-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RV9b654DhLOEnklL990nfjUBmDCswDV3gDiHhVa3IZB2NevOyts4BRPqR0SS4mFe JsmYwcF+UXE78dTuB9Nf8Q== 0000878897-98-000007.txt : 19981116 0000878897-98-000007.hdr.sgml : 19981116 ACCESSION NUMBER: 0000878897-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MEDICAL SECURITY GROUP INC CENTRAL INDEX KEY: 0000878897 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 391431799 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13154 FILM NUMBER: 98746449 BUSINESS ADDRESS: STREET 1: 3100 AMS BLVD CITY: GREEN BAY STATE: WI ZIP: 54313 BUSINESS PHONE: 9206611111 MAIL ADDRESS: STREET 1: 3100 AMS BLVD CITY: GREEN BAY STATE: WI ZIP: 54313 FORMER COMPANY: FORMER CONFORMED NAME: UNITED WISCONSIN SERVICES INC /WI DATE OF NAME CHANGE: 19930328 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 OR [ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the transition period from to COMMISSION FILE NUMBER 1-13154 AMERICAN MEDICAL SECURITY GROUP, INC. (Exact name of Registrant as specified in its charter) WISCONSIN 39-1431799 (State of Incorporation) (I.R.S. Employer Identification No.) 3100 AMS BOULEVARD, GREEN BAY, WISCONSIN 54313 (Address of principal executive offices) (Zip Code) (920) 661-1500 (Registrant's telephone number, including area code) United Wisconsin Services, Inc. 401 West Michigan Street, Milwaukee, Wisconsin 53203-2896 (Former name and former address) Indicate by check mark whether registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value, outstanding as of October 31, 1998: 16,573,408 shares AMERICAN MEDICAL SECURITY GROUP, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets--September 30, 1998 and December 31, 1997.......................................3 Condensed consolidated statements of income--Three months ended September 30, 1998 and 1997; Nine months ended September 30, 1998 and 1997.................................5 Condensed consolidated statements of cash flows--Nine months ended September 30, 1998 and 1997...........................6 Notes to condensed consolidated financial statements-- September 30, 1998..........................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................12 Item 3. Quantitative and Qualitative Disclosures About Market Risk...17 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................18 Item 2. Changes in Securities and Use of Proceeds....................18 Item 3. Defaults upon Senior Securities..............................18 Item 4. Submission of Matters to a Vote Security Holders.............18 Item 5. Other Information............................................18 Item 6. Exhibits and Reports on Form 8-K.............................18 Signatures.............................................................20 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, 1998 December 31, 1997 ------------------------------------------ (000'S OMITTED) ASSETS Investments: Securities available for sale, at fair value: Fixed maturities $282,576 $266,976 Equity securities--common 15,014 - Equity securities--preferred 2,469 787 Fixed maturity securities held to maturity, at amortized cost 3,532 3,804 ----------------------------------------- Total Investments 303,591 271,567 Cash and Cash Equivalents 8,532 45,291 Other Assets: Property and equipment, net 35,913 37,169 Goodwill and other intangibles, net 131,069 137,796 Other assets 23,183 32,697 ----------------------------------------- Total Other Assets 190,165 207,662 Net Assets of Discontinued Operations - 123,616 ----------------------------------------- Total Assets $502,288 $648,136 ========================================= See notes to condensed consolidated financial statements
3 AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, 1998 December 31, 1997 ------------------------------------------ (000'S OMITTED) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Medical and other benefits payable $108,630 $126,882 Advance premiums 18,004 19,986 Payables and accrued expenses 21,458 28,930 Notes payable 55,834 124,578 Other liabilities 22,610 21,383 ------------------------------------------ Total Liabilities 226,536 321,759 Redeemable preferred stock - Series A adjustable rate nonconvertible, $1,000 stated value, 25,000 shares authorized - - Shareholders' Equity: Preferred stock (no par value, 475,000 shares authorized) - - Common stock (no par value, $1 stated value, 50,000,000 shares authorized, 16,573,202 and 16,509,578 issued and outstanding at September 30, 1998 and December 31, 1997, respectively) 16,573 16,510 Paid-in capital 188,650 186,768 Retained earnings 66,181 117,331 Unrealized gains on available for sale securities 4,348 5,768 ------------------------------------------ Total Shareholders' Equity 275,752 326,377 ------------------------------------------ Total Liabilities and Shareholders' Equity $502,288 $648,136 ========================================== See notes to condensed consolidated financial statements.
4 AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------ ------------------------------------ 1998 1997 1998 1997 ------------------------------------ ------------------------------------ (000 OMITTED, EXCEPT PER SHARE DATA) Revenues: Insurance premiums $224,160 $222,414 $686,075 $716,329 Net investment income 6,167 6,044 17,971 16,582 Other revenue 7,082 5,710 16,557 20,088 ------------------------------------ ------------------------------------ Total Revenues 237,409 234,168 720,603 752,999 Expenses: Medical and other benefits 168,513 168,931 522,123 546,993 Selling, general and administrative 61,832 57,495 178,567 187,806 Interest expense 2,033 2,348 6,739 6,975 Amortization of goodwill and intangibles 2,186 2,003 6,621 6,027 ------------------------------------ ------------------------------------ Total Expenses 234,564 230,777 714,050 747,801 ------------------------------------ ------------------------------------ Income From Continuing Operations, Before Income Taxes 2,845 3,391 6,553 5,198 Income Tax Expense 1,208 1,042 2,973 2,209 ------------------------------------ ------------------------------------ Income From Continuing Operations (see Note B) 1,637 2,349 3,580 2,989 Income From Discontinued Operations, Less Applicable Income Taxes 4,289 4,062 10,003 12,355 ------------------------------------ ------------------------------------ Net Income $5,926 $6,411 $13,583 $15,344 ==================================== ==================================== Earnings Per Common Share - Basic Income from continuing operations (see Note B) $0.10 $0.14 $0.22 $0.18 Income from discontinued operations 0.26 0.25 0.60 0.75 ------------------------------------ ------------------------------------ Net Income Per Common Share $0.36 $0.39 $0.82 $0.93 ==================================== ==================================== Earnings Per Common Share - Diluted Income from continuing operations (see Note B) $0.10 $0.14 $0.21 $0.18 Income from discontinued operations 0.26 0.24 0.60 0.74 ------------------------------------ ------------------------------------ Net Income Per Common Share $0.36 $0.38 $0.81 $0.92 ==================================== ==================================== See notes to condensed consolidated financial statements
5 AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ----------------------------------------- 1998 1997 ----------------------------------------- (000'S OMITTED) Operating Activities: Income from continuing operations $3,580 $2,989 Adjustments to reconcile income from continuing operations to net cash used in operating activities: Depreciation and amortization 11,619 13,333 Realized investment gains (2,368) (591) Deferred income tax benefit (1,260) (2,255) Changes in operating accounts: Other assets 9,677 9,354 Medical and other benefits payable (19,414) (44,625) Advance premiums (2,157) (6,314) Payables and accrued expenses (8,110) (1,201) Other liabilities 2,452 (12,891) ----------------------------------------- Net Cash Used in Operating Activities (5,981) (42,201) Investing Activities: Acquisition of subsidiaries (net of cash and cash equivalents acquired of $2,773,000) 2,623 - Purchases of available for sale securities (252,382) (205,611) Proceeds from sale of available for sale securities 224,376 222,829 Purchases of held to maturity securities - (1,630) Proceeds from maturity of held to maturity securities 400 - Purchases of property and equipment (2,630) (1,524) Proceeds from sale of property and equipment 235 1,807 ----------------------------------------- Net Cash (Used in) Provided by Investing Activities (27,378) 15,871 Financing Activities: Cash dividends paid (5,956) (5,915) Issuance of common stock 1,941 2,211 Repayment of notes payable (46,174) (900) Proceeds on notes payable borrowings 45,158 - ----------------------------------------- Net Cash Used in Financing Activities (5,031) (4,604) Net Cash Provided by Discontinued Operations 1,631 9,809 ----------------------------------------- Cash and Cash Equivalents: Net decrease (36,759) (21,125) Balance at beginning of year 45,291 31,999 ----------------------------------------- Balance at End of Period $8,532 $10,874 ========================================= See notes to condensed consolidated financial statements.
6 AMERICAN MEDICAL SECURITY GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1998 NOTE A. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the United Wisconsin Services, Inc. (UWS) annual report on Form 10-K for the year ended December 31, 1997. NOTE B. DISCONTINUED OPERATIONS On May 27, 1998, the Board of Directors of UWS approved a plan to spin off its managed care companies and specialty management business to its shareholders. In connection with the spin-off, UWS changed its name to American Medical Security Group, Inc. (AMSG or the Company). On September 25, 1998, the distribution date, shareholders of AMSG received one share of common stock of a newly formed company, Newco/UWS, Inc. (Newco), for every share of AMSG owned as of September 11, 1998, the record date. The net assets of Newco consisted of assets and liabilities of the managed care and specialty management business along with $70.0 million in debt. Newco was renamed United Wisconsin Services, Inc. AMSG has obtained a private ruling from the Internal Revenue Service that the spin-off is tax free to AMSG, Newco and to AMSG shareholders. The operations of Newco, along with direct costs associated with the spin-off of $4.9 million, have been reflected in discontinued operations. All prior periods of the condensed consolidated financial statements of AMSG have been restated to reflect Newco operations as discontinued operations. Interest expense on the $70.0 million in debt assumed by Newco is reflected in continuing operations through September 11, 1998. 7 The following pro forma information presents the consolidated results of AMSG's continuing operations assuming the debt was assumed by Newco as of January 1, 1997:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1998 1997 1998 1997 --------------------------- --------------------------- (000'S OMITTED, EXCEPT PER SHARE DATA) Total Revenues $237,409 $234,168 $720,603 $752,999 Total Expenses 233,588 229,531 710,642 744,149 --------------------------- --------------------------- Income From Continuing Operations, Before Income Taxes 3,821 4,637 9,961 8,850 Income Tax Expense 1,549 1,478 4,165 3,487 --------------------------- --------------------------- Income From Continuing Operations $2,272 $3,159 $5,796 $5,363 =========================== =========================== Earnings Per Common Share: Basic $0.14 $0.19 $0.35 $0.33 Diluted $0.14 $0.19 $0.35 $0.32
NOTE C. NET INCOME PER SHARE Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding, adjusted for the effect of dilutive employee stock options. The following table provides a reconciliation of the number of weighted average basic and diluted shares outstanding:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- -------------------------- 1998 1997 1998 1997 --------------------------- -------------------------- Weighted average common shares outstanding 16,571,502 16,448,225 16,544,517 16,403,129 Potentially dilutive stock options 48,816 229,424 126,173 187,397 --------------------------- -------------------------- Weighted average common and potentially dilutive shares outstanding 16,620,318 16,677,649 16,670,690 16,590,526 =========================== ==========================
Other options to purchase shares were not included in the computation of earnings per diluted common share because the options' exercise prices were greater than the average market price of the outstanding common shares for the period. NOTE D. ADOPTION OF NEW GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), issued by the FASB in June 1997. Comprehensive income is defined therein as all changes in equity during the period except those resulting from shareholder equity contributions and distributions. Comprehensive income from continuing operations totaled $4.1 million and $1.8 million for the three months ended September 30, 1998 and 1997, respectively, and $5.4 million and $2.1 million 8 for the nine months ended September 30, 1998 and 1997. Comprehensive income from discontinued operations totaled $3.0 million and $5.1 million for the three months ended September 30, 1998 and 1997, respectively, and $6.8 million and $13.6 million for the nine months ended September 30, 1998 and 1997. NOTE E. SEGMENTS OF THE BUSINESS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards for the reporting of operating segment information in both annual financial reports and interim financial reports issued to shareholders. Operating segments are components of an entity for which separate financial information is available and is evaluated regularly by the entity's chief operating management. SFAS 131 is effective for fiscal years beginning after December 15, 1997 and is not required to be adopted in interim financial reports during the first year of adoption. AMSG has two reportable segments: 1) health insurance products and 2) life insurance products. AMSG's health insurance products consist of the following coverages related to small group preferred provider organization (PPO) products: fully insured medical, self funded medical, dental and short-term disability. Life products consist primarily of group term-life insurance. The reportable segments are managed separately because they differ in the nature of the products offered and in profit margins. AMSG evaluates segment performance based on profit or loss from operations before income taxes, not including gains and losses on the Company's investment portfolio. The accounting policies of the reportable segments are the same as those used to report AMSG's consolidated financial statements. Intercompany transactions have been eliminated prior to reporting reportable segment information. A reconciliation of segment income before income taxes to consolidated income from continuing operations before income taxes is as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------ 1998 1997 1998 1997 ------------------------------- ------------------------------ (000'S OMITTED) Health $1,391 $2,437 $1,419 $2,976 Life 1,872 2,586 7,359 8,695 All other (418) (1,632) (2,225) (6,473) ------------------------------- ------------------------------ $2,845 $3,391 $6,553 $5,198 =============================== ==============================
9 Operating results and statistics for each of the Company's segments are as follows:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1998 1997 1998 1997 --------------------------- --------------------------- (000'S OMITTED, EXCEPT FINANCIAL STATISTICS) HEALTH SEGMENT OPERATING RESULTS Revenues: Insurance premiums $212,159 $214,489 $650,680 $686,505 Net investment income 2,162 2,385 6,450 8,503 Other revenue 5,663 5,325 12,570 17,633 --------------------------- --------------------------- Total Revenues 219,984 222,199 669,700 712,641 Expenses: Medical and other benefits 160,906 165,654 502,938 533,786 General and administrative 34,187 31,710 95,795 102,912 Commission 23,500 22,398 69,548 72,967 --------------------------- --------------------------- Total Expenses 218,593 219,762 668,281 709,665 --------------------------- --------------------------- Income Before Income Taxes $1,391 $2,437 $1,419 $2,976 ============= ============= ============= ============= FINANCIAL STATISTICS Loss Ratio 75.8% 77.2% 77.3% 77.8% Expense Ratio: General and administrative 13.4% 12.3% 12.8% 12.5% Commission 11.1% 10.4% 10.7% 10.6% --------------------------- --------------------------- Total Expense Ratio 24.5% 22.7% 23.5% 23.1% --------------------------- --------------------------- Combined Ratio 100.3% 99.9% 100.8% 100.9% =========================== =========================== Premiums per Member per Month: Fully insured medical $123 $120 $123 $118 Self funded . 48 45 45 43 Dental 17 13 16 13 Short-term disability 17 15 18 13 Benefits Cost per Member per Month: Fully insured medical $95 $94 $95 $93 Self funded 31 24 29 27 Dental 12 11 13 11 Short-term disability 11 8 11 7 Membership at End of Period: AMS medical 460,062 478,000 AMS self funded 49,092 112,214 Pan Am medical 55,324 - Pan Am self funded 41,812 - HMO 18,166 - --------------------------- Total medical 624,456 590,214 Dental 385,706 477,322
10
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1998 1997 1998 1997 --------------------------- --------------------------- (000'S OMITTED, EXCEPT FINANCIAL STATISTICS) LIFE SEGMENT OPERATING RESULTS Revenues: Insurance premiums $6,328 $6,758 $18,880 $22,811 Net investment income 54 57 168 230 Other revenue 107 59 185 191 --------------------------- --------------------------- Total Revenues 6,489 6,874 19,233 23,232 Expenses: Medical and other benefits 2,597 2,239 5,982 7,561 General and administrative 962 863 2,620 2,883 Commission 1,058 1,186 3,272 4,093 --------------------------- --------------------------- Total Expenses 4,617 4,288 11,874 14,537 --------------------------- --------------------------- Income Before Income Taxes $1,872 $2,586 $7,359 $8,695 =========================== =========================== FINANCIAL STATISTICS Loss ratio 41.0% 33.1% 31.7% 33.1% Expense ratio: General and administrative 13.5% 11.9% 12.9% 11.8% Commission 16.7% 17.5% 17.3% 17.9% --------------------------- --------------------------- Total expense ratio 30.2% 29.4% 30.2% 29.7% --------------------------- --------------------------- Combined ratio 71.2% 62.5% 61.9% 62.8% =========================== =========================== Membership at end of period 261,625 266,514
NOTE F. RECLASSIFICATIONS Certain reclassifications have been made to the consolidated financial statements for 1997 to conform with the 1998 presentation. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AMERICAN MEDICAL SECURITY GROUP, INC. OVERVIEW American Medical Security Group, Inc. formerly known as United Wisconsin Services, Inc. (AMSG or the Company), is a provider of medical and specialty health and life insurance products and administrative services for small groups. The Company offers a wide variety of health care insurance products including medical, dental, prescription drug, disability and life insurance products. The Company's products are actively marketed in 33 states and the District of Columbia. On May 27, 1998, the Board of Directors of UWS approved a formal plan to spin off its managed care companies and specialty managed business to its shareholders. In connection with the spin-off, UWS changed its name to American Medical Security Group, Inc. On September 25, 1998, the distribution date, shareholders of AMSG received one share of common stock of a newly formed company, Newco/UWS, Inc. (Newco), for every share of ASMG owned as of September 11, 1998, the record date. AMSG has received a private letter ruling from the Internal Revenue Service that the distribution is tax-free to AMSG, Newco and AMSG shareholders. As a result of the spin-off, the revenues and expenses, assets and liabilities, and cash flows of the managed care and specialty segments have been classified as discontinued operations in the interim consolidated financial statements. Accordingly, the discussions of continuing operations that follow reflect the operations of the AMSG small group managed care and life products. SUMMARY OF CONTINUING OPERATING RESULTS INSURANCE PREMIUMS Insurance premiums for the three months ended September 30, 1998 increased 0.8% to $224.2 million from $222.4 million for the same period in 1997. The premium increase reflects an increase in the Company's health maintenance organization (HMO) premiums offset by slight declines in the health and life insurance premiums. Average fully insured medical premium per member per month during the three month period ending September 30, 1998 increased 2.5% to $123 compared to $120 during the same period in 1997. Insurance premiums for the nine months ending September 30, 1998 decreased 4.2% to $686.1 million from $716.3 million for the same period in 1997. The decline in premium is the result of a decline in average membership of 10.1% during the nine month period in 1998 compared to 1997. Membership has declined at a faster rate than the decline in premium as a result of a significant reduction in self funded members, which has a lower premium per member than other business. Average fully insured medical premium per month during the nine month period ending September 30, 1998 increased 4.2% to $123 from $118 during the same period in 1997. Medical membership at September 30, 1998 increased 5.8% from June 1998. The increase is the result of a revitalized sales effort along with a favorable environment for health care benefit companies offering PPOs (preferred provider organizations). Medical membership at September 30, 1998 also reflects two acquired blocks of business (one in October 1997 and one in July 1998) from Pan American Life Insurance Company (Pan Am) 12 and HMO membership which is the result of acquiring controlling interest in the Florida HMO effective January 1, 1998. The following table reflects the growth in medical membership during 1998:
September 30, June 30, September 30, 1998 1998 1997 -------------------------- ------------------------- ------------------------- AMS medical 460,062 455,644 478,000 AMS self funded 49,092 58,936 112,214 Pan Am medical 55,324 46,536 - Pan Am self funded 41,812 - - HMO 18,166 16,404 - -------------------------- ------------------------- ------------------------- 624,456 577,520 590,214 ========================== ========================= =========================
NET INVESTMENT INCOME Net investment income includes investment income and realized gains (losses) on investments. Net investment income for the three months ended September 30, 1998 increased 2.0% to $6.2 million from $6.0 million for the three months ended September 30, 1997. Net investment income for the nine months ended September 30, 1998 increased 8.4% to $18.0 million from $16.6 million for the same period one year ago. Average annual investment yields, excluding realized gains and losses, were 6.9% for the three months ended September 30, 1998 and 1997 respectively. Average annual investment yields, excluding realized gains and losses were 6.8% for the nine months ended September 30, 1998 compared to 7.2% for the same period in the prior year. Investment gains and losses are realized in the normal investment process in response to market opportunities. Average invested assets for the three months ended September 30, 1998 increased 3.3% to $307.3 million from $297.4 million for the three months ended September 30, 1997. OTHER REVENUE Other revenue increased to $7.1 million for the three months ended September 30, 1998 from $5.7 million for the same period on 1997. The increase is primarily due to fee revenues associated with the Pan Am business acquired in July 1998 offset by lower self funded fee revenue on smaller self funded membership. Other revenue for the nine month period decreased to $16.6 million in 1998 from $20.1 million in 1997. The decrease is primarily due to lower self funded fee revenue in 1998 offset by additional fees related to Pan Am beginning in the third quarter 1998. LOSS RATIO The health loss ratio for the three months ended September 30, 1998 was 75.8% compared with 77.2% for the three months ended September 30, 1997. The health loss ratio for the nine months ended September 30, 1998 was 77.3% compared with 77.8% for the nine months ended September 30, 1997. The improved loss ratio for the quarter and nine month period reflects management's efforts to remove unprofitable business and add profitable new business. Also, the 1998 health loss ratio reflects an improved dental loss ratio which is the result of the cancellation of the stand-alone dental business effective June 1, 1998. The life loss ratio for the three months ended September 30, 1998 was 41.0% compared to 33.1% for the three months ended September 30, 1997. The life loss ratio for the nine months ended September 30, 1998 was 31.7% compared to 33.1% for the nine months ended September 30, 1997. The higher loss ratio for the three months ended September 30, 1998 reflects a reserve strengthening in the third quarter offsetting favorable second quarter results. The nine month loss ratio is comparable to 1997 and is consistent with ongoing expectations. 13 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO The selling, general and administrative (SGA) expense ratio for health products for the three months ended September 30, 1998 was 24.5% compared with 22.7% for the three months ended September 30, 1997. For the nine months ended the SGA ratio for health products was 23.5% and 23.1% for 1998 and 1997, respectively. The increased health expense ratio for the third quarter and the nine month period in 1998 reflects higher commission costs related to growth in new business and an investment in the Company's distribution network. Also contributing to the increase were expenses related to the Year 2000 initiative, and a one-time investment in re-engineering administrative work flow processes. The SGA expense ratio for life products for the third quarter of 1998 was 30.2% compared with 29.4% for the same period in the prior year. The SGA expense ratio for life products for the nine months ended September 30, 1998 was 30.2% compared to the nine months ended September 30, 1997 of 29.7%. The Company's distribution system consists of a network of sales managers located in offices throughout the United States. The Company's sales managers support approximately 38,000 independent agents. The Company has made continued investments in its distribution channel during 1997 and 1998 to reorganize sales managers, sales offices and products. Management is currently studying its agent distribution system and expects to complete its analysis during the fourth quarter of 1998. Depending on the results of this study, the Company's distribution system intangible asset with a carrying value of $13.9 million at September 30, 1998, may be considered impaired. OTHER EXPENSES Interest expense decreased to $2.0 million for the three months ended September 30, 1998 from $2.3 million for the same period in the prior year. For the nine months ended September 30, 1998, interest expense decreased to $6.7 million from $7.0 million for the nine months ended September 30, 1997. The decrease in interest expense for the quarter and nine month periods reflects the assumption of $70.0 million in debt by Newco on September 11, 1998 as described in Note B to the condensed consolidated financial statements. Amortization of goodwill and other intangibles totaled $2.2 million for the third quarter of 1998, compared with $2.0 million of amortization expense for the third quarter of 1997. On a year to date basis, amortization of goodwill and intangibles increased to $6.6 million from $6.0 million for the nine months ended September 30, 1997. The increase in amortization expense in 1998 is primarily due to recorded intangibles related to the Pan American small group business acquired in October 1997. The effective tax rate was 42.5% for the three months ended September 30, 1998 compared with 30.7% for the three months ended September 30, 1997. The effective tax rate for the nine months ended September 30, 1998 was 45.4% compared with 42.5% for the nine months ended September 30, 1997. The effective tax rate is impacted significantly by the amortization of non-deductible goodwill in relation to pretax income. In addition, in 1997 the Company fully utilized certain state net operating loss carryforwards and, as a result, has incurred higher state income tax expense in 1998. INCOME FROM CONTINUING OPERATIONS Income from continuing operations for the three months ended September 30, 1998 decreased 30.3% to $1.6 million or $.10 per share from $2.3 million or $.14 per share for the three months ended September 30, 1997. The decline in income from continuing operations for the quarter is the result of an increased life loss ratio and a higher SGA expense ratio offset by an improved health loss ratio. Income from continuing operations for the nine months ended September 30, 1998 increased 19.8% to $3.6 million or $.22 per share from $3.0 million or $.18 per share for the nine months ended September 30, 1997. The increase in income from continuing operations for the nine month period is due to an improved loss ratio partially offset by higher expenses. Income from continuing operations, excluding debt service costs assumed by Newco on the $70.0 million debt, was $2.3 14 million or $.14 per share and $5.8 million or $.35 per share for the three and nine months ended September 30, 1998, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of cash flow consist primarily of insurance premiums, administrative fee revenue and investment income. The primary uses of cash include medical and other benefits and operating expense payments. Positive cash flows are invested pending future payments of medical and other benefits and other operating expenses. The Company's investment policies are designed to maximize yield, preserve principal and provide liquidity to meet anticipated payment obligations. Cash flow from operations for the three months ended September 30, 1998 was $4.4 million. The Company generated negative cash flows from operations of $6.0 million for the nine months ended September 30, 1998. Negative cash flows from operations is principally the result of the decline in medical and other benefits payable of $19.4 million for 1998. The decline in medical and other benefits payable results primarily from a reduction in inventory claims pending adjudication and the decline in overall membership. The Company believes cash flow from operations will continue to improve due to a leveling of the claims inventory, growth in membership and lower debt service costs as a result of the assumption of $70.0 million in debt by Newco in September 1998. The Company's investment portfolio from continuing operations consists primarily of investment grade bonds and has limited exposure to equity securities. At September 30, 1998, $286.1 million or 94.2% of the Company's total investment portfolio was invested in bonds. At December 31, 1997, $270.8 million or 99.7% of the Company's total investment portfolio was invested in bonds. The bond portfolio had an average quality rating of Aa3 at both September 30, 1998 and December 31, 1997 as measured by Moody's Investor Service, and the majority of the bond portfolio was classified as available for sale. The market value of the total investment portfolio from continuing operations, which includes stocks and bonds, exceeded amortized cost by $2.8 million and $3.9 million at September 30, 1998 and December 31, 1997, respectively. The Company has no investment in mortgage loans, non-publicly traded securities (except for principal only strips of U.S. Government securities), real estate held for investment or financial derivatives. From time to time, the Company makes capital contributions to its subsidiaries to assist them in maintaining appropriate levels of capital and surplus for regulatory and rating purposes. Insurance subsidiaries are required to maintain certain levels of statutory capital and surplus. As of the balance sheet date presented, statutory capital and surplus for each of these insurance subsidiaries exceeded required levels. On July 31, 1998, in anticipation of the spin-off transactions, the Company refinanced its subordinated notes outstanding in the amount of $44.9 million. The subordinated notes, including accrued interest, were replaced with borrowings of $45.2 million on a bank line of credit with a maximum indebtedness of $70.0 million. The line of credit contains certain covenants which, among other matters, require the Company to maintain a minimum tangible net worth and restrict the Company's ability to incur additional debt, pay future cash dividends and transfer assets. In addition to internally generated funds and periodic borrowings on its bank line of credit, the Company believes that additional financing to facilitate long-term growth could be obtained through equity offerings, debt offerings, or bank borrowings, as market conditions may permit or dictate. The Company does not expect to pay any cash dividends in the foreseeable future and intends to employ its earnings in the continued development of its business. The future dividend policy will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors. 15 YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer equipment and software devices with embedded technology that are time-sensitive may recognize a date using "00" as the Year 1900 rather than the Year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in similar normal business activities. The Company has divided the Year 2000 issues facing the organization into three major sections: 1) software applications developed in-house (In-house Applications); 2) software applications acquired from a third party that have been customized by the Company (Customized Applications); and 3) software applications acquired from a third party that have not been customized by the Company and those products and services provided to the Company by third parties (Third Party Products). In-house Applications represent the primary operating software of the Company and includes premium, claims and commission processing applications. In-house Applications are expected to be Year 2000 compliant by November 1998. The deletion of temporary bridges and workfiles used to facilitate communication between compliant and non-compliant computer codes during the course of the implementation will be completed in March of 1999. All Customized Applications software include electronic data interchange, publishing systems, fax capabilities, accounting packages and other special application software as well as ancillary software packages that serve as links among the various software packages. Each of these software packages are currently being upgraded or replaced. It is anticipated that all Customized Applications will be compliant during the third quarter of 1999. With respect to Third Party Products, the Company has reviewed its business processes that may have Year 2000 concerns performed by, with, or through external business associates. This includes computer hardware, telephone systems, security system and other numerous products as well as third party software applications that have not been customized by the Company. The Company has evaluated various third parties that provide products or services, such as printing companies, power and utility companies and other vendors. Where appropriate, agreements with third party vendors have been amended and Year 2000 compliance certifications have been obtained. Significant business partners and vendors will be required to provide the Company with Year 2000 certified products or services. Such products and services are being tested by the Company to validate the compliance certification. This portion of the plan is 65% complete, is on schedule, and is planned for completion during the second quarter of 1999.
