-----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, D+RFBhfxbykTXzUgtZ3J5p1s3PuoroVrajyr7iGCKxe0xRZbbd/RyxqY9LuIpagh AiguTKFLH/rZxlXSoQSwhA== 0000878897-99-000020.txt : 19990816 0000878897-99-000020.hdr.sgml : 19990816 ACCESSION NUMBER: 0000878897-99-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99687047 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 JUNE 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ COMMISSION FILE NUMBER 1-13154 AMERICAN MEDICAL SECURITY GROUP, INC. (Exact name of Registrant as specified in its charter) WISCONSIN 39-1431799 (State of Incorporation) (I.R.S. Employer Identification No.) 3100 AMS BOULEVARD GREEN BAY, WISCONSIN 54313 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (920) 661-3075 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value, outstanding as of July 31, 1999: 16,653,359 shares AMERICAN MEDICAL SECURITY GROUP, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets--June 30, 1999 and December 31, 1998.............................................3 Condensed Consolidated Statements of Income-- Three months ended June 30, 1999 and 1998; Six months ended June 30, 1999 and 1998.......................5 Condensed Consolidated Statements of Cash Flows-- Six months ended June 30, 1999 and 1998.......................6 Notes to Condensed Consolidated Financial Statements-- June 30, 1999.................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................11 Item 3. Quantitative and Qualitative Disclosures About Market Risk.....16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders............17 Item 5. Other Information..............................................18 Item 6. Exhibits and Reports on Form 8-K...............................18 Signatures........................................................19 Exhibit Index...................................................EX-1 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ----------------------------------- (000'S OMITTED) ASSETS Investments: Securities available for sale, at fair value: Fixed maturities $ 303,100 $ 293,096 Equity securities-preferred 2,198 2,457 Fixed maturity securities held to maturity, at amortized cost 3,795 3,361 ---------------------------------- Total Investments 309,093 298,914 Cash and Cash Equivalents (1,951) 10,648 Other Assets: Property and equipment, net 34,470 35,356 Goodwill and other intangibles, net 114,035 116,093 Other assets 43,913 37,711 ---------------------------------- Total Other Assets 192,418 189,160 ---------------------------------- Total Assets $ 499,560 $ 498,722 ================================== See Notes to Condensed Consolidated Financial Statements
3 AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ----------------------------------- (000'S OMITTED) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Medical and other benefits payable $ 119,364 $ 113,133 Advance premiums 19,300 18,157 Payables and accrued expenses 25,749 23,439 Notes payable 53,463 55,064 Other liabilities 24,007 22,478 ---------------------------------- Total Liabilities 241,883 232,271 Redeemable preferred stock - Series A adjustable rate nonconvertible, $1,000 stated value, 25,000 shares authorized - - Shareholders' Equity: Preferred stock (no par value, 475,000 shares authorized) - - Common stock (no par value, $1 stated value, 50,000,000 shares authorized, 16,653,303 and 16,653,179 issued and outstanding at June 30, 1999 and December 31, 1998, respectively) 16,653 16,653 Paid-in capital 187,950 188,981 Retained earnings 59,037 59,572 Accumulated other comprehensive income (loss), net of taxes of $3,211,000 and $642,000 at June 30, 1999 and December 31, 1998, respectively (5,963) 1,245 --------------- --------------- Total Shareholders' Equity 257,677 266,451 --------------- --------------- Total Liabilities and Shareholders' Equity $ 499,560 $ 498,722 ================================== See Notes to Condensed Consolidated Financial Statements
4 AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 1999 1998 1999 1998 --------------------------------- --------------------------------- (000'S OMITTED, EXCEPT PER SHARE DATA) Revenues: Insurance premiums $ 264,198 $ 226,956 $ 527,090 $ 461,915 Net investment income 4,700 5,723 9,675 11,804 Other revenue 5,498 4,675 11,684 9,475 --------------------------------- --------------------------------- Total Revenues 274,396 237,354 548,449 483,194 Expenses: Medical and other benefits 210,758 174,325 409,165 353,610 Selling, general and administrative 67,109 57,693 135,790 116,735 Interest expense 872 2,336 1,766 4,707 Amortization of goodwill and intangibles 1,010 2,195 2,058 4,435 --------------------------------- --------------------------------- Total Expenses 279,749 236,549 548,779 479,487 --------------------------------- --------------------------------- Income (Loss) From Continuing Operations, Before Income Taxes (5,353) 805 (330) 3,707 Income Tax Expense (Benefit) (1,823) 413 205 1,764 --------------------------------- --------------------------------- Income (Loss) From Continuing Operations (3,530) 392 (535) 1,943 Income From Discontinued Operations, Less Applicable Income Taxes - 874 - 5,714 --------------- --------------- --------------- --------------- Net Income (Loss) $ (3,530) $ 1,266 $ (535) $ 7,657 ================================= ================================= Earnings (Loss) Per Common Share - Basic Income (loss) from continuing operations $ (0.21) $ 0.03 $ (0.03) $ 0.12 Income from discontinued operations - 0.05 - 0.34 --------------- --------------- --------------- --------------- Net Income (Loss) Per Common Share $ (0.21) $ 0.08 $ (0.03) $ 0.46 ================================= ================================= Earnings (Loss) Per Common Share - Diluted Income (loss) from continuing operations $ (0.21) $ 0.03 $ (0.03) $ 0.12 Income from discontinued operations - 0.05 - 0.34 --------------- --------------- --------------- --------------- Net Income (Loss) Per Common Share $ (0.21) $ 0.08 $ (0.03) $ 0.46 ================================= ================================= See Notes to Condensed Consolidated Financial Statements
5 AMERICAN MEDICAL SECURITY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ---------------------------------- 1999 1998 ---------------------------------- (000'S OMITTED) OPERATING ACTIVITIES: Income (loss) from continuing operations $ (535) $ 1,943 Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 5,299 7,740 Net realized investment (gains) losses 282 (1,465) Deferred income tax (benefit) expense (320) 185 Changes in operating accounts: Other assets (6,202) 589 Medical and other benefits payable 6,231 (20,521) Advance premiums 1,143 354 Payables and accrued expenses 2,310 (9,167) Other liabilities 4,697 9,884 ---------------------------------- Net Cash Provided by (Used in) Operating Activities 12,905 (10,458) INVESTING ACTIVITIES: Acquisition of subsidiaries (net of cash and cash equivalents acquired of $2,773,000) - 2,623 Purchases of available for sale securities (183,689) (176,093) Proceeds from sale of available for sale securities 143,046 140,948 Proceeds from maturity of available for sale securities 18,496 8,700 Purchases of held to maturity securities (200) - Purchases of property and equipment (1,589) (2,070) Proceeds from sale of property and equipment 31 54 ---------------------------------- Net Cash Used in Investing Activities (23,905) (25,838) FINANCING ACTIVITIES: Cash dividends paid - (3,967) Issuance of common stock 2 1,718 Borrowings under line of credit agreement 5,000 - Repayment on line of credit agreement (5,000) - Repayment of notes payable (1,601) (837) ---------------------------------- Net Cash Used in Financing Activities (1,599) (3,086) Net Cash Provided by Discontinued Operations - 1,169 ---------------------------------- Cash and Cash Equivalents: Net decrease (12,599) (38,213) Balance at beginning of year 10,648 45,291 ---------------------------------- Balance at End of Period $ (1,951) $ 7,078 ================================== See Notes to Condensed Consolidated Financial Statements
6 AMERICAN MEDICAL SECURITY GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1999 NOTE A. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the American Medical Security Group, Inc. ("AMSG" or the "Company") annual report on Form 10-K for the year ended December 31, 1998. NOTE B. DISCONTINUED OPERATIONS On May 27, 1998, the Board of Directors of the Company, then known as United Wisconsin Services, Inc. ("UWS"), approved a plan to spin off its managed care companies and specialty management business to its shareholders (the "Spin-off"). In connection with the Spin-off, UWS changed its name to "American Medical Security Group, Inc." On September 25, 1998, the distribution date, shareholders of AMSG received one share of common stock of a newly formed company, Newco/UWS, Inc. ("Newco/UWS"), for every share of AMSG owned as of September 11, 1998, the record date. The net assets of Newco/UWS consisted of assets and liabilities of the managed care and specialty business along with $70.0 million in debt that was assumed by Newco/UWS in conjunction with the Spin-off. Newco/UWS was renamed United Wisconsin Services, Inc. AMSG has obtained a private ruling from the Internal Revenue Service to the effect that the Spin-off qualifies as tax free to AMSG, Newco/UWS and to AMSG shareholders. The operations of Newco/UWS are reflected in discontinued operations through September 25, 1998. All prior periods of the Company's financial statements have been restated to reflect Newco/UWS operations as discontinued operations. Interest expense on the $70.0 million in debt assumed by Newco/UWS is reflected in continuing operations through September 11, 1998. 7 NOTE C. EARNINGS PER SHARE Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding, adjusted for the effect of dilutive employee stock options. The following table provides a reconciliation of the number of weighted average basic and diluted shares outstanding:
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 1999 1998 1999 1998 ----------------------------- ----------------------------- Weighted average common shares outstanding - Basic 16,653,282 16,546,176 16,653,254 16,531,108 Effect of dilutive stock options - 175,925 - 173,671 ----------------------------- ----------------------------- Weighted average common shares outstanding - Diluted 16,653,282 16,722,101 16,653,254 16,704,779 ============================= =============================
The effect of dilutive securities is excluded from the diluted earnings per common share computation for the three and six months ended June 30, 1999 because employee stock options are antidilutive during such periods. Certain options to purchase shares were not included in the computation of diluted earnings per common share because the options' exercise prices were greater than the average market price of the outstanding common shares for the three and six month periods ended June 30, 1998. NOTE D. COMPREHENSIVE INCOME Comprehensive income (loss) for the Company is defined as net income (loss) plus or minus unrealized gains or losses, net of income tax effects, on certain investments in debt and equity securities. Comprehensive income (loss) totaled $(7.2) million and $(1.5) million for the three months ended June 30, 1999 and 1998, respectively, and $(7.7) million and $5.1 million for the six months ended June 30, 1999 and 1998, respectively. NOTE E. SEGMENT INFORMATION The Company has two reportable segments: 1) health insurance products and 2) life insurance products. The Company's health insurance products consist of the following coverages related to small group preferred provider organization products: fully insured medical, self funded medical, dental and short-term disability. Life products consist primarily of group term-life insurance. Operations not directly related to the business segments (i.e., corporate investment income, interest expense on corporate debt, amortization of goodwill and intangibles, unallocated overhead expenses and health maintenance organization ("HMO") operations) are included in "All Other". The segments are reported separately because they differ in the nature of the products offered and in profit margins. The Company evaluates segment performance based on profit or loss from operations before income taxes, not including gains and losses on the Company's investment portfolio. The accounting policies of the reportable segments are the same as those used to report the Company's consolidated financial statements. Intercompany transactions have been eliminated prior to reporting reportable segment information. 8 A reconciliation of segment income (loss) before income taxes to consolidated income (loss) from continuing operations before income taxes is as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------ 1999 1998 1999 1998 --------------- --------------- -------------- --------------- (000'S OMITTED) Health $ (7,426) $ 421 $ (3,945) $ 28 Life 2,700 3,061 4,576 5,487 All other (627) (2,677) (961) (1,808) --------------- --------------- -------------- --------------- $ (5,353) $ 805 $ (330) $ 3,707 =============== =============== ============== ===============
Operating results and statistics for each of the Company's segments are as follows:
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1999 1998 1999 1998 ------------- ------------- ------------- ------------- (000'S OMITTED, EXCEPT FINANCIAL STATISTICS) HEALTH SEGMENT OPERATING RESULTS Revenues: Insurance premiums $ 246,752 $ 215,649 $ 493,404 $ 438,521 Net investment income 2,297 2,151 4,565 4,288 Other revenue 4,696 3,400 9,908 6,907 ------------- ------------- ------------- ------------- Total Revenues 253,745 221,200 507,877 449,716 Expenses: Medical and other benefits 199,474 167,887 386,894 342,032 Selling, general and administrative 61,697 52,892 124,928 107,656 ------------- ------------- ------------- ------------- Total Expenses 261,171 220,779 511,822 449,688 ------------- ------------- ------------- ------------- Income (Loss) Before Income Taxes $ (7,426) $ 421 $ (3,945) $ 28 ============= ============= ============= ============= FINANCIAL STATISTICS Loss ratio 80.8% 77.9% 78.4% 78.0% Expense ratio 23.1% 22.9% 23.3% 23.0% ------------- ------------- ------------- ------------- Combined ratio 103.9% 100.8% 101.7% 101.0% ============= ============= ============= ============= Membership at End of Period: Medical: Fully insured 615,729 518,584 Self funded 49,964 58,936 ------------- ------------- Total medical* 665,693 577,520 Dental 350,806 411,364 *Total medical membership of the Company includes HMO membership of 29,182 and 16,404 at June 30, 1999 and 1998, respectively. HMO operations are not included in health segment operating results.
