPTIONS/SARS
AT FY-END (#) AT FY-END ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Samuel V. Miller............................... 1,059,175 361,000 $6,938 $183,313
Gary D. Guengerich............................. 109,788 166,000 3,188 54,250
James C. Modaff................................ 44,500 133,500 3,188 54,250
Thomas G. Zielinski............................ 46,250 138,750 3,188 54,250
Christopher N. Earl............................ 33,000 99,000 2,906 41,219
- ------------------------
(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, 2000
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 Agreement (the "Miller Agreement")
with the Company dated as of September 28, 2000, which supersedes an Employment
and Noncompetition Agreement dated as of April 7, 1998. The Miller Agreement
contains customary employment terms. The terms of the Miller Agreement, which
expires on December 31, 2003, 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 beginning January 1, 2001, provide for an annual base
salary of $700,000 and annual performance bonuses ranging from zero to 132% of
base salary. Such performance bonus amounts are dependent upon the achievement
of target performance goals determined by the Compensation Committee. Any
portion of Mr. Miller's performance bonus that is not deductible as a result of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code") is deferred and held in a rabbi trust. In the event of
termination of Mr. Miller's employment by the Company without "cause" (as
defined in the Miller Agreement), resignation by Mr. Miller for "good reason"
(as defined in the Miller Agreement) or if the Company does not renew the Miller
Agreement, Mr. Miller will be entitled to receive payments equal to three times
his base salary and three times the average of his performance bonus earned for
the two most recent fiscal years preceding employment termination. In addition,
Mr. Miller will be entitled to continuation of medical and dental coverage for
three years. 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
13
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 officer 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 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) a plan of
liquidation or dissolution of the Company is consummated. 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 the same 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.
- Motivate executives to achieve the goals of the Company's business
strategy.
- Link executive and shareholder financial interests through appropriate
equity-based long-term incentive plans.
- Provide executives with a compensation package that recognizes individual
contributions and overall business results.
14
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 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 and general
industry data of comparably sized companies.
The peer group consists of a group of 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, the Company's executive compensation consultant. 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 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. Qualitative
factors including time in position, responsibilities and experience are also
considered in establishing base salaries. Base salary adjustments for 2000
generally resulted in salaries at the competitive median or slightly below the
competitive median of executives in the peer group.
ANNUAL INCENTIVE COMPENSATION
The Company's executive officers, including the CEO beginning in 2001, are
eligible for an annual performance bonus under the Company's executive
management incentive program (the "Annual Program"). The Annual Program
emphasizes 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 for 2000 was 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. Target incentive
opportunities are set, when combined with median base salaries, to result in
total cash compensation (base salary and annual incentives) at the competitive
median.
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,
15
the Compensation Committee used discretion in evaluating an executive's
achievement of individual performance objectives.
For 2000, the potential range of bonus awards for executive officers (other
that the CEO and the senior sales executive) was zero to 120% of annual base
salary with the actual payout ranging from 12% to 37% of base salary. The EBITDA
corporate performance goal was not achieved for 2000. 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. The senior sales executive received a bonus award for obtaining
certain sales levels and on an evaluation of individual job performance. The
performance awards for fiscal 2000 were paid in the first quarter of 2001.
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's shareholders, and by further providing employees that
receive awards 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, general industry data,
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 2000, the Compensation Committee considered Company performance, the results
of the peer group survey performed by Arthur Andersen, general industry data
gathered by Arthur Andersen and recommendations of the CEO for officers other
than himself. The commonly used Black-Scholes valuation methodology is used to
determine grant sizes at competitive value. Option award sizes for 2000 were
generally below the competitive median.