YEAR 2000 PLAN PERCENT COMPLETE COMPLETION DATE In-house Applications 72% March 1999 Customized Applications 42% September 1999 Third Party Products 65% June 1999
The total cost associated with required modifications to become Year 2000 compliant is not expected to be material to the Company's financial position. The estimated total cost of the Year 2000 project is approximately $6.2 million, of which $3.1 million are costs from outside consultants and $3.1 million are costs related to modifying and/or replacing existing systems. The total amount expended on the project through September 30, 1998, was $2.6 million. Costs associated with the Year 2000 plan will be funded from operating cash flows. The Company is developing a comprehensive analysis of the operational problems and costs (including loss of revenues) that could result from the unlikely failure by the Company and certain third parties to complete 16 efforts necessary to achieve Year 2000 compliance on a timely basis. The majority of the contingency plans have been developed and documented for dealing with the worst case scenarios with the highest chance of occurring. The Company currently plans to complete such analysis and contingency planning during the second quarter of 1999. The costs of the project and the date on which the Company plans to complete the necessary Year 2000 modifications are based on management's best estimates, which were derived using numerous assumptions of future events including the continued availability of certain resources, third party remediation plans and other factors. There can be no guarantee that these timelines or estimates will be achieved. Actual results could differ materially from those planned. Specific factors that might cause such material differences to occur include, but are not limited to, the availability and cost of personnel trained in this area; the ability to locate and correct all relevant computer codes; and the ability of the Company's significant suppliers, customers and others with which it conducts business, including federal, state and local governmental agencies, to identify and resolve their own Year 2000 issues and similar uncertainties. Due to these uncertainties, the Company may face certain claims, the impact of which is not currently estimable. No assurance can be given that the cost of defending and resolving such claims, if any, will not significantly affect the Company's results of operations. Although the Company has some agreements with third party vendors and suppliers that contain indemnification provisions that protect the Company under certain circumstances relating to Year 2000 issues, there can be no assurances that such indemnification provisions will cover all of the Company's liabilities and costs related to Year 2000 claims by third parties. FORWARD LOOKING STATEMENTS Statements contained in this report which are not historical facts are forward-looking statements subject to inherent risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such forward-looking statements. The terms "anticipate", "believe", "estimate", "expert", "objective", "plan", "project" and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that may cause actual results or events to differ materially from those contemplated by such forward looking statements, include, among others, product and policy demand and market responses, the effect of economic conditions, the impact of competitive products, policies and pricing, product and policy development, development of claims reserves, rising health care costs, changes in regulatory conditions, rating agency policies and practices, investment portfolio developments and changes in market conditions, the actual closing of contemplated transactions and agreements and other factors that may be referred to in the Company's reports filed with the Securities and Exchange Commission from time to time. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable to the Company at this time. 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At a special meeting of shareholders of the Company held on July 24, 1998, shareholders approved (i) the amendment of the Company's Restated and Amended Articles of Incorporation to change the name of the Company from United Wisconsin Services, Inc. to American Medical Security Group, Inc., and (ii) the amendment of the Company's 1995 Director Stock Option Plan to increase the number of shares that may be granted to individual participants. The voting results for the proposals were as follows: Amendment of Restated and Amended Articles of Incorporation: For 15,721,901 Shares Against 6,906 Shares Abstained 10,041 Shares Broker Non-votes 26,083 Shares Amendment of 1995 Director Stock Option Plan: For 13,717,286 Shares Against 2,036,395 Shares Abstained 11,250 Shares Broker Non-votes 0 Shares ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS See the Exhibit Index following the Signature page of this report, which is incorporated herein by reference. (b) REPORTS ON FORM 8-K A Form 8-K Current Report dated September 25, 1998, was filed by the Company on September 30, 1998, to report (under Item 2) the distribution of shares of common stock of Newco to shareholders of the Company (the Distribution) and to include (under Item 7) unaudited pro forma consolidated financial statements of the Company reflecting the Distribution. The Form 8-K also included a description of the business of the Company, the Company's business strategy and the Company's dividend policy, in each instance, following the 18 Distribution. In addition, the Form 8-K identifie the executive officers and directors of the Company following the Distribution. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: November 12, 1998 AMERICAN MEDICAL SECURITY GROUP, INC. /s/ Gary D. Guengerich --------------------------------------------------------- Gary D. Guengerich Executive Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer and duly authorized to sign on behalf of the Registrant) 20 AMERICAN MEDICAL SECURITY GROUP, INC. ("AMSG") (COMMISSION FILE NO. 1-13154) EXHIBIT INDEX TO FORM 10-Q QUARTERLY REPORT for quarter ended September 30, 1998
INCORPORATED HEREIN FILED EXHIBIT NO. DESCRIPTION BY REFERENCE TO HEREWITH 2.1 Distribution and Indemnity Agreement Exhibit 2.1 to Newco/UWS, Inc.'s between United Wisconsin Services, Registration Statement on Form 10, Inc. and Newco/UWS, Inc., dated as as amended (the "Registration of September 11, 1998 Statement") (File No. 1-14177) 2.2 Employee Benefits Agreement, dated Exhibit 10.1 to the Registration as of September 11, 1998, by and Statement between United Wisconsin Services, Inc. and Newco/UWS, Inc. 2.3 Tax Allocation Agreement, entered Exhibit 10.2 to the Registration into as of September 11, 1998, by Statement and between United Wisconsin Services, Inc. and Newco/UWS, Inc. 3.1 Restated and Amended Articles of Exhibit 3.1 to AMSG's Current Incorporation of American Medical Report on Form 8-K dated September Security Group, Inc. (f/k/a United 25, 1998 Wisconsin Services, Inc.), as (the "9/25/98 8-K") amended through September 28, 1998 3.2 Bylaws of American Medical Security Exhibit 3.2 to the 9/25/98 8-K Group, Inc. (f/k/a United Wisconsin Services, Inc.), as amended and restated through September 25, 1998 4 Amended and Restated Credit X Agreement dated as of October 15, 1998 among AMSG, United Wisconsin Life Insurance Company and the First National Bank of Chicago and other Lenders 10.1 Equity Incentive Plan as amended and X restated September 25, 1998 10.2 1995 Director Stock Option Plan as X amended and restated September 25, 1998. 10.3 Deferred Compensation Plan for X Directors as amended and restated September 25, 1998 10.4 Change of Control Severance Benefit X Plan 27.1 Financial Data Schedule X 27.2 Restated Financial Data Schedule X (nine months ended 9/30/97)
EX-4 2 EXHIBIT 4 $70,000,000 AMENDED AND RESTATED CREDIT AGREEMENT AMONG AMERICAN MEDICAL SECURITY GROUP, INC. and UNITED WISCONSIN LIFE INSURANCE COMPANY, as Borrowers, THE LENDERS NAMED HEREIN and THE FIRST NATIONAL BANK OF CHICAGO, as Agent and Swing Line Lender DATED AS OF October 15, 1998 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS ..................................................................1 ARTICLE II THE CREDITS.................................................................. 17 2.1. Commitment................................................. 17 2.2. Required Payments; Termination............................. 17 2.3. Ratable Loans.............................................. 17 2.4. Types of Advances.......................................... 17 2.5. Facility Fee; Reductions in Aggregate Commitment........... 17 2.6. Minimum Amount of Each Advance............................. 18 2.7. Optional Principal Payments................................ 18 2.8. Mandatory Commitment Reductions............................ 18 2.9. Method of Selecting Types and Interest Periods for New Advances................................................... 19 2.10. Conversion and Continuation of Outstanding Advances........ 19 2.11. The Swing Line Loans....................................... 20 2.12. Procedure for Swing Line Loans............................. 20 2.13. Changes in Interest Rate, etc.............................. 22 2.14. Rates Applicable After Default............................. 22 2.15. Method of Payment.......................................... 23 2.16. Noteless Agreement; Evidence of Indebtedness............... 23 2.17. Telephonic Notices......................................... 24 2.18. Interest Payment Dates; Interest and Fee Basis............. 24 2.19. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions...................................... 24 2.20. Lending Installations...................................... 24 2.21. Non-Receipt of Funds by the Agent.......................... 25 ARTICLE III YIELD PROTECTION; TAXES...................................................... 25 3.1. Yield Protection........................................... 25 3.2. Changes in Capital Adequacy Regulations.................... 26 3.3. Availability of Types of Advances.......................... 26 3.4. Funding Indemnification.................................... 27 3.5. Taxes...................................................... 27 3.6. Lender Statements; Survival of Indemnity................... 28 3.7. Substitution of Lender..................................... 29 ARTICLE IV CONDITIONS PRECEDENT......................................................... 29 4.1. Initial Advance............................................ 29 4.2. Each Advance and Swing Line Loan........................... 31 ARTICLE V REPRESENTATIONS AND WARRANTIES............................................... 32 5.1. Existence and Standing..................................... 32 5.2. Authorization and Validity................................. 32 5.3. No Conflict; Government Consent............................ 32 5.4. Financial Statements....................................... 33 5.5. Material Adverse Change.................................... 33 5.6. Taxes...................................................... 33 5.7. Litigation and Contingent Obligations...................... 34 5.8. Subsidiaries............................................... 34 5.9. ERISA...................................................... 34 5.10. Accuracy of Information.................................... 34 5.11. Federal Reserve Regulations................................ 34 5.12. Material Agreements........................................ 35 5.13. Compliance With Laws....................................... 35 5.14. Ownership of Properties.................................... 35 5.15. Plan Assets; Prohibited Transactions....................... 35 5.16. Environmental Matters...................................... 35 5.17. Investment Company Act..................................... 36 5.18. Public Utility Holding Company Act......................... 36 5.19. Insurance.................................................. 36 5.20. Solvency................................................... 36 5.21. Year 2000.................................................. 36 5.22. Insurance Licenses......................................... 36 5.23. Reinsurance................................................ 37 5.24. Reserves................................................... 37 5.25. UWLIC Capital and Surplus.................................. 37 5.26. Defaults................................................... 37 5.27. Certain Fees............................................... 37 5.28. Indebtedness............................................... 38 5.29. Employee Controversies..................................... 38 5.30. Dividends.................................................. 38 ARTICLE VI COVENANTS.................................................................... 38 6.1. Financial Reporting........................................ 38 6.2. Use of Proceeds............................................ 41 6.3. Notice of Default.......................................... 41 6.4. Conduct of Business........................................ 42 6.5. Taxes...................................................... 42 6.6. Insurance.................................................. 42 6.7. Compliance with Laws....................................... 42 6.8. Maintenance of Properties.................................. 43 6.9. Inspection................................................. 43 6.10. Dividends.................................................. 43 6.11. Indebtedness............................................... 43 6.12. Merger..................................................... 44 6.13. Sale of Assets............................................. 45 6.14. Investments and Acquisitions............................... 45 6.15. Liens...................................................... 47 6.16. Affiliates................................................. 48 6.17. Other Indebtedness......................................... 48 6.18. Contingent Obligations..................................... 49 6.19. Financial Covenants........................................ 49 6.19.1. Interest Coverage Ratio............................49 6.19.2. Leverage Ratio.....................................49 6.19.3. Tangible Net Worth................................ 49 6.19.4. Risk-Based Capital................................ 49 6.20. Year 2000.................................................. 50 6.21. Reinsurance................................................ 50 6.22. Tax Consolidation.......................................... 50 6.23. ERISA Compliance........................................... 50 6.24. Environmental Matters...................................... 51 6.25. Change in Corporate Structure; Fiscal Year................. 51 6.26. Inconsistent Agreements.................................... 51 6.27. Capital Expenditures....................................... 52 ARTICLE VII DEFAULTS..................................................................... 52 ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES............................... 55 8.1. Acceleration............................................... 55 8.2. Amendments................................................. 55 8.3. Preservation of Rights..................................... 56 ARTICLE IX GENERAL PROVISIONS........................................................... 56 9.1. Survival of Representations................................ 56 9.2. Governmental Regulation.................................... 56 9.3. Headings................................................... 56 9.4. Entire Agreement........................................... 57 9.5. Several Obligations; Benefits of this Agreement............ 57 9.6. Expenses; Indemnification.................................. 57 9.7. Numbers of Documents....................................... 58 9.8. Accounting................................................. 58 9.9. Severability of Provisions................................. 58 9.10. Nonliability of Lenders.................................... 58 9.11. Confidentiality............................................ 58 9.12. Nonreliance................................................ 59 9.13. Disclosure................................................. 59 ARTICLE X THE AGENT.................................................................... 59 10.1. Appointment; Nature of Relationship........................ 59 10.2. Powers..................................................... 60 10.3. General Immunity........................................... 60 10.4. No Responsibility for Loans, Recitals, etc................. 60 10.5. Action on Instructions of Lenders.......................... 60 10.6. Employment of Agents and Counsel........................... 60 10.7. Reliance on Documents; Counsel............................. 61 10.8. Agent's Reimbursement and Indemnification.................. 61 10.9. Notice of Default.......................................... 61 10.10. Rights as a Lender......................................... 61 10.11. Lender Credit Decision..................................... 62 10.12. Successor Agent............................................ 62 10.13. Agent's Fee................................................ 63 10.14. Delegation to Affiliates................................... 63 ARTICLE XI SETOFF; RATABLE PAYMENTS......................................................63 11.1. Setoff..................................................... 63 11.2. Ratable Payments........................................... 63 ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS............................ 64 12.1. Successors and Assigns..................................... 64 12.2. Participations............................................. 64 12.2.1. Permitted Participants; Effect.................... 64 12.2.2. Voting Rights..................................... 65 12.2.3. Benefit of Setoff................................. 65 12.3. Assignments................................................ 65 12.3.1. Permitted Assignments............................. 65 12.3.2. Effect; Effective Date............................ 65 12.4. Dissemination of Information............................... 66 12.5. Tax Treatment.............................................. 66 ARTICLE XIII NOTICES...................................................................... 67 13.1. Notices.................................................... 67 13.2. Change of Address.......................................... 67 ARTICLE XIV COUNTERPARTS................................................................. 67 ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL................. 68 15.1. CHOICE OF LAW.............................................. 68 15.2. CONSENT TO JURISDICTION.................................... 68 15.3. WAIVER OF JURY TRIAL....................................... 68 ARTICLE XVI GUARANTY OF GROUP............................................................ 69 EXHIBITS Exhibit A .........-........Compliance Certificate Exhibit B .........-........Assignment Agreement Exhibit C .........-........Revolving Note Exhibit D .........-........Swing Line Note SCHEDULES Schedule 5.3 .........-........Consents Schedule 5.8 .........-........Subsidiaries Schedule 5.22 .........-........Insurance Licenses Schedule 5.23 .........-........Reinsurance Schedule 5.24 .........-........Reserves Schedule 5.28 .........-........Indebtedness Schedule 6.15 .........-........Liens Schedule 6.18 .........-........Contingent Obligations AMENDED AND RESTATED CREDIT AGREEMENT This Amended and Restated Credit Agreement, dated as of October 15, 1998, is among American Medical Security Group, Inc., a Wisconsin corporation, United Wisconsin Life Insurance Company, a Wisconsin insurance company, the Lenders and The First National Bank of Chicago, as Agent and as Swing Line Lender. R E C I T A L S: A. On July 31, 1998, Holdings and UWLIC entered into a Credit Agreement with the Agent and the lenders (as amended through the date hereof, the "Prior Credit Agreement"), pursuant to which the Lenders agreed to make revolving loans to Holdings and the Swing Line Lender agreed to make Swing Line Loans to UWLIC and Holdings. B. At Holdings' request, Holdings' rights and obligations under the Prior Credit Agreement were assigned to and assumed by Group pursuant to that certain Assignment and Assumption and Amendment Agreement dated as of September 24, 1998 among Holdings, Group, UWLIC, the Agent and the Lenders. C. Group, UWLIC, the Agent and the Lenders wish to amend and restate the Prior Credit Agreement in its entirety as set forth below. ARTICLE I DEFINITIONS As used in this Agreement: "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which Group or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "Advance" means a borrowing hereunder (or conversion or continuation thereof) consisting of the aggregate amount of the several Revolving Loans made on the same Borrowing Date (or date of conversion or continuation) by the Lenders to Group of the same Type and, in the case of Eurodollar Advances, for the same Interest Period. The making of a Swing Line Loan shall not constitute an Advance. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Affected Lender" is defined in SECTION 3.7. "Agent" means The First National Bank of Chicago in its capacity as contractual representative of the Lenders pursuant to ARTICLE X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to ARTICLE X. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with those used in preparing the financial statements referred to in SECTION 5.4(A) and (B). "Annual Statement" means the annual statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary's jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements permitted by such insurance commissioner (or such similar authority) to be used for filing annual statutory financial statements and shall contain the type of information permitted by such insurance commissioner (or such similar authority) to be disclosed therein, together with all exhibits or schedules filed therewith "Applicable Fee Rate" means, at any time, the percentage rate per annum at which facility fees are accruing on the Aggregate Commitment (without regard to usage) at such time as set forth in the Pricing Schedule. "Applicable Margin" means, with respect to Eurodollar Advances at any time, the percentage rate per annum which is applicable at such time with respect to Eurodollar Advances as set forth in the Pricing Schedule. "Arranger" means First Chicago Capital Markets, Inc., a Delaware corporation, and its successors. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of the President, any Executive Vice President or the chief financial officer of the applicable Borrower, acting singly. "Borrowers" means, collectively, Group and UWLIC, and their successors and assigns and "Borrower" means either Group or UWLIC. "Borrowing Date" means a date on which an Advance or a Swing Line Loan is made hereunder. "Borrowing Notice" is defined in SECTION 2.9. "Business Day" means (a) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (b) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Capital Expenditures" means, without duplication, any expenditures for any purchase or other acquisition for value of any asset that is classified on a consolidated balance sheet of Holdings and its Subsidiaries prepared in accordance with Agreement Accounting Principles as a fixed or capital asset excluding (a) the cost of assets acquired under Capitalized Lease Obligations, (b) expenditures of insurance proceeds to rebuild or replace any asset after a casualty loss, and (c) leasehold improvement expenditures for which Group or a Subsidiary is reimbursed promptly by the lessor. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Cash Equivalent Investments" means (a) short-term obligations of, or fully guaranteed by, the United States of America, (b) commercial paper rated A-1 or better by S&P or P-1 or better by Moody's, (c) demand deposit accounts maintained in the ordinary course of business, and (d) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000; PROVIDED, in each case that the same provides for payment of both principal and interest (and not principal alone or interest alone) and is not subject to any contingency regarding the payment of principal or interest. "Change in Control" means (a) Blue Cross and Blue Shield United of Wisconsin shall cease to own beneficially and of record shares representing at least 10% of the voting power of the issued and outstanding shares of capital stock of Group, free and clear of all Liens and other encumbrances, (b) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) or voting control, directly or indirectly, of 25% or more of the outstanding shares of voting stock of Group; (c) Group shall cease to own, free and clear of all Liens or other encumbrances, 100% of the outstanding shares of voting stock of Holdings on a fully diluted basis (other than pursuant to a merger of Holdings with and into Group in accordance with SECTION 6.12; (d) Holdings shall cease to own, free and clear of all Liens or other encumbrances, 100% of the outstanding shares of voting stock of UWLIC on a fully diluted basis; or (e) during any period of 25 consecutive calendar months, commencing on the date of this Agreement, the ceasing of those individuals (the "Continuing Directors") who (i) were directors of Group on the first day of each such period or (ii) subsequently became directors of Group and whose initial election or initial nomination for election subsequent to that date was approved by a majority of the Continuing Directors then on the board of directors of Group to constitute a majority of the board of directors of Group. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Commitment" means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth opposite its signature below or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to SECTION 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Consolidated Indebtedness" means at any time the Indebtedness of Group and its Subsidiaries calculated on a consolidated basis as of such time. "Consolidated Interest Expense" means, with reference to any period, the interest expense of Group and its Subsidiaries calculated on a consolidated basis for such period. "Consolidated Net Income" means, with reference to any period, the net income (or loss) of Group and its Subsidiaries calculated on a consolidated basis for such period. "Consolidated Net Worth" means at any time the consolidated stockholders' equity of Group and its Subsidiaries calculated on a consolidated basis as of such time, determined without giving effect to Statement of Financial Accounting Standards No. 115. "Consolidated Person" means, for the taxable year of reference, each Person which is a member of the affiliated group of Group if consolidated returns are or shall be filed for such affiliated group for federal income tax purposes or any combined or unitary group of which Group, Holdings or UWLIC is a member for state income tax purposes. "Consolidated Tangible Net Worth" means at any time (a) Consolidated Net Worth, less (b) the amount (to the extent reflected in determining Consolidated Net Worth) of all write ups, unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible items. "Consolidated Total Capitalization" means at any time the sum of Consolidated Indebtedness and Consolidated Net Worth, each calculated at such time. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, but excluding Contingent Obligations in respect of insurance policies issued in the ordinary course of business. "Conversion/Continuation Notice" is defined in SECTION 2.10. "Controlled Group" means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with Group or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Default" means an event described in ARTICLE VII. "Distribution" means the consummation of the transactions described in the section of the Information Statement entitled "The Distribution", substantially in the form included in the Form 10 Registration Statement filed by Newco/UWS, Inc. with the Securities and Exchange Commission on May 29, 1998, as amended on August 13, 1998 and September 9, 1998. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (a) the protection of the environment, (b) the effect of the environment on human health, (c) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (d) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which bears interest at the applicable Eurodollar Rate. "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the rate determined by the Agent to be the rate at which First Chicago offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of First Chicago's relevant Eurodollar Loan and having a maturity approximately equal to such Interest Period. "Eurodollar Loan" means a Loan which bears interest at the applicable Eurodollar Rate. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (a) the quotient of (i) the Eurodollar Base Rate applicable to such Interest Period, divided by (ii) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (b) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Excluded Taxes" means, in the case of each Lender or applicable Lending Installation and the Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (a) the jurisdiction under the laws of which such Lender or the Agent is incorporated or organized or (b) the jurisdiction in which the Agent's or such Lender's principal executive office or such Lender's applicable Lending Installation is located. "Exhibit" refers to an exhibit to this Agreement, unless another document is specifically referenced. "Existing Reinsurance Agreements" is defined in SECTION 5.23. "Facility Termination Date" means July 31, 2003. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "Financial Contract" of a Person means (a) any exchange-traded or over-the-counter futures, forward, swap or option contract or other financial instrument with similar characteristics, or (b) any agreements, devices or arrangements providing for payments related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Fiscal Quarter" means one of the four three-month accounting periods comprising a Fiscal Year. "Fiscal Year" means the twelve-month accounting period ending December 31 of each year. "Floating Rate" means, for any day, a rate of interest per annum equal to the higher of (a) the Corporate Base Rate for such day and (b) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Floating Rate Advance" means an Advance which bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which bears interest at the Floating Rate, including without limitation each Swing Line Loan. "Governmental Authority" means any government (foreign or domestic) or any state or other political subdivision thereof or any governmental body, agency, authority, department or commission (including without limitation any board of insurance, insurance department or insurance commission and any taxing authority or political subdivision) or any instrumentality or officer thereof (including without limitation any court or tribunal) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation, partnership or other entity directly or indirectly owned or controlled by or subject to the control of any of the foregoing. "Group" means American Medical Security Group, Inc., a Wisconsin corporation (formerly known as United Wisconsin Services, Inc.) "Guaranteed Obligations" is defined in SECTION 16.1. "Guaranty" means that certain Guaranty dated as of the date hereof by Holdings in favor of the Agent and the Lenders, as amended, supplemented or modified from time to time. "Holdings" means American Medical Security Holdings, Inc., a Wisconsin corporation. "Indebtedness" of a Person means such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances, or other instruments, (e) obligations of such Person to purchase securities or other property arising out of or in connection with the sale of the same or substantially similar securities or property, (f) Capitalized Lease Obligations, (g) Contingent Obligations, (h) obligations for which such Person is obligated pursuant to or in respect of a Letter of Credit, (i) Off-Balance Sheet Liabilities, (j) obligations for which such person is obligated pursuant to or in respect of a Sale and Leaseback Transaction, (k) Net Mark-to-Market Exposure of Rate Hedging Agreements and other Financial Contracts, and (l) other obligations for borrowed money or other financial accommodations which, in accordance with Agreement Accounting Principles or SAP, as applicable, would be shown as a liability on the consolidated balance sheet of such Person. "Information Statement" means that certain Information Statement distributed to the shareholders of Group in connection with the Distribution. "Initial Closing Date" means July 31, 1998. "Insurance Subsidiary" means any Subsidiary which is engaged in the insurance business. "Interest Coverage Ratio" means, as of any date of determination, the ratio of (a) the lesser of (i) 10% of UWLIC's Statutory Surplus as of such date and (ii) UWLIC's aggregate Statutory Net Income for the period of four Fiscal Quarters ending on such date, without regard to realized capital gains in such period (determined on a pre-tax basis) and determined without double counting, to (b) Consolidated Interest Expense for the period of four Fiscal Quarters ending on such date; PROVIDED, that for determinations made through June 30, 1999, the amount determined pursuant to clause (b) above shall be equal to the Consolidated Interest Expense for the period beginning on August 1, 1998 and ending on the date of determination, divided by the number of months in such period and multiplied by 12. "Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by Group pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter; PROVIDED, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month; PROVIDED, further, that during the period specified in the proviso in SECTION 2.9, each Interest Period shall be limited to a period of seven days. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day; PROVIDED, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Investment" of a Person means (a) any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person; (b) any stocks, bonds, mutual funds, partnership interests, notes, debentures or other securities owned by such Person; (c) any deposit accounts and certificates of deposit owned by such Person; and (d) any structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person. "Lenders" means the lending institutions listed on the signature pages of this Agreement (including the Swing Line Lender) and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Agent, the office, branch, subsidiary or affiliate of such Lender or the Agent listed on the signature pages hereof or on a Schedule or otherwise selected by such Lender or the Agent pursuant to SECTION 2.20. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Leverage Ratio" means, as of any date of calculation, the ratio of (a) Consolidated Indebtedness outstanding on such date to (b) the sum of (i) Consolidated Indebtedness outstanding on such date and (ii) Consolidated Net Worth outstanding on such date. "License" means any license, certificate of authority, permit or other authorization which is required to be obtained from any Governmental Authority in connection with the operation, ownership or transaction of insurance business. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's loan made pursuant to ARTICLE II (or any conversion or continuation thereof) in the form of a Revolving Loan or a Swing Line Loan. "Loan Documents" means this Agreement, any Notes issued pursuant to SECTION 2.11 or 2.16, the Guaranty and the other documents and agreements contemplated hereby and executed by either Borrower or Holdings in favor of the Agent or any Lender. "Material Adverse Effect" means a material adverse effect on (a) the business, Property, condition (financial or otherwise), operations, performance or prospects of Group and its Subsidiaries taken as a whole, (b) the ability of either Borrower or Holdings to perform its obligations under the Loan Documents to which it is a party, or (c) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder. "Material Indebtedness" is defined in SECTION 7.5. "Material Insurance Subsidiary" means an Insurance Subsidiary with a Statutory Capital and Surplus of greater than $5,000,000. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which either Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "NAIC" means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissioners and similar Governmental Authorities of the various states of the United States toward the promotion of uniformity in the practices of such Governmental Authorities. "Net Available Proceeds" means with respect to any sale or issuance of any equity securities of Group or any of Group's Subsidiaries, cash or readily marketable cash equivalents received therefrom, whether at the time of such disposition or subsequent thereto, net, in either case, of all legal, title and recording tax expenses, all other taxes (including income taxes), commissions and other fees and all costs and expenses incurred. "Net Mark-to-Market Exposure" of a Person means, as of any date of determination, the excess (if any) of all unrealized losses over all unrealized profits of such Person arising from Rate Hedging Agreements and other Financial Contracts. "Unrealized losses" means the fair market value of the cost to such Person of replacing such Rate Hedging Agreement or Financial Contract as of the date of determination (assuming the Rate Hedging Agreement or Financial Contract were to be terminated as of that date), and "unrealized profits" means the fair market value of the gain to such Person of replacing such Rate Hedging Agreement or Financial Contract as of the date of determination (assuming such Rate Hedging Agreement or Financial Contract were to be terminated as of that date). "Non-U.S. Lender" is defined in SECTION 3.5(D). "Notes" means, collectively any Revolving Notes and Swing Line Notes then issued at the request of the applicable Lender. "Notice of Assignment" is defined in SECTION 12.3.2. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrowers to the Lenders or to any Lender, the Agent or any indemnified party arising under the Loan Documents and any Rate Hedging Obligations or foreign exchange contracts of the Borrowers owing to the Agent or any Lender. "Off-Balance Sheet Liability" of a Person means (a) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (b) any liability under any Sale and Leaseback Transaction which does not create a liability on the balance sheet of such Person, (c) any liability under any financing lease or so-called "synthetic lease" transaction entered into by such Person, or (d) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person, but excluding Operating Leases. "Other Taxes" is defined in SECTION 3.5(B). "Participants" is defined in SECTION 12.2.1. "Payment Date" means the last day of each March, June, September and December. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which either Borrower or any member of the Controlled Group may have any liability. "Pricing Schedule" means the Schedule attached hereto identified as such. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Pro Rata Share" means, as to any Lender, (a) at any time at which the Aggregate Commitment remains outstanding, the percentage equivalent (expressed as a decimal rounded to the ninth decimal place) at such time of such Lender's Commitment divided by the Aggregate Commitment, and (b) after the termination of the Aggregate Commitment, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of the principal amount of such Lender's outstanding Loans (other than Swing Line Loans) divided by the aggregate principal amount of the outstanding Loans (other than Swing Line Loans) of all of the Lenders. "Purchasers" is defined in SECTION 12.3.1. "Quarterly Statement" means the quarterly statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements permitted by such insurance commissioner (or such similar authority) to be used for filing quarterly statutory financial statements and shall contain the type of financial information permitted by such insurance commissioner (or such similar authority) to be disclosed therein, together with all exhibits or schedules filed therewith. "Rate Hedging Agreement" means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Rate Hedging Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor or other regulation or official interpretation of such Board of Governors relating to the extension of credit by securities brokers and dealers for the purpose of purchasing or carrying margin stocks applicable to such Persons. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by the specified lenders for the purpose of purchasing or carrying margin stocks applicable to such Persons. "Replacement Lender" is defined in SECTION 3.7. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event; PROVIDED, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Reports" is defined in SECTION 9.6. "Required Lenders" means Lenders in the aggregate having at least 66-2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 66-2/3% of the aggregate unpaid principal amount of the outstanding Revolving Loans and Swing Line Loans (less the amount of any Swing Line Loans as to which participating interests have been purchased by the Lenders pursuant to SECTION 2.12(D)). "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Revolving Note" means any promissory note issued at the request of a Lender pursuant to SECTION 2.16 in the form of EXHIBIT C. "Revolving Loan" is defined in SECTION 2.1. "Risk Based Capital Act" means the Risk-Based Capital (RBC) for Life and/or Health Insurers Model Act as in effect as the date of this Agreement. "S&P" means Standard and Poor's Ratings Service, a division of The McGraw Hill Companies, Inc. "Sale and Leaseback Transaction" means any sale or other transfer of Property by any Person with the intent to lease such Property as lessee. "SAP" means, with respect to any Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the insurance commissioner (or other similar authority) in the jurisdiction of such Person for the preparation of annual statements and other financial reports by insurance companies of the same type as such Person in effect from time to time, applied in a manner consistent with those used in preparing the financial statements referred to in SECTION 5.4(C) and (D). "Schedule" refers to a specific schedule to this Agreement, unless another document is specifically referenced. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Single Employer Plan" means a Plan maintained by either Borrower or any member of the Controlled Group for employees of such Borrower or any member of the Controlled Group. "Statutory Capital and Surplus" means, with respect to any Insurance Subsidiary at any time, the capital and surplus of such Insurance Subsidiary at such time, as determined in accordance with SAP ("Liabilities, Surplus and Other Funds" statement, Page 3, Column 1, Line 38 of the Annual Statement). "Statutory Net Income" means, with respect to any Insurance Subsidiary for any computation period, the net income earned by such Insurance Subsidiary during such period, as determined in accordance with SAP ("Summary of Operations" statement, Page 4, Column 1, Line 33 of the Annual Statement). "Statutory Surplus" means, with respect to any Insurance Subsidiary at any time, the surplus as regards policyholders of such Insurance Subsidiary at such time, as determined in accordance with SAP ("Liabilities, Surplus and Other Funds" statement, Page 3, Column 1, Line 37 of the Annual Statement). "Subsidiary" of a Person means (a) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (b) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of Group. "Substantial Portion" means, with respect to the Property of any Person, Property which (a) represents more than 10% of the consolidated assets of such Person as would be shown in the consolidated financial statements of such Person as at the end of the Fiscal Quarter next preceding the date on which such determination is made, or (b) is responsible for more than 10% of the consolidated net revenues or of the consolidated net income of such Person as reflected in the financial statements referred to in clause (a) above. "Swing Line Commitment" means, at any time, the commitment of the Swing Line Lenders to make Swing Line Loans pursuant to SECTION 2.11. "Swing Line Lender" means First Chicago, in its capacity as provider of the Swing Line Loans. "Swing Line Loan" means a Loan made by the Swing Line Lender. "Swing Line Note" means a promissory note in substantially the form of EXHIBIT D. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "Transferee" is defined in SECTION 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "UWLIC" means United Wisconsin Life Insurance Company, a Wisconsin life insurance company. "UWS" means United Wisconsin Services, Inc., a Wisconsin corporation. "UWS Group" means, collectively, UWS and its Subsidiaries. "Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (b) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. "Year 2000 Issues" means anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data, including dates on and after January 1, 2000, as such inability affects the business, operations and financial condition of Group and its Subsidiaries and of Group's and its Subsidiaries' material customers, suppliers and vendors. "Year 2000 Program" is defined in SECTION 5.21. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. References herein to particular columns, lines or sections of any Person's Annual Statement shall be deemed, where appropriate, to be references to the corresponding column, line or section of such Person's Quarterly Statement, or if no such corresponding column, line or section exists or if any report form changes, then to the corresponding item referenced thereby. References herein to the Risk Based Capital Act shall be deemed to be references to such act as in effect on the date of this Agreement; PROVIDED, that the Agent, the Lenders and the Borrowers agree to make mutually acceptable modifications to SECTION 6.19.4 hereof following the request by any thereof upon any modification to such act so as to equitably reflect such modifications in order that the criteria for evaluating the Insurance Subsidiaries will be the same after such modifications as if such modifications had not occurred. Each accounting term used herein which is not otherwise defined herein shall be defined in accordance with Agreement Accounting Principles unless otherwise specified. In the event that any changes in Agreement Accounting Principles and/or SAP occur after the date of this Agreement and such changes result in a material variation in the method of calculation of financial covenants or other terms of this Agreement, then the Borrowers, the Agent and the Lenders agree to amend such provisions of this Agreement so as to equitably reflect such changes in order that the criteria for evaluating the Borrowers' financial condition will be the same after such changes as if such changes had not occurred. ARTICLE II THE CREDITS 2.1. COMMITMENT. (a) From and including the date of this Agreement and prior to the Facility Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans (each such Loan, a "REVOLVING LOAN") to Group from time to time in amounts which, together with such Lender's Pro Rata Share of any outstanding Swing Line Loans, shall not exceed in the aggregate at any one time outstanding the amount of its Commitment. UWLIC may not borrow Revolving Loans, but may only borrow Swing Line Loans pursuant to SECTION 2.11. Subject to the terms of this Agreement, Group may borrow, repay and reborrow Revolving Loans and Swing Line Loans at any time prior to the Facility Termination Date. The Commitments to lend hereunder shall expire on the Facility Termination Date. (b) Each Borrower hereby agrees that if at any time, as a result in reductions in the Aggregate Commitment pursuant to SECTION 2.8 or otherwise, the outstanding principal amount of the Loans exceeds the Aggregate Commitment, such Borrower shall repay immediately its then outstanding Loans in such amount as may be necessary to eliminate such excess. 2.2. REQUIRED PAYMENTS; TERMINATION . Any outstanding Advances and all other unpaid Obligations shall be paid in full by the Borrowers on the Facility Termination Date. 2.3. RATABLE LOANS. Each Advance hereunder shall consist of Revolving Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. 2.4. TYPES OF ADVANCES . The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by Group in accordance with SECTIONS 2.9 and 2.10. 2.5. FACILITY FEE; REDUCTIONS IN AGGREGATE COMMITMENT . Group agrees to pay to the Agent for the account of each Lender a facility fee at a per annum rate equal to the Applicable Fee Rate times such Lender's Commitment (whether used or unused) from the date hereof to and including the Facility Termination Date, payable in arrears on each Payment Date hereafter and on the Facility Termination Date. Group may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders, in a minimum amount of $1,000,000 (and in multiples of $500,000 if in excess thereof) upon at least three Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction; PROVIDED, that the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances and the outstanding Swing Line Loans. All accrued facility fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder. 2.6. MINIMUM AMOUNT OF EACH ADVANCE. Each Advance shall be in the minimum amount of $1,000,000 (and in multiples of $500,000 if in excess thereof); PROVIDED, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. 2.7. OPTIONAL PRINCIPAL PAYMENTS. Group may from time to time pay, without penalty or premium, all outstanding Advances or, in a minimum aggregate amount of $1,000,000 or any integral multiple of $500,000 in excess thereof, any portion of the outstanding Advances upon two Business Days' prior notice to the Agent, subject, in the case of Eurodollar Advances, to the payment of any funding indemnification amounts required by SECTION 3.4 but without penalty or premium. 2.8. MANDATORY COMMITMENT REDUCTIONS. (a) The Aggregate Commitment shall be automatically and permanently reduced to the following amounts on the following dates: DATE. AGGREGATE COMMITMENT ---- -------------------- July 31, 2000 $60,000,000 July 31, 2001 $50,000,000 uly 31, 2002 $35,000,000 (b) Any reduction in the Aggregate Commitment pursuant to this SECTION 2.8 or otherwise shall ratably reduce the Commitment of each Lender. (c) At no time shall the Swing Line Commitment exceed the Aggregate Commitment, and any reduction of the Aggregate Commitment which reduces the Aggregate Commitment below the then-current amount of the Swing Line Commitment shall result in an automatic corresponding reduction of the Swing Line Commitment to the amount of the Aggregate Commitment, as so reduced, without any action on the part of the Swing Line Lender. At no time shall the Swing Line Commitment exceed the Commitment of the Swing Line Lender, and any reduction of the Aggregate Commitment which reduces the Commitment of the Swing Line Lender below the then-current amount of the Swing Line Commitment shall result in an automatic corresponding reduction of the Swing Line Commitment to the amount of the Commitment of the Swing Line Lender, as so reduced, without any action on the part of the Swing Line Lender. 2.9. METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR NEW ADVANCES. Group shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. Group shall give the Agent irrevocable notice (a "BORROWING NOTICE") not later than 10:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (a) the Borrowing Date, which shall be a Business Day, of such Advance, (b) the aggregate amount of such Advance, (c) the Type of Advance selected, and (d) in the case of each Eurodollar Advance, the Interest Period applicable thereto, which shall end on or prior to the Facility Termination Date. Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Revolving Loan or Loans in funds immediately available in Chicago to the Agent at its address specified pursuant to ARTICLE XIII. The Agent will make the funds so received from the Lenders available to Group at the Agent's aforesaid address. 2.10. CONVERSION AND CONTINUATION OF OUTSTANDING ADVANCES. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this SECTION 2.10 or are repaid in accordance with SECTION 2.7. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with SECTION 2.7 or (y) Group shall have given the Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of SECTION 2.6, Group may elect from time to time to convert all or any part of a Floating Rate Advance into a Eurodollar Advance. Group shall give the Agent irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") of each conversion of a Floating Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least three Business Days prior to the date of the requested conversion or continuation, specifying: (a) the requested date of such conversion or continuation, which shall be a Business Day, (b) the aggregate amount and Type of the Advance which is to be converted or continued, and (c) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto. 2.11. THE SWING LINE LOANS. Subject to the terms and conditions hereof, the Swing Line Lender agrees to make Swing Line Loans to either Group or UWLIC from time to time prior to the Facility Termination Date in an aggregate principal amount at any one time outstanding not to exceed $10,000,000 (the "SWING LINE COMMITMENT"); PROVIDED, that after giving effect to any such Swing Line Loan, the principal amount outstanding of all Revolving Loans and Swing Line Loans at such time would not exceed the Aggregate Commitment at such time; PROVIDED, further, that the principal amount outstanding of the Swing Line Loans and of the Swing Line Lender's Revolving Loans would not exceed the Swing Line Lender's Commitment. Prior to the Facility Termination Date, the Borrowers may use the Swing Line Commitment by borrowing, prepaying the Swing Line Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. All Swing Line Loans shall bear interest at the Floating Rate and shall not be entitled to be converted into Loans that bear interest at any other rate. At the Swing Line Lender's request, the Swing Line Loans shall be evidenced by a Swing Line Note made payable thereto. 2.12. PROCEDURE FOR SWING LINE LOANS . (a) Either Borrower may borrow under the Swing Line Commitment on any Business Day until the Facility Termination Date; PROVIDED, that such Borrower shall give the Swing Line Lender irrevocable notice (which notice must be received by the Swing Line Lender prior to 11:00 a.m. (Chicago time)) specifying the amount of the requested Swing Line Loan, which shall be a minimum amount of $250,000 or a whole multiple of $100,000 in excess thereof. The proceeds of the Swing Line Loan will be made available by the Swing Line Lender to the applicable Borrower in immediately available funds at the office of the Swing Line Lender by 1:00 p.m. (Chicago time) on the date of such notice. Each Borrower may at any time and from time to time, prepay the Swing Line Loans, in whole or in part, without premium or penalty, by notifying the Swing Line Lender prior to 11:00 a.m. (Chicago time) on any Business Day of the date and amount of prepayment with a copy to the Agent. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an aggregate principal amount of $250,000 or a whole multiple of $100,000 in excess thereof. (b) If any Swing Line Loan shall remain outstanding at 11:00 a.m. (Chicago time) on the thirtieth (30th) day following the date of such Swing Line Loan and if by such time on such thirtieth (30th) day the Agent shall have received from the applicable Borrower neither (i) a Borrowing Notice delivered by Group pursuant to SECTION 2.9 requesting that Revolving Loans be made to Group pursuant to SECTION 2.1 on such date in an amount at least equal to the principal amount of such Swing Line Loan (without regard to whether such Swing Line Loan was made to Group or UWLIC) nor (ii) any other notice satisfactory to the Agent indicating such Borrower's intent to repay such Swing Line Loan on or before such thirtieth (30th) day with funds obtained from other sources, then on such thirtieth (30th) day the Swing Line Lender shall (and on any previous Business Day the Swing Line Lender in its sole discretion may), on behalf of Group (which hereby irrevocably directs the Swing Line Lender to act on its behalf) request the Agent to notify each Lender to make a Floating Rate Loan in an amount equal to such Lender's Pro Rata Share of (A) in the case of such a request which is required to be made, the amount of the relevant Swing Line Loan, and (B) in the case of such a discretionary request, the aggregate principal amount of the Swing Line Loans outstanding on the date such notice is given. Unless any of the events described in SECTION 7.6 or 7.7 shall have occurred with respect to either Borrower (in which event the procedures of paragraph (d) of this SECTION 2.12 shall apply) each Lender shall make the proceeds of its Revolving Loan available to the Agent for the account of the Swing Line Lender in funds immediately available prior to 1:00 p.m. (Chicago time) on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Loans shall be immediately applied to repay the outstanding Swing Line Loans. Effective on the day such Revolving Loans are made, the portion of the Swing Line Loans so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note. Each Borrower shall pay to the Swing Line Lender, promptly following the Swing Line Lender's demand, the amount of its outstanding Swing Line Loans to the extent amounts received from Lenders are not sufficient to repay in full such outstanding Swing Line Loans. (c) Notwithstanding anything herein to the contrary, the Swing Line Lender (i) shall not be obligated to make any Swing Line Loan if the conditions set forth in ARTICLE IV have not been satisfied and (ii) shall not make any requested Swing Line Loan if, prior to 11:00 a.m. (Chicago time) on the date of such requested Swing Line Loan, it has received a written notice from the Agent or any Lender directing it not to make further Swing Line Loans because one or more of the conditions specified in ARTICLE IV are not then satisfied. (d) If prior to the making of a Revolving Loan required to be made by SECTION 2.12(B) a Default described in SECTION 7.6 or 7.7 shall have occurred and be continuing with respect to either Borrower, each Lender will, on the date such Revolving Loan was to have been made pursuant to the notice described in SECTION 2.12(B), purchase an undivided participating interest in the outstanding Swing Line Loans (including accrued interest thereon) in an amount equal to its Pro Rata Share of the aggregate principal amount of Swing Line Loans then outstanding. Each Lender will immediately transfer to the Agent for the benefit of the Swing Line Lender, in immediately available funds, the amount of its participation. (e) Whenever, at any time after a Lender has purchased a participating interest in a Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to the Agent for delivery to each Lender its participating interest in such amount (appropriately adjusted in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); PROVIDED, that in the event that such payment received by the Swing Line Lender is required to be returned, such Lender will return to the Agent for delivery to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it. (f) Each Lender's obligation to make the Revolving Loans referred to in SECTION 2.12(B) and to purchase participating interests pursuant to SECTION 2.12(D) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or either Borrower may have against the Swing Line Lender, either Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Unmatured Default, (iii) any adverse change in the condition (financial or otherwise) of either Borrower, (iv) any breach of this Agreement or any other Loan Document by either Borrower, any Subsidiary or any other Lender, or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.13. CHANGES IN INTEREST RATE, ETC. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Floating Rate Advance pursuant to SECTION 2.10, to but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to SECTION 2.10 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Floating Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Agent as applicable to such Eurodollar Advance based upon Group's selections under SECTION 2.9 and 2.10 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. 2.14. RATES APPLICABLE AFTER DEFAULT. Notwithstanding anything to the contrary contained in SECTION 2.9 or 2.10, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to Group (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of SECTION 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to Group (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of SECTION 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that each Loan shall bear interest at the then applicable rate per annum in effect from time to time plus 2% per annum; PROVIDED, that during the continuance of a Default under SECTION 7.6 or 7.7, the interest rate set forth above shall be applicable to all Loans without any election or action on the part of the Agent or any Lender. 2.15. METHOD OF PAYMENT. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to ARTICLE XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to Group, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to ARTICLE XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of either Borrower maintained with First Chicago for each payment of principal, interest and fees payable thereby as it becomes due hereunder. 2.16. NOTELESS AGREEMENT; EVIDENCE OF INDEBTEDNESS. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (b) The Agent shall also maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Agent hereunder from each Borrower and each Lender's share thereof. (c) The entries maintained in the accounts maintained pursuant to paragraphs (a) and (b) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; PROVIDED, that the failure of the Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of either Borrower to repay the Obligations in accordance with their terms. (d) Any Lender may request that its Revolving Loans be evidenced by a promissory note (a "REVOLVING NOTE"). In such event, Group shall prepare, execute and deliver to such Lender a Revolving Note payable to the order of such Lender in a form supplied by the Agent. Thereafter, the Loans evidenced by such Revolving Note and interest thereon shall at all times (including after any assignment pursuant to SECTION 12.3) be represented by one or more Revolving Notes payable to the order of the payee named therein or any assignee pursuant to SECTION 12.3, except to the extent that any such Lender or assignee subsequently returns any such Revolving Note for cancellation and requests that such Revolving Loans once again be evidenced as described in paragraphs (a) and (b) above. 2.17. TELEPHONIC NOTICES. Each Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds, and the Swing Line Lender to make Swing Line Loans, based in each case on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be acting on behalf of such Borrower. Each Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.18. INTEREST PAYMENT DATES; INTEREST AND FEE BASIS . Interest accrued on each Floating Rate Loan shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof and at maturity. Interest accrued on each Eurodollar Loan shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Loan is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Loan having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest and facility fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.19. NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND COMMITMENT REDUCTIONS. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Floating Rate. 2.20. LENDING INSTALLATIONS. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written notice to the Agent and Group in accordance with ARTICLE XIII, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. 2.21. NON-RECEIPT OF FUNDS BY THE AGENT . Unless either Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (a) in the case of a Lender, the proceeds of a Loan or (b) in the case of a Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (y) in the case of payment by a Borrower, the interest rate applicable to the relevant Loan. ARTICLE III YIELD PROTECTION; TAXES 3.1. YIELD PROTECTION. If, on or after the Initial Closing Date, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (a) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans, or (b) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (c) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its Eurodollar Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Eurodollar Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Eurodollar Loans held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurodollar Loans or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans or Commitment, then, within 15 days of demand by such Lender, Group shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. 3.2. CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Borrowers shall, jointly and severally, pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its Commitment to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy); PROVIDED, that if any Lender fails to notify the Borrowers within 180 days after it obtains actual knowledge of any event giving rise to the payment of additional amounts under this SECTION 3.2, then such Lender shall only be entitled to payment for additional amounts incurred from and after the date which is 180 days prior to the date that such Lender gives such notice. "CHANGE" means (a) any change after the Initial Closing Date in the Risk-Based Capital Guidelines or (b) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "RISK-BASED CAPITAL GUIDELINES" means (x) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (y) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. AVAILABILITY OF TYPES OF ADVANCES. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (a) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (b) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance, then the Agent shall suspend the availability of the affected Type of Advance and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by SECTION 3.4. 3.4. FUNDING INDEMNIFICATION. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by Group for any reason other than default by the Lenders, Group will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance. 3.5. TAXES. (a) All payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If either Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this SECTION 3.5) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions, (iii) such Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (iv) such Borrower shall furnish to the Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (b) In addition, each Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("OTHER TAXES"). (c) Each Borrower hereby agrees to indemnify the Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this SECTION 3.5) paid by the Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Agent or such Lender makes demand therefor pursuant to SECTION 3.6. (d) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "NON-U.S. LENDER") agrees that it will, not less than ten Business Days after the date of this Agreement, (i) deliver to each of Group and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of Group and the Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of Group and the Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by Group or the Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises Group and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (e) For any period during which a Non-U.S. Lender has failed to provide Group with an appropriate form pursuant to clause (d) above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this SECTION 3.5 with respect to Taxes imposed by the United States; PROVIDED, that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (d) above, the Borrowers shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (f) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to Group (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. 3.6. LENDER STATEMENTS; SURVIVAL OF INDEMNITY. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrowers to such Lender under SECTIONS 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar Advances under SECTION 3.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to Group (with a copy to the Agent) as to the amount due, if any, under SECTION 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on each Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by Group of such written statement. The obligations of each Borrower under SECTIONS 3.1, 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of this Agreement. 3.7. SUBSTITUTION OF LENDER. Upon the receipt by either Borrower from any Lender (an "AFFECTED LENDER") of a claim for compensation under SECTION 3.1, 3.2 or 3.5 or a notice in accordance with SECTION 3.3 regarding the unavailability of a Type of Advance, such Borrower may: (a) request the Affected Lender to use commercially reasonable efforts to obtain a replacement bank or other entity satisfactory to such Borrower to acquire and assume all or a ratable part of all of such Affected Lender's Loans and Commitment at the face amount thereof (a "REPLACEMENT LENDER"); (b) request one or more of the other Lenders to acquire and assume all or part of such Affected Lender's Loans and Commitment (which request each such other Lender may decline or agree to in its sole discretion); or (c) designate a Replacement Lender. Any such designation of a Replacement Lender under clause (a) or (c) shall be subject to the prior written consent of the Agent (which consent shall not unreasonably be withheld). Any transfer of Loans or Commitment pursuant to this Section shall be made in accordance with SECTION 12.3 and SECTION 3.4, if applicable. ARTICLE IV CONDITIONS PRECEDENT 4.1. EFFECTIVENESS. This Agreement shall not be effective unless the Borrowers have furnished to the Agent with sufficient copies for the Lenders: (a) GOOD STANDING CERTIFICATES. Copies of a certificate of existence (or its equivalent) for each of Group, Holdings and UWLIC, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (b) RESOLUTIONS. Copies, certified by the Secretary or Assistant Secretary of each of Group, Holdings and UWLIC of its Board of Directors' resolutions. (c) SECRETARY'S CERTIFICATE. An incumbency certificate, executed by the Secretary or Assistant Secretary of each Borrower and of Holdings, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of such Borrower or Holdings authorized to sign the Loan Documents to which such Borrower or Holdings, as applicable, is a party and, in respect of the Borrowers, to make borrowings hereunder, upon which certificates of the Borrowers the Agent and the Lenders shall be entitled to rely until informed of any change in writing by such Borrower. (d) OFFICER'S CERTIFICATE. A certificate, dated the date of this Agreement, signed by an Authorized Officer of each Borrower, in form and substance satisfactory to the Agent, to the effect that: (i) on such date (both before and after giving effect to the making of the Loans hereunder, the execution and delivery of the Guaranty and the consummation of the other transactions contemplated hereby and by the other Loan Documents (collectively, the "CLOSING TRANSACTIONS")) no Default or Unmatured Default has occurred and is continuing; (ii) no injunction or temporary restraining order which would prohibit the making of the Loans or the consummation of any of the Closing Transactions, or other litigation which could reasonably be expected to have a Material Adverse Effect, is pending or, to the best of such Person's knowledge, threatened; (iii) all orders, consents, approvals, licenses, authorizations or validations of, or filings, recordings or registrations with, or exemptions by, any governmental or public body or authority, or any subdivision thereof, required to make or consummate the Closing Transactions have been or, prior to the time required, will have been, obtained, given, filed or taken and are or will be in full force and effect (or the Borrowers or Holdings, as applicable, have obtained effective relief with respect to the application thereof) and all applicable waiting periods have expired; (iv) each of the representations and warranties set forth in ARTICLE V of this Agreement is true and correct on and as of such date; (v) the Distribution has been consummated substantially in accordance with the description thereof set forth in the Information Statement; and (vi) since December 31, 1997, no event or change has occurred that has caused or evidences a Material Adverse Effect. (e) LEGAL OPINION. A written opinion of Quarles & Brady, counsel to the Borrowers and the Guarantor, addressed to the Agent and the Lenders in form and substance acceptable to the Agent and its counsel. (f) NOTES. Any Notes requested by a Lender pursuant to SECTION 2.11 or 2.16 payable to the order of each such requesting Lender. (g) LETTERS OF DIRECTION. Written money transfer instructions with respect to the Loans in form and substance acceptable to the Agent and its counsel addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (h) LOAN DOCUMENTS. Executed originals of the Agreement, together with all schedules, exhibits, certificates, instruments, opinions, documents and financial statements required to be delivered pursuant hereto and thereto. (i) SOLVENCY CERTIFICATE. A written solvency certificate from the chief financial officer of each Borrower in form and content satisfactory to the Agent, dated the date of this Agreement, with respect to the value, solvency and other factual information of, or relating to, as the case may be, such Borrower and its Subsidiaries, taken as a whole, both before and after giving effect to the Closing Transactions. (j) REGULATORY MATTERS. Receipt of any required regulatory approvals from any Governmental Authority with respect to the Closing Transactions. (k) OTHER. Such other documents as the Agent, any Lender or their counsel may have reasonably requested. 4.2. EACH ADVANCE AND SWING LINE LOAN. The Lenders shall not be required to make any Advance (other than an Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Advances) and the Swing Line Lender shall not be required to make any Swing Line Loan, unless on the applicable Borrowing Date: (a) There exists no Default or Unmatured Default. (b) The representations and warranties contained in ARTICLE V are true and correct in all material respects as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. (c) All legal matters incident to the making of such Advance or Swing Line Loan shall be satisfactory to the Lenders and their counsel. Each Borrowing Notice with respect to each such Advance and each request for a Swing Line Loan shall constitute a representation and warranty by the applicable Borrower that the conditions contained in SECTION 4.2(A) and (B) have been satisfied. Any Lender may require a duly completed compliance certificate in substantially the form of EXHIBIT A as a condition to making an Advance. ARTICLE V REPRESENTATIONS AND WARRANTIES Each Borrower represents and warrants to the Lenders that, both before and after giving effect to the Closing Transactions: 5.1. EXISTENCE AND STANDING . Each of Group and each Subsidiary is a corporation, partnership (in the case of Subsidiaries only) or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to be so qualified, licensed or authorized could not reasonably be expected to have a Material Adverse Effect. 5.2. AUTHORIZATION AND VALIDITY. Each of Holdings, UWLIC and Group has the power and authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by Holdings, UWLIC and Group of the Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents to which each such Person is a party constitute legal, valid and binding obligations of such Person enforceable against such Person in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. NO CONFLICT; GOVERNMENT CONSENT . Neither the execution and delivery by either Holdings, UWLIC or Group of the Loan Documents to which it is a party, the consummation of the Closing Transactions nor compliance with the provisions of the Loan Documents will, or at the relevant time did, violate (a) any law, rule, regulation (including Regulations T, U and X), order, writ, judgment, injunction, decree or award binding on Group or any of its Subsidiaries, (b) Group's or any of its Subsidiaries' articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (c) the provisions of any indenture, instrument or agreement to which Group or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of Group or any Subsidiary pursuant to the terms of any such indenture, instrument or agreement, except for any violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, award, indenture, instrument or agreement that could not reasonably be expected to have a Material Adverse Effect. Except as set forth in SCHEDULE 5.3 hereto, no order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any Governmental Authority, or any subdivision thereof, or any other Person (including without limitation the stockholders of any Person) is required to be obtained by Group or any Subsidiary in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by either Borrower of the Obligations, the execution and delivery of the Guaranty or the legality, validity, binding effect or enforceability of any of the Loan Documents or the consummation of any of the Closing Transactions. 5.4. FINANCIAL STATEMENTS. The Borrowers have heretofore furnished to the Agent and each of the Lenders (a) the December 31, 1997 audited consolidated financial statements of Group and its Subsidiaries, (b) the unaudited consolidated financial statements of Group and its Subsidiaries through June 30, 1998, (c) the December 31, 1997 audited Annual Statement of each Material Insurance Subsidiary and (d) the June 30, 1998 Quarterly Statement of each Material Insurance Subsidiary (collectively, the "FINANCIAL STATEMENTS"). Each of the Financial Statements was prepared in accordance with generally accepted accounting principles or statutory accounting practices, as applicable, and (in the case of the Financial Statements prepared in accordance with generally accepted accounting principles) fairly presents the consolidated financial condition and operations of Group and its Subsidiaries at such dates and the consolidated results of their operations for the respective periods then ended (except, in the case of such unaudited statements, for normal year-end audit adjustments). 5.5. MATERIAL ADVERSE CHANGE . Since December 31, 1997 there has been no change in the business, Property, prospects, performance, condition (financial or otherwise) or operations of Group and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. TAXES. Each of Group and each of its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by Group or any such Subsidiary, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles or SAP, as applicable, and as to which no Lien exists. The United States income tax returns of Group and its Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1987. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of Group and its Subsidiaries in respect of any taxes or other governmental charges are in accordance with Agreement Accounting Principles or SAP, as applicable. 5.7. LITIGATION AND CONTINGENT OBLIGATIONS. There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting Group or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the making of any Loans or the consummation of any other Closing Transaction. Other than any liability incident to any litigation, arbitration or proceeding could not reasonably be expected to have a Material Adverse Effect, none of Group or any of its Subsidiaries has any material contingent obligations not provided for or disclosed in the Financial Statements. 