9
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1999 1998 1999 1998 ------------- ------------- ------------- ------------- (000'S OMITTED, EXCEPT FINANCIAL STATISTICS) LIFE SEGMENT OPERATING RESULTS Revenues: Insurance premiums $ 6,450 $ 6,082 $ 13,110 $ 12,552 Net investment income 48 59 99 114 Other revenue 66 38 138 78 ------------- ------------- ------------- ------------- Total Revenues 6,564 6,179 13,347 12,744 Expenses: Medical and other benefits 2,078 1,250 4,851 3,385 Selling, general and administrative 1,786 1,868 3,920 3,872 ------------- ------------- ------------- ------------- Total Expenses 3,864 3,118 8,771 7,257 ------------- ------------- ------------- ------------- Income Before Income Taxes $ 2,700 $ 3,061 $ 4,576 $ 5,487 ============= ============= ============= ============= FINANCIAL STATISTICS Loss ratio 32.2% 20.6% 37.0% 27.0% Expense ratio 26.7% 30.1% 28.8% 30.2% ------------- ------------- ------------- ------------- Combined ratio 58.9% 50.7% 65.8% 57.2% ============= ============= ============= ============= Membership at end of period 309,173 228,832
NOTE F. RECLASSIFICATIONS Certain reclassifications have been made to the consolidated financial statements for 1998 to conform with the 1999 presentation. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW American Medical Security Group, Inc. ("AMSG" or the "Company"), formerly known as United Wisconsin Services, Inc., together with its subsidiary companies is a provider of health and life insurance products for individuals and employer groups. The Company's principal product offering is small group health insurance. It also sells individual and large group health insurance and group life, dental, prescription drug, disability and accidental death insurance. The Company's products are actively marketed in 33 states and the District of Columbia through independent agents. The Company's products generally provide discounts to insureds that utilize preferred provider organizations. The average group size is six lives. HISTORY Prior to and for most of the year 1998, the business of the Company, then known as "United Wisconsin Services, Inc.", consisted of two main components: the small group business and the managed care and specialty business. On September 11, 1998, the Company contributed all of its subsidiaries comprising the managed care and specialty business to a newly created subsidiary named "Newco/UWS, Inc.", a Wisconsin corporation ("Newco/UWS"). On September 25, 1998, the Company spun off the managed care and specialty business through a distribution of 100% of the issued and outstanding shares of common stock of Newco/UWS to the Company's shareholders of record as of September 11, 1998. The Company thereupon adopted its current name of "American Medical Security Group, Inc." and Newco/UWS changed its name to "United Wisconsin Services, Inc." The net assets of Newco/UWS consisted of assets and liabilities of the managed care and specialty management business along with $70.0 million in debt that was assumed by Newco/UWS in conjunction with the distribution. The operations of Newco/UWS are reflected in discontinued operations through September 25, 1998. Interest expense on the $70.0 million in debt assumed by Newco/UWS is reflected in continuing operations through September 11, 1998. After the Spin-off, the business of the Company consisted solely of the Company's small group insurance business. The continuing operations of the Company reflect the historical small group insurance portion of the Company's business. RESULTS OF CONTINUING OPERATIONS RESERVE STRENGTHENING CHARGE During the second quarter of 1999, the Company recorded an after-tax charge to earnings of $5.8 million or $0.35 per share to strengthen its medical claims reserves. The reserve strengthening is the result of an adverse medical loss ratio trend identified by management in the second quarter. The adverse medical loss ratio trend relates primarily to three principle areas of its health segment: 1) continued adverse trends in its one and two life business, particularly in Florida where the corrective action plan initiated late in 1998 has developed more slowly than expected; 2) adverse trends on certain older blocks of business; and 3) increased utilization claim cost trends particularly in pharmacy benefits. In response, management has developed and implemented a series of strategic action plans directed at improving the profitability of these identified under-performing segments. Specifically, in Florida, the Company's actions include a redesigned product line, the conversion of older benefit plans to new plans with higher deductibles, and widespread repricing. 11 Other plans designed to improve the Company's health loss ratio include raising its average rate increases on renewals during the last half of this year, accelerated repricing in certain targeted business segments, introduction of redesigned products, and the conversion of older group health plans into new benefit designs. In August 1999, the Company is also introducing a two-tier copay plan to help reverse the unfavorable pharmacy cost trend. While management is confident in the success of these actions, the financial impact of these actions will not be significant during the remainder of 1999. However, it is anticipated that the financial impact will be significant early in the year 2000. Management anticipates that the Company's financial performance for the second half of 1999 will be break even to a small profit. In addition, management anticipates that earnings per share for the year 2000 will be $0.70 or greater. These performance and earnings forecasts are subject to certain risks, uncertainties and assumptions. Factors that could cause actual results to differ materially include, but are not limited to, claim cost trends, utilization persistency, new sales, regulatory approvals of rate increases and other factors discussed in "Forward Looking Statements" below. INSURANCE PREMIUMS Insurance premiums for the three months ended June 30, 1999 increased 16.4% to $264.2 million from $227.0 million for the same period in 1998. Insurance premiums for the six months ended June 30, 1999 increased 14.1% to $527.1 million from $461.9 million for the same period in 1998. The premium increase reflects both internal growth and growth from business acquired from other insurance carriers. The Company acquired the majority of the fully insured group health business of Continental Assurance Company ("CNA") effective January 1, 1999. The results for the three and six months ended June 30, 1999 included $23.7 and $52.3 million, respectively, of premium related to the CNA acquired business. Average fully insured medical premium per member per month during the six month period ended June 30, 1999 increased 2.4% to $126 compared to $123 during the same period in 1998. Medical membership at June 30, 1999 increased 15.3% to 665,693 from 577,520 at June 30, 1998, primarily due to new sales growth and the addition of the CNA business. NET INVESTMENT INCOME Net investment income includes investment income and realized gains and losses on investments. Net investment income for the three months ended June 30, 1999 declined 17.9% to $4.7 million from $5.7 million for the three months ended June 30, 1998. The decline is due to lower average annual investments yields and a decrease in realized gains of $0.8 million. Net investment income for the six months ended June 30, 1999 decreased 18.0% to $9.7 million from $11.8 million for the same period one year ago. Average annual investment yields, excluding realized gains and losses were 6.4% and 6.5% for the three months and six months ended June 30, 1999, respectively, compared to 7.1% and 7.4% for the same respective periods in the prior year. Investment gains and losses are realized in the normal investment process in response to market opportunities. Average invested assets at cost for the three months ended June 30, 1999 were $309.8 million compared to $290.0 million for the three months ended June 30, 1998. OTHER REVENUE Other revenue increased to $5.5 million for the three months ended June 30, 1999 from $4.7 million for the same period in 1998. The increase is primarily due to an increase in fee revenue associated with the Pan American Life Insurance Company business acquired July 1998 and CNA business acquired January 1999. Other revenue for the six month period increased to $11.7 million in 1999 from $9.5 million in 1998. Management expects that other revenue will decline slightly during the remainder of 1999 as the acquired blocks of business run off. 12 LOSS RATIO The health segment loss ratio for the three months ended June 30, 1999 was 80.8% compared with 77.9% for the three months ended June 30, 1998. The unfavorable health loss ratio for the quarter reflects the reserve strengthening in the second quarter as discussed above. The health segment loss ratio for the six months ended June 30, 1999 was 78.4% compared with 78.0% for the six months ended June 30, 1998. As discussed previously, management is aggressively pursuing strategic action plans designed to improve the Company's health loss ratio. Management anticipates the health loss ratio will be approximately 78.5% to 79.0% for the last half of 1999. However, the Company's actual health loss ratio for the remainder of 1999 is dependent upon future events including claim cost trends, utilization persistency, new sales, regulatory approvals of rate increases and other factors. Consequently, there can be no assurance that the Company's action plans will have the desired effect on the health loss ratio in future periods. The life segment loss ratio for the three months ended June 30, 1999 was 32.2% compared to 20.6% for the three months ended June 30, 1998. The life segment loss ratio for the six months ended June 30, 1999 was 37.0% compared with 27.0% for the six months ended June 30, 1998. The results in the life segment for the second quarter of 1999 are consistent with historical trends and management's expectations on an on-going basis. The fluctuation from the second quarter of 1998 is due to unusually low claims utilization during that period. Management expects the life segment loss ratio to remain relatively stable during the remainder of 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATIO The selling, general and administrative ("SGA") expense ratio for health segment products for the three months ended June 30, 1999 was 23.1% compared with 22.9% for the three months ended June 30, 1998. For the six months ended June 30, 1999 and 1998, the SGA expense ratio for health segment products was 23.3% and 23.0%, respectively. The slight increase in the SGA expense ratio is the result of higher commissions on new policy sales offset by a lower administrative expense ratio caused by a leveraging of the Company's operations over increased revenues. OTHER EXPENSES Interest expense decreased to $0.9 million for the three months ended June 30, 1999 from $1.1 million for the same period in the prior year. For the six months ended June 30, 1999, interest expense decreased to $1.8 million from $2.3 million for the six months ended June 30, 1998. The decrease in interest expense for the quarter and six month period reflects the assumption of $70.0 million in debt by Newco/UWS on September 11, 1998, as part of the Spin-off transaction, as described in Note B of the Notes to Condensed Consolidated Financial Statements. Amortization of goodwill and other intangibles totaled $1.0 million for the second quarter of 1999, compared with $2.2 million of amortization expense for the second quarter of 1998. On a year to date basis, amortization of goodwill and intangibles decreased to $2.1 million from $4.4 million for the six months ended June 30, 1998. The decline in amortization is principally due to the write-off of the Company's distribution system intangible asset at December 31, 1998, as described in the Company's annual report on Form 10-K for the year ended December 31, 1998. Management believes that no other material impairment of goodwill and other intangible assets exists at June 30, 1999. The effective tax rate was 34.1% for the three months ended June 30, 1999 compared with 51.3% for the three months ended June 30, 1998. The effective tax rate for the six months ended June 30, 1999 was (62.1%) compared with 47.6% for the six months ended June 30, 1998. The effective tax rate is impacted primarily by level amortization of non-deductible goodwill in relation to varying pre-tax income. 