Nonqualified stock options to purchase a total of 205,000 shares were
granted to the Company's executive officers (other than the CEO) named in the
compensation table for fiscal 2000. The award to the CEO is discussed below.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Miller became the CEO of the Company in 1998. On September 28, 2000, he
entered into a new employment and noncompetition agreement with the Company with
a term ending on December 31, 2003 (the "Miller Agreement"). The Miller
Agreement superseded a prior agreement with a term ending December 31, 2000 (the
"Prior Agreement"). The terms of the Miller Agreement are designed to provide a
greater link between corporate performance and the CEO's compensation by
eliminating the minimum guaranteed bonus provided in the Prior Agreement and
increasing leverage for superior performance. For 2000, Mr. Miller's annual base
salary was $500,000 and he was eligible for an annual performance bonus of not
less than $500,000 nor more than $1 million. On January 1, 2001, Mr. Miller's
salary was increased to $700,000 and he became eligible for annual performance
bonuses ranging from zero to 132% of base salary. The annual bonus will be
dependent upon the achievement of target performance goals determined
16
by the Compensation Committee and will be based 60% on Company performance
criteria and 40% on individual performance criteria.
In determining the discretionary portion of Mr. Miller's annual performance
bonus for 2000, 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 a performance
bonus of $500,000 or 100% of base salary, which is the minimum bonus amount
provided under the Prior Agreement for fiscal 2000.
In 2000, Mr. Miller received options to purchase 200,000 shares of Company
common stock at an exercise price of $5.1825 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, historical grant levels and the current value of prior
option grants to Mr. Miller. Based on the commonly used Black-Scholes valuation
methodology, Mr. Miller's 2000 stock option grant was positioned below the 50th
percentile of competitive practice.
Mr. Miller participates in a deferral program whereby any portion of his
annual performance bonus that is not deductible as a result of Section 162(m) of
the Internal Revenue Code of 1986, as amended, (the "Internal Revenue Code") 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. Deferred amounts are held in a rabbi trust and are
credited with interest at a rate equal to a money market rate.
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 2000, 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 2000 is fully
deductible. 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 success, 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
17
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 required 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 on
the New York Stock Exchange following the completion of the Spin-off) through
December 31, 2000, to the cumulative total returns of the NYSE/ AMEX/Nasdaq
Stock Market and a peer group of issuers selected by the Company. The second
performance graph compares the cumulative shareholder return 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.) for the five year period ended
December 31, 2000, to the cumulative total returns of the same market and peer
group as the short-period graph.
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.; Health Net, Inc.
(f/n/a Foundation Health Systems, Inc.); Wellpoint Health Networks, Inc.; Oxford
Health Plans, Inc.; Jefferson-Pilot; Unitrin, Inc.; Trigon Healthcare, Inc.;
Sierra Health Services, Inc.; and Rightchoice Managed Care, Inc. The Company
also uses this peer group for executive compensation comparison purposes.
The graphs assume an investment of $100 in each of the Company's Common
Stock, the NYSE/ AMEX/Nasdaq Stock Market and the peer group of issuers at the
beginning of the periods (September 28, 1998, and December 31, 1995, 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.
