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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
UICI
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(Name of Registrant as Specified In Its Charter)
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UICI
4001 MCEWEN DRIVE, SUITE 200
DALLAS, TEXAS 75244
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2001
The Annual Meeting of the Stockholders of UICI (the "Company"), a Delaware
corporation, will be held at the Company's Insurance Service Center, First
Floor, 9151 Grapevine Highway, North Richland Hills, Texas 76180, on Wednesday,
May 16, 2001 at 10:00 a.m., Central Daylight Time, for the following purposes:
1. To elect eight (8) directors of the Company to hold office until
the next annual meeting of stockholders and until their respective
successors are chosen and qualified.
2. To approve the UICI 2000 Restricted Stock Plan.
3. To approve the UICI 2001 Restricted Stock Plan.
4. To ratify the appointment of Ernst & Young LLP as independent
public accountants to audit the accounts of the Company for the fiscal year
ending December 31, 2001.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed March 26, 2001 as the record date for the
meeting. Holders of the Company's Common Stock of record at the close of
business on such date will be entitled to notice of and to vote at such meeting
or any adjournment thereof. A list of such stockholders will be available, as
required by law, at our principal offices at 4001 McEwen Drive, Suite 200,
Dallas, Texas. The stock transfer books will not be closed.
The Company will supply, upon written request and without charge, a copy of
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Requests for the Annual Report should be directed to Investor
Relations, UICI, 4001 McEwen Drive, Suite 200, Dallas, Texas 75244.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
/s/ PEGGY G. SIMPSON
Peggy G.Simpson
Secretary
Date: April 5, 2001
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IMPORTANT
UNLESS YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, SIGN AND
MAIL THE ENCLOSED PROXY, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. YOUR PROMPT RESPONSE WILL ASSURE A QUORUM AT THE MEETING, SAVING YOUR
COMPANY THE EXPENSE OF FURTHER SOLICITATION OF PROXIES.
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UICI
4001 MCEWEN DRIVE, SUITE 200
DALLAS, TEXAS 75244
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PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2001
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This proxy statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies by the Board of Directors of UICI, a
Delaware corporation (the "Company"), from holders of the Company's outstanding
shares of Common Stock, par value $0.01 per share (the "Common Stock"), for the
Annual Meeting of Stockholders to be held on Wednesday, May 16, 2001 for the
purposes set forth in the accompanying notice (the "Annual Meeting"). The Board
of Directors does not know of any other matters to be presented at the meeting,
but, if any other matters are properly presented to the meeting for action, the
persons named in the accompanying proxy will vote upon such matters in
accordance with their best judgment. The Company will bear the costs of
soliciting proxies from its stockholders. In addition to soliciting proxies by
mail, directors, officers and employees of the Company, without receiving
additional compensation therefor, may solicit proxies by telephone, by telegram
or in person. Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of Common Stock held of record by such persons, and the
Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
The Company's Common Stock trades on The New York Stock Exchange under the
symbol: UCI. This proxy statement is being mailed on or about April 5, 2001 to
stockholders of record at the close of business on March 26, 2001, who are the
only stockholders entitled to receive notice of and to vote at the meeting. At
March 26, 2001 the Company had outstanding 47,725,066 shares of Common Stock. A
quorum of stockholders is necessary to take action at the Annual Meeting. A
majority of the outstanding shares of Common Stock of the Company, represented
in person or by proxy, will constitute a quorum. Each share of the outstanding
Common Stock is entitled to one vote. The affirmative vote of the holders of a
majority of the total voting power present in person or by proxy and entitled to
vote at the Annual Meeting is required to elect directors and ratify or approve
the other items being voted on at this time. Abstentions will have the same
effect as votes against the proposals, although abstentions will count toward
the presence of a quorum.
Your vote is important. You can vote in one of three ways: (1) in
person -- by casting your vote at the Annual Meeting, (2) by mail -- by marking,
signing and dating the enclosed proxy card, and returning it promptly in the
enclosed postage-paid envelope, or (3) on the internet -- by visiting the
website indicated on the enclosed proxy card.
The internet voting procedure is designed to authenticate stockholder
identities, to allow stockholders to give voting instructions, and to confirm
that stockholders' instructions have been recorded properly. Stockholders voting
by internet should be aware that there may be costs associated with electronic
access, such as usage charges from internet access and telephone or cable
service providers, that must be borne by the stockholder. If you choose to vote
on the internet, you will be offered the option to receive future annual meeting
materials electronically through the internet, which is cost-effective for the
Company. We hope the convenience and cost savings of voting by computer will
attract you. A sizable electronic "turnout" would save the Company significant
return-postage fees.
The Company is pleased to announce that it will broadcast the annual
meeting live on-line (listen only) at www.uici.net for stockholders unable to
attend in person. The replay of the Webcast will be available through June 15,
2001.