13 LIQUIDITY AND CAPITAL RESOURCES The Company's sources of cash flow consist primarily of insurance premiums, administrative fee revenue and investment income. The primary uses of cash include medical and other benefits and operating expense payments. Positive cash flows are invested pending future payments of medical and other benefits and other operating expenses. The Company's investment policies are designed to maximize yield, preserve principal and provide liquidity to meet anticipated payment obligations. The Company's cash flow from operations was positive at $12.9 million for the six months ended June 30, 1999. This compares to negative cash flow from operations of $10.5 million for the six months ended June 30, 1998. The positive results are due to growth in membership and lower debt costs as a result of the assumption of $70.0 million in debt by Newco/UWS in September 1998. The Company's investment portfolio from continuing operations consists primarily of investment grade bonds and has limited exposure to equity securities. At June 30, 1999, $306.9 or 99.3% of the Company's investment portfolio was invested in bonds. At December 31, 1998, $296.5 or 99.2% of the Company's investment portfolio was invested in bonds. The bond portfolio had an average quality rating of Aa3 at June 30, 1999, and A1 at December 31, 1998, as measured by Moody's Investor Service. The majority of the bond portfolio was classified as available for sale. The Company has no investment in mortgage loans, non-publicly traded securities (except for principal only strips of U.S. Government securities), real estate held for investment or financial derivatives. The Company's insurance subsidiaries operate in states that require certain levels of regulatory capital and surplus and may restrict dividends to their parent companies. The National Association of Insurance Commissioners has adopted risk-based capital ("RBC") standards for health and life insurers designed to evaluate the adequacy of statutory capital and surplus in relation to various business risks faced by such insurers. The RBC formula is used by state insurance regulators as an early warning tool to identify insurance companies that potentially are inadequately capitalized. At December 31, 1998, the Company's principal insurance company subsidiaries had an RBC ratio that was substantially above the levels which would require regulatory action. The Company has a five year revolving line of credit with a maximum commitment of $70.0 million, and a $10.0 million sublimit for swingline loans. The outstanding line of credit balance at June 30, 1999 was $45.2 million, which is included in notes payable. In addition to internally generated funds and periodic borrowings on its bank line of credit, the Company believes that additional financing to facilitate long-term growth could be obtained through equity offerings, debt offerings, or bank borrowings, as market conditions may permit or dictate. 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"). 14 In-house Applications represent the primary operating software of the Company and include premium billing and cash posting, claims adjudication and commission payment processing applications. The project to make all in-house Applications Year 2000 compliant was completed in November 1998. The deletion of temporary bridges and workfiles used to facilitate communication between compliant and non-compliant computer codes during the course of the implementation was completed in early March 1999. Customized Applications software products include electronic data interchange applications, publishing systems, fax capabilities, accounting packages and other special application software as well as utility software packages that serve as links between different packages. Each of these software packages is currently being upgraded or replaced. It is anticipated that all Customized Applications will be compliant prior to the end of the third quarter of 1999. With respect to Third Party Products, the Company has reviewed its business processes that may have Year 2000 concerns performed by, with or through external business associates. This includes computer hardware, telephone systems, security systems and other numerous products as well as third party applications that have not been customized by the Company. The Company has evaluated various third parties that provide products or services, such as printing companies, power and utility companies and other vendors. Where appropriate, agreements with third party vendors have been amended and Year 2000 compliance certifications have been obtained. Significant business partners and vendors will be required to provide the Company with Year 2000 certified products or services. Such products and services are being tested by the Company to validate the compliance certification. This portion of the plan is 93% complete, is on schedule and is planned for completion in September 1999.
YEAR 2000 PLAN PERCENT COMPLETE COMPLETION DATE In-house Applications 100% March 1999 Customized Applications 91% September 1999 Third Party Products 93% September 1999
The cost of the Year 2000 project is being funded through operating cash flows and is not expected to be material to the Company's financial position. For the six months ended June 30, 1999, the Company has incurred costs of $2.8 million ($0.3 million in the second quarter of 1999) relating to the Year 2000 project. For the remainder of 1999, the Company anticipates an additional cost of $0.3 million which will be expensed as incurred. The company has made capital expenditures of $4.4 million for the six months ended June 30, 1999, and expects to make an additional $0.5 million in capital expenditures to complete the project. During the second quarter of 1999, the Company has completed a comprehensive analysis of the operational problems and costs (including loss of revenues) that could result from the unlikely failure by the Company and certain third parties to complete efforts necessary to achieve Year 2000 compliance on a timely basis. While the Company currently believes that the timely completion of its Year 2000 project will limit exposure so that the Year 2000 issue will not pose material operational problems, the Company cannot control third party systems. Contingency plans have been developed and documented for dealing with the worst case scenarios with the highest chance of occurring. 15 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 that are not historical facts are forward looking statements subject to inherent risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such forward looking statements. The terms "anticipate", "believe", "estimate", "expect", "objective", "plan", "project" and similar expressions are intended to identify forward looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that may cause actual results or events to differ materially from those contemplated by such forward looking statements, include, among others, (1) the Company's ability to successfully implement the action plans to improve loss ratios; (2) the effects of either federal or state health care reform or other legislation; (3) rising health care costs, including the Company's ability to predict such costs and adequately price its products; (4) changes in membership utilization and risk; (5) government regulations, including changes in insurance, health care and other regulatory conditions; (6) delays in regulatory approvals, and regulatory action resulting from market conduct activity and general administrative compliance with state and federal laws; (7) general business conditions, including competitive practices and demand for the Company's products; (8) development of and changes in claims reserves; (9) rating agency policies and practices; (10) general economic conditions, including changes in interest rates and the effect of such changes on the Company's investment portfolio; (11) the Company's ability to integrate acquisitions; (12) unforeseen costs or consequences of Year 2000 issues; (13) the retention of key management and technical employees, and (14) 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 DISCLOSURE ABOUT MARKET RISK The Company's market risk has not substantially changed from the year ended December 31, 1998. 16 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of shareholders of the Company was held on May 27, 1999 for the purpose of (1) electing three directors for terms expiring at the 2002 Annual Meeting of Shareholders, (2) amending the Company's Equity Incentive Plan (the "Equity Incentive Plan") to allow non-employee directors to participate in the Equity Incentive Plan and to make other amendments to the Equity Incentive Plan, and (3) approving the Company's Executive Annual Incentive Plan. All three of the Company's nominees were elected, the amendment of the Equity Incentive Plan was approved, and the Executive Annual Incentive Plan was approved. The voting results for the proposals were as follows:
ELECTION OF DIRECTORS FOR TERMS EXPIRING IN 2002: Roger H. Ballou: W. Francis Brennan: For 15,646,802 shares For 15,649,815 shares Withheld 806,547 shares Withheld 803,534 shares Abstained 0 Abstained 0 Broker Non-Votes 0 Broker Non-Votes 0 J. Gus Swoboda: For 15,649,425 shares Withheld 803,924 shares Abstained 0 Broker Non-Votes 0 AMENDMENT OF EQUITY INCENTIVE PLAN: For 12,878,509 shares Against 3,567,765 shares Abstained 7,075 shares Broker Non-Votes 0 shares APPROVAL OF EXECUTIVE ANNUAL INCENTIVE PLAN: For 16,162,427 shares Against 276,568 shares Abstained 14,354 shares Broker Non-Votes 0 shares
Further information concerning these matters, including the names of the directors whose terms continued after the meeting, is contained in the Company's Proxy Statement dated April 14, 1999 with respect to the 1999 Annual Meeting of Shareholders. 17 ITEM 5. OTHER INFORMATION On August 3, 1999, the Company announced that its Board of Directors has authorized the Company to repurchase up to $10 million of the Company's outstanding common stock. The plan to repurchase its common stock will allow the Company to buy back its shares, from time to time, in open market or privately negotiated transactions, subject to price and market conditions. Any purchases will be made in a manner to comply with the provisions of Rule 10b-18 under the Securities Exchange Act of 1934. In determining when and whether to purchase shares, management will also consider, among other factors, market price, the number of shares actively traded in the market, indications of seller interest, the number of shares held by large shareholders, and the effect of purchases on shareholder value. Because of the unpredictability of these factors, no assurance can be given as to how many shares may be repurchased. 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 May 24, 1999 was filed by the Company to report (under Item 5) the announcement by the Company of its plans to take a charge in the second quarter of 1999 to strengthen its medical claims reserves. 18 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: August 12, 1999 ----------------- AMERICAN MEDICAL SECURITY GROUP, INC. /s/ Gary D. Guengerich ---------------------------------------------------------- Gary D. Guengerich Executive Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer and duly authorized to sign on behalf of the Registrant) 19 AMERICAN MEDICAL SECURITY GROUP, INC. (COMMISSION FILE NO. 1-13154) EXHIBIT INDEX TO FORM 10-Q QUARTERLY REPORT for quarter ended June 30, 1999
INCORPORATED HEREIN FILED EXHIBIT NO. DESCRIPTION BY REFERENCE TO HEREWITH 3.2 Bylaws of the Company as amended and X restated May 27, 1999 27.1 Financial Data Schedule X 27.2 Restated Financial Data Schedule X (six months ended June 30, 1998)