5.8. SUBSIDIARIES. SCHEDULE 5.8 contains an accurate list of all Subsidiaries of Group as of the date of this Agreement, setting forth their respective jurisdictions of organization and the percentage of their respective capital stock or other ownership interests owned by Group or other Subsidiaries. All of the issued and outstanding shares of capital stock or other ownership interests of such Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable. 5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $250,000. Neither Group, UWLIC nor any other member of the Controlled Group maintains, or is obligated to contribute to, any Multiemployer Plans. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither Group, UWLIC nor any other member of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan. 5.10. ACCURACY OF INFORMATION. No information, exhibit or report furnished by Group or any of its Subsidiaries to the Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.11. FEDERAL RESERVE REGULATIONS. Neither Group nor any of its Subsidiaries is engaged, directly or indirectly, principally, or as one of its important activities, in the business of extending, or arranging for the extension of, credit for the purpose of purchasing or carrying Margin Stock. No part of the proceeds of any Loan will be used in a manner which would violate, or result in a violation of, Regulation T, Regulation U or Regulation X. Neither the making of any Loan hereunder nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulation T, Regulation U or Regulation X. Following the application of the proceeds of the Loans, less than 25% of the value (as determined by any reasonable method) of the assets of Group and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder taken as a whole have been, and will continue to be, represented by Margin Stock. 5.12. MATERIAL AGREEMENTS . Neither Group nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither Group nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (a) any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect or (b) any agreement or instrument evidencing or governing any Material Indebtedness. 5.13. COMPLIANCE WITH LAWS. Group and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.14. OWNERSHIP OF PROPERTIES . On the date of this Agreement, Group and its Subsidiaries have good title, free of all Liens other than those permitted by SECTION 6.15, to all of the Property and assets reflected in Group's most recent consolidated financial statements provided to the Agent as owned by Group and its Subsidiaries. 5.15. PLAN ASSETS; PROHIBITED TRANSACTIONS . Neither Borrower is an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. ss. 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.16. ENVIRONMENTAL MATTERS. In the ordinary course of its business, the officers of the Borrowers consider the effect of Environmental Laws on the business of Group and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Borrowers due to Environmental Laws. On the basis of this consideration, each Borrower has concluded that Environmental Laws cannot reasonably be expected to has a Material Adverse Effect. Neither Group nor any of its Subsidiaries has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.17. INVESTMENT COMPANY ACT . Neither Group nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.18. PUBLIC UTILITY HOLDING COMPANY ACT. Neither Group nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.19. INSURANCE. Group and its Subsidiaries maintain insurance on their Property with such companies, in such amounts and covering such risks as is, in each case, consistent with sound business practice. 5.20. SOLVENCY. Immediately after the consummation of the Closing Transactions and immediately following the making of each Loan, if any, made on the date hereof and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets of each Borrower and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, subordinated, contingent or otherwise, of such Borrower and its Subsidiaries on a consolidated basis; (b) the present fair saleable value of the assets of each Borrower and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of such Borrower and its Subsidiaries on a consolidated basis on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof. 5.21. YEAR 2000. Each Borrower has made a full and complete assessment of the Year 2000 Issues and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "YEAR 2000 PROGRAM"). Based on such assessment and on the Year 2000 Program the Borrowers do not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 5.22. INSURANCE LICENSES. SCHEDULE 5.22 hereto lists the jurisdiction of domicile of each Material Insurance Subsidiary, the line or lines of insurance in which each Material Insurance Subsidiary is engaged and the jurisdictions in which each Material Insurance Subsidiary holds a License and is authorized to transact insurance business, in each case as of the date of this Agreement. No License, the loss of which could reasonably be expected to have a Material Adverse Effect, is the subject of a proceeding for suspension or revocation. To either Borrower's knowledge, there is no sustainable basis for such suspension or revocation, and no such suspension or revocation has been threatened by any Governmental Authority. To either Borrower's knowledge, no Material Insurance Subsidiary has received written notice from any Governmental Authority that it is deemed to be "commercially domiciled" for insurance regulatory purposes in any jurisdiction other than that indicated on SCHEDULE 5.22. 5.23. REINSURANCE. SCHEDULE 5.23 lists all ceded or assumed reinsurance agreements to which any Material Insurance Subsidiary is, as of the date of this Agreement, a party, which are currently in force, and under which there is liability by either party to the agreement (collectively, the "EXISTING REINSURANCE AGREEMENTS"). Each of the Existing Reinsurance Agreements is in full force and effect, is valid and binding in all material respects in accordance with its terms, and, as of the date hereof, no Material Insurance Subsidiary has, to either Borrower's knowledge, received notice (other than provisional notices of cancellation received in the ordinary course of business) that any other party to an in-force Existing Reinsurance Agreement will cancel or not renew such agreement, which cancellation or nonrenewal could reasonably be expected to have a Material Adverse Effect. Neither Borrower has any knowledge as of the date hereof that any amount recoverable by any Material Insurance Subsidiary pursuant to any Existing Reinsurance Agreement is not fully collectible in due course. To the knowledge of either Borrower, no Material Insurance Subsidiary is in default in any material respect as to any Existing Reinsurance Agreement. Except as disclosed in SCHEDULE 5.23, each Material Insurance Subsidiary is entitled to take full credit in its statutory financial statements for ceded reinsurance under the Existing Reinsurance Agreements pursuant to applicable insurance laws. Except as disclosed in SCHEDULE 5.23, there is no claim under any Existing Reinsurance Agreement in excess of $100,000 which is disputed by any other party to such agreement. 5.24. RESERVES. Except as set forth on SCHEDULE 5.24, each reserve and other material liability amount in respect of the insurance business, including, without limitation, material reserve and other material liability amounts in respect of insurance policies of each Material Insurance Subsidiary, established or reflected in the SAP Financial Statements for the year ended December 31, 1997 of such Material Insurance Subsidiary, was determined in accordance with generally accepted actuarial standards consistently applied, was fairly stated in accordance with sound actuarial principles and was in compliance with the requirements of the insurance laws, rules and regulations of its state of domicile as of the date thereof. Each Material Insurance Subsidiary owns assets that qualify as admitted assets under applicable law in an amount at least equal to the sum of all such reserves and liability amounts and its minimum Statutory Capital and Surplus as required by the insurance laws, rules and regulations of its state of domicile. 5.25. UWLIC CAPITAL AND SURPLUS. As of the date of this Agreement, UWLIC has a Statutory Capital and Surplus of at least $176,500,000. 5.26. DEFAULTS. No Default or Unmatured Default has occurred and is continuing. 5.27. CERTAIN FEES. No broker's or finder's fee or commission was, is or will be payable by Group or any Subsidiary with respect to any of the transactions contemplated by this Agreement or any other Closing Transaction other than the Distribution. Each Borrower hereby agrees to indemnify the Agent and the Lenders against and agrees that it will hold each of them harmless from any claim, demand or liability for broker's or finder's fees or commissions alleged to have been incurred by Group or any of its Subsidiaries in connection with any of the transactions contemplated by this Agreement or any other Closing Transaction and any expenses (including, without limitation, attorneys' fees and time charges of attorneys for the Agent or any Lender, which attorneys may be employees of the Agent or any Lender) arising in connection with any such claim, demand or liability. No other similar fee or commissions will be payable by Group or any Subsidiary for any other services rendered to Group or any Subsidiary ancillary to any of the transactions contemplated by this Agreement or any other Closing Transaction. 5.28. INDEBTEDNESS. Attached hereto as SCHEDULE 5.28 is a complete and correct list of all Indebtedness of Group and its Subsidiaries outstanding on the date of this Agreement (other than Indebtedness in a principal amount not exceeding $50,000 for a single item of Indebtedness and $100,000 in the aggregate for all such Indebtedness listed), showing the aggregate principal amount which was outstanding on such date after giving effect to the Closing Transactions. 5.29. EMPLOYEE CONTROVERSIES. There are no strikes, work stoppages or controversies pending or threatened between Group or any of its Subsidiaries and any of its employees, other than employee grievances arising in the ordinary course of business, which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.30. DIVIDENDS. No Insurance Subsidiary is subject to any regulatory prohibition regarding the declaration or payment of dividends that is not generally applicable to all insurance companies which are domiciled in the same jurisdiction and are engaged in the same line of business as such Insurance Subsidiary. ARTICLE VI COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1. FINANCIAL REPORTING. Group will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, consistently applied, and furnish to the Lenders: (a) As soon as practicable and in any event within 120 days after the close of each of its Fiscal Years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in generally accepted accounting principles and required or approved by the Borrowers' independent certified public accountants) audit report certified by independent certified public accountants acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated and consolidating basis (consolidating statements need not be certified by such accountants) for itself and its Subsidiaries, including balance sheets as of the end of such period and related statements of income, retained earnings and cash flows, accompanied by (i) any management letter prepared by said accountants, (ii) a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof, and (iii) a letter from said accountants addressed to the Lenders acknowledging that the Lenders are extending credit in primary reliance on such financial statements and authorizing such reliance. (b) As soon as practicable and in any event within 60 days after the close of the first three Fiscal Quarters of each of its Fiscal Years, for itself and its Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating statements of income, retained earnings and cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer. (c) (i) Upon the earlier of (A) fifteen days after the regulatory filing date or (B) 75 days after the close of each Fiscal Year of each Material Insurance Subsidiary, copies of the unaudited Annual Statement of such Material Insurance Subsidiary, certified by the chief financial officer of such Material Insurance Subsidiary, all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein and (ii) no later than each June 15, copies of annual financial statements of such Material Insurance Subsidiary, prepared in accordance with SAP, audited and certified by independent certified public accountants of recognized annual standing. (d) Upon the earlier of (i) ten (10) days after the regulatory filing date or (ii) 60 days after the close of each of the first three Fiscal Quarters of each Fiscal Year of each Material Insurance Subsidiary, copies of the Quarterly Statement of each of the Material Insurance Subsidiaries, certified by the chief financial officer of such Material Insurance Subsidiary, all such statements to be prepared in accordance with SAP consistently applied through the period reflected herein. (e) Promptly and in any event within ten days after (i) learning thereof, notification of any changes after the date hereof in the rating given by A.M. Best & Co. in respect of any Insurance Subsidiary and (ii) receipt thereof, copies of any ratings analysis by A.M. Best & Co. relating to any Insurance Subsidiary. (f) Copies of any actuarial certificates prepared with respect to any Material Insurance Subsidiary, promptly after the receipt thereof. (g) As soon as available, but in any event within 90 days after the beginning of each Fiscal Year of Group, a copy of the plan and forecast (including a projected consolidated and consolidating balance sheet, income statement and funds flow statement) of Group and its Subsidiaries for such Fiscal Year. (h) Together with the financial statements required by clauses (a) and (b) above, a compliance certificate in substantially the form of EXHIBIT A signed by its chief financial officer showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (i) Within 270 days after the close of each Fiscal Year, a statement of the Unfunded Liabilities of each Single Employer Plan, if any, certified as correct by an actuary enrolled under ERISA. (j) As soon as possible and in any event within 10 days after Group knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of Group, describing said Reportable Event and the action proposed to be taken with respect thereto, and as soon as possible and in any event within ten (10) days after learning thereof, notification of any Lien imposed by the PBGC or the IRS on the assets of any member of the Controlled Group in respect of any Plan maintained by any such member (or any other employee pension benefit plan as to which any such member may be liable) which, together with all such Liens, relates to liabilities in excess of ten percent of the net worth (determined according to generally accepted accounting principles and without reduction for any reserve for such liabilities) of Group and its Subsidiaries. (k) As soon as possible and in any event within 10 days after receipt by Group or any of its Subsidiaries, a copy of (i) any notice or claim to the effect that Group or any of its Subsidiaries is or may be liable to any Person as a result of the release by Group, any of its Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, and (ii) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by Group or any of its Subsidiaries which could, in the case of either clause (i) or (ii), reasonably be expected to have a Material Adverse Effect. (l) Promptly upon the furnishing thereof to the shareholders of Group copies of all financial statements, reports and proxy statements so furnished. (m) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which Group or any of its Subsidiaries files with the Securities and Exchange Commission, the National Association of Securities Dealers, any securities exchange, the NAIC or any insurance commission or department or analogous Governmental Authority (including without limitation, any filing made by Group or any Subsidiary pursuant to any insurance holding company act or related rules or regulations), but excluding routine or non-material filings with the NAIC, any insurance commissioner or department or analogous Governmental Authority. (n) Promptly and in any event within ten (10) days after learning thereof, notification of (i) any tax assessment, demand, notice of proposed deficiency or notice of deficiency received by Group or any other Consolidated Person or (ii) the filing of any tax Lien or commencement of any judicial proceeding by or against any such Consolidated Person, if any such assessment, demand, notice, Lien or judicial proceeding (or all such assessments, demands, notices, Liens and judicial proceedings, in the aggregate) relates to tax liabilities in excess of ten percent (10%) of the net worth (determined according to generally accepted accounting standards and without reduction for any reserve for such liabilities) of Group and its Subsidiaries taken as a whole. (o) Such other information (including, without limitation, the annual Best's Advance Report Service report prepared with respect to each Insurance Subsidiary rated by A.M. Best & Co.) as the Agent or any Lender may from time to time reasonably request. 6.2. USE OF PROCEEDS . Each Borrower will, and will cause each Subsidiary to, use the proceeds of the Loan to lend funds to Group to meet the general corporate needs of Group and its Subsidiaries and to repay outstanding Loans. Neither Borrower will, nor will it permit any Subsidiary to, use any of the proceeds of the Loans to purchase or carry any "margin stock" (as defined in Regulation U) or to finance the Purchase of any Person which has not been approved and recommended by the Board of Directors (or functional equivalent thereof) of such Person. 6.3. NOTICE OF DEFAULT. Each Borrower will, and will cause each Subsidiary to, give prompt notice in writing to the Lenders of (a) the occurrence of any Default or Unmatured Default, (b) the occurrence of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), relating specifically to Group or any of its Subsidiaries (and not of a general economic or political nature) which could reasonably be expected to have a Material Adverse Effect, (c) the receipt of any notice from any Governmental Authority of the expiration without renewal, revocation or suspension of, or the institution of any proceedings to revoke or suspend, any License now or hereafter held by any Insurance Subsidiary which is required to conduct insurance business in compliance with all applicable laws and regulations and the expiration, revocation or suspension of which could reasonably be expected to have a Material Adverse Effect, (d) the receipt of any notice from any Governmental Authority of the institution of any disciplinary proceedings against or in respect of any Insurance Subsidiary, or the issuance of any order, the taking of any action or any request for an extraordinary audit for cause by any Governmental Authority which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, (e) any judicial or administrative order limiting or controlling the insurance business of any Insurance Subsidiary (and not the insurance industry generally) which has been issued or adopted and which has had, or could reasonably be expected to have, a Material Adverse Effect, or (f) the commencement of any litigation which could reasonably be expected to create a Material Adverse Effect. 6.4. CONDUCT OF BUSINESS. Each Borrower will, and will cause each Subsidiary to, (a) carry on and conduct its business only in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted, (b) with respect to each Insurance Subsidiary, only engage in the life, accident and health insurance business, (c) do all things necessary to remain duly incorporated, validly existing and in good standing in its jurisdiction of incorporation and its jurisdiction of domicile and maintain all requisite authority to conduct its business in each other jurisdiction in which its business is conducted, and (d) do all things necessary to renew, extend and continue in effect all Licenses which may at any time and from time to time be necessary for any Insurance Subsidiary to operate its insurance business in compliance with all applicable laws and regulations; PROVIDED, that any Insurance Subsidiary may withdraw from one or more states (other than its state of domicile) as an admitted insurer if such withdrawal is determined by such Insurance Subsidiary's Board of Directors to be in the best interest of such Insurance Subsidiary and could not reasonably be expected to have a Material Adverse Effect. No Material Insurance Subsidiary shall change its state of domicile or incorporation without the prior written consent of the Required Lenders, which shall not unreasonably be withheld or delayed. Each Wholly-Owned Subsidiary in existence as of the date of this Agreement shall continue to be a Wholly-Owned Subsidiary; PROVIDED, that all of the capital stock of any Subsidiary (other than UWLIC) may be sold in compliance with SECTION 6.13 hereof. 6.5. TAXES. Each Borrower will, and will cause each Subsidiary to, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles. 6.6. INSURANCE. Each Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and each Borrower will furnish to the Agent or any Lender upon request full information as to the insurance carried. 6.7. COMPLIANCE WITH LAWS. Each Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, the failure to comply with which could reasonably be expected to have a Material Adverse Effect. 6.8. MAINTENANCE OF PROPERTIES. Each Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times. 6.9. INSPECTION. Each Borrower will, and will cause each Subsidiary to, permit the Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of Group and its Subsidiaries, to examine and make copies of the books of accounts and other financial records of Group and its Subsidiaries, and to discuss the affairs, finances and accounts of Group and its Subsidiaries with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Agent or any Lender may designate; PROVIDED, that so long as no Event of Default has occurred and is continuing, the Agent and the Lenders shall provide advance notice of any inspection or examination. Each Borrower will keep or cause to be kept, and cause each Subsidiary to keep or cause to be kept, appropriate records and books of account in which complete entries are to be made reflecting its and their business and financial transactions, such entries to be made in accordance with Agreement Accounting Principles or SAP, as applicable, consistently applied. 6.10. DIVIDENDS. Neither Borrower will, nor will it permit any Subsidiary to, declare or pay any dividends or make any distributions on its capital stock (other than dividends payable in its own capital stock) or redeem, repurchase or otherwise acquire or retire any of its capital stock at any time outstanding, except (a) that any Subsidiary may declare and pay dividends or make distributions to a Wholly-Owned Subsidiary, and (b) beginning with its 1999 Fiscal Year, Group may declare and pay dividends in an aggregate amount not to exceed, in any Fiscal Year, the lesser of $2,000,000 and 25% of Group's Consolidated Net Income for the prior Fiscal Year, so long as (i) at the time of any such declaration or payment the Aggregate Commitment is less than $50,000,000 and (ii) no Default or Unmatured Default has occurred and is continuing or would occur after giving effect thereto (determined, in respect of the covenants set forth in SECTION 6.19, on a pro forma basis as of the last day of the most recent Fiscal Quarter for which financial statements are available). 6.11. INDEBTEDNESS. Neither Borrower will, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except: (a) the Loans; (b) Indebtedness existing on the Initial Closing Date and described in SCHEDULE 5.28 and refinancings thereof or amendments or modifications thereto which do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and which are otherwise on terms and conditions no less favorable to either Borrower, any Subsidiary, the Agent or any Lender than the terms of the Indebtedness being refinanced, amended or modified; (c) Indebtedness arising under Rate Hedging Agreements related to the Loans; (d) Contingent Obligations permitted pursuant to SECTION 6.18(A), (B), (C) or (D); (e) Indebtedness owing by Group to any Wholly-Owned Subsidiary or by any Wholly-Owned Subsidiary to Group or any other Wholly-Owned Subsidiary, to the extent such Indebtedness constitutes an Investment permitted under SECTION 6.14; (f) a Capitalized Lease by Group or any Subsidiary of computer equipment in an aggregate principal amount not to exceed $4,000,000 at any one time outstanding; and (g) additional Indebtedness with an aggregate principal outstanding not in excess of $10,000,000, of which not more than $5,000,000 may consist of obligations for borrowed money. 6.12. MERGER. Neither Borrower will, nor will it permit any Subsidiary to, merge or consolidate with or into any other Person, except that (a) a Subsidiary may merge into Holdings or a Wholly-Owned Subsidiary, (b) Holdings may merge into Group and (c) Group may merge or consolidate with another Person so long as (i) the surviving or successor corporation is organized under the laws of any state of the United States and assumes the Obligations by written instrument acceptable in form and substance to the Agent and each Lender, (ii) no Default or Unmatured Default has occurred and is continuing or would occur after giving effect thereto (determined with respect to the covenants set forth in SECTION 6.19 on a pro forma basis as of the last day of the most recent Fiscal Quarter for which financial statements are available) and the Borrowers deliver pro forma financial statements, reasonably satisfactory to Agent and Lenders, for the next four Fiscal Quarters demonstrating such compliance, and (iii) unless Group is the surviving corporation, each Lender has given its prior written consent to such transaction, which consent shall not unreasonably be withheld. 6.13. SALE OF ASSETS. Neither Borrower will, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of its Property to any other Person, except: (a) sales of Investments in the ordinary course of business by Insurance Subsidiaries; (b) leases, sales or other dispositions by Group to any Wholly-Owned Subsidiary or by any Subsidiary to Group or any Wholly-Owned Subsidiary to the extent permitted under SECTION 6.14; (c) sales and other dispositions of obsolete equipment in the ordinary course of business to the extent the proceeds thereof are used to replace such disposed equipment; and (d) leases, sales or other dispositions of its Property that, together with all other Property of Holdings and its Subsidiaries previously leased, sold or disposed of (other than Investments sold in the ordinary course of business by Insurance Subsidiaries) as permitted by this SECTION 6.13(D) since the Initial Closing Date, do not constitute a Substantial Portion of the Property of Group and its Subsidiaries. 6.14. INVESTMENTS AND ACQUISITIONS . (a) Group will not, nor will it permit any Subsidiary which is not an Insurance Subsidiary to, make or suffer to exist any Investments (including, without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisition of any Person, except: (i) Cash and Cash Equivalent Investments; (ii) Investments in existence on the Initial Closing Date (including Investments in Subsidiaries) and, to the extent they consist of loans, refinancings thereof or amendments or modifications thereof which do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and which are otherwise on terms and conditions no less favorable to either Borrower, any Subsidiary, the Agent or any Lender than the terms of the Investment being refinanced, amended or modified; (iii) Other Investments in Subsidiaries in existence as of the Initial Closing Date so long as no Default or Unmatured Default has occurred and is continuing either before or after giving effect thereto (determined, in respect of the covenants set forth in SECTION 6.19, on a pro forma basis as of the last day of the most recent Fiscal Quarter for which financial statements are available); (iv) Acquisitions of businesses or entities engaged in the life, accident and health insurance business (other than assets or stock of any member of the UWS Group) which do not constitute hostile takeovers (and Investments in Subsidiaries formed to Acquire such businesses or Acquired after the date of this Agreement) made (A) for consideration consisting of Group's capital stock not to exceed $75,000,000 in the aggregate after the Initial Closing Date (measured by reference to the market value of such stock as of the consummation of such Acquisition) or (B) for other types of consideration not to exceed (x) $25,000,000 in the aggregate after the Initial Closing Date (including the amount of any consideration other than Group's capital stock paid in connection with Acquisitions made pursuant to clause (A)), less (y) the aggregate consideration paid in respect of any Acquisitions made pursuant to SECTION 6.14(B)(VI); and (v) Up to $5,000,000 in the aggregate at any time outstanding of other Investments (other than Investments in any member of the UWS Group) which do not constitute Acquisitions. (b) Group will not permit any Insurance Subsidiary to make or suffer to exist any Investments (including, without limitation, loans and advances to and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisition of any Person, except: (i) Cash and Cash Equivalent Investments; (ii) Investments in debt securities rated BBB- or better by S&P, Baa-3 or better by Moody's or NAIC-2 or better by the NAIC; PROVIDED, that any such Investment which, at any time after which it is made, ceases to meet such rating requirements (A) shall cease to be permitted hereby if then permitted by SECTION 6.14(B)(III) and (B) if not then permitted by SECTION 6.14(B)(III) shall remain permitted hereby until the earlier of the time it is permitted under SECTION 6.14(B)(III) and the date which is 30 days after the date on which such rating requirement is no longer met; (iii) Other Investments of a quality acceptable to the insurance commissioner in the respective domiciliary state of such Insurance Subsidiary not otherwise permitted under this SECTION 6.14(B); PROVIDED, that such Investments of (A) each such Insurance Subsidiary that is a Material Insurance Subsidiary do not exceed, in the aggregate at any one time outstanding, 20% of the Statutory Capital and Surplus of such Material Insurance Subsidiary or (B) all other Insurance Subsidiaries as a group, if such other Insurance Subsidiaries have an aggregate Statutory Capital and Surplus in excess of $5,000,000, do not exceed 20% of such aggregate Statutory Capital and Surplus; PROVIDED, FURTHER, that such Investments shall not include Investments in any member of the UWS Group; (iv) Existing Investments in Subsidiaries and other Investments in existence on the Initial Closing Date and, to the extent they consist of loans, refinancings thereof or amendments or modifications thereto which do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and which are otherwise or terms and conditions no less favorable to either Borrower, any Subsidiary, the Agent or any Lender than the terms of the Investment being refinanced, amended or modified; (v) Acquisitions of blocks of insurance business, from Persons other than any member of the UWS Group, through assumptive reinsurance, co-insurance or indemnity reinsurance so long as any consideration paid in connection therewith which does not constitute premium sharing is otherwise permitted under clause (vi) below; and (vi) Acquisitions of businesses or entities engaged in the life, accident and health insurance business (other than assets or stock of any member of the UWS Group) which do not constitute hostile takeovers (and Investments in Subsidiaries formed to Acquire such businesses or Acquired after the date of this Agreement), made after the Initial Closing Date for an aggregate consideration not to exceed (A) $25,000,000 (including the amount of any consideration paid in connection with reinsurance transactions permitted pursuant to SECTION 6.14(B)(V)), less (B) the aggregate consideration paid in respect of any Acquisitions made pursuant to SECTION 6.14(A)(IV)(B). 6.15. LIENS. Neither Borrower will, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of Group or any of its Subsidiaries, except: (a) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles or SAP, as applicable, shall have been set aside on its books. (b) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books; (c) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (d) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of Group or its Subsidiaries; (e) Deposits made by any Insurance Subsidiary with the insurance regulatory authority in its jurisdiction of domicile or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets of any Insurance Subsidiary, in each case in favor of all policy holders of such Insurance Subsidiary and in the ordinary course of such Insurance Subsidiary's business; (f) Liens existing on the Initial Closing Date and described in SCHEDULE 6.15; (g) Liens securing the Indebtedness described in SECTION 6.11(F), so long as such Liens extend only to the equipment leased thereunder; and (h) other Liens securing Indebtedness or obligations in an aggregate principal amount not in excess of $10,000,000 at any one time outstanding. 6.16. AFFILIATES . Neither Borrower will, nor will it permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to such Borrower or such Subsidiary than such Borrower or such Subsidiary would obtain in a comparable arms-length transaction, and except for a payment to UWS in an amount not to exceed $2,500,000 to fund certain expenses related to the Distribution. For the purposes of this SECTION 6.16, "Affiliate" shall include each member of the UWS Group and each Affiliate thereof. 6.17. OTHER INDEBTEDNESS. Neither Borrower will, nor will it permit any Subsidiary to, directly or indirectly voluntarily prepay, defease or in substance defease, purchase, redeem, retire or otherwise acquire, any Indebtedness prior to the date due (other than the Loans) while a Default or Unmatured Default has occurred and is continuing or would occur after giving effect thereto (determined, in respect of the covenants set forth in SECTION 6.19, on a pro forma basis as of the last day of the most recent Fiscal Quarter for which financial statements are available). 6.18. CONTINGENT OBLIGATIONS . Neither Borrower will, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except (a) the Contingent Obligations described on SCHEDULE 6.18, (b) Contingent Obligations in respect of insurance contracts or policies issued in the ordinary course of business, (c) Contingent Obligations in respect of the endorsement of instruments for deposit or collection in the ordinary course of business, (d) Contingent Obligations in respect of the Indebtedness described in SECTION 6.11(F), and (e) Contingent Obligations permitted under SECTION 6.11(G). 6.19. FINANCIAL COVENANTS. 6.19.1. INTEREST COVERAGE RATIO. Group will not permit its Interest Coverage Ratio, determined as of the end of each Fiscal Quarter for the period of four Fiscal Quarters ending on such date (to be annualized, through June 30, 1999, in accordance with the definition thereof), to be less than (a) 3.0 to 1.0 from the date of this Agreement through December 31, 1999, (b) 4.0 to 1.0 from January 1, 2000 through December 31, 2000 and (c) 4.5 to 1.0 thereafter. 6.19.2. LEVERAGE RATIO. Group will not permit the ratio, determined as of the end of each of Fiscal Quarter, of (a) Consolidated Indebtedness to (b) Consolidated Total Capitalization, to be greater than 0.30 to 1.0. 6.19.3. TANGIBLE NET WORTH . Group will at all times maintain a Consolidated Tangible Net Worth of not less than the sum of (a) the greater of (i) $128,000,000 or (ii) 90% of Group's Consolidated Tangible Net Worth on the date of the Distribution, after giving effect thereto, plus (b) 50% of the positive Consolidated Net Income earned by Group in each Fiscal Quarter ending after the date of the Distribution and on or prior to the date of determination, plus (c) 50% of the Net Available Proceeds received by Group or any Subsidiary from the issuance of equity securities after the date of the Distribution. 6.19.4. RISK-BASED CAPITAL . At all times after the date hereof, Group will cause each Material Insurance Subsidiary to maintain a ratio of (a) Total Adjusted Capital (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) to (b) the Company Action Level RBC (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) of at least 150%. 6.20. YEAR 2000. Each Borrower will take and will cause each of its Subsidiaries to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Agent or any Lender, each Borrower will provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto. 6.21. REINSURANCE. Group will not permit any Insurance Subsidiary to (a) enter into bulk reinsurance arrangements, including without limitation any bulk financial reinsurance arrangements, or (b) enter into any other (or renew, extend or materially modify any existing) reinsurance arrangements except in the ordinary course of business (i) with reinsurers rated at least "A-" (at the time such reinsurance arrangements are entered into) by A.M. Best & Co. or its equivalent by another reputable rating agency or reinsurers whose obligations to the Insurance Subsidiaries are secured by letters of credit or other collateral reasonably acceptable to the Required Lenders or (ii) with other reinsurers so long as the aggregate corresponding credits to reserves (page 3, lines 1, 2, 3 and 4 of the Annual Statement) of all Insurance Subsidiaries in respect of reinsurance arrangements with all such other reinsurers does not exceed 3% of the aggregate of such reserves of all Insurance Subsidiaries; PROVIDED, that notwithstanding the foregoing, any Insurance Subsidiary may enter into any reinsurance arrangement in order to effect the Acquisition of a block of insurance business which is permitted under SECTION 6.14(B)(V). 6.22. TAX CONSOLIDATION . Neither Group nor any Subsidiary will (a) file or consent to the filing of any consolidated, combined or unitary income tax return with any Person other than Group and its Subsidiaries or (b) enter into any tax sharing agreement or similar arrangement other than a tax sharing agreement among Group and its Subsidiaries. 6.23. ERISA COMPLIANCE . With respect to any Plan, neither Group nor any Subsidiary shall or shall permit any other member of the Controlled Group to: (a) engage in any "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975 of the Code in excess of $250,000 for all Plans in the aggregate could reasonably be expected to be imposed; (b) permit an "accumulated funding deficiency" (as such term is defined in Section 302 of ERISA) in excess of $250,000 for all Plans in the aggregate to be incurred whether or not waived, or permit any Unfunded Liability which could reasonably be expected to have a Material Adverse Effect; (c) permit the occurrence of any Reportable Event which could reasonably be expected to result in liability (i) to Group or any Subsidiary in excess of $250,000 for all Plans in the aggregate or (ii) to any other member of the Controlled Group in an amount which could reasonably be expected to have a Material Adverse Effect; (d) fail to make any contribution or payment to any Multiemployer Plan which any member of the Controlled Group may be required to make under any agreement relating to such Multiemployer Plan or any law pertaining thereto which results in or could result in a liability (i) of Group or any Subsidiary in excess of $250,000 for all Plans in the aggregate or (ii) of any other member of the Controlled Group which could reasonably be expected to have a Material Adverse Effect; or (e) permit the establishment or amendment of any Plan or cause or permit any Plan to fail to comply with the applicable provisions of ERISA and the Code, which establishment, amendment or failure could reasonably be expected to result in liability to any member of the Controlled Group which individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 6.24. ENVIRONMENTAL MATTERS . Each Borrower shall and shall cause each of its Subsidiaries to (a) at all times comply in all material respects with all applicable environmental laws and (b) promptly take any and all necessary remedial actions in response to the presence, storage, use, disposal, transportation or release of any hazardous or toxic materials on, under or about any real property owned, leased or operated by either Borrower or any of its Subsidiaries. 