18
COMPARISON OF CUMULATIVE TOTAL RETURNS
FROM SEPTEMBER 28, 1998 THROUGH DECEMBER 31, 2000
PERFORMANCE GRAPH
AMERICAN MEDICAL SECURITY GROUP, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AMERICAN MEDICAL SECURITY GROUP, INC. NYSE/AMEX/NASDAQ STOCK MARKET (US COMPANIES) PEER GROUP
9/28/98 $100.00 $100.00 $100.00
12/31/98 $139.63 $118.08 $116.09
3/31/99 $136.58 $122.58 $116.38
6/30/99 $84.15 $132.46 $126.55
9/30/99 $63.42 $124.29 $90.69
12/31/99 $58.54 $148.13 $100.89
3/31/00 $68.29 $154.06 $104.21
6/30/00 $67.07 $146.61 $120.10
9/30/00 $62.81 $147.02 $134.84
12/31/00 $58.54 $131.58 $169.58
9/28/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
-------- -------- -------- -------- -------- --------
American Medical Security Group, Inc......... $100.00 $139.63 $136.58 $ 84.15 $ 63.42 $ 58.54
NYSE/AMEX/Nasdaq Stock Market (US
Companies)................................. 100.00 118.08 122.58 132.46 124.29 148.13
Peer Group................................... 100.00 116.09 116.38 126.55 90.69 100.89
3/31/00 6/30/00 9/30/00 12/31/00
-------- -------- -------- --------
American Medical Security Group, Inc.................... $ 68.29 $ 67.07 $ 62.81 $ 58.54
NYSE/AMEX/Nasdaq Stock Market (US Companies)............ 154.06 146.61 147.02 131.58
Peer Group.............................................. 104.21 120.10 134.84 169.58
19
COMPARISON OF CUMULATIVE TOTAL RETURNS
FROM DECEMBER 31, 1995 THROUGH DECEMBER 31, 2000
PERFORMANCE GRAPH
AMERICAN MEDICAL SECURITY GROUP, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AMERICAN MEDICAL SECURITY GROUP, INC. NYSE/AMEX/NASDAQ STOCK MARKET (US COMPANIES) PEER GROUP
12/31/95 $100.00 $100.00 $100.00
12/31/96 $121.77 $121.23 $96.43
12/31/97 $121.39 $158.70 $93.52
12/31/98 $116.53 $195.97 $105.50
12/31/99 $48.85 $245.84 $91.68
12/31/00 $48.85 $218.37 $154.10
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------
American Medical Security Group, Inc......... $100.00 $121.77 $121.39 $116.53 $ 48.85 $ 48.85
NYSE/AMEX/Nasdaq Stock Market (US
Companies)................................. 100.00 121.23 158.70 195.97 245.84 218.37
Peer Group................................... 100.00 96.43 93.52 105.50 91.68 154.10
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, 2000.
20
As of the record date, March 19, 2001, Blue Cross & Blue Shield United of
Wisconsin ("BCBSUW") owned 44.5% of the issued and outstanding shares of the
Company's Common stock and more than 10% of the common stock of United Wisconsin
Services.
REINSURANCE AGREEMENTS AND CERTAIN INSURANCE POLICIES
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. Each company acting as the reinsurer
also 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. In addition, the Company's workers compensation and
employers liability insurance policy, which is purchased through an independent
agent, and its long-term disability and executive medical reimbursement
insurance policies are underwritten by a subsidiary of United Wisconsin
Services. For fiscal 2000, 1999 and 1998, the Company received $105,406,
$115,449 and $28,360, respectively, from United Wisconsin Services or its
subsidiaries pursuant to the Reinsurance Agreements and paid to United Wisconsin
Services, its subsidiaries or agents $28,176, $78,025 and $42,590, respectively,
pursuant to the Reinsurance Agreements and $536,048, $461,387 and $354,256,
respectively, as premiums for the insurance policies.
REGISTRATION RIGHTS AGREEMENTS
The Company and BCBSUW 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
BCBSUW. Pursuant to the terms of the agreement, BCBSUW is entitled to certain
demand registration rights until the earlier of July 31, 2008, or the date on
which BCBSUW owns in the aggregate less than three percent of the Company's
outstanding Common Stock. In addition, BCBSUW 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 BCBSUW proposes to sell
its Common Stock to a third party, BCBSUW 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 BCBSUW proposes to sell. BCBSUW 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 and Ronald A. Weyers, who each formerly beneficially
owned more than 5% of the Company's Common Stock (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, for the same period of time, 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 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 for a period of ten years.
21
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, 2000, its executive
officers and directors and BCBSUW complied with all applicable Section 16(a)
filing requirements.
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 2002 Annual Meeting of Shareholders of the
Company must be received no later than November 30, 2001, 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.
Under the Company's Bylaws, written notice of shareholder proposals for the
2002 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 29, 2002, and no earlier than December 30, 2001, 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.