EX-1 EX-3.2 2 EXHIBIT 3.2 BYLAWS OF AMERICAN MEDICAL SECURITY GROUP, INC. (AS AMENDED AND RESTATED MAY 27, 1999) ARTICLE I. OFFICES 1.01. PRINCIPAL AND BUSINESS OFFICES. The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. 1.02. REGISTERED OFFICE. The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical to the principal office in the state of Wisconsin; and the address of the registered office may be changed from time to time by any officer or by the registered agent. The business office of the registered agent of the Corporation shall be identical to the registered office. ARTICLE II. SHAREHOLDERS 2.01. ANNUAL MEETING. The Annual Meeting of the Shareholders shall be held at the principal office of the Corporation in the City of Green Bay, Brown County, Wisconsin, unless the Board of Directors shall designate another location either within or without the State of Wisconsin. The Annual Meeting shall take place on the last Thursday of May each year or at such other time and date as may be fixed by or under the authority of the Board of Directors. If the day fixed for the Annual Meeting shall be a legal holiday in the State of Wisconsin, such meeting shall be held on the next succeeding business day. At such meeting the Shareholders shall elect directors and transact such other business as shall lawfully come before them. A. ELECTIONS AND OTHER BUSINESS. Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the Shareholders may be made at the Annual Meeting: 1. Pursuant to the Corporation's notice of meeting; 2. By or at the direction of the Board of Directors; or 3. By any Shareholder of the Corporation who is a Shareholder of record at the time of the giving of the notice provided for in these Bylaws and who is entitled to vote at the meeting and complies with the notice procedures set forth below. B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. For nominations or other business to be properly brought before an Annual Meeting by a Shareholder, the Shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. Timely notice is that notice which is received by the Secretary at the Corporation's principal office not less than sixty (60) days nor more than ninety (90) days prior to the date on which the Corporation first mailed its proxy materials for the prior year's Annual Meeting, provided, however, that in the event the date of the Annual Meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from the last Thursday in May, notice by the Shareholder, to be timely, must be received, as provided above, not earlier than the ninetieth (90th) day prior to the date of such Annual Meeting and not later than the close of business on the later of (x) the sixtieth (60) day prior to such Annual Meeting, or (y) the tenth (10th) day on which public announcement of the date of such a meeting is first made. Such Shareholder's notice shall be signed by the Shareholder of record who intends to make the nomination or introduce the other business (or his or her duly authorized proxy or other representative), shall bear the date of signature of such Shareholder or representative, and shall set forth: 1. The name and address, as they appear on the Corporation's books, of such Shareholder and the beneficial owner(s), if any, on whose behalf the nomination or proposal is made; 2. The class and number of shares of the Corporation which are beneficially owned by such Shareholder or beneficial owner(s); 3. A representation that such Shareholder is a holder of record of shares entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; 4. In the case of any proposed nomination for election or reelection as a director: (a) The name and residence address of the nominee; (b) A description of all arrangements or understandings between such Shareholder or beneficial owner(s) and each nominee and any other person(s) (naming such person(s)) pursuant to which the nomination is to be made by the Shareholder; (c) Such other information regarding each nominee proposed by such Shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (d) The written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected; and 5. In the case of any other business that such Shareholder proposes to bring before the meeting, (a) A brief description of the business desired to be brought before the meeting, and, if the business includes a proposal to amend these Bylaws, the language of the proposed amendment; (b) Such Shareholder's and beneficial owner's(s') reasons for conducting such business at such time; and (c) Any material interest in such business of such Shareholder or beneficial owners(s). Notwithstanding anything in the above paragraph to the contrary, in the event that the number of directors to be elected to the Board of Directors of this Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least seventy (70) days prior to the last Thursday in May, a Shareholder's notice required by this Section shall also be considered timely, but only with respect to nominees for new positions created by such increase, if it is received by the Secretary at the Corporation's principal office not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. 2.02. SPECIAL MEETINGS. Special meetings of the Shareholders may be called by the Chairman of the Board, and shall be called by the Secretary on written request of a majority of members of the Board of Directors, or on written request of the holders of at least ten (10%) percent of the Corporation's shares entitled to vote on a matter. The request shall be signed, dated and delivered to the Secretary describing one (1) or more purposes for which the meeting is to be held. The Board of Directors shall set the place of the meeting. If no such designation is made, the place of the meeting shall be the principal business office of the Corporation in the State of Wisconsin, but any meeting may be adjourned to reconvene at any place designated by a vote of a majority of the shares represented thereat. A. ELECTIONS AND OTHER BUSINESS. Nominations of persons for election to the Board of Directors may be made at a Special Meeting at which directors are to be elected pursuant to such notice of meeting: 1. By or at the direction of the Board of Directors; or 2. By any Shareholder of the Corporation who: (a) Is a Shareholder of record at the time of giving notice of the meeting, (b) Is entitled to vote at the meeting, and (c) Complies with the notice procedures set forth below. B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. Only such business as shall have been described in such notice shall be conducted at the Special Meeting. Any Shareholder desiring to nominate persons for election to the Board of Directors at a Special Meeting shall cause written notice to be received by the Secretary of the Corporation at its principal office not earlier than ninety (90) days prior to such Special Meeting and not later than the close of business on the later of (x) the sixtieth (60th) day prior to such Special Meeting or (y) the tenth (10th) day following the day on which public announcement is first made of the date of such Special Meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the Shareholder of record who intends to make the nomination (or his or her duly authorized proxy or other representative), shall bear the date of signature of such Shareholder or other representative, and shall set forth: 1. The name and address, as they appear on the Corporation's books, of such Shareholder and the beneficial owner(s), if any, on whose behalf the nomination is made; 2. The class and number of shares of the Corporation which are beneficially owned by such Shareholder or beneficial owner(s); 3. A representation that such Shareholder is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination specified in the notice; 4. The name and residence address of the person(s) to be nominated; 5. A description of all arrangements or understandings between such Shareholder or beneficial owner(s) and each nominee and any other person(s) (naming such person(s)) pursuant to which the nomination is to be made by such Shareholder; 6. Such other information regarding each nominee proposed by such Shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and 7. The written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected. 2.03. NOTICE OF ANNUAL OR SPECIAL MEETING. Notice may be communicated by telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier, and, if these forms of personal notice are impracticable, notice may be communicated by public announcement. Such notice stating the place, day and hour of the meeting and, in case of a special meeting, a description of each purpose for which the meeting is called, shall be communicated or sent not less than ten days nor more than sixty (60) days before the date of the meeting, by or at the direction of the Chairman of the Board or the Secretary, or other officer or persons calling the meeting, to each Shareholder of record entitled to vote at such meeting. Written notice by the Corporation to its Shareholders is effective when mailed and may be addressed to the Shareholder's address shown in the Corporation's current record of Shareholders. 2.04. UNANIMOUS CONSENT WITHOUT MEETING. Any action that may be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. 2.05. FIXING OF RECORD DATE. A "Shareholder" of the Corporation shall mean the person in whose name shares are registered in the stock transfer books of the Corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with the Corporation. Such nominee certificates, if any, shall be reflected in the stock transfer books of the Corporation. The Board of Directors may fix, in advance, a date as the record date for one or more voting groups for any determination of Shareholders entitled to notice of a Shareholder's meeting, to demand a special meeting, to vote, or to take any other action, such date in any case to be not more than seventy (70) days prior to the meeting or action requiring such determination of Shareholders, and may fix the record date for determining Shareholder entitled to share a dividend or distribution. If no record date is fixed for the determination of Shareholders entitled to demand a Shareholder meeting, to notice of or to vote at a meeting of Shareholders, or to consent to action without a meeting, (a) the close of business on the day before the Corporation received the first written demand for a Shareholder meeting, (b) the close of business on the day before the first notice of the meeting is mailed or otherwise delivered to Shareholders, or (c) the close of business on the day before the first written consent to Shareholder action without a meeting is received by the Corporation, as the case may be, shall be the record date for the determination of Shareholders. If no record date is fixed for the determination of Shareholders entitled to receive a share dividend or distribution (other than a distribution involving a purchase, redemption or other acquisition of the Corporation's shares), the close of business on the day on which the resolution of the Board of Directors is adopted declaring the dividend or distribution shall be the record date. When a determination of Shareholders entitled to vote at any meeting of Shareholders has been made as provided in this Section, such determination shall be applied to any adjournment thereof unless the Board of Directors fixes a new record date and except as otherwise required by law. A new record date must be set if a meeting is adjourned to a date more than one-hundred twenty (120) days after the date fixed for the original meeting. 2.06. VOTING RECORD. The Secretary shall, before each meeting of Shareholders, make a complete list of the Shareholders entitled to vote at such meeting, or any adjournment thereof, with the address of and the number of shares held by each. Such record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any Shareholder during the whole time of the meeting for the purposes of the meeting. The original stock transfer books shall be prima facie evidence as to who are the Shareholders entitled to examine such record or transfer books or to vote at any meeting of Shareholders. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting. 2.07. QUORUM. Shares entitled to vote as a separate voting group as defined in the Wisconsin Business Corporation Law may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles of Incorporation or the Wisconsin Business Corporation Law provide otherwise, a majority of the votes entitled to be cast on the matter by a voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purposes at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. If a quorum exists, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Wisconsin Business Corporation Law require a greater number of affirmative votes. "Voting group" means any of the following: A. All shares of one or more classes or series that under the Articles of Incorporation or the Wisconsin Business Corporation Law are entitled to vote and be counted together collectively on a matter at a meeting of Shareholders. B. All shares that under the Articles of Incorporation or the Wisconsin Business Corporation Law are entitled to vote generally on a matter. Though less than a quorum of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. 