6.25. CHANGE IN CORPORATE STRUCTURE; FISCAL YEAR . Neither Borrower shall, nor shall it permit any Subsidiary to, (a) permit any amendment or modification to be made to its certificate or articles of incorporation or by-laws which is materially adverse to the interests of the Lenders (provided that each Borrower shall notify the Agent of any other amendment or modification thereto as soon as practicable thereafter) or (b) change its Fiscal Year to end on any date other than December 31 of each year. 6.26. INCONSISTENT AGREEMENTS . Neither Borrower shall, nor shall it permit any Subsidiary to, enter into any indenture, agreement, instrument or other arrangement which, (a) directly or indirectly prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence of the Obligations, the granting of Liens to secure the Obligations, the extension of the Guaranty, the amending of the Loan Documents, or the ability of any Subsidiary to (i) pay dividends or make other distributions on its capital stock, (ii) make loans or advances to either Borrower or (iii) repay loans or advances from either Borrower or (b) contains any provision which would be violated or breached by the making of Advances or by the performance by Holdings or either Borrower of any of its obligations under any Loan Document. 6.27. CAPITAL EXPENDITURES . Neither Borrower will, nor will it permit any Subsidiary to, expend, or be committed to expend for Capital Expenditures (including, without limitation, for the acquisition of fixed assets) in excess of $10,000,000 in any Fiscal Year; PROVIDED, that any amount not used in any Fiscal Year may be used in the next succeeding Fiscal Year; PROVIDED, FURTHER, that permitted Capital Expenditures for each Fiscal Year shall first be applied in such Fiscal Year to that year's permitted amount and then to any amount carried over from the prior Fiscal Year. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of Group or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Loan when due, or nonpayment of interest upon any Loan or of any facility fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by either Borrower of any of the terms or provisions of SECTION 6.2 or SECTIONS 6.10 through 6.27. 7.4. The breach by either Borrower (other than a breach which constitutes a Default under another Section of this ARTICLE VII) of any of the terms or provisions of this Agreement which is not remedied within twenty (20) days after written notice from the Agent or any Lender. 7.5. Failure of Group or any of its Subsidiaries to pay when due any Indebtedness aggregating in excess of $1,500,000 ("MATERIAL INDEBTEDNESS"); or the default by Group or any of its Subsidiaries in the performance (beyond the applicable grace period with respect thereto, if any) of any term, provision or condition contained in any agreement under which any such Material Indebtedness was created or is governed, or any other event shall occur or condition exist, the effect of which default or event is to cause, or to permit the holder or holders of such Material Indebtedness to cause, such Material Indebtedness to become due prior to its stated maturity; or any Material Indebtedness of Group or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or Group or any of its Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. Group or any of its Subsidiaries shall (a) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (b) make an assignment for the benefit of creditors, (c) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (d) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (e) take any corporate or partnership action to authorize or effect any of the foregoing actions set forth in this SECTION 7.6 or (f) fail to contest in good faith any appointment or proceeding described in SECTION 7.7. 7.7. Without the application, approval or consent of Group or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for Group or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in SECTION 7.6(A) shall be instituted against Group or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of, all or any portion of the Property of Group or any of its Subsidiaries which, when taken together with all other Property of Group and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such action occurs, constitutes a Substantial Portion. 7.9. Group or any of its Subsidiaries shall fail within 45 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $250,000 (or multiple judgments or orders for the payment of an aggregate amount in excess of $500,000), which is not stayed on appeal or otherwise being appropriately contested in good faith and as to which no enforcement actions have been commenced. 7.10. The Unfunded Liabilities of all Single Employer Plans shall exceed in the aggregate $250,000 or any Reportable Event shall occur in connection with any Plan. 7.11. Any Change in Control shall occur. 7.12. Nonpayment by either Borrower of any Rate Hedging Obligation owed to any Lender when due or the breach by either Borrower of any term, provision or condition contained in any agreement, device or arrangement giving rise to any such Rate Hedging Obligation. 7.13 Any License of any Material Insurance Subsidiary issued in its state of domicile or in a state in which its earned premiums in the prior Fiscal Year constituted 2% or more of its aggregate earned premiums in such period (a) shall be revoked by the Governmental Authority which issued such License, or any formal action (administrative or judicial) to revoke such License shall have been commenced against such Material Insurance Subsidiary and shall not have been dismissed within 30 days after the commencement thereof, (b) shall be suspended by such Governmental Authority for a period in excess of 30 days or (c) shall not be reissued or renewed by such Governmental Authority upon the expiration thereof following application for such reissuance or renewal of such Material Insurance Subsidiary. 7.14 Any Insurance Subsidiary shall be the subject of a final non-appealable order imposing a fine in an amount in excess of $500,000 in any single instance or other such orders imposing fines in excess of $2,000,000 in the aggregate after the date of this Agreement by or at the request of any state insurance regulatory agency as a result of the violation by such Insurance Subsidiary of such state's applicable insurance laws or the regulations promulgated in connection therewith. 7.15 Any Insurance Subsidiary shall become subject to (a) any conservation or liquidation order, directive or mandate issued by any Governmental Authority or (b) any other directive or mandate issued by any Governmental Authority which is materially adverse to such Insurance Subsidiary, which in either case is not stayed within ten (10) days. 7.16 The Guaranty shall fail to remain in full force and effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Guaranty, or Holdings shall fail to comply with any of the terms or provisions of the Guaranty or Holdings shall deny that it has any further liability under the Guaranty or shall give notice to that effect. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. ACCELERATION. If any Default described in SECTION 7.6 or 7.7 occurs with respect to either Borrower, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent or any Lender. If any other Default occurs, the Required Lenders (or the Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which each Borrower hereby expressly waives. If, within ten (10) Business Days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in SECTION 7.6 or 7.7 with respect to either Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to Holdings, rescind and annul such acceleration and/or termination. 8.2. AMENDMENTS. Subject to the provisions of this ARTICLE VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrowers may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrowers hereunder or waiving any Default hereunder; PROVIDED, that no such supplemental agreement shall, without the consent of all of the Lenders: (a) Extend the final maturity of any Loan or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon; (b) Reduce the percentage specified in the definition of Required Lenders; (c) Extend the Facility Termination Date, or reduce the amount or extend the payment date for, the mandatory payments required under SECTION 2.2 or the mandatory commitment reductions required under SECTION 2.8, or increase the amount of the Commitment of any Lender hereunder, or permit either Borrower to assign its rights under this Agreement; (d) Release Holdings from the Guaranty; or (e) Amend this SECTION 8.2. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under SECTION 12.3.2 without obtaining the consent of any other party to this Agreement. No amendment, waiver or consent relating to the Swing Line Lender shall be effective without the written consent of the Swing Line Lender. 8.3. PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of either Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to SECTION 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1. SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrower contained in this Agreement shall survive the making of the Loans herein contemplated. 9.2. GOVERNMENTAL REGULATION. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to either Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. HEADINGS. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4. ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and understanding among the Borrowers, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrowers, the Agent and the Lenders relating to the subject matter thereof other than the fee letter described in SECTION 10.13. 9.5. SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns; PROVIDED, that the parties hereto expressly agree that the Arranger shall enjoy the benefits of the provisions of SECTIONS 9.6, 9.10 and 10.11 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6. EXPENSES; INDEMNIFICATION. (a) Each Borrower shall reimburse the Agent and the Arranger for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent or the Arranger in connection with the preparation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents. Each Borrower also agrees to reimburse the Agent, the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, the Arranger and the Lenders, which attorneys may be employees of the Agent, the Arranger or the Lenders) paid or incurred by the Agent, the Arranger or any Lender in connection with the collection and enforcement of the Loan Documents. Expenses being reimbursed by the Borrowers under this Section include, without limitation, costs and expenses incurred in connection with the Reports described in the following sentence. Each Borrower acknowledges that from time to time First Chicago may prepare and may distribute to the Lenders (but shall have no obligation or duty to prepare or to distribute to the Lenders) certain audit reports (the "REPORTS") pertaining to each Borrower's assets for internal use by First Chicago from information furnished to it by or on behalf of such Borrower, after First Chicago has exercised its rights of inspection pursuant to this Agreement. (b) Each Borrower hereby further agrees to indemnify the Agent, the Arranger and each Lender and the directors, officers and employees of each against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, the Arranger or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the Distribution, any merger of Holdings with Group, the transactions contemplated hereby, the other Closing Transactions or the direct or indirect application or proposed application of the proceeds of any Loan hereunder except to the extent that (i) they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the party seeking indemnification or (ii) that they arise solely from any dispute of or any litigation or other proceeding instituted by any Lender against the Agent (if the Agent was determined to have breached its obligations to such Lender hereunder) or (for Persons other than the Agent and its directors, officers and employees) any other Lender. The obligations of each Borrower under this SECTION 9.6 shall survive the termination of this Agreement. 9.7. NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.8. ACCOUNTING. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. 9.9. SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10. NONLIABILITY OF LENDERS. The relationship between the Borrowers on the one hand and the Lenders and the Agent on the other hand shall be solely that of borrower and lender. Neither the Agent, the Arranger nor any Lender shall have any fiduciary responsibilities to either Borrower. Neither the Agent, the Arranger nor any Lender undertakes any responsibility to either Borrower to review or inform such Borrower of any matter in connection with any phase of such Borrower's business or operations. Each Borrower agrees that neither the Agent, the Arranger nor any Lender shall have liability to such Borrower (whether sounding in tort, contract or otherwise) for losses suffered by such Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. Neither the Agent, the Arranger nor any Lender shall have any liability with respect to, and each Borrower hereby waives, releases and agrees not to sue for, any special, indirect or consequential damages suffered by such Borrower in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. 9.11. CONFIDENTIALITY. Each of the Agent and each Lender agrees to hold any confidential information which it may receive from either Borrower pursuant to this Agreement in confidence, except for disclosure (a) to its Affiliates and to other Lenders and their respective Affiliates, (b) to legal counsel, accountants, and other professional advisors to that Lender or to a Transferee, (c) to regulatory officials, (d) to any Person as requested pursuant to or as required by law, regulation, or legal process, provided that if not prohibited by law, the Agent or such Lender will use reasonable efforts to provide notice to the Borrowers of the requested disclosure and give the Borrowers a reasonable opportunity to seek a protective order with respect to such information prior to delivering confidential information in response thereto, (e) to any Person in connection with any legal proceeding to which that Lender is a party, to the extent reasonably necessary, and (f) permitted by SECTION 12.4. 9.12. NONRELIANCE. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. 9.13. DISCLOSURE. Each Borrower and each Lender hereby (a) acknowledge and agree that First Chicago and/or its Affiliates from time to time may make other loans to or have other relationships with the Borrowers, and (b) waive any liability of First Chicago or such Affiliate to either Borrower or any Lender, respectively, arising out of or resulting from such loans or relationships other than liabilities arising out of the gross negligence or willful misconduct of First Chicago or its Affiliates. ARTICLE X THE AGENT 10.1. APPOINTMENT; NATURE OF RELATIONSHIP. The First National Bank of Chicago is hereby appointed by each of the Lenders as its contractual representative (herein referred to as the "AGENT") hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Agent agrees to act as such contractual representative upon the express conditions contained in this ARTICLE X. Notwithstanding the use of the defined term "Agent," it is expressly understood and agreed that the Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Agent (a) does not hereby assume any fiduciary duties to any of the Lenders, (b) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (c) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. 10.2. POWERS. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder, except any action specifically provided by the Loan Documents to be taken by the Agent. 10.3. GENERAL IMMUNITY. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to either Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person. 10.4. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in ARTICLE IV, except receipt of items required to be delivered solely to the Agent; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of Group or of either Borrower or of any of such Borrower's Subsidiaries. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by either Borrower to the Agent at such time, but is voluntarily furnished by such Borrower to the Agent (either in its capacity as Agent or in its individual capacity). 10.5. ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Agent and the Lenders and all matters pertaining to the Agent's duties hereunder and under any other Loan Document. 10.7. RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8. AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (a) for any amounts not reimbursed by the Borrowers for which the Agent is entitled to reimbursement by the Borrowers under the Loan Documents, (b) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by the Agent in connection with any dispute between the Agent and any Lender or between two or more of the Lenders) and (c) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against the Agent in connection with any dispute between the Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents; PROVIDED, that no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Agent. The obligations of the Lenders under this SECTION 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9. NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Agent has received written notice from a Lender or either Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. 10.10. RIGHTS AS A LENDER. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with Group, Holdings or any of Holdings' Subsidiaries in which Group, Holdings or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender. 10.11. LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrowers and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.12. SUCCESSOR AGENT. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrowers, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. The Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Borrowers and the Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrowers and the Lenders, a successor Agent. Notwithstanding the previous sentence, the Agent may at any time without the consent of either Borrower or any Lender, appoint any of its Affiliates which is a commercial bank as a successor Agent hereunder. If the Agent has resigned or been removed and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Borrowers shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Agent. Upon the effectiveness of the resignation or removal of the Agent, the resigning or removed Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Agent, the provisions of this ARTICLE X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Agent by merger, or the Agent assigns its duties and obligations to an Affiliate pursuant to this SECTION 10.12, then the term "Corporate Base Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Agent. 10.13. AGENT'S FEE . The Borrowers agree, on a joint and several basis, to pay to the Agent, for its own account, the fees agreed to by the Borrowers and the Agent pursuant to that certain fee letter agreement dated October 15, 1998, or as otherwise agreed from time to time. 10.14. DELEGATION TO AFFILIATES . The Borrowers and the Lenders agree that the Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Agent is entitled under ARTICLES IX and X. ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1. SETOFF . In addition to, and without limitation of, any rights of the Lenders under applicable law, if either Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of such Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part thereof, shall then be due. 11.2. RATABLE PAYMENTS . If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to SECTION 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. If an amount to be setoff is to be applied to Indebtedness of either Borrower to a Lender other than Indebtedness comprised of Loans made by such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness comprised of the Loans. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1. SUCCESSORS AND ASSIGNS . The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrowers and the Lenders and their respective successors and assigns, except that (a) neither Borrower shall have the right to assign its rights or obligations under the Loan Documents and (b) any assignment by any Lender must be made in compliance with SECTION 12.3. Notwithstanding clause (b) of this Section, any Lender may at any time, without the consent of either Borrower or the Agent, assign all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank; PROVIDED, that no such assignment to a Federal Reserve Bank shall release the transferor Lender from its obligations hereunder. The Agent may treat the Person which made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with SECTION 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of the rights to any Loan or any Note agrees by acceptance of such transfer or assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder, transferee or assignee of the rights to such Loan. 12.2. PARTICIPATIONS . 12.2.1. PERMITTED PARTICIPANTS; EFFECT . Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("PARTICIPANTS") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrowers under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrowers and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. VOTING RIGHTS . Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, extends the Facility Termination Date, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, releases any guarantor of any such Loan or releases all or substantially all of the collateral, if any, securing any such Loan. 12.2.3. BENEFIT OF SETOFF . Each Borrower agrees that each Participant shall be deemed to have the right of setoff provided in SECTION 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in SECTION 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in SECTION 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with SECTION 11.2 as if each Participant were a Lender. 12.3. ASSIGNMENTS . 12.3.1. Permitted Assignments . Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("PURCHASERS") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of EXHIBIT B or in such other form as may be agreed to by the parties thereto. The consent of Group, the Swing Line Lender and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; PROVIDED, that if a Default has occurred and is continuing, the consent of Group shall not be required. Such consent shall not be unreasonably withheld or delayed. Each such assignment shall (unless (x) each of Group and the Agent otherwise consents or (y) the proposed Purchaser is already a Lender) be in an amount not less than the lesser of (a) $5,000,000 or (b) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment). 12.3.2. EFFECT; EFFECTIVE DATE. Upon (a) delivery to the Agent of a notice of assignment, substantially in the form attached as Exhibit I to EXHIBIT B (a "NOTICE OF ASSIGNMENT"), together with any consents required by SECTION 12.3.1, and (b) payment of a $3,500 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by either Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this SECTION 12.3.2, the transferor Lender, the Agent and the Borrowers shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 12.4. DISSEMINATION OF INFORMATION . Each Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of Group or Holdings and the Subsidiaries, including without limitation any information contained in any Reports; PROVIDED, that each Transferee and prospective Transferee agrees to be bound by SECTION 9.11 of this Agreement. 12.5. TAX TREATMENT . If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of SECTION 3.5(D). ARTICLE XIII NOTICES 13.1. NOTICES . Except as otherwise permitted by SECTION 2.17 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) at its address or facsimile number set forth on the signature pages hereof, or (y) at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrowers in accordance with the provisions of this SECTION 13.1. Each such notice, request or other communication shall be effective (a) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (b) if given by mail, 72 hours after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; PROVIDED, that notices to the Agent under ARTICLE II shall not be effective until received. 13.2. CHANGE OF ADDRESS . Each Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by each Borrower, the Agent and the Lenders and each party has notified the Agent by facsimile transmission or telephone that it has taken such action. ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 15.1. CHOICE OF LAW . THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2. CONSENT TO JURISDICTION . EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST EITHER BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY EITHER BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 15.3. WAIVER OF JURY TRIAL . EACH BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. ARTICLE XVI GUARANTY OF GROUP 16.1 For valuable consideration, the receipt of which is hereby acknowledged, and to induce the Swing Line Lender to make Swing Line Loans to UWLIC as a Borrower, Group hereby absolutely, irrevocably and unconditionally guarantees prompt, full and complete payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of any and all existing and future obligations of UWLIC to the Agent, the Lenders and any holder of a Note, a Swing Line Loan, or any other Obligation under or with respect to the Loan Documents, whether for principal, interest, fees, expenses or otherwise (collectively, the "GUARANTEED OBLIGATIONS"). 16.2 Group waives notice of the acceptance of this guaranty and of the extension, incurrence or continuation of the Guaranteed Obligations or any part thereof. Group further waives all setoffs and counterclaims and presentment, protest, notice of notices delivered or demand made on UWLIC (except for any notice of demand or acceleration under SECTION 8.1), filing of claims with a court in the event of receivership, bankruptcy or reorganization of UWLIC or action or delinquency in respect of the Guaranteed Obligations or any part thereof, including any right to require the Agent and the Lenders to sue UWLIC, any other guarantor or any other Person obligated with respect to the Guaranteed Obligations or any part thereof, or otherwise to enforce payment thereof against any collateral securing the Guaranteed Obligations or any part thereof; PROVIDED, that if at any time any payment of any portion of the Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of UWLIC or otherwise, Group's obligations hereunder with respect to such payment shall be reinstated at such time as though such payment had not been made. Credit may be granted or continued to UWLIC by the Lenders without notice to or authorization from Group regardless of UWLIC's financial or other condition at the time of such grant or continuation. The Agent and the Lenders shall have no obligation to disclose or discuss with Group their assessments of the financial condition of UWLIC. 16.3 Group hereby agrees that, to the fullest extent permitted by law, its obligations hereunder shall be continuing, absolute and unconditional under any and all circumstances and not subject to any reduction, limitation, impairment, termination, defense (other than indefeasible payment in full), setoff, counterclaim or recoupment whatsoever (all of which are hereby expressly waived by it to the fullest extent permitted by law), whether by reason of any claim of any character whatsoever, including, without limitation, any claim of waiver, release, surrender, alteration or compromise. This guaranty is a guaranty of payment and not of collection, is a primary obligation of Group and not one of surety, The validity and enforceability of this guaranty shall not be impaired or affected by any of the following: (a) any extension, modification or renewal of, or indulgence with respect to, or substitutions for, the Guaranteed Obligations or any part thereof or any agreement relating thereto at any time; (b) any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or any collateral; (c) any waiver of any right, power or remedy or of any default with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto or with respect to any collateral; (d) any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any collateral, any other guaranties with respect to the Guaranteed Obligations or any part thereof, or any other obligation of any Person with respect to the Guaranteed Obligations or any part thereof; (e) the enforceability or validity of the Guaranteed Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to any collateral; (f) the application of payments received from any source to the payment of obligations other than the Guaranteed Obligations, any part thereof or amounts which are not covered by this guaranty even though the Agent and the Lenders might lawfully have elected to apply such payments to any part or all of the Guaranteed Obligations or to amounts which are not covered by this guaranty; (g) any change in the ownership of UWLIC or the insolvency, bankruptcy or any other change in the legal status of UWLIC; (h) any change in or the imposition of any law, decree, regulation or other governmental act which does or might impair, delay or in any way affect the validity, enforceability or the payment when due of the Guaranteed Obligations; (i) the failure of Group or UWLIC to maintain in full force, validity or effect or to obtain or renew when required all governmental and other approvals, licenses or consents required in connection with the Guaranteed Obligations or this guaranty, or to take any other action required in connection with the performance of all obligations pursuant to the Guaranteed Obligations or this guaranty; (j) the existence of any claim, setoff or other rights which Group may have at any time against UWLIC, or any other Person in connection herewith or with an unrelated transaction; (k) the Lenders' election, in any case or proceeding instituted under chapter 11 of the United States Bankruptcy Code, of the application of Section 1111(b)(2) of the United States Bankruptcy Code; (l) any borrowing, use of cash collateral, or grant of a security interest by UWLIC, as debtor in possession, under Section 363 or 364 of the United States Bankruptcy Code; (m) the disallowance of all or any portion of any of the Lenders' claims for repayment of the Guaranteed Obligations under Section 502 or 506 of the United States Bankruptcy Code; or (n) any other circumstances, whether or not similar to any of the foregoing, which could constitute a defense to a guarantor; all whether or not Group shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (n) of this paragraph. It is agreed that Group's liability hereunder is several and independent of any other guaranties or other obligations at any time in effect with respect to the Guaranteed Obligations or any part thereof and that Group's liability hereunder may be enforced regardless of the existence, validity, enforcement or non-enforcement of any such other guaranties or other obligations or any provision of any applicable law or regulation purporting to prohibit payment by UWLIC of the Guaranteed Obligations in the manner agreed upon between UWLIC and the Agent and the Lenders. 16.4 Group authorizes the Lenders to take any action or exercise any remedy with respect to any collateral from time to time securing the Guaranteed Obligations, which the Lenders in their sole discretion shall determine, without notice to Group. Notwithstanding any reference herein to any collateral securing any of the Guaranteed Obligations, it is acknowledged that, on the date hereof, neither Group nor any of its Subsidiaries has granted, or has any obligation to grant, any security interest in or other lien on any of its property as security for the Guaranteed Obligations. 16.5 In the event the Lenders in their sole discretion elect to give notice of any action with respect to any collateral securing the Guaranteed Obligations or any part thereof, ten (10) days' prior written notice to Group at the address as provided in ARTICLE XIII shall be deemed reasonable notice of any matters contained in such notice. Group consents and agrees that neither the Agent nor the Lenders shall be under any obligation to marshall any assets in favor of Group or against or in payment of any or all of the Guaranteed Obligations. 16.6 In the event that acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of UWLIC, or otherwise, all such amounts shall nonetheless be payable by Group forthwith upon demand by the Agent or the Lenders. Group further agrees that, to the extent that UWLIC makes a payment or payments to any of the Lenders on the Guaranteed Obligations, or the Agent or the Lenders receive any proceeds of collateral securing the Guaranteed Obligations, which payment or receipt of proceeds or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be returned or repaid to UWLIC, its estate, trustee, receiver, debtor in possession or any other party, including, without limitation, Group, under any insolvency or bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment, return or repayment, the obligation or part thereof which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the date when such initial payment, reduction or satisfaction occurred. 16.7 Group agrees that, as between Group on the one hand, and the Lenders and the Agent, on the other hand, the obligations of UWLIC guaranteed under this ARTICLE XVI may be declared to be forthwith due and payable, or may be deemed automatically to have been accelerated, as provided in SECTION 8.1 hereof for purposes of this ARTICLE XVI, notwithstanding any stay, injunction or other prohibition (whether in a bankruptcy proceeding affecting UWLIC or otherwise) preventing such declaration as against UWLIC and that, in the event of such declaration or automatic acceleration, such obligations (whether or not due and payable by UWLIC) shall forthwith become due and payable by Group for purposes of this ARTICLE XVI. 16.8 No delay on the part of the Agent or the Lenders in the exercise of any right, power or remedy shall preclude any further exercise thereof; nor shall any amendment, supplement, modification or waiver of any of the terms or provisions of this guaranty be binding upon the Agent or the Lenders, except as expressly set forth in a writing duly signed and delivered on the Lenders' behalf by the Agent. The failure by the Agent or the Lenders at any time or times hereafter to require strict provisions, warranties, terms and conditions contained in any promissory note, security agreement, agreement, guaranty, instrument or document now or at any time or times hereafter executed pursuant to the terms of, or in connection herewith, by UWLIC or Group and delivered to the Agent or the Lenders shall not waive, affect or diminish any right of the Agent or the Lenders at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been waived by any act or knowledge of the Agent or the Lenders, or their agents, officers or employees, unless such waiver is contained in an instrument in writing duly signed and delivered on the Lenders' behalf by the Agent. No waiver by the Agent or the Lenders of any default shall operate as a waiver of any other default or the same default on a future occasion, and no action by the Agent or the Lenders permitted hereunder shall in any way affect or impair the Agent's or the Lenders' rights or powers, or the obligations of Group under this guaranty. Any determination by a court of competent jurisdiction of the amount of any Guaranteed Obligations owing by UWLIC to the Lenders shall be conclusive and binding on Group irrespective of whether Group was a party to the suit or action in which such determination was made. 16.9 In addition to and without limitation of any rights, powers or remedies of the Agent or the Lenders under applicable law, any time after maturity of the Guaranteed Obligations, whether by acceleration or otherwise, the Agent or the Lenders may, in its or their sole discretion, with notice after the fact to Group and regardless of the acceptance of any security or collateral for the payment hereof, appropriate and apply toward the payment of the Guaranteed Obligations (a) any indebtedness due or to become due from any of the Lenders to Group, and (b) any moneys, credits or other property belonging to Group (including all account balances, whether provisional or final and whether or not collected or available) at any time held by or coming into the possession of any of the Agent or any Lender whether for deposit or otherwise. 16.10 This guaranty shall bind Group and its successors and assigns and shall inure to the benefit of the Agent, the Lenders and their successors and assigns. All references herein to UWLIC shall be deemed to include its successors and assigns including, without limitation, a receiver, trustee or debtor in possession of or for UWLIC. 16.11 It is understood that while the amount of the Guaranteed Obligations guaranteed hereby is not limited, if in any action or proceeding involving any state, federal or foreign bankruptcy, insolvency or other law affecting the rights or creditors generally, this guaranty would be held or determined to be void, invalid or unenforceable on account of the amount of the aggregate liability under this guaranty, then, notwithstanding any other provision of this guaranty to the contrary, the aggregate amount of such liability shall, without any further action of the Agent, the Lenders or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. 16.12 This guaranty shall continue in effect until the date on which all of the Guaranteed Obligations have been paid in full. [signature pages to follow] IN WITNESS WHEREOF, the Borrowers, the Lenders and the Agent have executed this Agreement as of the date first above written. AMERICAN MEDICAL SECURITY GROUP, INC. By: /S/ GARY D. GUENGERICH ------------------------------- Title: Executive Vice President, Chief Financial Officer and Treasurer Address: 3100 AMS Boulevard Green Bay, Wisconsin 54313 Attention: Gary D. Guengerich Telephone: (920) 661-2486 Telecopy: (920) 661-1095 UNITED WISCONSIN LIFE INSURANCE COMPANY By: /S/ GARY D. GUENGERICH ------------------------------- Title: Vice President and Treasurer Address: 3100 AMS Boulevard Green Bay, Wisconsin 54313 Attention: Gary D. Guengerich Telephone: (920) 661-2486 Telecopy: (920) 661-1095 Commitments $20,000,000 THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By: /S/ THOMAS W. DODDRIDGE ------------------------------- Title: Address: One First National Plaza Mail Suite 0085 Chicago, Illinois 60670 Attention: Thomas W. Doddridge Telephone: (312) 732-3881 Telecopy: (312) 732-4033 $17,500,000 FIRST UNION NATIONAL BANK, N.A. By: /S/ ------------------------------- Title: Address: 1339 Chestnut Street Philadelphia, Pennsylvania 19107 Attention: H. David Tamimie Telephone: (215) 973-7021 Telecopy: (215) 786-4114 $17,500,000 FLEET NATIONAL BANK By: /S/ MILDRED CHAVARRIA JONES ------------------------------- Title: Address: 777 Main Street Hartford, Connecticut 06115 Attention: Mildred Chavarria Jones Telephone: (860) 986-2678 Telecopy: (860) 986-1264 $15,000,000 M&I MARSHALL AND ILSLEY BANK By: /S/ BRIAN D. BUECHE ------------------------------- Title: Address: 770 North Water Street Milwaukee, Wisconsin 53202 Attention: Brian D. Bueche Telephone: (414) 765-7613 Telecopy: (414) 765-7625 ------------ Aggregate $70,000,000 Commitment