[TIMOTHY J. MOORE SIGNATURE]
Timothy J. Moore
SECRETARY
Green Bay, Wisconsin
March 30, 2001
A COPY (WITHOUT EXHIBITS) OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2000, WILL BE PROVIDED WITHOUT CHARGE TO EACH RECORD
OR BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK AS OF MARCH 19, 2001, 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
22
APPENDIX A
AMERICAN MEDICAL SECURITY GROUP, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the Audit Committee (the "Committee")
of the Board of Directors of American Medical Security Group, Inc. (the
"Company"). The Committee shall review and reassess the charter at least
annually and obtain the Board of Directors' approval of the charter. The
Committee shall be appointed by the Board of Directors and shall be composed of
at least three Directors, each of whom are independent of management and the
Company. Members of the Committee shall be considered independent if they have
no relationship that may interfere with the exercise of their independence from
management and the Company. All Committee members shall be financially literate,
or shall become financially literate within a reasonable period of time after
appointment to the Committee. At least one member shall have accounting or
related financial management expertise.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling its oversight responsibility to the shareholders, potential
shareholders, the investment community and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements and the legal
compliance and ethics programs as established by management and the Board. In so
doing, it is the responsibility of the Committee to maintain free and open
communication between the Committee and the independent auditors, the internal
auditors and management of the Company. In discharging its oversight role, the
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities and personnel of the Company and
the power to retain outside counsel or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. In carrying out its
responsibilities, the Committee's processes and procedures should remain
flexible in order to best react to changing conditions and circumstances. The
Committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices and
ethical behavior.
The financial management and the independent auditors of the Company
typically devote more time and receive more detailed information about the
Company than do Committee members. Consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special assurance
as to the Company's financial statements or any professional certification as to
the independent auditor's work.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate.
- The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Audit Committee, as representatives of
the Company's shareholders. The Committee and the Board of Directors shall
have the ultimate authority and responsibility to evaluate and, where
appropriate, replace the
A-1
independent auditors. The Committee shall discuss with the independent
auditors the independence of the auditors from management and the Company
and the matters included in the written disclosures required by the
Independence Standards Board. Annually, the Committee shall review and
recommend to the Board the selection of the Company's independent
auditors.
- The Committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits including
the adequacy of staffing and compensation. Also, the Committee shall
discuss with management, the internal auditors and the independent
auditors the adequacy and effectiveness of the accounting and financial
controls, including the Company's system to monitor and manage business
risk and legal and ethical compliance programs. Further, the Committee
shall meet separately with the internal auditors and the independent
auditors, with and without management present, to discuss the results of
their examinations.
- The Committee, or the Chairman of the Committee, shall review with
management and the independent auditors the Company's interim financial
results prior to the release of earnings and/or the Company's quarterly
financial statements prior to filing or distribution. Also, the Committee,
or its Chairman, shall discuss the results of the quarterly review and any
other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
- The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments and the clarity of the disclosures in the financial
statements. Based on these discussions, the Committee will advise the
Board of Directors whether it recommends that the audited financial
statements be included in the Annual Report on Form 10-K. Also, the
Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the independent
auditors under generally accepted auditing standards.
A-2
AMERICAN MEDICAL SECURITY GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 2001
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 Tuesday, May 15, 2001, 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)
AMERICAN MEDICAL SECURITY GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 2001
(SEE REVERSE SIDE)
- PLEASE SIGN, DATE, DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED -
PLEASE DO NOT FOLD
AMERICAN MEDICAL SECURITY GROUP, INC. 2001 ANNUAL MEETING
1. ELECTION OF DIRECTORS 1--Mark A. Brodhagen / / FOR all nominees / / WITHOUT AUTHORITY
2--Eugene A. Menden listed to the left (except to vote for all nominees
3--Samuel V. Miller as specified below). listed to the left.
4--Michael T. Riordan
(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 ________________
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.