2.08. PROXIES. At all meetings of Shareholders, a Shareholder entitled to vote may vote in person or by proxy. A Shareholder may appoint a proxy to vote or otherwise act for the Shareholder by signing an appointment form, either personally, by his or her attorney-in-fact, or in any other manner authorized by the Wisconsin Business Corporation Law. Such proxy appointment is effective when received by the Secretary or other officer or agent of the Corporation authorized to tabulate votes. Unless otherwise provided in the appointment form of proxy, a proxy appointment may be revoked at any time before it is voted, by written notice filed with the Secretary or the acting Secretary of the meeting, by oral notice given by the Shareholder to the presiding officer during the meeting, or in any other manner authorized by the Wisconsin Business Corporation Law. The presence of a Shareholder who has filed his or her proxy appointment shall not of itself constitute a revocation. No proxy appointment shall be valid after eleven months from the date of its execution, unless otherwise provided in the appointment form of proxy. The Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxy appointments. 2.09. VOTING OF SHARES. Each outstanding share shall be entitled to one vote upon each matter submitted to a vote at a meeting of Shareholders, except to the extent that the voting rights of the shares of any voting group or groups are enlarged, limited or denied by the Articles of Incorporation. 2.10. VOTING OF SHARES BY CERTAIN HOLDERS. A. OTHER CORPORATIONS. Shares standing in the name of another corporation may be voted either in person or by proxy, by the president of such corporation or any other officer appointed by such president. An appointment form of proxy executed by any principal officer of such other corporation or assistant thereto shall be conclusive evidence of the signer's authority to act, in the absence of express notice to this Corporation, given in writing to the Secretary of this Corporation, or the designation of some other person by the Board of Directors or by the Bylaws of such other corporation. B. LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by an administrator, executor, guardian, conservator, trustee in bankruptcy, receiver or assignee for creditors may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name, provided that there is filed with the Secretary before or at the time of meeting proper evidence of his or her incumbency and the number of shares held by him or her, either in person or by proxy. An appointment form of proxy executed by a fiduciary shall be conclusive evidence of the signer's authority to act, in the absence of express notice to this Corporation, given in writing to the Secretary, that such manner of voting is expressly prohibited or otherwise directed by the document creating the fiduciary relationship. C. PLEDGEES. A Shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred; provided, however, a pledgee shall be entitled to vote shares held of record by the pledgor if the Corporation receives acceptable evidence of the pledgee's authority to sign. D. TREASURY STOCK AND SUBSIDIARIES. Neither treasury shares, nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation is held by this Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares entitled to vote, but shares of its own issue held by this Corporation in a fiduciary capacity, or held by such other corporation in a fiduciary capacity, may be voted and shall be counted in determining the total number of outstanding shares entitled to vote. E. MINORS. Shares held by a minor may be voted by such minor in person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the Corporation has received written notice or has actual knowledge that such Shareholder is a minor. Shares held by a minor may be voted by a personal representative, administrator, executor, guardian or conservator representing the minor if evidence of such fiduciary status, acceptable to the Corporation, is presented. F. INCOMPETENTS AND SPENDTHRIFTS. Shares held by an incompetent or spendthrift may be voted by such incompetent or spendthrift in person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the Corporation has actual knowledge that such Shareholder has been adjudicated an incompetent or spendthrift or actual knowledge of judicial proceedings for appointment of a guardian. Shares held by an incompetent or spendthrift may be voted by a personal representative, administrator, executor, guardian or conservator representing the minor if evidence of such fiduciary status, acceptable to the Corporation, is presented. G. JOINT TENANTS. Shares registered in the names of two (2) or more individuals who are named in the registration as joint tenants may be voted in person or by proxy signed by any one (1) or more of such individuals if either (i) no other such individual or his or her legal representative is present and claims the right to participate in the voting of such shares or prior to the vote files with the Secretary of the Corporation a contrary written voting authorization or direction or written denial of authority of the individual present or signing the appointment form of proxy proposed to be voted, or (ii) all such other individuals are deceased and the Secretary of the Corporation has no actual knowledge that the survivor has been adjudicated not to be the successor to the interests of those deceased. 2.11. CONDUCT OF MEETINGS. The Chairman of the Board, or in the Chairman's absence, the President, or, in their absence such Vice President as is designated by the Board of Directors, shall call the meeting to order and act as Chairman of the meeting. Only persons nominated in accordance with the procedures set forth in Sections 2.01 and 2.02, shall be eligible to serve as directors. Only such business as shall have been brought before a meeting in accordance with the procedures set forth in Section 2.01 and 2.02, shall be eligible to be conducted. The Chairman of the meeting shall have the power and duty to determine whether any nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in Sections 2.01 and 2.02, and, if any proposed nomination or business is not in compliance therewith, to declare that such defective proposal shall be disregarded. 2.12. PUBLIC ANNOUNCEMENT. For purposes of Sections 2.01 and 2.02, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended. 2.13. INVALIDITY. The Chairman, upon recommendation of the Secretary, may reject a vote, consent, waiver, or proxy appointment, if the Secretary or other officer or agent of the Corporation who is authorized to tabulate votes, acting in good faith, has reasonable doubt about the validity of the signature on it or about the signatory's authority to sign for the Shareholder. The Corporation and its officer or agent who accepts or rejects a vote, consent, waiver or proxy appointment in good faith and in accordance with the Wisconsin Business Corporation Law shall not be liable for damages to the Shareholders for consequences of the acceptance or rejection. 2.14. WAIVER OF NOTICE. A Shareholder may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation, or these Bylaws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the Shareholder entitled to the notice, contain the same information that would have been required in the notice under the Wisconsin Business Corporation Law (except that the time and place of meeting need not be stated), and be delivered to the Corporation for inclusion in the corporate records. A Shareholder's attendance at any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the following: (a) lack of notice or defective notice of the meeting, unless the Shareholder promptly upon arrival or at the beginning of the meeting objects to holding, or transacting business at, the meeting; and (b) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the Shareholder objects to considering the matter when it is presented. ARTICLE III. BOARD OF DIRECTORS 3.01. NUMBER OF DIRECTORS. Within the limits established in the Articles of Incorporation, the number of directors of the Corporation shall be such number as shall be determined by the Board of Directors from time to time. 3.02. TERM OF OFFICE. Elected directors shall hold office for a term of three (3) years and until their successors are elected and qualified, except as otherwise provided in this Section or until their death, resignation or removal. The Board of Directors shall be divided into three (3) classes of three (3) or more directors each, with, as nearly as possible, an equal number of directors in each class. The term of office of the first class of directors shall expire at the first annual meeting after their initial election and when their successors are elected and qualified, the term of office of the second class shall expire at the second annual meeting after their initial election and when their successors are elected and qualified, and the terms of office of the third class shall expire at the third annual meeting after their initial election and when their successors are elected and qualified. At each annual meeting after the initial classification of the Board of Directors, the class of directors whose term expires at the time of such election shall be elected to hold office until the third succeeding annual meeting and until their successors are elected and qualified. 3.03. NOMINATIONS. Nominations for the election of directors shall be made in accordance with the provisions of Sections 2.01 and 2.02 hereof, which requirements are hereby incorporated by reference in this Section 3.03. 3.04. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the Annual Meeting of Shareholders, for election of corporate officers and transaction of other business. The Board of Directors may provide by resolution the time and place for holding additional meetings without other notice than such resolution. 3.05. SPECIAL MEETINGS. Special Meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the Secretary upon written request of any three (3) directors. The Secretary shall give sufficient notice of such meeting, to be not less than two (2) days, in person or by mail or by telephone, telegraph, teletype, facsimile or other form of wire or wireless communication as to enable the directors so notified to attend such meeting. The Chairman or Secretary who calls the meeting may fix any place, within or without the State of Wisconsin, as the place for holding any Special Meeting of the Board of Directors. 3.06. WAIVER OF NOTICE. Whenever any notice whatsoever is required to be given to any director of the Corporation under the Articles of Incorporation or Bylaws or any provisions of law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the director entitled to such notice, shall be deemed equivalent to the giving of such notice, and the Corporation shall retain copies of such waivers in its corporate records. A director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 3.07. QUORUM. Except as otherwise provided by the Wisconsin Business Corporation Law, a majority of the number of directors (determined as provided in Section 3.01) shall constitute a quorum of the Board of Directors. Except as otherwise provided by the Wisconsin Business Corporation Law, a majority of the number of directors appointed to service on a committee shall constitute a quorum of the committee. 3.08. VACANCIES. Vacancies, including those created by an increase in the number of directors in the Board of Directors, may be filled by the remaining directors. A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor. In the absence of action by the remaining directors, the Shareholders may fill such vacancy at a Special Meeting in accordance with the Articles of Incorporation, or by unanimous consent according to these Bylaws. 3.09. REMOVAL. The Shareholders may remove one (1) or more directors, with or without cause, at a meeting called for that purpose, the notice of which reflects that purpose, in accordance with the Articles of Incorporation of this Corporation. 3.10. COMPENSATION. A director may receive such compensation for services as is determined by resolution of the Board irrespective of any personal interest of its members. A director also may serve the Corporation in any other capacity and receive compensation therefore. The Board of Directors also shall have authority to provide for or to delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits and other benefits or payments, to directors, officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered to the Corporation by such directors, officers and employees. 3.11. GENERAL POWERS. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board of Directors, subject to any limitation set forth in these Bylaws or the Articles of Incorporation. 3.12. CONDUCT OF MEETINGS. The Chairman of the Board, or in the Chairman's absence the President, or in their absence such Vice President as is designated by the Board of Directors, shall call meetings of the Board of Directors to order and shall act as Chairman of the meeting. The Secretary of the Corporation shall act as Secretary of all meetings of the Board of Directors, but in the absence of the Secretary, the presiding officer may appoint an Assistant Secretary or any director or other person present or participating to act as Secretary of the meeting. 