PRICING SCHEDULE ============================ -------------------- -------------------- -------------------- ===================== APPLICABLE MARGIN LEVEL I STATUS LEVEL II STATUS LEVEL III STATUS LEVEL IV STATUS ============================ -------------------- -------------------- -------------------- ===================== <50% Usage 0.60% 0.675% 0.75% 1.00% ============================ ==================== ==================== ==================== ===================== $50% Usage 0.725% 0.80% 0.875% 1.25% ============================ ==================== ==================== ==================== ===================== ============================ ==================== ==================== ==================== ==================== APPLICABLE FEE RATE LEVEL I STATUS LEVEL II STATUS LEVEL III STATUS LEVEL IV STATUS ============================ ==================== ==================== ==================== ==================== ============================ ==================== ==================== ==================== ==================== Facility Fee 0.15% 0.20% 0.25% 0.25% ============================ ==================== ==================== ==================== ====================
For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Debt Coverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Indebtedness of Group, to (b) the lesser of (i) ten percent of UWLIC's Statutory Surplus as of such date and (ii) UWLIC's aggregate Statutory Net Income for the period of four Fiscal Quarters ending on the date of determination, without regard to realized capital gains in such period (determined on a pre-tax basis) and determined without double counting. "Financials" means the annual or quarterly financial statements of Group delivered pursuant to SECTION 6.1(A) or (B). "Level I Status" exists at any date if, as of the last day of the Fiscal Quarter of Group referred to in the most recent Financials, the Debt Coverage Ratio is less than 1.5 to 1.00. "Level II Status" exists at any date if, as of the last day of the Fiscal Quarter of Group referred to in the most recent Financials, (a) Group has not qualified for Level I Status and (b) the Debt Coverage Ratio is less than 2.5 to 1.00. "Level III Status" exists at any date if, as of the last day of the Fiscal Quarter of Group referred to in the most recent Financials, (a) Group has not qualified for Level I Status or Level II Status and (b) the Debt Coverage Ratio is less than 3.5 to 1.00. "Level IV Status" exists at any date if Group has not qualified for Level I Status, Level II Status or Level III Status. "Status" means either Level I Status, Level II Status, Level III Status or Level IV Status. "Usage" means, as of any date of determination, (a) the outstanding principal amount of Revolving Loans and Swing Line Loans, divided by (b) the Aggregate Commitment. The Applicable Margin and Applicable Fee Rate shall be determined in accordance with the foregoing table based on the Status as reflected in the then most recent Financials. Adjustments, if any, to the Applicable Margin or Applicable Fee Rate shall be effective five days after the Agent has received the applicable Financials. If the Borrowers fail to deliver the Financials to the Agent at the time required pursuant to SECTION 6.1, then the Applicable Margin and Applicable Fee Rate shall be the highest Applicable Margin and Applicable Fee Rate set forth in the foregoing table until five days after such Financials are so delivered. Notwithstanding the foregoing, until January 31, 1999, the Applicable Margin and Applicable Fee Rate shall be determined as if Level III Status were in effect. EXHIBIT A COMPLIANCE CERTIFICATE I, _____________ certify that I am the ______________________ of American Medical Security Group, Inc. ("Group"), and that as such I am authorized to execute this Compliance Certificate on behalf of Group, and DO HEREBY FURTHER CERTIFY on behalf of Group that: 1. I have reviewed the terms of that certain Amended and Restated Credit Agreement, dated as of October 15, 1998, among Group, United Wisconsin Life Insurance Company, the financial institutions named therein (the "Lenders") and The First National Bank of Chicago, as agent (the "Agent") and Swing Line Lender (as amended, supplemented or modified from time to time, the "Credit Agreement") and I have made, or have caused to be made by employees or agents under my supervision, a detailed review of the transactions and conditions of Group and its Subsidiaries (as this and other capitalized terms not defined herein are defined in the Credit Agreement) during the accounting period covered by the attached financial statements; 2. The examinations described in paragraph 1 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Unmatured Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Compliance Certificate, except as set forth below; and 3. SCHEDULE I attached hereto sets forth financial data and computations evidencing compliance with the covenants set forth in Sections 6.11, 6.13, 6.14, 6.15 and 6.19 of the Credit Agreement, all of which data and computations are true, complete and correct. Described below are the exceptions, if any, to paragraph 2 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event: The foregoing certifications, together with the computations set forth in SCHEDULE I hereto and the financial statements delivered with this Compliance Certificate in support hereof, are made and delivered this ______ day of ______________, 19__. AMERICAN MEDICAL SECURITY GROUP, INC. By: Title: SCHEDULE I SECTION 6.11 -- INDEBTEDNESS Indebtedness under Section 6.11(g): (a) Permitted additional Indebtedness $10,000,000 (b) Actual outstanding additional Indebtedness $___________ (c) Amount of (b) consisting of obligations for borrowed $___________ money (to be limited to $5,000,000) SECTION 6.13 -- SALE OF ASSETS Asset Dispositions for period from July 31, 1998 to date of determination: (a) Permitted asset dispositions: 10% of consolidated total assets of Group and its $___________ Subsidiaries as of the last day of preceding Fiscal Quarter* (b) Actual asset dispositions for such period $___________ *Note: must also demonstrate (to the extent calculable) that total asset dispositions for such period do not involve Property which is responsible for more than 10% of the consolidated net revenues or net income of Group and its Subsidiaries for the 12-month period ending as of the last day of the Fiscal Quarter next preceding the date of determination. SECTION 6.14 -- INVESTMENTS 1. SECTION 6.14(A)(IV)(A) (a) Permitted aggregate stock Acquisitions under $75,000,000 Section 6.14(a)(iv)(A) (b) Actual aggregate stock Acquisitions under $___________ Section 6.14(a)(iv)(A) 2. SECTION 6.14(A)(IV)(B) AND (B)(VI) (a) Permitted aggregate Investments under $25,000,000 Section 6.14(a)(iv)(B) and (b)(vi) (b) Actual aggregate Investments: (i) Non-stock consideration paid in connection with $___________ Acquisitions under Section 6.14(a)(iv)(A) (ii) Investments made pursuant to Section 6.14(a)(iv)(B) $________ (iii)Consideration paid in connection with $___________ Investments made pursuant to Section 6.14(b)(v) (iv) Investments made pursuant to Section 6.14(b)(vi) $___________ (v) Sum of (i) through (iv) $___________ 3. SECTION 6.14(A)(V) (a) Permitted aggregate Investments under $5,000,000 Section 6.14(a)(v) (b) Actual aggregate Investments under $___________ Section 6.14(a)(v) 4. SECTION 6.14(B)(III) For each Material Insurance Subsidiary:** (a) Permitted aggregate Investments not otherwise permitted under Section 6.14(b): (i) Statutory Capital and Surplus of such $___________ Insurance Subsidiary (ii) .20 times (i) $___________ (b) Actual aggregate Investments not otherwise permitted $___________ under Section 6.14(b) - ----------- ** Also to be calculated for all other Insurance Subsidiaries, in the aggregate, when aggregate Statutory Capital and Surplus exceeds $5,000,000. SECTION 6.15 -- LIENS Liens under Section 6.15(h): (a) Permitted aggregate secured Indebtedness $10,000,000 or obligations (b) Actual outstanding aggregate secured Indebtedness or $___________ obligations SECTION 6.19.1 -- INTEREST COVERAGE RATIO 1. Required Interest Coverage Ratio _____ to 1.0 2. Actual Interest Coverage Ratio (a) 10% of UWLIC's Statutory Surplus $___________ (b) UWLIC's aggregate Statutory Net Income for the period $___________ of four Fiscal Quarters ending on the date of determination, without regard to realized capital gains in such period and determined without double counting (c) Lesser of (a) and (b) $___________ (d) Consolidated Interest Expense of Group and its $___________ Subsidiaries for the period of four Fiscal Quarters ending on the date of determination (to be annualized through June 30, 1999) (e) Ratio of (c) to (d) _____ to 1.0 SECTION 6.19.2 -- LEVERAGE RATIO 1. Required Leverage Ratio 0.30 to 1.0 2. Actual Leverage Ratio: (a) Consolidated Indebtedness of Group and its $___________ Subsidiaries (b) Consolidated stockholders' equity of Group, determined $__________ without giving effect to SFAS No. 115 (c) Sum of (a) plus (b) $___________ (d) Ratio of (a) to (c) _____ to 1.0 SECTION 6.19.3 -- CONSOLIDATED TANGIBLE NET WORTH 1. Required Consolidated Tangible Net Worth: (a) Group's Consolidated Tangible Net Worth on the date of $__________ the Distribution after giving effect thereto (b) .90 times (a) $___________ (c) Greater of (b) and $128,000,000 $___________ (d) Cumulative positive Consolidated Net Income of Group $___________ and its Subsidiaries for each Fiscal Quarter ending after the date of the Distribution and on or prior to the date of determination (e) .50 TIMES (d) $___________ (f) Aggregate Net Available Proceeds received by Group or $___________ or any of its Subsidiaries from the issuance of equity securities after the date of the Distribution (g) .50 TIMES (f) $___________ (h) (c) PLUS (e) PLUS (g) $___________ 2. Actual Consolidated Tangible Net Worth: (a) Consolidated stockholders' equity of Group, $___________ determined without giving effect to SFAS No. 115 (b) Intangible assets, as specified in clause (b) $___________ of the definition of "Consolidated Tangible Net Worth" (c) (a) LESS (b) $___________ SECTION 6.19.4 -- RISK BASED CAPITAL For each Material Insurance Subsidiary: 1. Required Ratio of Total Adjusted Capital to 150% Company Action Level RBC 2. Actual Ratio of Total Adjusted Capital to %___________ Company Action Level RBC EXHIBIT B FORM OF ASSIGNMENT AGREEMENT This Assignment Agreement (this "Assignment Agreement") between _______________________________ (the "Assignor") and _______________________________ (the "Assignee") is dated as of ____________________, . The parties hereto agree as follows: 1. PRELIMINARY STATEMENT. The Assignor is a party to an Amended and Restated Credit Agreement (which, as it may be amended, supplemented, modified, renewed or extended from time to time is herein called the "Credit Agreement") described in Item 1 of SCHEDULE 1 attached hereto. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. 2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of SCHEDULE 1 of all outstanding rights and obligations under the Credit Agreement relating to the Loans and the other Loan Documents. The aggregate Commitment (or Loans, if the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of SCHEDULE 1. 3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the "Effective Date") shall be the later of the date specified in Item 5 of SCHEDULE 1 or two Business Days (or such shorter period agreed to by the Agent) after a Notice of Assignment substantially in the form of EXHIBIT I attached hereto has been delivered to the Agent. Such Notice of Assignment must include any consents required to be delivered to the Agent pursuant to Section 12.3.1 of the Credit Agreement. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date under SECTION 4 hereof are not made on the proposed Effective Date. The Assignor will notify the Assignee of the proposed Effective Date no later than the Business Day prior to the proposed Effective Date. As of the Effective Date, (a) the Assignee shall have the rights and obligations of a Lender under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder, and (b) the Assignor shall relinquish its rights and be released from its corresponding obligations under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder. 4. PAYMENT OBLIGATIONS. On and after the Effective Date, the Assignee shall be entitled to receive from the Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee shall advance funds directly to the Agent with respect to all Loans and reimbursement payments made on or after the Effective Date with respect to the interest assigned hereby. [In consideration for the sale and assignment of Loans hereunder, (a) the Assignee shall pay the Assignor, on the Effective Date, an amount equal to the principal amount of the portion of all Floating Rate Advances assigned to the Assignee hereunder, and (b) with respect to each Eurodollar Advance made by the Assignor and assigned to the Assignee hereunder which is outstanding on the Effective Date, (i) on the last day of the Interest Period therefor, (ii) on such earlier date agreed to by the Assignor and the Assignee, or (iii) on the date on which any such Eurodollar Advance either becomes due (by acceleration or otherwise) or is prepaid (the date as described in the foregoing clauses (i), (ii) or (iii) being hereinafter referred to as the "Payment Date"), the Assignee shall pay the Assignor an amount equal to the principal amount of the portion of such Eurodollar Advance assigned to the Assignee which is outstanding on the Payment Date. If the Assignor and the Assignee agree that the Payment Date for such Eurodollar Advance shall be the Effective Date, they shall agree to the interest rate applicable to the portion of such Loan assigned hereunder for the period from the Effective Date to the end of the existing Interest Period applicable to such Eurodollar Advance (the "Agreed Interest Rate") and any interest received by the Assignee in excess of the Agreed Interest Rate shall be remitted to the Assignor. In the event interest for the period from the Effective Date to but not including the Payment Date is not paid by Group with respect to any Eurodollar Advance sold by the Assignor to the Assignee hereunder, the Assignee shall pay to the Assignor interest for such period on the portion of such Eurodollar Advance sold by the Assignor to the Assignee hereunder at the applicable rate provided by the Credit Agreement. In the event a prepayment of any Eurodollar Advance which is existing on the Payment Date and assigned by the Assignor to the Assignee hereunder occurs after the Payment Date but before the end of the Interest Period applicable to such Eurodollar Advance, the Assignee shall remit to the Assignor the excess of the prepayment penalty paid with respect to the portion of such Eurodollar Advance assigned to the Assignee hereunder over the amount which would have been paid if such prepayment penalty was calculated based on the Agreed Interest Rate. The Assignee will also promptly remit to the Assignor (x) any principal payments received from the Agent with respect to Eurodollar Advances prior to the Payment Date, and (y) any amounts of interest on Loans and fees received from the Agent which relate to the portion of the Loans assigned to the Assignee hereunder for periods prior to the Effective Date, in the case of Floating Rate Loans, or the Payment Date, in the case of Eurodollar Loans, and not previously paid by the Assignee to the Assignor.]* In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. * Each Assignor may insert its standard payment provisions in lieu of the payment terms included in this Exhibit. 5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor a fee on each day on which a payment of interest or facility fees is made under the Credit Agreement with respect to the amounts assigned to the Assignee hereunder (other than a payment of interest or facility fees for the period prior to the Effective Date or, in the case of Eurodollar Loans, the Payment Date, which the Assignee is obligated to deliver to the Assignor pursuant to SECTION 4 hereof). The amount of such fee shall be the difference between (a) the interest or fee, as applicable, paid with respect to the amounts assigned to the Assignee hereunder and (b) the interest or fee, as applicable, which would have been paid with respect to the amounts assigned to the Assignee hereunder if each interest rate was of 1% less than the interest rate paid by the applicable Borrower or if the facility fee was of 1% less than the facility fee paid by the applicable Borrower, as applicable. In addition, the Assignee agrees to pay % of the recordation fee required to be paid to the Agent in connection with this Assignment Agreement. 6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S LIABILITY. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (a) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectibility of any Loan Document, including, without limitation, documents granting the Assignor and the other Lenders a security interest in assets of either Borrower or any guarantor, (b) any representation, warranty or statement made in or in connection with any of the Loan Documents, (c) the financial condition or creditworthiness of either Borrower or any guarantor, (d) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (e) inspecting any of the Property, books or records of either Borrower, (f) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans, or (g) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (a) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (b) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (c) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (d) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender, (e) agrees that its payment instructions and notice instructions are as set forth in the attachment to SCHEDULE 1, (f) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, [and (g) attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Loan Documents without deduction or withholding of any United States federal income taxes].* * to be inserted if the Assignee is not incorporated under the laws of the United States, or a state thereof. 8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor harmless against any and all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment Agreement. The obligations of the Assignee under this SECTION 7 shall survive the payment of all amounts hereunder and the termination of this Agreement. 9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall have the right pursuant to and in accordance with Section 12.3 of the Credit Agreement to assign the rights which are assigned to the Assignee hereunder to any entity or person; PROVIDED, that (a) any such subsequent assignment does not violate any of the terms and conditions of the Loan Documents or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Loan Documents has been obtained, and (b) unless the prior written consent of the Assignor is obtained, the Assignee is not thereby released from its obligations to the Assignor hereunder, if any remain unsatisfied, including, without limitation, its obligations under SECTIONS 4, 5, 6, 7 and 8 hereof. 10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate Commitment occurs between the date of this Assignment Agreement and the Effective Date, the percentage interest specified in Item 3 of SCHEDULE 1 shall remain the same, but the dollar amount purchased shall be recalculated based on the reduced Aggregate Commitment. 11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of Assignment embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 12. GOVERNING LAW. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 13. NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to SCHEDULE 1. [signature page to follow] IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By: Title: [NAME OF ASSIGNEE] By: Title: SCHEDULE 1 TO ASSIGNMENT AGREEMENT 1. Description and Date of Credit Agreement: That certain Amended and Restated Credit Agreement dated as of October 15, 1998 among American Medical Security Group, Inc., United Wisconsin Life Insurance Company, the financial institutions named therein and The First National Bank of Chicago, as Agent and Swing Line Lender. 2. Date of Assignment Agreement: ______________, 19__ 3. Amounts (As of Date of Item 2 above): (a) Total of Commitments (Loans)* under Credit Agreement $___________ (b) Assignee's percentage of the (Loans)* Commitments purchased under the Assignment Agreement** __________ % 4. Assignee's aggregate (Loan amount)* Commitment amount purchased hereunder: $___________ 5. Proposed Effective Date: Accepted and Agreed: [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By: By: Title: Title: * If a Commitment has been terminated, insert outstanding Loans in place of Commitment ** Percentage taken to 10 decimal places ATTACHMENT TO SCHEDULE 1 TO ASSIGNMENT AGREEMENT Attach Assignor's Administrative Information Sheet, which must include notice address for the Assignor and the Assignee (sample form shown below) ASSIGNOR INFORMATION CONTACT: Name: Telephone No.: Fax No: PAYMENT INFORMATION: Name & ABA No. of Destination Bank: Account Name & Number for Wire Transfer: Other Instructions: ADDRESS FOR NOTICES FOR ASSIGNOR: ASSIGNEE INFORMATION CREDIT CONTACT: Name: Telephone No.: Fax No: KEY OPERATIONS CONTACTS: Booking Installation: Name: Telephone No.: Fax No: PAYMENT INFORMATION: Name & ABA No. of Destination Bank: Account Name & Number for Wire Transfer: Other Instructions: ADDRESS FOR NOTICES FOR ASSIGNEE: FNBC INFORMATION Assignee will be called promptly upon receipt of the signed agreement. INITIAL FUNDING CONTACT: SUBSEQUENT OPERATIONS CONTACT: Name: Name: Telephone No.: (312) 732- Telephone No.: (312) 732- Fax No.: (312) 732- Fax No.: (312) 732- INITIAL FUNDING STANDARDS LIBOR - Fund 2 days after rates are set. FNBC WIRE INSTRUCTIONS: The First National Bank of Chicago, ABA #071000013 BNF = 7521-7653/DES, Ref: ADDRESS FOR NOTICES FOR FNBC: One First National Plaza Chicago, IL 60670 Attn: Agency/Compliance Division Suite 0353 Fax No. (312) 732-2038 or (312) 732-4339 EXHIBIT I TO ASSIGNMENT AGREEMENT NOTICE OF ASSIGNMENT _____________ __, ____ To: American Medical Security Group, Inc. 3100 AMS Boulevard Green Bay, Wisconsin 54313 The First National Bank of Chicago One First National Plaza Chicago, IL 60670 From: [NAME OF ASSIGNOR] (the "Assignor") [NAME OF ASSIGNEE] (the "Assignee") 1. We refer to the Amended and Restated Credit Agreement (the "Credit Agreement") described in Item 1 of SCHEDULE 1 attached hereto. Capitalized terms used herein and not otherwise defined herein or in such consent shall have the meanings attributed to them in the Credit Agreement. 2. This Notice of Assignment (this "Notice") is given and delivered to Group and the Agent pursuant to Section 12.3.2 of the Credit Agreement. 3. The Assignor and the Assignee have entered into an Assignment Agreement, dated as of , (the "Assignment"), pursuant to which, among other things, the Assignor has sold, assigned, delegated and transferred to the Assignee, and the Assignee has purchased, accepted and assumed from the Assignor the percentage interest specified in Item 3 of SCHEDULE 1 of all outstanding, rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of SCHEDULE 1, including, without limitation, such interest in the Assignor's Commitment (if applicable) and the Loans owing to the Assignor relating to such facilities. The effective date of the Assignment (the "Effective Date") shall be the later of the date specified in Item 5 of SCHEDULE 1 or two Business Days (or such shorter period as agreed to by the Agent) after this Notice of Assignment and any consents and fees required by Sections 12.3.1 and 12.3.2 of the Credit Agreement have been delivered to the Agent; PROVIDED, that the Effective Date shall not occur if any condition precedent agreed to by the Assignor and the Assignee has not been satisfied. 4. The Assignor and the Assignee hereby give to Group and the Agent notice of the assignment and delegation referred to herein. The Assignor will confer with the Agent before the date specified in Item 5 of SCHEDULE 1 to determine if the Assignment Agreement will become effective on such date pursuant to SECTION 3 hereof and will confer with the Agent to determine the Effective Date pursuant to SECTION 3 hereof if it occurs thereafter. The Assignor shall notify the Agent if the Assignment does not become effective on any proposed Effective Date as a result of the failure to satisfy the conditions precedent agreed to by the Assignor and the Assignee. At the request of the Agent, the Assignor will give the Agent written confirmation of the satisfaction of the conditions precedent. 5. The Assignor or the Assignee shall pay to the Agent on or before the Effective Date the processing fee of $3,500 required by Section 12.3.2 of the Credit Agreement. 6. If Notes are outstanding on the Effective Date, the Assignor and the Assignee request and direct that the Agent prepare and cause Group to execute and deliver new Notes or, as appropriate, replacement Notes, to the Assignor and the Assignee. The Assignor and, if applicable, the Assignee each agree to deliver to the Agent the original Notes received by it from Group upon its receipt of new Notes in the appropriate amount. 7. The Assignee advises the Agent that notice and payment instructions are set forth in the attachment to SCHEDULE 1. 8. Each party consenting to the Assignment in the space indicated below hereby releases the Assignor from any obligations to it which have been assigned to the Assignee. The Assignee hereby represents and warrants that none of the funds, monies, assets or other consideration being used to make the purchase pursuant to the Assignment are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA. 9. The Assignee authorizes the Agent to act as its agent under the Loan Documents in accordance with the terms thereof. The Assignee acknowledges that the Agent has no duty to supply information with respect to either Borrower or the Loan Documents to the Assignee until the Assignee becomes a party to the Credit Agreement. [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By: By: Title: Title: ACKNOWLEDGED AND CONSENTED TO [ACKNOWLEDGED AND CONSENTED BY THE FIRST NATIONAL BANK OF TO BY AMERICAN MEDICAL SECURITY CHICAGO, as agent GROUP, INC.] By: By: Title: Title: [Attach photocopy of Schedule 1 to Assignment] EXHIBIT C FORM OF REVOLVING NOTE $________________ Dated: October 15,1998 FOR VALUE RECEIVED, American Medical Security Group, Inc. (the "Borrower") HEREBY PROMISES TO PAY to the order of ________________ (the "Lender") the principal sum of ________________ United States Dollars ($_____) or, if less, the aggregate unpaid principal amount of the Revolving Loans made by the Lender to the Borrower pursuant to SECTION 2.1 of the Credit Agreement (as hereinafter defined), on or before the Facility Termination Date; together, in each case, with interest on any and all principal amounts remaining unpaid hereunder from time to time. Interest upon the unpaid principal amount hereof shall accrue at the rates, shall be calculated in the manner and shall be payable on the dates set forth in the Credit Agreement. After maturity, whether by acceleration or otherwise, accrued interest shall be payable upon demand. Both principal and interest shall be payable in accordance with the Credit Agreement to The First National Bank of Chicago, as Agent (the "Agent") on behalf of the Lender, at its main office in Chicago, Illinois in immediately available funds. The Revolving Loans made by the Lender to the Borrower pursuant to the Credit Agreement and all payments on account of principal hereof shall be recorded by the Lender and, prior to any transfer thereof, endorsed on SCHEDULE A attached hereto which is part of this Revolving Note or otherwise in accordance with its usual practices; PROVIDED, HOWEVER, that the failure to so record shall not affect the Borrower's obligations under this Revolving Note. This Revolving Note is a Revolving Note referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 15, 1998 by and among the Borrower, United Wisconsin Life Insurance Company, the financial institutions signatory thereto (including the Lender) and the Agent (as amended, modified or supplemented from time to time, the "Credit Agreement") and the other Loan Documents. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Revolving Note. THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. AMERICAN MEDICAL SECURITY GROUP, INC. By: Title: SCHEDULE A Revolving Credit Note dated October 15, 1998 payable to the order of [LENDER]
- -------------------------------------------------------------------------------------------------------------------- PRINCIPAL PAYMENTS - ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- Amount of Principal Amount of Principal Unpaid Principal BORROWED REPAID BALANCE Notation DATE MADE BY - ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- - ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
EXHIBIT D FORM OF SWING LINE NOTE $____________ Dated: October 15, 1998 FOR VALUE RECEIVED, [American Medical Security Group, Inc.] [United Wisconsin Life Insurance Company] (the "Borrower") HEREBY PROMISES TO PAY to the order of The First National Bank of Chicago (the "Swing Line Lender") the principal sum of _________ United States Dollars ($_________) or, if less, the aggregate unpaid principal amount of the Swing Line Loans made by the Swing Line Lender to the Borrower pursuant to SECTION 2.11 of the Credit Agreement (as hereinafter defined), on or before the Facility Termination Date; together, in each case, with interest on any and all principal amounts remaining unpaid hereunder from time to time. Interest upon the unpaid principal amount hereof shall accrue at the rates, shall be calculated in the manner and shall be payable on the dates set forth in the Credit Agreement. After maturity, whether by acceleration or otherwise, accrued interest shall be payable upon demand. Both principal and interest shall be payable in accordance with the Credit Agreement to The First National Bank of Chicago, as Agent (the "Agent") on behalf of the Swing Line Lender, at its main office in Chicago, Illinois in immediately available funds. This Swing Line Note is a Swing Line Note referred to in, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 15, 1998 by and among the Borrower, [United Wisconsin Life Insurance Company] [American Medical Security Group, Inc.], the financial institutions signatory thereto (including the Swing Line Lender) and the Agent (as amended, modified or supplemented from time to time, the "Credit Agreement") and the other Loan Documents. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Swing Line Note. THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. [AMERICAN MEDICAL SECURITY GROUP, INC.] [UNITED WISCONSIN LIFE INSURANCE COMPANY] By: Title: EX-10.1 3 EXHIBIT 10.1 EQUITY INCENTIVE PLAN AMERICAN MEDICAL SECURITY GROUP, INC. FEBRUARY 1993 (As Amended and Restated September 25, 1998) THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. AMERICAN MEDICAL SECURITY GROUP, INC. EQUITY INCENTIVE PLAN (As Amended and Restated September 25, 1998) TABLE OF CONTENTS ARTICLE SECTION PAGE 1 ESTABLISHMENT, PURPOSE AND DURATION 1.1 Establishment of the Plan 1 1.2 Purpose of the Plan 1 1.3 Duration of the Plan 2 2 DEFINITIONS 2 3 ADMINISTRATION 3.1 The Committee 6 3.2 Authority of the Committee 6 3.3 Decisions Binding 7 4 SHARES SUBJECT TO THE PLAN 4.1 Number of Shares 7 4.2 Lapsed Awards 8 4.3 Adjustments in Authorized Shares 9 5 ELIGIBILITY AND PARTICIPATION 5.1 Eligibility 9 5.2 Actual Participation 9 6 STOCK OPTIONS 6.1 Grant of Options 10 6.2 Option Award Agreement 10 6.3 Option Price 10 6.4 Duration of Options 10 6.5 Exercise of Options 10 6.6 Payment 11 6.7 Restrictions on Share Transferability 11 6.8 Termination of Employment Due to Death, Disability or 12 Retirement 6.9 Termination of Employment for Other Reasons 12 6.10 Restrictions on Transferability 13 7 STOCK APPRECIATION RIGHTS 7.1 Grant of SARs 13 7.2 Exercise of Tandem SARs 14 7.3 Exercise of Affiliated SARs 14 7.4 Exercise of Freestanding SARs 14 7.5 SAR Agreement 15 7.6 Term of SARs 15 7.7 Payment of SAR Amount 15 7.8 Rule 16b-3 Requirements 15 7.9 Termination of Employment Due to Death, Disability or 16 Retirement 7.10 Termination of Employment for Other Reasons 16 7.11 Non-transferability of SARs 17 8 RESTRICTED STOCK 8.1 Grant of Restricted Stock 17 8.2 Restricted Stock Agreement 17 8.3 Transferability 18 8.4 Other Restrictions 18 8.5 Certificate Legend 18 8.6 Removal of Restrictions 19 8.7 Voting Rights 19 8.8 Dividends and Other Distributions 19 8.9 Termination of Employment Due to Death, Disability or 19 Retirement 8.10 Termination of Employment for Other Reasons 20 9 PERFORMANCE UNITS AND PERFORMANCE SHARES 9.1 Grant of Performance Units/Shares 20 9.2 Value of Performance Units/Shares 20 9.3 Earning of Performance Units/Shares 21 9.4 Form and Timing of Payment of Performance Units/Shares 21 9.5 Termination of Employment Due to Death, Disability, 21 Retirement or Involuntary Termination (Without Cause) 9.6 Termination of Employment for Other Reasons 22 9.7 Non-transferability 22 10 BENEFICIARY DESIGNATION 22 11 DEFERRALS 23 12 RIGHTS OF EMPLOYEES 12.1 Employment 23 12.2 Participation 23 13 CHANGE IN CONTROL 23 14 AMENDMENT, MODIFICATION AND TERMINATION 14.1 Amendment, Modification and Termination 24 14.2 Awards Previously Granted 25 15 WITHHOLDING 15.1 Tax Withholding 25 15.2 Share Withholding 25 16 INDEMNIFICATION 26 17 SUCCESSORS 27 18 LEGAL CONSTRUCTION 18.1 Gender and Number 27 18.2 Severability 27 18.3 Requirements of Law 27 18.4 Securities Law Compliance 28 18.5 Governing Law 28 AMERICAN MEDICAL SECURITY GROUP, INC. EQUITY INCENTIVE PLAN (As Amended and Restated September 25, 1998) ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION 1.1 ESTABLISHMENT OF THE PLAN. American Medical Security Group, Inc., a Wisconsin corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "American Medical Security Group, Inc. Equity Incentive Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Non-qualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units, and Performance Shares. Upon approval by the Board of Directors of the Company, subject to ratification by an affirmative vote of a majority of Shares at an annual shareholders' meeting of the Company, the Plan shall become effective as of February 24, 1993 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. Awards may be granted prior to shareholder ratification of the Plan; provided, however, that in the event shareholder approval of the Plan is not obtained, all outstanding Awards shall become null and void. 1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success, and enhance the value, of the Company by linking the personal interests of Participants to those of Company shareholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants upon whose judgment, interest, and special effort the successful conduct of its operation is dependent. 1.3 DURATION OF THE PLAN. Subject to approval by the Board of Directors of the Company and ratification by the shareholders of the Company, the Plan shall commence on the Effective Date, as described in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 14 herein, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after February 24, 2003. ARTICLE 2. DEFINITIONS Whenever used in the Plan, the following terms shall have the meanings set forth below and when the meaning is intended, the initial letter of the word is capitalized: (a) "AFFILIATE" - a company closely related to American Medical Security Group, Inc. which is designated as Affiliate by the Board. For purposes of this Plan, United Wisconsin Services, Inc. (f/k/a Newco/UWS, Inc.) shall be considered an Affiliate with respect to Stock Options issued prior to September 11, 1998. "AFFILIATED SAR" means an SAR that is granted in connection with a related Option, and which will be deemed to automatically be exercised simultaneous with the exercise of the related Option. (b) "AWARD" means, individually or collectively, a grant under this Plan of Non-qualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units, or Performance Shares. (c) "AWARD AGREEMENT" means an agreement entered into by each Participant and the Company, setting forth the terms and provisions applicable to Awards granted to Participants under this Plan. (d) "BENEFICIAL OWNER" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (e) "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company. (f) "CAUSE" means: (i) willful and gross misconduct on the part of a Participant that is materially and demonstrably detrimental to the Company; or (ii) the commission by a Participant of one or more acts which constitute an indictable crime under United States Federal, state, or local law. "Cause" under either (i) or (ii) shall be determined in good faith by the Committee. (g) "CHANGE IN CONTROL" of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) Any Person (other than those Persons in control of the Company as of the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) During any period of two (2) consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority thereof; or (iii) The stockholders of the Company approve: A. a plan of complete liquidation of the Company; or B. an agreement for the sale or disposition of all or substantially all the Company's assets; or C. a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. However, in no event shall a Change-in-Control be deemed to have occurred, with respect to a Participant, if the Participant is part of a purchasing group which consummates the Change-in-Control transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change-in-Control by a majority of the non-employee continuing Directors). (h) "CODE" means the Internal Revenue Code of 1986, as amended from time to time. (i) "COMMITTEE" means the Compensation Committee of American Medical Security Group, Inc., as appointed by the Board to administer the Plan, or such other committee as may be appointed by the Board consistent with Section 3.1. (j) "COMPANY" means American Medical Security Group, Inc., a Wisconsin corporation or any successor thereto as provided in Article 17 herein. (k) "DIRECTOR" means any individual who is a member of the Board of Directors of the Company. (l) "DISABILITY" means a permanent and total disability, within the meaning of Code Section 22(e)(3), as determined by the Committee in good faith, upon receipt of sufficient competent medical advice from one or more individuals, selected by the Committee, who are qualified to give professional medical advice. (m) "EMPLOYEE" means any full-time employee of the Company or of the Company's Subsidiaries or affiliates. Directors who are not otherwise employed by the Company shall not be considered Employees under this Plan. (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto. (o) "FAIR MARKET VALUE" means the closing price for Shares on the relevant date, or (if there were no sales on such date) the average of closing prices on the nearest day before and the nearest day after the relevant date, on a stock exchange or over the counter, as determined by the Committee. (p) "FREESTANDING SAR" means an SAR that is granted independently of any Options. (q) "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares, granted under Article 6 herein, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code. (r) "INSIDER" shall mean an Employee who is, on the relevant date, an officer, director of the Company, as defined in Rule 16 under the Exchange Act. (s) "NON-QUALIFIED STOCK OPTION" or "NQSO" means an option to purchase Shares, granted under Article 6 herein, which is not intended to be an Incentive Stock Option. (t) "OPTION" means an Incentive Stock Option or a Non-qualified Stock Option. (u) "OPTION PRICE" means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee. (v) "PARTICIPANT" means an Employee of the Company who has outstanding an Award granted under the Plan. (w) "PERFORMANCE UNIT" means an Award granted to an Employee, as described in Article 9 herein. (x) "PERFORMANCE SHARE" means an Award granted to an Employee, as described in Article 9 herein. (y) "PERIOD OF RESTRICTION" means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, at its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 8 herein. (z) "PERSON" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (aa) "RESTRICTED STOCK" means an Award granted to a Participant pursuant to Article 8 herein. (bb) "RETIREMENT" shall have the meaning ascribed to it in the tax-qualified defined benefit retirement plan of the Company. (cc) "SHARES" means the shares of common stock of the Company. (dd) "SUBSIDIARY" means any corporation in which the Company owns directly, or indirectly through subsidiaries, at least fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns at least fifty percent (50%) of the combined equity thereof. (ee) "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Article 7 herein. (ff) "TANDEM SAR" means an SAR that is granted in connection with a related Option, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, an SAR shall similarly be cancelled). (gg) "WINDOW PERIOD" means the period beginning on the third (3rd) business day following the date of public release of the Company's quarterly sales and earnings information, and ending on the thirtieth (30th) day following such date. ARTICLE 3. ADMINISTRATION 3.1 THE COMMITTEE. The Plan shall be administered by the Compensation Committee of the Board of American Medical Security Group, Inc., or by any other Committee appointed by the Board consisting of not less than two (2) Directors who are not Employees. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. The Committee shall be comprised solely of Directors who are both: (i) Non-Employee Directors, as defined in Rule 16b-3 under the Exchange Act; and (ii) Outside Directors, as defined in Treas. Reg. 1.162-27. 3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power except as limited by law or by the Articles of Incorporation or By-laws of the Company, and subject to the provisions herein, to determine the size and types of Awards; to determine the terms and conditions of such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 14 herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate its authority as identified hereunder. 3.3 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive, and binding on all Persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries. ARTICLE 4. SHARES SUBJECT TO THE PLAN 4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3 herein, the total number of Shares available for grant under the Plan may not exceed 4,000,000. These 4,000,000 Shares may be either authorized but unissued or reacquired Shares. The following rules will apply for purposes of the determination of the number of Shares available for grant under the Plan: (a) While an Award is outstanding, it shall be counted against the authorized pool of Shares, regardless of its vested status. (b) The grant of an Option or Restricted Stock shall reduce the Shares available for grant under the Plan by the number of Shares subject to such Award. (c) The grant of a Tandem SAR shall reduce the number of Shares available for grant by the number of Shares subject to the related Option (i.e., there is no double counting of Options and their related Tandem SARs). (d) The Grant of an Affiliated SAR shall reduce the number of Shares available for grant by the number of Shares subject to the SAR, in addition to the number of Shares subject to the related Option. (e) The grant of a Freestanding SAR shall reduce the number of Shares available for grant by the number of Freestanding SARs granted. (f) The Committee shall in each case determine the appropriate number of Shares to deduct from the authorized pool in connection with the grant of Performance Units and/or Performance Shares. (g) To the extent that an Award is settled in cash rather than in Shares, the authorized Share pool shall be credited with the appropriate number of Shares represented by the cash settlement of the Award, as determined at the sole discretion of the Committee (subject to the limitation set forth in Section 4.2 herein). The maximum number of Shares with respect to which Awards may be made to any Employee annually shall not exceed 250,000 shares. Notwithstanding the foregoing, if the Employee receives the Award prior to March 31, 1997 in connection with the Employee's initial employment by the Company or in connection with a merger or acquisition by the Company, the maximum number of Shares with respect to which Awards may be made during the three (3) year period ended March 31, 1997 shall be 850,000 Shares. 4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled, terminates, expires, or lapses for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Option, or the termination of a related Option upon exercise of the corresponding Tandem SAR), any Shares subject to such Award again shall be available for the grant of an Award under the Plan. However, in the event that prior to the Award's cancellation, termination, expiration, or lapse, the holder of the Award at any time received one or more "benefits of ownership" pursuant to such Award (as defined by the Securities and Exchange Commission, pursuant to any rule or interpretation promulgated under Section 16 of the Exchange Act), the shares subject to such Award shall not be made available for regrant under the Plan. 4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number of class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Options, SARs, and Restricted Stock granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the number of Shares subject to any Award shall always be a whole number. ARTICLE 5. ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBILITY. Persons eligible to participate in this Plan include all full-time, active Employees of the Company and its Subsidiaries, as determined by the Committee, including Employees who are members of the Board, but excluding Directors who are not Employees. 5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees, those to whom Awards shall be granted and shall determine the nature and amount of each award. ARTICLE 6. STOCK OPTIONS 6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to Employees at any time and from time to time as shall be determined by the Committee. The Committee shall have discretion in determining the number of Shares subject to Options granted to each Participant. The Committee may grant ISOs, NQSOs, or a combination thereof. 6.2 OPTION AWARD AGREEMENT. Each Option grant shall be evidenced by an Option Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Option Award Agreement also shall specify whether the Option is intended to be an ISO within the meaning of Section 422 of the Code, or an NQSO whose grant is intended not to fall under the Code provisions of Section 422. 6.3 OPTION PRICE. The Option Price for each grant of an Option shall be determined by the Committee; provided that the Option Price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted. 6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no ISO shall be exercisable later than the tenth (10th) anniversary date of its grant, and no NQSO shall be exercisable later than the twelfth (12th) anniversary date of its grant. 6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. However, in no event may any Option granted under this Plan become exercisable prior to six (6) months following the date of its grant. 6.6 PAYMENT. Options shall be exercised by the delivery of a written notice of exercise to the Secretary of the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent, or (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price), or (c) by a combination of (a) and (b). The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s). 6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option under the Plan, as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any Stock exchange or market upon which such Shares are then listed and/or traded, and under any Blue Sky or state securities laws applicable to such Shares. 6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT. (a) TERMINATION BY DEATH. In the event the employment of a Participant is terminated by reason of death, all outstanding Options granted to that Participant shall immediately vest one hundred percent (100%), and shall remain exercisable at any time prior to their expiration date, or for one (1) year after the date of death, whichever period is shorter, by such person or persons as shall have been named as the Participant's beneficiary, or by such persons that have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. (b) TERMINATION BY DISABILITY. In the event the employment of a Participant is terminated by reason of Disability, all outstanding Options granted to that Participant shall immediately vest one hundred percent (100%) as of the date the Committee determines the definition of Disability to have been satisfied, and shall remain exercisable at any time prior to their expiration date, or for one (1) year after the date that the Committee determines the definition of Disability to have been satisfied, whichever period is shorter. (c) TERMINATION BY RETIREMENT. In the event the employment of a Participant is terminated by reason of Retirement, the Committee shall retain discretion over the treatment of Options. (d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that a Participant's employment terminates by reason of Disability or Retirement, and within the exercise period allowed by the Committee following such termination the Participant dies, then the remaining exercise period under outstanding Options shall equal the longer of: (i) one (1) year following death; or (ii) the remaining portion of the exercise period which was triggered by the employment termination. Such Options shall be exercisable by such person or persons who shall have been named as the Participant's beneficiary, or by such persons who have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. (e) EXERCISE LIMITATIONS ON ISOS. In the case of ISOs, the tax treatment prescribed under Section 422 of the Internal Revenue Code of 1986, as amended, may not be available if the Options are not exercised within the Section 422 prescribed time periods after each of the various types of employment termination. 6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a Participant shall terminate for any reason other than the reasons set forth in Section 6.8 (and other than for Cause), all Options held by the Participant which are not vested as of the effective date of employment termination immediately shall be forfeited to the Company (and shall once again become available for grant under the Plan). However, the Committee, in its sole discretion, shall have the right to immediately vest all or any portion of such Options, subject to such terms as the Committee, in its sole discretion, deems appropriate. Options which are vested as of the effective date of employment termination may be exercised by the Participant for a period of up to six (6) months following termination, or for such longer period up to one (1) year as the Committee determines with respect to a particular Participant. If the employment of a Participant shall be terminated by the Company for Cause, all outstanding options held by the Participant immediately shall be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the Option. For purposes of this Section and Section 6.8, a termination of employment shall occur only after the Employee ceases to be an Employee of the Company and all Affiliates. 6.10 RESTRICTIONS ON TRANSFERABILITY. No Option granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, and shall be exercisable by a Participant during his or her lifetime only by the Participant except that NQSOs may be transferred by a Participant to the Participant's spouse, children or grandchildren or to a trust for the benefit of such spouse, children or grandchildren. ARTICLE 7. STOCK APPRECIATION RIGHTS 7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, an SAR may be granted to an Employee at any time and from time to time as shall be determined by the Committee. The Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination of these forms of SAR. The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to Article 4 herein) and consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. However, the grant price of a Freestanding SAR shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem or Affiliated SARs shall equal the Option Price of the related Option. In no event shall any SAR granted hereunder become exercisable within the first six (6) months of its grant. 7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO. 7.3 EXERCISE OF AFFILIATED SARS. Affiliated SARs shall be deemed to be exercised upon the exercise of the related Options. The deemed exercise of Affiliated SARs shall not necessitate a reduction in the number of related Options. 7.4 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them. 7.5 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine. 7.6 TERM OF SARS. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that such term shall not exceed twelve (12) years. 7.7 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (a) The difference between the Fair Market Value of a Share on the date of exercise over the grant price; by (b) The number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. 7.8 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on exercise of an SAR (including, without limitation, the right of the Committee to limit the time of exercise to specified periods) as may be required to satisfy the requirements of Section 16 (or any successor rule) of the Exchange Act. For example, if the Participant is an Insider, the ability of the Participant to exercise SARs for cash will be limited to Window Periods. However, if the Committee determines that the Participant is not an Insider, or if the securities laws change to permit greater freedom of exercise of SARs, then the Committee may permit exercise at any point in time, to the extent the SARs are otherwise exercisable under the Plan. 7.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. (a) TERMINATION BY DEATH. In the event the employment of a Participant is terminated by reason of death, all outstanding SARs granted to that Participant shall immediately vest one hundred percent (100%), and shall remain exercisable at any time prior to their expiration date, or for one (1) year after the date of death, whichever period is shorter, by such person or persons as shall have been named as the Participant's beneficiary, or by such persons that have acquired the Participant's rights under the SAR by will or by the laws of descent and distribution. (b) TERMINATION BY DISABILITY. In the event the employment of a Participant is terminated by reason of Disability, all outstanding SARs granted to that Participant shall immediately vest one hundred percent (100%) as of the date the Committee determines the definition of Disability to have been satisfied, and shall remain exercisable at any time prior to their expiration date, or for one (1) year after the date that the Committee determines the definition of Disability to have been satisfied, whichever period is shorter. (c) TERMINATION BY RETIREMENT. In the event the employment of a Participant is terminated by reason of Retirement, the Committee shall retain discretion over the treatment of SARs. (d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that a Participant's employment terminates by reason of Disability or Retirement, and within the exercise period allowed by the Committee following such termination, the Participant dies, then the remaining exercise period under outstanding SARs shall equal the longer of: (i) one (1) year following death; or (ii) the remaining portion of the exercise period which was triggered by the employment termination. Such SARs shall be exercisable by such person or persons who shall have been named as the Participant's beneficiary, or by such persons who have acquired the Participant's rights under the SAR by will or by the laws of descent and distribution. 7.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a Participant shall terminate for any reason other than the reasons set forth in Section 7.9 (and other than for Cause), all SARs held by the Participant which are not vested as of the effective date of employment termination immediately shall be forfeited to the Company (and shall once again become available for grant under the Plan). However, the Committee, in its sole discretion, shall have the right to immediately vest all or any portion of such SARs, subject to such terms as the Committee, in its sole discretion, deems appropriate. SARs which are vested as of the effective date of employment termination may be exercised by the Participant within the period beginning on the effective date of employment termination, and ending six (6) months after such date. If the employment of a Participant shall be terminated by the Company for Cause, all outstanding SARs held by the Participant immediately shall be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the SARs. 7.11 NON-TRANSFERABILITY OF SARS. No SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant. ARTICLE 8. RESTRICTED STOCK 8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to eligible Employees in such amounts as the Committee shall determine. 8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement that shall specify the Period of Restriction, or Periods, the number of Restricted Stock Shares granted, and such other provisions as the Committee shall determine. 8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. However, in no event may any Restricted Stock granted under the Plan become vested in a Participant prior to six (6) months following the date of its grant. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant. 8.4 OTHER RESTRICTIONS. The Committee shall impose such other restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions based upon the achievement of specific performance goals (Company-wide, divisional, and/or individual), and/or restrictions under applicable Federal or state securities laws; and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. 8.5 CERTIFICATE LEGEND. In addition to any legends placed on certificates pursuant to Section 8.4 herein, each certificate representing Shares of Restricted Stock granted pursuant to the Plan shall bear the following legend: "The sale or other transfer of the Shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the American Medical Security Group, Inc. Equity Incentive Plan, and in a Restricted Stock Agreement. A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of American Medical Security Group, Inc." 8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. Once the Shares are released from the restrictions, the Participant shall be entitled to have the legend required by Section 8.5 removed from his or her Share certificate. 8.7 VOTING RIGHTS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares. 8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those Shares while they are so held. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. In the event that any dividend constitutes a "derivative security" or an "equity security" pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a vesting period equal to the longer of: (i) the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid; or (ii) six (6) months. The Committee shall establish procedures for the application of this provision. 8.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In the event the employment of a Participant is terminated by reason of death or Disability, all outstanding Shares of Restricted Stock shall immediately vest one hundred percent (100%) as of the date of employment termination (in the case of Disability, the date employment terminates shall be deemed to be the date that the Committee determines the definition of Disability to have been satisfied). The Committee retains discretion over the treatment of Restricted Stock upon Retirement. In the event of full vesting, the holder of the certificates of Restricted Stock shall be entitled to have any non-transferability legends required under Sections 8.4 and 8.5 of this Plan removed from the Share certificates. 8.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a Participant shall terminate for any reason other than those specifically set forth in Section 8.9 herein, all Shares of Restricted Stock held by the Participant which are not vested as of the effective date of employment termination immediately shall be forfeited and returned to the Company (and, subject to Section 4.2 herein, shall once again become available for grant under the Plan). With the exception of a termination of employment for Cause, the Committee, in its sole discretion, shall have the right to provide for lapsing of the restrictions of Restricted Stock following employment termination, upon such terms and provisions as it deems proper. ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES 9.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan, Performance Units and Performance Shares may be granted to eligible Employees at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant. 9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares that will be paid out to the Participants. The time period during which the performance goals must be met shall be called a "Performance Period." Performance Periods shall, in all cases, exceed six (6) months in length. 9.3 EARNING OF PERFORMANCE UNITS/SHARES. After the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number of Performance Units/Shares earned by the Participant over The Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved. 9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of earned Performance Units/Shares shall be made in a single lump sum, within forty-five (45) calendar days following the close of the applicable Performance Period. The Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or in Shares (or in a combination thereof), which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period. Prior to the beginning of each Performance Period, Participants may elect to defer the receipt of Performance Unit/Share payout upon such terms as the Committee deems appropriate. 9.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT, OR INVOLUNTARY TERMINATION (WITHOUT CAUSE). In the event the employment of a Participant is terminated by reason of death or Disability or involuntary termination without Cause during a Performance Period, the Participant shall receive a prorated payout of the Performance Units/Shares. The Committee retains discretion over the treatment of Performance Units/Shares upon Retirement. Any prorated payout shall be determined by the Committee, in its sole discretion, and shall be based upon the length of time that the Participant held the Performance Units/Shares during the Performance Period, and shall further be adjusted based on the achievement of the pre-established performance goals. Timing of payment of earned Performance Units/Shares shall be determined by the Committee at its sole discretion. 9.6 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a Participant's employment terminates for any reason other than those reasons set forth in Section 9.5 herein, all Performance Units/Shares shall be forfeited by the Participant to the Company, and shall once again be available for grant under the Plan. 9.7 NON-TRANSFERABILITY. Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant or the Participant's legal representative. ARTICLE 10. BENEFICIARY DESIGNATION Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in the form prescribed by the Company and will be effective only when any necessary spousal consent is obtained and filed by the Participant in writing with the Secretary of the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. ARTICLE 11. DEFERRALS The Committee may permit a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of the Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. ARTICLE 12. RIGHTS OF EMPLOYEES 12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) or Parent (Blue Cross & Blue Shield United of Wisconsin) shall not be deemed a termination of employment. 12.2 PARTICIPATION. No Employee shall have the right to be selected to receive an Award under this Plan, or having been so selected, to be selected to receive a future Award. ARTICLE 13. CHANGE IN CONTROL Upon the occurrence of a Change in Control, unless otherwise specifically prohibited by the terms of Section 18, herein: (a) Any and all Options and SARs granted hereunder shall become immediately exercisable; (b) Any restriction periods and restrictions imposed on Restricted Shares shall lapse, and within ten (10) business days after the occurrence of a Change in Control, the stock certificates representing Shares of Restricted Stock, without any restrictions or legend thereon, shall be delivered to the applicable Participants; (c) The target value attainable under all Performance Units and Performance Shares shall be deemed to have been fully earned for the entire Performance Period as of the effective date of the Change in Control, and shall be paid out in cash to Participants within thirty (30) days following the effective date of the Change in Control; provided, however, that there shall not be an accelerated payout with respect to Performance Units or Performance Shares which were granted less than six (6) months prior to the effective date of the Change in Control; (d) Subject to Article 14 herein, the Committee shall have the authority to make any modifications to the Awards as determined by the Committee to be appropriate before the effective date of the Change in Control. ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION 14.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend, or modify the Plan. However, without the approval of the shareholders of the Company (as may be required by the Code, by the insider trading rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Shares are then listed or reported, or by a regulatory body having jurisdiction with respect hereto), no such termination, amendment or modification may: (a) Materially increase the total number of Shares which may be issued under this Plan, except as provided in Section 4.3 herein; or (b) Materially modify the eligibility requirements to add a class of Insiders; or (c) Materially increase the benefits accruing to Insiders under the Plan. 14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award. ARTICLE 15. WITHHOLDING 15.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event arising or as a result of this Plan. 15.2 SHARE WITHHOLDING. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All elections shall be irrevocable, made in writing, signed by the Participant, and elections by Insiders shall additionally comply with the applicable requirement set forth in (a) or (b) of this Section 15.2. (a) AWARDS HAVING EXERCISE TIMING WITHIN INSIDERS' DISCRETION. The Insider must either: (i) Deliver written notice of the stock withholding election to the Committee at least six (6) months prior to the date specified by the Insider on which the exercise of the Award is to occur; or (ii) Make the stock withholding election in connection with an exercise of an Award which occurs during a Window Period. (b) AWARDS HAVING A FIXED EXERCISE/PAYOUT SCHEDULE WHICH IS OUTSIDE INSIDERS' CONTROL. The Insider must either: (i) Deliver written notice of the stock withholding election to the Committee at least six (6) months prior to the date on which the taxable event (e.g., exercise or payout) relating to the Award is scheduled to occur; or (ii) Make the stock withholding election during a Window Period which occurs prior to the scheduled taxable event relating to the Award (for this purpose, an election may be made prior to such a Window Period, provided that it becomes effective during a Window Period occurring prior to the applicable taxable event). ARTICLE 16. INDEMNIFICATION Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or By-laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. ARTICLE 17. SUCCESSORS All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. ARTICLE 18. LEGAL CONSTRUCTION 18.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 18.2 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision set forth in the Plan, if required by the then-current Section 16 of the Exchange Act, any "derivative security" or "equity security" offered pursuant to the Plan to any Insider may not be sold or transferred for at least six (6) months after the date of grant of such Award. The terms "equity security" and "derivative security" shall have the meanings ascribed to them in the then-current Rule 16(a) under the Exchange Act. 18.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions or Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 18.5 GOVERNING LAW. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Wisconsin. EX-10.2 4 EXHIBIT 10.2 1995 DIRECTOR STOCK OPTION PLAN OF AMERICAN MEDICAL SECURITY GROUP, INC. (Reflects all amendments through November 16, 1998*) THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. *As authorized September 25, 1998 1995 DIRECTOR STOCK OPTION PLAN OF AMERICAN MEDICAL SECURITY GROUP, INC. 1. PURPOSE OF THE PLAN The purpose of the Plan is to attract and retain superior Directors, to provide a stronger incentive for such Directors to put forth maximum effort for the continued success and growth of the Company and its affiliates and, in combination with these goals, to encourage stock ownership in the Company by Directors. 2. DEFINITIONS Unless the context otherwise requires, the following terms shall have the meanings set forth below: (a) "Administrator" shall mean the Board of Directors or any executive officer or officers of the Company designated by the Board of Directors which may include the Company's Director of Human Resources. (b) "Board of Directors" or "Board" shall mean the entire board of directors of the Company, consisting of both Employee and non-Employee members. (c) "Cause" shall mean: (I) willful and gross misconduct on the part of a Participant that is materially and demonstrably detrimental to the Company; or (ii) the commission by a Participant of one or more acts which constitute an indictable crime under United States Federal, state, or local law. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Company" shall mean American Medical Security Group, Inc., a Wisconsin corporation. (f) "Director" shall mean an individual who is a non-Employee member of the Board of Directors. (g) "Disability" shall mean a physical or mental incapacity which results in a Director no longer serving as a member of the Board of Directors. (h) "Effective Date" shall mean February 22, 1995, or such other date as the Board of Directors may establish as the Effective Date. (i) "Employee" shall mean an individual who is a full-time employee of the Company or a Subsidiary. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" for a Share shall mean the Market Price for a Share on the business day immediately preceding the relevant date. (l) "Market Price" shall mean the closing price for Shares on the relevant date as reported on the New York Stock Exchange, or (if there were no sales on such date) the average of closing prices on the nearest day before and the nearest day after the relevant date. (m) "Option" shall mean an option which does not comply with the provisions of Section 422 of the Code and which is granted under the Plan to purchase Shares. (n) "Option Agreement" shall mean the agreement between the Company and a Director whereby an Option is granted to a Director. (o) "Participant" shall mean a Director of the Company who has outstanding an Option granted under the Plan. (p) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (q) "Plan" shall mean the 1995 Director Stock Option Plan of the Company. (r) "Retirement" shall mean: (i) a Director's determination after serving a full three-year term not to stand for reelection to the Board of Directors at the next annual meeting of the Board, (ii) the inability of the Director to stand for reelection to the Board due to age guidelines adopted by the Board, or (iii) a Director's resigning from the Board after reaching seventy (70) years of age. (s) "Share" shall mean a share of the no par value common stock of the Company. (t) "Subsidiary" shall mean a subsidiary corporation of the Company as defined in Section 424(f) of the Code. (u) "Triggering Event" shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) Any Person (other than those Persons in control of the Company as of the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) During any period of two (2) consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved) (the "Incumbent Board"), cease for any reason to constitute a majority thereof; PROVIDED, HOWEVER, that any person becoming a Director after the Effective Date and whose initial assumption of office occurs as a result of an actual or threatened election contest which was (or, if threatened, would have been) subject to Rule 14a-11 under the Exchange Act shall be excluded from being considered a member of the Incumbent Board; or (iii) The stockholders of the Company approve: (A) a plan of complete liquidation of the Company; or (B) an agreement for the sale or disposition of all or substantially all of the Company's assets; or (C) a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. However, in no event shall a "Triggering Event" be deemed to have occurred, with respect to a Participant, if the Participant is part of a purchasing group which consummates the Triggering Event transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of an equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Triggering Event by a majority of the continuing Directors). Following the occurrence of an event which is not a Triggering Event whereby there is a successor holding company to the Company, or, if there is no such successor, whereby the Company is not the surviving corporation in a merger or consolidation, the surviving corporation or successor holding company (as the case may be), for purposes of this definition, shall thereafter be referred to as the Company. Words importing the singular shall include the plural and vice versa and words importing the masculine shall include the feminine. 3. ADMINISTRATION The Plan shall be administered by the Administrator. The terms and conditions under which Options may be granted are set forth in Paragraph 6. The Administrator shall have the authority to interpret the provisions of the Plan, to establish such rules and procedures as may be necessary or advisable to administer the Plan and to make all determinations necessary or advisable for the administration of the Plan; PROVIDED, HOWEVER, that no such interpretation or determination shall change or affect the eligibility of Directors to receive Options, the number of Shares covered by or the timing of any Option grant under the Plan or the terms and conditions thereof. The interpretation and construction by the Administrator of any Plan provision or of any Option Agreement shall be final and binding upon all persons. 4. SHARES RESERVED UNDER THE PLAN The aggregate number of Shares which may be issued or sold under the Plan and which are subject to outstanding Options at any time shall not exceed seventy-five thousand (75,000) Shares, which may be treasury Shares or authorized but unissued Shares, or a combination of the two, subject to adjustment as provided in Paragraph 10 hereof. Any Shares subject to an Option which expires or terminates for any reason (whether by voluntary surrender, lapse of time or otherwise) and is unexercised as to such Shares may again be the subject of an Option under the Plan subject to the limits set forth above. A Director shall be entitled to the rights and privileges of ownership with respect to the Shares subject to the Option only after actual purchase and issuance of such Shares pursuant to exercise of all or part of an Option. 5. PARTICIPATION Only Directors shall be eligible to receive Options under the Plan. 6. OPTIONS: TERMS AND CONDITIONS (a) OPTION AGREEMENT. Each Option granted under the Plan shall be evidenced by a written Option Agreement which shall specify the number of Shares that may be acquired through its exercise, and which shall comply with and be subject to the following terms and conditions: (i) INITIAL OPTION GRANTS. Upon the Effective Date of the Plan each Director shall be granted an Option to purchase three thousand (3,000) Shares, subject to adjustment as provided in Paragraph 10 hereof. The effective date of these initial grants shall be the Effective Date of the Plan. (ii) GRANTS TO SUBSEQUENT DIRECTORS. To the extent Shares are available for grant under the Plan, each Director who is first elected as a Director subsequent to the Effective Date (a "Subsequent Director") shall be granted, as of the date on which such Subsequent Director is qualified and first begins to serve as a Director, an Option to purchase 5,000 Shares, subject to adjustment pursuant to Paragraph 10, or to purchase such lesser number of Shares as remain available for grant under the Plan. In the event that the number of Shares available for grant under the Plan is insufficient to make all grants hereby specified on the relevant date, then all Directors who are entitled to a grant on such date shall share ratably in the number of Shares then available for grant under the Plan. The purchase price per Share deliverable upon exercise of such Option shall equal the Fair Market Value of a Share on the date the grant of this Option is effective. If sufficient Shares are not available under the Plan to fulfill the grant of Options to any Subsequent Director first elected after the Effective Date, and thereafter additional Shares become available, such Subsequent Director receiving an Option for fewer than 5,000 Shares shall then receive an Option to purchase an amount of Shares, determined by dividing the number of Shares available pro-rata among each Subsequent Director receiving an Option for fewer than 5,000 Shares, then available under the Plan, not to exceed 5,000 Shares, subject to adjustment as to any one Subsequent Director. The date of grant shall be the date such additional Shares become available. The purchase price per Share deliverable upon exercise of an Option shall equal the Fair Market Value of a Share on the date the Option is granted. If a Subsequent Director receives an Option to purchase fewer than 5,000 Shares, subject to adjustment pursuant to Paragraph 10 hereof, and additional Shares subsequently become available under the Plan, an Option to purchase such Shares shall first be allocated as of the date of availability to any Subsequent Director who has not previously been granted an Option. Such Options shall be granted to purchase a number of Shares no greater than the number of Shares covered by Options granted to other Subsequent Directors first elected subsequent to the Effective Date, but who have received Options to purchase fewer than 5,000 Shares (subject to adjustment pursuant to Paragraph 10). Thereafter, Options for any remaining Shares shall be granted pro-rata among all Subsequent Directors granted Options to purchase fewer than 5,000 Shares. No Director first elected after the Effective Date shall receive an Option to purchase more than 5,000 Shares (subject to adjustment under Paragraph 10). Notwithstanding anything to the contrary contained in this Paragraph 6(a)(ii), no person who was a participant at any time prior to July 24, 1998 shall be entitled to receive an Option to purchase Shares in excess of 3,000 Shares per such Participant as a result of the July 24, 1998 amendment of this Paragraph increasing the number of Shares subject to each Option from 3,000 to 5,000 Shares; provided, however, that any such person who continues as a participant following completion of the distribution to shareholders of the Company of shares of stock of the Company's wholly owned subsidiary Newco/UWS, Inc. and who has not already received Options to purchase a total of 5,000 Shares shall be granted an Option to purchase a number of Shares equal to 5,000 MINUS the total number of Shares currently subject to issued and outstanding Options with respect to such Participant. (b) OPTION EXERCISE PRICE. The per share exercise price of the Shares purchasable under each Option shall be equal to one hundred percent (100%) of the Fair Market Value per Share on the date of grant of such Option. (c) VESTING OF OPTIONS. An Option for Shares can not be exercised until it is vested. Subject to acceleration as provided below, Options shall vest annually at the rate of thirty-three and one third percent (33-1/3%) of the aggregate number of Shares granted annually beginning on the first anniversary of the date of grant and on each subsequent anniversary of the date of grant thereafter. If a Director's tenure ends during the applicable three-year period, however, the Director's rights in the Option shall be as follows: (i) DEATH, DISABILITY. Upon the death or Disability of a Director, each Option of such Director shall become immediately exercisable as to one hundred percent (100%) of the Shares covered thereby as of the Director's last day of service as a Director with the Company; (ii) RETIREMENT. In the event of a Director's Retirement from the Board, such Director's Option shall become exercisable as to one hundred percent (100%) of the Shares covered thereby as of the earlier of: (I) the date of the Company's annual shareholders' meeting at which he or she would otherwise, but for said Retirement, be a nominee for election to the Board, or (ii) the date on which the Director attains seventy (70) years of age; (iii) TRIGGERING EVENT. Upon the occurrence of a Triggering Event, each Option outstanding under the Plan shall become immediately exercisable as to one hundred percent (100%) of the Shares covered thereby; or (iv) ANY OTHER REASON. If a Director's tenure ends for any reason other than death, Disability, Retirement or as the result of a Triggering Event, the unvested portion of such Director's Option shall lapse immediately. Once any portion of an Option becomes exercisable, it shall remain exercisable for the shortest period of (1) twelve years from the date of grant; or (2) two (2) years following the date on which the Director ceases to serve in such capacity for any reason other than removal for Cause. If a Director is removed for Cause, all outstanding Options held by the Participant shall immediately be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the Options. (d) PAYMENT OF EXERCISE PRICE. The purchase or exercise price shall be payable in whole or in part in cash or Shares; and such price shall be paid in full at the time that an Option is exercised. If a Director elects to pay all or a part of the purchase or exercise price in Shares, such Director shall make such payment by delivering to the Company a number of Shares already owned by the Director equal in value to the purchase or exercise price. All Shares so delivered shall be valued at their Market Price on the business day immediately preceding the day on which such Shares are delivered. 