3.13. MANNER OF ACTING. If a quorum is present or participating when a vote is taken, the affirmative vote of a majority of directors present or participating is the act of the Board of Directors or a committee of the Board of Directors, unless the Wisconsin Business Corporation Law or the Articles of Incorporation or these Bylaws require the vote of a greater number of directors. 3.14. PRESUMPTION OF ASSENT. A director of the Corporation who is present at or participates in a meeting of the Board of Directors or a committee thereof which he or she is a member, at which action on any corporate matter is taken, shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. 3.15. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or permitted by the Articles of Incorporation or Bylaws or any provision of law to be taken by the Board of Directors at a meeting or by resolution may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors then in office. 3.16. MEETING BY TELEPHONE OR BY OTHER COMMUNICATION TECHNOLOGY. Meetings of the Board of Directors or committees may be conducted by telephone or by other communication technology in accordance with Section 180.0820 of the Wisconsin Business Corporation Law. 3.17. COMMITTEES. A. REGULAR COMMITTEES. 1. GENERAL DESCRIPTION. In order to facilitate the work of the Board of Directors of this Corporation, the following regular committees shall be elected from the membership of the Board of Directors at the regular meeting held in May of each year (or at such other time as the Board of Directors may determine): Executive Committee Finance Committee Compensation Committee Audit Committee Each committee shall consist of such number of members, not less than three (3), as shall be determined by the Board of Directors. The Chairman of the Board of Directors, and in the Chairman's absence the President, and in their absence, such Vice President as is designated by the Board of Directors, shall submit nominations for such committee memberships. Committee members shall hold office until the next board meeting at which committee elections are conducted in accordance with these Bylaws, and until their successors are elected and qualified. Each Regular Committee of the Board of Directors may exercise the authority of the full Board within the scope of the duties and powers delegated to it in these Bylaws, except that no committee of this Board shall do any of the following: (a) Authorize distributions; (b) Approve or propose to Shareholders action that the Wisconsin Business Corporation Law requires to be approved by Shareholders; (c) Fill vacancies on the Board of Directors or, except as provided herein, on any of its committees; (d) Amend the Articles of Incorporation; (e) Adopt, amend or repeal the Bylaws; (f) Approve a plan of merger not requiring Shareholder approval; (g) Authorize or approve reacquisition of shares, except according to a formula or method prescribed by the full Board; or (h) Authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee or a senior executive officer of the Corporation to do so within limits prescribed by the Board of Directors. 2. THE EXECUTIVE COMMITTEE. When the Board of Directors is not in session, the Executive Committee shall have and may exercise all of the powers and authority of the full Board in the management of the business and affairs of the Corporation to the extent allowed by the Wisconsin Business Corporation Law. 3. THE FINANCE COMMITTEE. When the Board of Directors is not in session, the Finance Committee shall have and may exercise all of the powers of the full Board of Directors solely with regard to those matters which are within the scope of the Finance Committee's designated duties, as provided herein. The Chairman of the Board of Directors shall be a member of the Finance Committee. The Finance Committee shall: (a) Review and approve the Corporation's investment policies and guidelines: (b) Monitor performance of the Corporation's investment portfolio; (c) Consult with management regarding material transactions involving real estate, accounts receivable and other assets; (d) Monitor the amount and types of all insurance that should be carried by this Corporation; (e) Monitor the Corporation's relationship with its lenders and its compliance with financing agreements including debt covenants; (f) Consult with management concerning the capital structure of the Corporation; (g) Monitor investment options and performance offered in the Corporation's retirement plan; and (h) Carry out such special assignments as the Board of Directors may, from time to time, give to the Finance Committee. 4. THE COMPENSATION COMMITTEE. When the Board of Directors is not in session, the Compensation Committee shall have and may exercise all of the powers of the full Board solely with regard to those matters which are within the scope of the Compensation Committee's designated duties, as provided herein. The Compensation Committee shall: (a) Evaluate the performance of the Chief Executive Officer and other executive officers against objectives; (b) Review and approve the compensation (including salary, bonus, stock options and other appropriate equity or long-term incentives, and any severance benefits) of the Chairman of the Board, the Chief Executive Officer and other executive officers; (c) Administer compensation plans for executive officers and directors; and (d) Review, on a general policy level basis, the compensation and benefits of officers, managers and employees for appropriateness; (e) Act as the Nominating Committee for directors and make recommendations to the Board of Directors for types, methods and levels of directors' compensation; (f) Administer the Corporation's equity incentive plan or any other equity-based plans, including the review and approval of all grants hereunder; and (g) Carry out such special assignments as the Board of Directors may, from time to time, give to the Compensation Committee. 5. THE AUDIT COMMITTEE. The Audit Committee shall have and may exercise all of the powers of the full Board of Directors solely with regard to those matters which are within the scope of the Audit Committee's designated duties, as provided herein. The Audit Committee shall: (a) Select and engage the independent certified public accountants to audit the financial statements of the Corporation and its subsidiaries; (b) Meet with the independent auditors and financial management of the Corporation to review the scope of the proposed audit for the current year and the audit procedures to be utilized, and at the conclusion thereof, review such audit including any comments or recommendations of the independent auditors; (c) Review the internal audit function of the Corporation including the independence and authority of its reporting obligations, the proposed audit plans for the coming year, the coordination of such plans with the independent auditors, and summaries of findings of completed audits; (d) Review with the independent accountants and management the financial statements to determine that the independent auditors are satisfied with the disclosure and content of the financial statements; (e) Review with the independent auditors, the Corporation's internal auditor, and financial and accounting personnel, the adequacy and effectiveness of the accounting and financial controls of the Corporation; (f) Provide sufficient opportunity for the internal and independent auditors to meet with the members of the Audit Committee without members of management present; (g) Review related party transactions and conflict of interest statements for appropriateness; (h) Carry out such special assignments as the Board of Directors may, from time to time, give to the Audit Committee. B. SPECIAL COMMITTEES. In addition to the foregoing Regular Committees, the Board of Directors may, from time to time, establish Special Committees and specify the composition, functions and authority of any such Special Committee. C. VACANCIES; TEMPORARY APPOINTMENTS. When, for any cause, a vacancy occurs in any Regular Committee, the remaining committee members, by majority vote, may fill such vacancy by a temporary appointment of a director on the Board of Directors not on the subject committee to fill the vacancy until the next Board Meeting at which time the full Board of Directors shall fill the vacancy. D. ALTERNATE COMMITTEE MEMBERS. All members of the Board of Directors who are not members of a given committee shall be alternate members of such committee and may take the place of any absent member or members at any meeting of such committee, upon request by the Chairman of the Board of Directors, if there is one, the President or upon request by the chairman of such meeting. E. COMMITTEE MINUTES AND REPORTS. All of the foregoing committees shall keep minutes and records of all of their meetings and activities and shall report the same to the Board of Directors at its next regular meeting. Such minutes and records shall be available for inspection by the directors at all times. ARTICLE IV. OFFICERS 4.01. GENERALLY. The principal officers of the Corporation shall be a Chairman of the Board (Chief Executive Officer), a President, one (1) or more Vice Presidents designated as executive officers, a Secretary and a Treasurer. The Board of Directors shall elect the principal officers annually at the Annual Meeting. All such officers shall hold office for a period of one (1) year and until their successors are duly elected and qualified, or until their prior death, resignation or removal. Additionally, one or more Vice Presidents not designated as executive officers may be appointed by the President to serve at the will of the President. 4.02. REMOVAL. Any officer or agent may be removed by the Board of Directors with or without cause whenever in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create contract rights. 4.03. VACANCIES. A vacancy in any principal office because of death, resignation, removal, or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. The Board of Directors may, from time to time, omit to elect one (1) or more officers, or may omit to fill a vacancy, and in such case, the designated duties of such officer, unless otherwise provided in these Bylaws, shall be discharged by the Chairman of the Board or such other officers as he or she may designate. 4.04. CHAIRMAN OF THE BOARD. The Chairman of the Board, who shall also be the Chief Executive Officer, shall preside at all meetings of the Shareholders and of the directors and shall do and perform such other duties as from time to time may be assigned to that office by the Board of Directors. 4.05. PRESIDENT. The President shall have general supervision of the business and affairs of the Corporation. The President may sign and execute all authorized bonds, notes, checks, contracts, or other obligations in the name of the Corporation. The President shall perform such other duties as from time to time may be assigned to him or her by the Board of Directors. 4.06. VICE PRESIDENTS. Should the Chairman of the Board or the President be absent or unable to act, the Board of Directors shall designate a Vice President or other officer to discharge the duties of the vacant office with the same power and authority as is vested in that office. The Vice Presidents shall perform such other duties as from time to time may be assigned to them by the President or the Board of Directors. Vice Presidents appointed by the President shall perform such duties as may be assigned to them from time to time by the President or these Bylaws and shall serve at the will of the President and may be removed by the President at any time without action of the Board of Directors. 4.07. SECRETARY. The Secretary shall keep a record of the minutes of the meetings of the Shareholders, the Board of Directors and any committees of the Board of Directors. He or she shall countersign all instruments and documents executed by the Corporation; affix to instruments and documents the seal of the Corporation; keep in books therefore the transactions of the Corporation; see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; and perform such other duties as usually are incident to such office or may be assigned by the Chairman of the Board, the President or the Board of Directors. 4.08. TREASURER. The Treasurer, subject to the control of the Board of Directors, shall collect, receive, and safely keep all monies, funds and securities of the Corporation, and attend to all its pecuniary affairs. He or she shall keep full and complete accounts and records of all its transactions, of sums owing to or by the Corporation, and all rents and profits in its behalf. 4.09. ASSISTANTS AND ACTING OFFICERS. The Chairman of the Board, the President and the Board of Directors shall each have the power to appoint any person to act as assistant to any officer, or as agent for the Corporation in the officer's stead, or to perform the duties of such officer whenever for any reason it is impracticable for the officer to act personally, and the assistant or acting officer or other agent so appointed by the Chairman of the Board, the President or the Board of Directors shall have the power to perform all the duties of the office to which he or she is so appointed to be assistant, or as to which he or she is so appointed to act, except as such power otherwise may be defined or restricted by the Chairman of the Board, the President or the Board of Directors. Any person appointed to act as assistant to any officer, or as agent for the Corporation in the officer's stead, or to perform the duties of such officer whenever for any reason it is impracticable for the officer to act personally, shall serve at the will of the President and may be removed at any time by the President without action of the Board of Directors. ARTICLE V. FUNDS OF THE CORPORATION 5.01. FUNDS. All funds of the Corporation shall be deposited or invested in such depositories or in such securities as may be authorized from time to time by the Board of Directors or appropriate committee under authorization of the Board of Directors. 5.02. NAME. All investments and deposits of funds of the Corporation shall be made and held in its corporate name, except that securities kept under a custodial agreement or trust arrangement with a bank or banking and trust company may be issued in the name of a nominee of such bank or banking and trust company and except that securities may be acquired and held in bearer form. 5.03. LOANS. All loans contracted on behalf of the Corporation and all evidences of indebtedness that are issued in the name of the Corporation shall be under the authority of a resolution of the Board of Directors. Such authorization may be general or specific. 5.04. CONTRACTS. The Board of Directors may authorize one (1) or more officers, or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authorization may be general or specific. In the absence of other designation, all deeds, mortgages and instruments of assignment or pledge made by the Corporation shall be executed in the name of the Corporation by the Chairman of the Board, the President or one of the Vice Presidents and by the Secretary or Treasurer; the Secretary, when necessary or required, shall affix the corporate seal thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers. 5.05. DISBURSEMENTS. All monies of the Corporation shall be disbursed by check, draft, or written order only, and all checks and orders for the payment of money shall be signed by such officer or officers as may be designated by the Board of Directors. The officers and employees of the Corporation handling funds and securities of the Corporation shall give surety bonds in such sums as the Board of Directors or appropriate committee may require. 5.06. PROHIBITED TRANSACTIONS. No directors or officer of the Corporation shall borrow money from the Corporation, or receive any compensation for selling, aiding in the sale, or negotiating for the sale of any property belonging to the Corporation, or for negotiating any loan for or by the Corporation. 5.07. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always to the specific directions of the Board of Directors: A. Any shares or other securities issued by any other corporation and owned or controlled by this Corporation may be voted at any meeting of security holders of such other corporation by the Chairman of the Board, the President or in their absence any Vice President of this Corporation who may be present and designated by the Board of Directors; and B. Whenever, in the judgment of the Chairman of the Board, the President, or in their absence, a designated Vice President, it is desirable for this Corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this Corporation, such proxy or consent shall be executed in the name of this Corporation by the Chairman of the Board, the President, or a designated Vice President of this Corporation in the order as provided in Subsection A, without necessity of any authorization by the Board of Directors, affixation of corporate seal or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of this Corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this Corporation the same as such shares or other securities might be voted by this Corporation. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.01. CERTIFICATES FOR SHARES. Certificates representing shares of the Corporation shall be in such form, consistent with law, as shall be determined by the Board of Directors. Such Certificates shall be signed by the Chairman of the Board, the President, or a Vice President, and the Secretary, or by another officer designated by the Chairman of the Board, the President or the Board of Directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except as provided in Section 6.06. 6.02. FACSIMILE SIGNATURES AND SEAL. The seal of the Corporation on any certificates for shares may be a facsimile. The signature of the Chairman of the Board, the President or other authorized officer upon a certificate may be a facsimile if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the Corporation itself or an employee of the Corporation. 6.03. SIGNATURE BY FORMER OFFICER. In case any officer who has signed or whose facsimile signature has been placed upon any certificate for shares shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer at the date of its issue. 6.04. TRANSFER OF SHARES. Prior to due presentment of a certificate for shares for registration of transfer, the Corporation may treat the Shareholder of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and powers of an owner. Where a certificate for shares is presented to the Corporation with a request to register for transfer, the Corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if: A. There were on or with the certificate the necessary endorsements; and B. The Corporation had no duty to inquire into adverse claims or has discharged any such duty. The Corporation may require reasonable assurance that said endorsements are genuine and effective and in compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors: 6.05. RESTRICTIONS ON TRANSFER. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the Corporation upon the transfer of such shares. 6.06. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims that his or her certificate for shares has been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner: A. So requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser; B. If required by the Corporation, files with the Corporation a sufficient indemnity bond; and C. Satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 6.07. CONSIDERATION FOR SHARES. The shares of the Corporation may be issued for such consideration as shall be fixed from time to time by the Board of Directors, provided that any shares having a par value shall not be issued for a consideration less than the par value thereof. The consideration to be received for shares may consist of any tangible or intangible property or benefit to the Corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the Corporation. When the Corporation receives the consideration for which the Board of Directors authorized the issuance of shares, the shares issued for that consideration are fully paid and nonassessable, except as provided by Section 180.0622 of the Wisconsin Business Corporation Law which may require further assessment for unpaid wages to employees under certain circumstances. The Corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits are received or the note is paid. If the services are not performed, the benefits are not received or the note is not paid, the Corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited. 6.08. UNCERTIFICATED SHARES. In accordance with Section 180.0626 of the Wisconsin Business Corporation Law, the Board of Directors may issue any shares of any of its classes or series without certificates. The authorization does not affect shares already represented by certificates until the certificates are surrendered to the Corporation. Within a reasonable time after the issuance or transfer of shares without certificates, the Corporation shall send the Shareholder a written statement of the information required on share certificates by Sections 180.0625 and 180.0627, if applicable, of the Wisconsin Business Corporation Law, and by the Bylaws of the Corporation. The Corporation shall maintain at its offices, or at the office of its transfer agent, an original or duplicate stock transfer book containing the names and addresses of all Shareholders and the number of shares held by each Shareholder. If the shares are uncertificated, the Corporation shall be entitled to recognize the exclusive right of a person registered on its books as such, as the owner of shares for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Wisconsin. 6.09. TRANSFER AGENT AND REGISTRAR. The Corporation may maintain one (1) or more transfer offices or agencies, each in charge of a transfer agent designated by the Board of Directors, where the shares of stock of the Corporation shall be transferable. The Corporation also may maintain one (1) or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered. The same person or entity may be both a transfer agent and registrar. 6.10. STOCK REGULATIONS. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the laws of the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. ARTICLE VII. INDEMNIFICATION 7.01. INDEMNIFICATION FOR SPECIAL DEFENSE. Within twenty (20) days after receipt of a written request pursuant to Section 7.03, the Corporation shall indemnify a director or officer, to the extent he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the director or officer was a party because he or she is a director or officer of the Corporation. 7.02. OTHER INDEMNIFICATION. A. In cases not included under Section 7.01, the Corporation shall indemnify a director or officer against all liabilities and expenses incurred by the director or officer in a proceeding to which the director or officer was a party because he or she is a director or officer of the Corporation, unless liability was incurred because the director or officer breached or failed to perform a duty he or she owes to the Corporation and the breach or failure to perform constitutes any of the following: 1. A willful failure to deal fairly with the Corporation or its Shareholders in connection with a matter in which the director or officer has a material conflict of interest. 2. A violation of criminal law, unless the director or officer had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful. 3. A transaction from which the director or officer derived an improper personal profit. 4. Willful conduct. B. Determination of whether indemnification is required under the Section shall be made pursuant to Section 7.05. C. The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea, does not, by itself, create a presumption that indemnification of the director or officer is not required under this Section. 7.03. WRITTEN REQUEST. A director or officer who seeks indemnification under Section 7.01 or 7.02 ---------------- shall make a written request to the Corporation. 7.04. NONDUPLICATION. The Corporation shall not indemnify a director or officer under Sections 7.01 or 7.02 to the extent the director or officer has previously received indemnification or allowances of expenses from any person, including the Corporation, in connection with the same proceeding. However, the director or officer has no duty to look to any other person for indemnification. 7.05. DETERMINATION OF RIGHT TO INDEMNIFICATION. A. Unless otherwise provided by the Articles of Incorporation or by written agreement between the director or officer and the Corporation, the director or officer seeking indemnification under Section 7.02 shall select one (1) of the following means for determining his or her right to indemnification: 1. By a majority vote of a quorum of the Board of Directors consisting of directors not at the time parties to the same or related proceedings. If a quorum of disinterested directors cannot be obtained, by majority vote of a committee duly appointed by the Board of Directors and consisting of two (2) or more directors who are not at the time parties to the same or related proceedings. Directors who are parties to the same or related proceedings may participate in the designation of members of the committee. 