7. TRANSFERABILITY An Option granted to a Director under this Plan shall not be transferable or subject to execution, attachment or similar process, and during the lifetime of the Director shall be exercisable only by the Director. A Director shall have the right to transfer the Option upon such Director's death, either by the terms of such Director's will or under the laws of descent and distribution, and all such distributees shall be subject to all terms and conditions of this Plan to the same extent as would the Director, except as otherwise expressly provided herein. Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when any necessary spousal consent is obtained and filed by the Participant in writing with the Secretary of the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. 8. EXERCISE An Option shall be exercisable by a Director's giving written notice of exercise to the Secretary of the Company specifying the number of Shares to be purchased and such other documentation as the Administrator shall reasonably require accompanied by payment in full of the required exercise price. The Company shall have the right to delay the issue or delivery of any Shares under the Plan until: (a) the completion of such registration or qualification of such Shares under any federal or state law, ruling or regulation as the Company shall determine to be necessary or advisable, and (b) receipt from the Director of such documents and information as the Company may deem necessary or appropriate in connection with such registration or qualification. In no event may any Option become exercisable prior to six (6) months following the date of its grant. The Administrator also may allow cashless exercise as permitted under the Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or exercise by any other means which the Administrator determines to be consistent with the Plan's purpose and applicable law. 9. SECURITIES LAWS Each Option Agreement shall contain such representations, warranties and other terms and conditions as shall be necessary in the opinion of counsel to the Company to comply with all applicable federal and state securities laws. The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act. Any provision of the Plan or of any Option Agreement inconsistent with the terms of such Rule shall be inoperative and shall not affect the validity of the Plan, such Option Agreement or any provision thereof. 10. ADJUSTMENT PROVISIONS In the event of any stock dividend, split-up, recapitalization, merger, consolidation, combination or exchange of shares, or the like, as a result of which shares of any class shall be issued in respect of the outstanding Shares, or the Shares shall be changed into the same or a different number of the same or another class of stock, or into securities of another person, cash or other property (not including a regular cash dividend), the total number of Shares authorized to be offered in accordance with Paragraph 4, the number of Shares subject to each outstanding Option, the exercise price applicable to each such Option, and/or the consideration to be received upon exercise of each such Option shall be appropriately adjusted. 11. TAXES The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes required by law to be withheld with respect to any taxable event arising or as a result of this Plan, and the Company may defer making delivery of Shares obtained pursuant to the exercise of an Option until arrangements satisfactory to it have been made with respect to any such withholding obligations. If a withholding obligation should arise, a Director exercising an Option may, at his or her election, provided applicable laws and regulations are complied with, satisfy his or her obligation for payment of withholding taxes either by having the Company retain a number of Shares having an aggregate Market Price on the date the Shares are withheld equal to the amount of the withholding tax or by delivering to the Company Shares already owned by the Director having an aggregate Market Price on the business day immediately preceding the day on which such Shares are delivered equal to the amount of the withholding tax. In addition, the Director's tax obligation may be satisfied through a cashless exercise, if the Administrator so allows. 12. EFFECTIVE DATE OF THE PLAN Upon approval by the Board of Directors of the Company, subject to ratification by an affirmative vote of a majority of Shares at an annual shareholders' meeting of the Company, the Plan shall become effective as of February 22, 1995, or such later date as the Board may determine, and shall remain in effect as provided herein. Options may be granted prior to shareholder ratification of the Plan; provided, however, that in the event shareholder approval of the Plan is not obtained, all outstanding Options shall become null and void. 13. TERMINATION AND AMENDMENT With the approval of the Board of Directors, the Administrator may terminate the Plan or make such modifications or amendments thereof as it shall deem advisable, including, but not limited to, such modifications or amendments as it shall deem advisable in order to conform to any law or regulation applicable thereto; provided, HOWEVER, that the Administrator may not amend the Plan more frequently than once every six months (except as to comport with changes in the Code or the Employee Retirement Income Security Act of 1974, as amended) and may not, unless otherwise permitted under federal law, without further approval of the holders of a majority of the Shares voted at any meeting of shareholders at which a quorum is present and voting, adopt any amendment to the Plan for which shareholder approval is required under tax, securities or any other applicable law, including, but not limited to, any amendment to the Plan which would cause the Plan to no longer comply with Rule 16b-3 of the Exchange Act or any successor rule or other regulatory requirements. Subject to the right of the Administrator to terminate the Plan at any time, the Plan shall remain in effect until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Option award be granted under the Plan on or after February 22, 2005. No termination, modification or amendment of the Plan may, without the consent of a Director, adversely affect the rights of such Director under an outstanding Option then held by the Director. 14. TENURE The grant of an Option pursuant to the Plan is no guarantee that a Director will be renominated, reelected or reappointed as a Director, and nothing in the Plan shall be construed as conferring upon a Director the right to continue to be associated with the Company as a Director or otherwise. 15. SUCCESSORS All obligations of the Company under the Plan, with respect to Option grants hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 16. APPLICABLE LAW The Plan will be administered in accordance with the laws of the State of Wisconsin. EX-10.3 5 EXHIBIT 10.3 AMERICAN MEDICAL SECURITY GROUP, INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS (AS AMENDED AND RESTATED SEPTEMBER 25, 1998) 1. PURPOSE OF PLAN The purpose of the American Medical Security Group, Inc. Deferred Compensation Plan for Directors ("Plan") is to provide a procedure whereby a member of the Board of Directors of American Medical Security Group, Inc. (the "Company") who is not an employee of the Company or any of its subsidiaries (the "Director") may defer the payment of all or a specified portion of the compensation payable to the Director for services as a Director, including the retainer, meeting fees, and other fees payable in connection with his or her Board and committee responsibilities ("Fees"). 2. ADMINISTRATION The Plan shall be administered by a committee ("Committee") consisting of members of the Compensation Committee of the Board of Directors. The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan, to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The determinations of the Committee on the foregoing matters shall be conclusive and binding on all interested parties. 3. ELECTION TO DEFER A Director may elect, at any time, to defer payment of all or a specified portion of any unearned Fees. Such election shall be effective on the first day of the month following receipt by the Secretary of the Company of written notice thereof. 4. DIRECTORS' ACCOUNTS There shall be established for each Director participating in the Plan an account on the books of the Company, to be designated as such Director's deferred compensation account ("Account"). All amounts deferred pursuant to the Plan, together with any further amounts accrued thereon, as hereinafter provided, shall be held in a designated fund of the Company and shall be credited to the Director's Account. The Company shall furnish quarterly or upon request to each participating Director a statement of such Director's Account. 5. PAYMENT FROM DIRECTORS' ACCOUNTS At the time a Director elects to participate in the Plan, he or she shall also make an election, which election shall be irrevocable, except as hereinafter provided, as to his or her deferral payment terms. Payment will be made either: 1) in a lump sum as of the end of the quarter in which the Director terminates his or her relationship with the Company, or 2) in annual installments over 10 years beginning in the year following the year in which the Director terminates his or her relationship with the Company or reaches age 65, whichever comes first. When a Director is to receive the balance of his or her Account in annual installments, each such annual installment shall be a fraction of the balance in such Account on the date such annual installment is to be paid, the numerator of which is one and the denominator of which is the total number of installments then remaining to be paid. Payment shall be calculated based upon the value as of the end of the calendar year and issued during the first quarter of the following year. 6. PAYMENT IN EVENT OF DEATH OR HARDSHIP If a Director should die before the balance in his or her Account shall have been paid in full, the balance then remaining shall be paid as soon as administratively feasible in a lump sum to such Director's estate or to his or her designated beneficiary or beneficiaries. A Director may designate one or more beneficiaries (which may be an entity other than a natural person) to receive any payments to be made upon the Director's death. At any time, and from time to time, any such designation may be changed or canceled by the Director without notice to or the consent of any beneficiary. Any such designation, change, or cancellation shall be effective upon receipt by the secretary of the Company of written notice thereof. If a Director designates more than one beneficiary, any payments to such beneficiaries shall be made in equal shares unless the Director has designated otherwise. If no beneficiary has been named by the Director, or if the designated beneficiary or beneficiaries shall have predeceased him or her, or shall no longer exist, the balance shall be paid to the Director's estate. The Committee may, at any time, under rules which it may prescribe, direct the Company to pay a lump sum to a Director all or any portion of the balance then in the Director's Account, if the Committee finds, in its sole discretion, that continued deferral of all or any portion of such balance shall result in a financial hardship to such Director or that such Director has become disabled. In the case of a then existing election to defer, the Committee's determination to pay all or any portion of such balance shall immediately operate as a termination of such election to defer. 7. TERMINATION OF ELECTION TO DEFER A Director may at any time terminate his or her election to defer payment of Fees. Such termination shall become effective on the last day of the month in which written notice thereof is received by the Secretary of the Company; provided, however, that any balance in the Account of a Director prior to the effective date of termination of an election to defer shall not be affected thereby and shall be paid only in accordance with Sections 5 and 6. A Director who has filed a termination of election to defer or whose election to defer has been terminated in accordance with Section 6 may thereafter again file an election to defer in accordance with Section 3. 8. NONASSIGNABILITY During a Director's lifetime, the right to the balance in his or her Account shall not be transferable or assignable. Nothing contained in the Plan shall create, or be deemed to create, a trust, actual or constructive, for the benefit of a Director or his or her beneficiary, or shall give, or be deemed to give, to any Director or his or her beneficiary any interest in any specific assets of the Company. 9. AMENDMENT The Board of Directors of the Company may, at any time, without the consent of the participants, amend, suspend, or terminate the Plan. Subject to any applicable laws and regulations, no amendment, suspension, or termination of the Plan shall operate to annul an election already in effect for the then current calendar year or for any preceding calendar year. Fees shall continue to be deferred until the end of such current calendar year in accordance with a Director's then current election; and the balance in the Director's Account shall continue to be payable in accordance with a Director's then current election and, until paid, to be measured by a factor to be determined from time to time by the Committee. 10. GOVERNING LAW The Plan shall be construed and enforced according to the laws of the State of Wisconsin, and all the provisions thereof shall be administered according to the laws of said State. 11. SEVERABILITY OF PROVISIONS If any of the provisions of the Plan or the application thereof to any Director shall be held invalid, neither the remainder of the Plan nor its application to any other Director shall be affected thereby. 12. EFFECTIVE DATE The Plan shall become effective on December 1, 1995 EX-10.4 6 EXHIBIT 10.4 AMERICAN MEDICAL SECURITY GROUP, INC. CHANGE OF CONTROL SEVERANCE BENEFIT PLAN I. ESTABLISHMENT OF PLAN American Medical Security Group, Inc. (the "Company") acknowledges that certain executives' contributions to the past and future growth and success of the Company have been and will continue to be substantial. The Company also recognizes that there exists a possibility of a "Change of Control" (as defined in Section 3.3, hereof) of the Company. The Company also recognizes that the possibility of such a Change of Control may contribute to uncertainty on the part of executive management and may result in the departure or distraction of executive management from their operating responsibilities. Outstanding management of the Company is always essential to advancing the best interests of the Company and its shareholders. In the event of a threat or occurrence of a bid to acquire or change control of the Company or any of its key affiliates or to effect a business combination, it is particularly important that the Company's business be continued with a minimum of disruption. The Company believes that the objective of securing and retaining outstanding management will be achieved if the Company's or its affiliates' key management employees are given assurances of employment security so they will not be distracted by personal uncertainties and risks created by such circumstances. Therefore, the Board of Directors of the Company has established the American Medical Security Group, Inc. Change of Control Severance Benefit Plan (the "Plan") to pay severance benefits to certain Executives (as defined in Section 3.1, hereof) of the Company or its affiliates who separate from service under specified conditions while the Plan is in effect. This Plan is solely for the benefit of those individuals who are determined, pursuant to the terms and conditions of this Plan, to be Executives of the Company. The Plan is not intended, nor should it be construed, as providing benefits for any other individual, including, but not limited to, any employees or officers of any affiliates or subsidiaries of the Company. II. TERM OF PLAN This Plan is effective as of the close of business September 25, 1998, and replaces in its entirety any previous change of control severance benefit plans of the Company and will continue in effect until modified, amended, changed, or terminated, as provided in Article VII hereof. III. PLAN PARTICIPATION 3.1 PARTICIPATING EXECUTIVES. All employees of the Company who are members of the Company's executive management team as appointed by the President of the Company from time to time (hereinafter collectively and individually referred to as "Executives") are hereby designated as participants in the Plan. The President of the Company shall be considered an Executive and participate in the Plan for all purposes except Sections 4.1 and 4.2 hereof. 3.2 EMPLOYMENT PERIOD. If an Executive is employed by the Company on the "Control Change Date" (as defined in Section 3.3, below), the Company shall continue to employ such Executive and such Executive may continue as an employee of the Company for the Employment Period. For purposes of this Plan, the Employment Period begins on the Control Change Date and ends on the two (2) year anniversary of the Control Change Date. 3.3 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if, after the effective date of the Plan: (i) a majority of Directors of the Company cease to continue to serve as Directors of the Company and/or the Chief Executive Officer of the Company ceases to serve as the Chief Executive of the Company as the direct or indirect result of, or in connection with the occurrence of: (a) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becoming, directly or indirectly, the beneficial owner of securities of the Company, or any other subsidiary, representing forty percent (40%) or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of Directors of the Company (other than as a result of an issuance of securities initiated by the Company or open market purchases approved by the Board of Directors of the Company as long as the majority of the Directors at the time of such approval are also Directors at the time the purchases are made); (b) a cash tender or exchange offer; (c) a merger or other business combination; (d) a sale of substantial assets of the Company; (e) a contested election of directors; or (f) any combination of the aforementioned events; or (ii) the shareholders approve a plan of liquidation or dissolution of the Company. 3.4 CONTROL CHANGE DATE. The "Control Change Date" means the date on which an event described in Section 3.3 occurs. If a Change of Control occurs on account of a series of transactions, the Control Change Date is the date of occurrence of the last of such transactions. 3.5 PLAN BENEFITS ON QUALIFYING SEPARATION. An Executive shall be entitled to receive Plan Benefits according to the terms of this Plan if an Executive's employment with the Company terminates because of a Qualifying Separation (i) during the six (6) month period immediately prior to the Control Change Date, or (ii) during the Employment Period. IV. PLAN BENEFITS AND LIMITATIONS 4.1 PLAN BENEFITS. "Plan Benefits" means benefits due to an Executive as described in this Section 4.1 as follows: (i) Executives who are Executive Vice Presidents or Senior Vice Presidents ("Senior Executives") shall be entitled to an amount equal to three (3) times such Senior Executive's Base Period Income, and (ii) Executives who are NOT Executive Vice Presidents or Senior Vice Presidents ("Other Executives") shall be entitled to an amount equal to one and one-half (1.5) times the Other Executive's Base Period Income. Plan Benefits shall be paid in a single sum payment in cash. Plan Benefits payments to the Executive shall commence on the later of the thirtieth (30th) business day after the Qualifying Separation (as defined in Section 5.1 below) or the first day of the month following his or her Qualifying Separation. Plan Benefits may be subject to Section 4.4, below. In the event the Executive qualifies for severance benefits under any other agreement with the Company, any Plan Benefits payable to the Executive hereunder shall be reduced by any benefits paid pursuant to the other agreement. 4.2 BASE PERIOD INCOME. An Executive's "Base Period Income" shall be an amount equal to the sum of (i) the average of the Executive's annual base salary for the shorter of (a) the last two (2) most recent annual pay periods, or (b) during the term of the Executive's employment with the Company or any of its affiliates; and (ii) the average of the Executive's annual performance-based bonus or bonuses received from the Company or any of its affiliates for the shorter of (y) the last two (2) most recent annual pay periods, or (z) during the term of the Executive's employment with the Company or any of its affiliates. 4.3 INSURANCE COVERAGE. In addition to the Plan Benefits, the Company shall pay an Executive's cost of health, dental, long-term disability, and life insurance coverage substantially equivalent to coverage in place at the time of the Qualifying Separation for a period of three (3) years immediately following the Qualifying Separation with respect to a Senior Executive and for a period of one and one-half (1.5) years immediately following the Qualifying Separation with respect to an Other Executive. Thereafter, the Company will provide an Executive with an explanation of any right to continue such coverage under COBRA and any other applicable state or federal law. 4.4 ATTORNEY'S FEES. In the event that an Executive incurs any attorneys' fees in protecting or enforcing his or her rights in the Plan, the Company shall reimburse the Executive for such reasonable attorneys' fees and for any other reasonable expenses related thereto. Such reimbursement shall be made within thirty (30) days following final resolution of the dispute or occurrence giving rise to such fees and expenses. 4.5 EXCISE TAXES. If the excise tax imposed under the Internal Revenue Code of 1986, as amended (the "Code") section 4999 on "excess parachute payments", as defined in the Code section 280G, is incurred on account of (i) any amount paid or payable to or for the benefit of an Executive under this Section as legal fees and expenses, or (ii) any payments or benefits which an Executive receives or has the right to receive from the Company under this Plan or any other plan or compensation arrangement of the Company (the "Change of Control Benefits"), the Company must indemnify the Executive and hold him or her harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay the Executive the Additional Amount within fifteen (15) days after the Executive provides a copy of his or her tax return in accordance with subsection (i) below. For purposes of the Plan, the Additional Amount shall mean the amount necessary to indemnify and hold the Executive harmless from (i) the excise tax imposed on an Executive under section 4999 of the Code with respect to the Change of Control Benefits and (ii) the amount required to satisfy (x) the additional excise tax under section 4999 of the Code, (y) the hospital insurance tax under section 3111(b) of the Code, and (z) the federal, state and local income taxes for which an Executive is liable on account of the payment of the amount described in item (i) and the payment of the excise, hospital insurance and income taxes in accordance with this item (ii) (the sum of Section 4.5 (i) and (ii) being hereunder referred to as the "Additional Tax Liability"). (a) For purposes of determining the amount and timing of the payments of the Additional Amount, the Company and the Executive shall, as soon as practicable after the event or series of events has occurred giving rise to the imposition of the excise tax, seek the advice of independent tax counsel and shall cooperate in establishing at least tentatively the amount of the Executive's excise tax liability for purposes of paying estimated tax. The Executive shall thereafter furnish to the Company a copy of each tax return which reflects a liability for an excise tax payment under section 4999 of the Code with respect to the Change of Control Benefits at least twenty (20) days before the date on which such return is required to be filed with the Internal Revenue Service. Except as provided under subsection (b), the liability reflected on such return shall be dispositive for purposes of calculating the Additional Amount unless, within fifteen (15) days after such notice is given, the Company furnishes to the Executive an opinion from the Company's independent auditors or a tax advisor selected by the Company's independent auditors indicating that a different Additional Amount is payable or to the effect that the matter is not free from doubt under applicable laws and regulations and the Executive may, in such auditor's or advisor's opinion, take a different position without risk of penalty, which shall be set forth in the opinion with respect to the payment in question. Such opinion shall be addressed to the Executive and shall state that the Executive is entitled to rely thereon. If the Company furnishes such opinion to the Executive, the position reflected in such letter shall be dispositive for purposes of calculating the Additional Amount, except as provided under this subsection (a). (b) If the Executive's Additional Tax Liability is subsequently determined to be less than the amount of the Additional Amount paid to the Executive, the Executive shall repay to the Company that portion of the Additional Amount payment attributable to such reduction (plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code). If the Executive's Additional Tax Liability is subsequently determined to be more than the amount of the Additional Amount paid to the Executive, the Company shall make an additional payment in respect of such excess, as well as the amount of any penalty or interest assessed with respect thereto at the time that the amount of such excess, penalty or interest is finally determined. 4.6 MITIGATION. An Executive shall not be required to mitigate damages or the amount of any payment provided for in the Plan by seeking or accepting other employment or otherwise, and compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable in the Plan; provided, however, that the Company's obligations under Section 4.3 hereof shall cease with respect to each applicable type of insurance coverage as of the date on which the Executive obtains other coverage substantially equivalent to coverage in place at the time of the Qualifying Separation. 4.7 TAXES. To the extent required by applicable law, the Company shall deduct and withhold all necessary Social Security taxes and all necessary federal and state withholding taxes and any other similar sums required by law to be withheld from any payments made pursuant to the terms of the Plan. V. QUALIFYING SEPARATION 5.1 DEFINITION. For purposes of the Plan, a "Qualifying Separation" means: (a) an Executive's employment is terminated by the Company within six (6) months prior to a Change of Control or during the Employment Period except for "Cause", death or total disability. For purposes of the Plan, "Cause" means: (i) the willful and continued failure by the Executive to substantially perform his or her duties as established by the Board of Directors of the Company; (ii) the material breach by the Executive of his or her fiduciary duties or loyalty of care to the Company; (iii) a conviction of a felony which, in the reasonable judgment of the Board of Directors of the Company, is likely to have a material adverse effect on the business reputation of the Executive or the Company, or which substantially impairs the Executive's ability to perform his or her duties for the Company; (iv) the use of alcohol or non-prescription drugs in such a manner as to interfere substantially with the Executive's duties for the Company; or (v) the willful, flagrant deliberate and repeated infractions of material published policies and regulations of the Company of which the Executive has actual knowledge (the "Cause Exception"). If the Company desires to discharge the Executive under the Cause Exception set forth in subsection (v) above, it shall give notice to the Executive as provided in Section 5.2 and the Executive shall have thirty (30) days after notice has been given to him in which to cure the reason for the Company's exercise of the Cause Exception. If the reason for the Company's exercise of the Cause Exception is timely cured by the Executive (as determined by a majority of the members of the Board of Directors of the Company following a hearing), the Company's notice shall become null and void; or (b) an Executive voluntarily terminates employment with "Good Reason". For purposes of this Plan, Good Reason means an Executive's resignation from the Company's employment within six (6) months prior to a Change of Control or during the Employment Period on account of: (i) the failure of the Board of Directors of the Company to reelect the Executive to his or her then current position in the Company, and the Executive then elects to leave the Company's employment within six (6) months after such failure to so reelect or reappoint the Executive; (ii) a material modification by the Board of Directors of the Company of the duties, functions and responsibilities of the Executive without his or her consent; (iii) the failure of the Company to permit the Executive to exercise such responsibilities as are consistent with his or her position and of such a nature as are usually associated with such offices of a corporation engaged in substantially the same business as the Company; (iv) the Company causes the Executive to relocate his or her employment more than fifty (50) miles from Green Bay, Wisconsin, without the consent of the Executive; (v) the Company shall fail to make a payment when due to the Executive; or (vi) the Company's reduction of the Executive's total direct compensation (base salary, incentive bonus, other compensation and benefits) below the Executive's average total direct compensation for the three (3) most recent years with the Company or such shorter period for which the Executive has been an employee of the Company. 5.2 NOTICE OF QUALIFYING SEPARATION. Qualifying Separation by the Company under the Cause Exception shall be communicated by Notice of Termination to an Executive. Qualifying Separation by an Executive for Good Reason shall be communicated by Notice of Termination to the Company. For purposes of the Plan, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in the Plan relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of an Executive's employment under the provision so indicated and (iii) if the termination date specifies the effective date of termination, which date may be the date of receipt of such notice. VI. ENTITLEMENT TO PLAN BENEFITS Unless there has been a Change of Control, an Executive shall have no vested right to benefits in the Plan. VII. AMENDMENT AND TERMINATION The Plan may be modified, amended, changed, or terminated only upon the approval of the Company's Board of Directors during a regular, annual or special meeting; provided, however, that any modification, amendment, change or termination of the Plan shall not be effective for any Executive who is a participant in the Plan on the date such amendment is adopted until one (1) year after the date of adoption. Any modification, amendment, change, or termination of the Plan shall be in writing and signed by at least two officers of the Company at the level of executive vice president and above. VIII. DECISIONS BY THE COMPANY: FACILITY OR PAYMENT Any powers granted hereunder to the Board of Directors of the Company may be exercised by a committee, appointed by the Board, and such committee, if appointed, shall have general responsibility for the administration and interpretation of this Plan. If the Board or the committee shall find that an Executive to whom any amount is or was payable hereunder is unable to care for his or her affairs because of illness or accident, or has died, then the Board or the committee, if it so elects, may direct that any payment due him or her or his or her estate (unless a prior claim therefore has been made by a duly appointed legal representative) or any part thereof be paid or applied for the benefit of such person or to or for the benefit of his or her spouse, children or other dependents, an institution maintaining or having custody of an Executive, any other person deemed by the Board or committee to be a proper recipient on behalf of an Executive, or any of them, in such manner and proportion as the Board or committee may deem proper. Any such payment shall be in complete discharge of the liability of the Company therefor. IX. SOURCE OF PAYMENTS: NO TRUST The obligations of the Company to make payments hereunder shall constitute a liability of the Company to the Executive. Such payments shall be from the general funds of the Company, and the Company to whom such payments are due shall not be required to establish or maintain any special or separate fund, or otherwise segregate assets to assure that such payments shall be made. Neither an Executive nor a designated beneficiary of an Executive shall have any interest in any particular asset of the Company by reason of its obligations hereunder. Nothing contained in this Plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Company and an Executive or any other person. X. MISCELLANEOUS 10.1 All Executives claiming any interest hereunder shall perform any and all acts and execute any and all documents and papers necessary or desirable for carrying out the Plan or any of its provisions. In addition, the Company shall perform any and all acts and execute any and all documents and papers necessary or desirable for carrying out the Plan or any of it's provisions. 10.2 The Plan shall be construed and administered according to the laws of the State of Wisconsin without reference to principles of conflicts of laws, except to the extent preempted by federal law. If any provision of the Plan shall be or become invalid, such fact shall not affect the validity of any other provision of the Plan. This Plan document sets forth the entire terms of the Plan. Abbreviated Plan summaries, and other explanations of the Plan's benefits and operations, including any and all prior agreements, to the extent inconsistent hereunder are hereby superseded. 10.3 Each Executive of the Company, including any Executive in the Plan, is an at-will employee of the Company, and nothing in this Plan will be deemed to give an Executive the right to be retained in the employ of the Company, or to interfere with the right of the Company to discharge an Executive at any time, nor will it be deemed to give the Company the right to require an Executive to remain in its employ, nor will it interfere with the right of an Executive to terminate employment at any time. 10.4 Any and all references in the Plan to any provision of any statute, law, regulation, ruling, or order shall be deemed to refer also to any successor provision of any statute, law, regulation, ruling or order. 10.5 The Company and its Boards of Directors, officers and employees shall be free from liability, joint or several, for personal acts, omissions, and conduct, and for the acts, omissions and conduct of duly constituted agents, in the administration of this Plan; provided, however, that any individual who is held liable for the effects and consequences of personal acts, omissions or conduct in the administration of the Plan shall be indemnified and saved harmless by the Company except to the extent that such effects and consequences resulted from willful misconduct. 10.6 No benefit under the Plan shall be subject to alienation, sale, transfer, assignment, pledge, attachment, garnishment, execution or encumbrance of any kind, and any attempt to accomplish the same shall be void. 10.7 The Company will not consolidate or merge into or with another corporation, or transfer all or substantially all of its assets to another corporation (the "Successor Corporation") unless the Successor Corporation shall assume the Plan, and upon such assumption, an Executive and the Successor Corporation shall become obligated to perform the terms and conditions of this Plan. EX-27.1 7
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS FOR CONTINUING OPERATIONS AT SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) FOR CONTINUING OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 300,059 3,532 0 0 0 0 303,591 8,532 0 0 502,288 0 18,004 108,630 0 55,834 0 0 16,573 259,179 502,288 686,075 17,971 0 16,557 522,123 0 178,567 6,553 2,973 3,580 10,003 0 0 13,583 .22 .21 0 0 0 0 0 0 0
EX-27.2 8 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
7 [LEGEND] THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS FOR CONTINUING OPERATIONS AT SEPTEMBER 30, 1997 AND 1998(UNAUDITED) AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) FOR CONTINUING OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. [/LEGEND] 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 267,763 3,804 0 0 0 0 271,567 45,291 0 0 648,136 0 19,986 126,882 0 124,578 0 0 16,510 309,867 648,136 716,329 16,582 0 20,088 546,993 0 187,806 5,198 2,209 2,989 12,355 0 0 15,344 .18 .18 0 0 0 0 0 0 0
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