2. By independent legal counsel selected by a quorum of the Board of Directors or its committee in the manner prescribed in 1 of Subsection A, if unable to obtain such a quorum or committee, by a majority vote of the full Board of Directors, including directors who are parties to the same or related proceedings. 3. By a panel of three (3) arbitrators consisting of one (1) arbitrator selected by those directors entitled under 2 of Subsection A to select independent legal counsel, one (1) arbitrator selected by the director or officer seeking indemnification and one (1) arbitrator selected by two (2) arbitrators previously selected. 4. By an affirmative vote of shares represented at a meeting of Shareholders at which a quorum of the voting group entitled to vote thereon is present. Shares owned by, or voted under the control of, persons who are at the time parties to the same or related proceedings, whether as plaintiffs or defendants or in any other capacity, may not be voted in making the determination. 5. By a court under Section 7.08. 6. By any other method provided for in any additional right to indemnification permitted under Section 7.07. B. In any determination under Subsection A, the burden of proof is on the Corporation to prove by clear and convincing evidence that indemnification under Section 7.02 should not be allowed. C. A written determination as to a director's or officer's indemnification under Section 7.02 shall be submitted to both the Corporation and the director or officer within sixty (60) days of the selection made under Subsection A. D. If it is determined that indemnification is required under Section 7.02, the Corporation shall pay all liabilities and expenses not prohibited by Section 7.04 within ten (10) days after receipt of the written determination under Subsection C. The Corporation shall also pay all expenses incurred by the director or officer in the determination of process under Subsection A. 7.06. ADVANCE OF EXPENSES. Within ten (10) days after receipt of a written request by a director or officer who is a party to a proceeding, the Corporation shall pay or reimburse his or her reasonable expenses incurred if the director or officer provides the Corporation with all of the following: A. A written affirmation of his or her good faith belief that he or she has not breached or failed to perform his or her duties to the Corporation. B. A written undertaking, executed personally or on his or her behalf, to repay the allowance to the extent that it is ultimately determined under Section 7.05 that indemnification under Section 7.02 is not required and that indemnification is not ordered by a court under Section 7.08(B)(2). The undertaking under this subsection shall be an unlimited general obligation of the director or officer and may be accepted without reference to his or her ability to repay the allowance. The undertaking may be secured or unsecured. 7.07. NONEXCLUSIVITY. A. Except as provided in Subsection B, Sections 7.01, 7.02 and 7.06 do not preclude any additional right to indemnification or allowance of expenses that a director or officer may have under any of the following: 1. The Articles of Incorporation. 2. A written agreement between the director or officer and the Corporation. 3. A resolution of the Board of Directors. 4. A resolution, after notice, adopted by a majority vote of all of the Corporation's voting shares then issued and outstanding. B. Regardless of the existence of an additional right under Subsection A, the Corporation shall not indemnify a director or officer, or permit a director or officer to retain any allowance of expenses unless it is determined by or on behalf of the Corporation that the director or officer did not breach or fail to perform a duty he or she owes to the Corporation which constitutes conduct under Section 7.02(A)(1), (2), (3) or (4). A director or officer who is a party to the same or related proceeding for which indemnification or an allowance of expenses is sought may not participate in a determination under this subsection. C. Sections 7.01 to 7.13 do not affect the Corporation's power to pay or reimburse expenses incurred by a director or officer in any of the following circumstances. 1. As a witness in a proceeding to which he or she is not a party. 2. As a plaintiff or petitioner in a proceeding because he or she is or was an employee, agent, director or officer of the Corporation. 7.08 COURT-ORDERED INDEMNIFICATION. A. Except as provided otherwise by written agreement between the director or officer and the Corporation, a director or officer who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. Application shall be made for an initial determination by the court under Section 7.05(a)(5) or for review by the court of an adverse determination under Section 7.05(A)(1), (2), (3), (4), or (6). After receipt of an application, the court shall give any notice it considers necessary. B. The court shall order indemnification if it determines any of the following: 1. That the director or officer is entitled to indemnification under Sections 7.01 or 7.02. 2. That the director or officer is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, regardless of whether indemnification is required under Section 7.02. C. If the court determines under Subsection B that the director or officer is entitled to indemnification, the Corporation shall pay the director's or officer's expenses incurred to obtain the court-ordered indemnification. 7.09. INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES AND AGENTS. The Corporation shall indemnify an employee of the Corporation who is not a director or officer of the Corporation, to the extent that he or she has been successful on the merits or otherwise in defense of a proceeding, for all reasonable expenses incurred in the proceeding if the employee was a party because he or she was an employee of the Corporation. In addition, the Corporation may indemnify and allow reasonable expenses of an employee or agent who is not a director or officer of the Corporation to the extent provided by (i) the Articles of Incorporation, (ii) these Bylaws, (iii) general or specific action of the Board of Directors, or (iv) by contract; provided however, that the Corporation may not provide such indemnification to the extent prohibited by law. 7.10. INSURANCE. The Corporation may purchase and maintain insurance on behalf of an individual who is an employee, agent, director or officer of the Corporation against liability asserted against or incurred by the individual in his or her capacity as an employee, agent, director or officer, regardless of whether the Corporation is required or authorized to indemnify or allow expenses to the individual against the same liability. 7.11. SECURITIES LAW CLAIMS. A. Pursuant to the public policy of the State of Wisconsin, the Corporation shall provide indemnification and allowance of expenses and may insure for any liability incurred in connection with a proceeding involving securities regulation described under Subsection B to the extent required or permitted under Sections 7.01 to 7.10. B. Sections 7.01 to 7.10 apply, to the extent applicable to any other proceeding, to any proceeding involving federal or state statute, rule or regulation regulating the offer, sale or purchase of securities, securities brokers or dealers, or investment companies or investment advisers. 7.12. LIBERAL CONSTRUCTION. In order for the Corporation to obtain and retain qualified directors, officers and employees, the foregoing provisions shall be liberally administered in order to afford maximum indemnification of directors, officers and, where Section 7.09 of these Bylaws applies, employees. The indemnification above provided for shall be granted in all applicable cases unless to do so would clearly contravene law, controlling precedent or public policy. 7.13. DEFINITIONS APPLICABLE TO THIS ARTICLE. For purposes of the Article: A. "Affiliate" shall include, without limitation, any corporation, partnership, joint venture, employee benefit plan, trust or other enterprise that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Corporation. B. "Corporation" means this Corporation and any domestic or foreign predecessor of this Corporation where the predecessor corporation's existence ceased upon the consummation of a merger or other transaction. C. "Director or Officer" means any of the following: 1. An individual who is or was a director or officer of this Corporation. 2. An individual who, while a director or officer of this Corporation, is or was serving at the Corporation's request as a director, officer, partner, trustee, member of any governing or decision-making committee, employee or agent of another corporation or foreign corporation, partnership, joint venture, trust or other enterprise. 3. An individual who, while a director or officer of this Corporation, is or was serving an employee benefit plan because his or her duties to the Corporation also impose duties on, or otherwise involve service by, the person to the plan or to participants in or beneficiaries of the plan. 4. Unless the context requires otherwise, the estate or personal representative of a director or officer. For purposes of this Article, it shall be conclusively presumed that any director or officer serving as a director, officer, partner, trustee, member of any governing or decision-making committee, employee or agent of an Affiliate shall be so serving at the request of the Corporation. D. "Expenses" include fees, costs, charges, disbursements, attorney fees and other expenses incurred in connection with a proceeding. E. "Liability" includes the obligation to pay a judgment, settlement, penalty, assessment, forfeiture or fine, including an excise tax assessed with respect to an employee benefit plan, and reasonable expenses. F. "Party" includes an individual who was or it, or who is threatened to be made, a named defendant or respondent in a proceeding. G. "Proceeding" means any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal, which involves foreign, federal, state or local law and which is brought by or in the right of the Corporation or by any other person. ARTICLE VIII. CORPORATE DIVIDENDS The Board of Directors may from time to time declare dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE IX. CORPORATE SEAL The Board of Directors may provide a corporate seal which may be circular in form and may have inscribed thereon the name of the Corporation and the state of incorporation and the words "Corporate Seal." ARTICLE X. FISCAL YEAR The fiscal year shall be set by the Board of Directors. ARTICLE XI. AMENDMENTS 11.01. BY SHAREHOLDERS. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Shareholders by affirmative vote of not less than a majority of the shares present or represented at an annual or special meeting of the Shareholders at which a quorum is in attendance. 11.02. BY DIRECTORS. These Bylaws may also be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors by affirmative vote of a majority of the number of directors present at or participating in any meeting at which a quorum is in attendance; but no bylaw adopted by the Shareholders shall be amended or repealed by the Board of Directors if the bylaw so adopted so provides. 11.03. IMPLIED AMENDMENTS. Any action taken or authorized by the Shareholders or by the Board of Directors, which would be inconsistent with the Bylaws then in effect but is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action, shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. EX-27.1 3 EXHIBIT 27.1
7 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDICAL SECURITY GROUP, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 305,298 3,795 0 0 0 0 309,093 (1,951) 0 0 499,560 0 19,300 119,364 0 53,463 0 0 16,653 241,024 499,560 527,090 9,675 0 11,684 409,165 0 135,790 (330) 205 (535) 0 0 0 (535) (0.03) (0.03) 0 0 0 0 0 0 0
EX-27.2 4 EXHIBIT 27.2
7 THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDICAL SECURITY GROUP, INC. (F/K/A UNITED WISCONSIN SERVICES, INC.) FOR THE SIX MONTHS ENDED JUNE 30, 1998, AS ADJUSTED TO REFLECT THE RECLASSIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR JUNE 30, 1998, TO CONFORM WITH THE 1999 PRESENTATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 294,192 3,928 0 0 0 0 298,120 7,078 0 0 633,778 0 20,515 107,523 0 126,013 0 0 16,570 312,599 633,778 461,915 11,804 0 9,475 353,610 0 116,735 3,707 1,764 1,943 5,714 0 0 7,657 .46 .46 0 0 0 0 0 0 0
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