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A proxy may be revoked at any time before its exercise by (i) notifying
UICI in writing at 4001 McEwen Drive, Suite 200, Dallas, Texas 75244, Attention;
Secretary; (ii) completing a later-dated proxy and returning it to UICI; or
(iii) appearing at the Annual Meeting in person and revoking the proxy orally by
notifying the Secretary before the vote takes place. Properly executed proxies
will, unless such proxies have been revoked, be voted in the manner specified in
the proxies. If no instructions are indicated, such shares will be voted FOR the
election of the eight directors, FOR the approval of the UICI 2000 Restricted
Stock Plan, FOR the approval of the UICI 2001 Restricted Stock Plan and FOR the
ratification of Ernst & Young LLP as independent public accountants for UICI for
2001.
1. ELECTION OF DIRECTORS
The Board of Directors (the "Board") has fixed the number of directors for
the ensuing year at eight (8). The Nominating Committee of the Board has
nominated Messrs. Ronald L. Jensen, Gregory T. Mutz, Richard T. Mockler, Stuart
D. Bilton, George H. Lane III, William J. Gedwed, Patrick J. McLaughlin and
Glenn W. Reed for election as Directors at the 2001 Annual Meeting of
Stockholders. At the meeting, it is intended that such number of directors will
be elected to hold office until the next Annual Meeting of Stockholders and
until their respective successors are chosen and qualified. It is intended that
the proxies will be voted to elect as directors the nominees listed above. All
of the nominees are currently directors of the Company except Mr. Reed, who is
Executive Vice President and General Counsel of the Company. Although the Board
does not anticipate that any of such nominees will be unable to serve as a
director, in the event of such occurrence, the proxy holders shall have the
right to vote for such substitute, if any, as the present Board may designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION AS DIRECTORS OF
EACH OF THE NOMINEES LISTED ABOVE
NOMINEES FOR DIRECTOR
Set forth below is a biographical summary of the experience of each of the
nominees for Director:
Ronald L. Jensen (age 70) has served as Chairman of the Board of Directors
of the Company and its predecessor company since December 1983. Mr. Jensen
served as President and Chief Executive Officer ("CEO") of the Company in 1993
and 1994 and from September 1997 to January 1999.
Gregory T. Mutz (age 55) has served as a Director, President and CEO of the
Company since January 1999 and is a member of the Executive Committee and
Investment Committee of the Board of Directors of the Company. Prior to joining
the Company in January 1999, Mr. Mutz served and continues to serve as Chairman
of the Board of AMLI Realty Co. (a subsidiary of the Company) since 1980, as
Chairman of the Board of Trustees of AMLI Residential Properties Trust (NYSE:
AML) since 1994, and as Chairman of AMLI Commercial Properties Trust since 1997.
Mr. Mutz has been a Director of the National Multifamily Housing Council since
1995 and a Director of Alleghany/Chicago Trust since 1996. Mr. Mutz received a
B.A. from DePauw University in 1967 and a J.D. from the University of Michigan
Law School in 1973. Mr. Mutz served as an infantry lieutenant in Vietnam from
1968 to 1969.
Richard T. Mockler (age 63) has served as a Director of the Company since
1991. Mr. Mockler is a member of the Audit and Stock Option Plan Committees of
the Board of Directors. Mr. Mockler retired as a partner with Ernst & Young LLP
in 1989 after 27 years with the firm. Mr. Mockler has served as a member of the
Board of Directors of Georgetown Rail Equipment Company since 1994 and as
Treasurer since October 1996. Mr. Mockler served as a Director of Snead Research
Labs from 1995 until January 1998 and as Treasurer from October 1996 until
January 1998.
Patrick J. McLaughlin (age 43) has served as a Director of the Company
since May 1999. Mr. McLaughlin also serves on the Executive, Compensation,
Investment, Nominating and Privacy Committees of the Board. Since 1993, Mr.
McLaughlin has served as a Managing Director of Emerald Capital Group,
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Ltd., an insurance advisory and investment banking firm. Mr. McLaughlin has
served as a director of Universal American Financial Corp., an insurance holding
company, since January 1995.
Stuart D. Bilton (age 54) has served as a Director of the Company since May
1999. Mr. Bilton has been President and CEO of Chicago Trust Company (an
institutional money manager and mutual fund sponsor) since 1994. He also has
served as President of Alleghany Asset Management since January 1997 and as a
Director since 1994. Mr. Bilton has served as a Director of Baldwin & Lyons,
Inc. since 1987 and as Chairman of Alleghany Funds since 1993. Mr. Bilton serves
on the Audit, Compensation, Nominating and Special Litigation Committees of the
UICI Board of Directors.
George H. Lane III (age 52) has served as a Director of the Company since
May 1999 and as Chief Executive Officer of Lane Co., a real estate development
company, since June 1988. He is a member of the Advisory Committee of the
National Multifamily Housing Council and is the founder, past President and
Director of the Atlanta, Georgia Apartment Association. Mr. Lane also serves as
a Trustee of Westminster Schools, Atlanta, Georgia. Mr. Lane serves on the
Audit, Compensation, Stock Option Plan and Special Litigation Committees of the
UICI Board of Directors.
William J. Gedwed (age 45) has served as a Director of the Company since
June 2000. He is also a member of the Investment and Privacy Committees of the
Board of Directors. He served as a Vice President of the Company from August
1999 and as Executive Vice President of the Company from May 2000 until December
31, 2000. From 1993 until July 2000, Mr. Gedwed served as President and CEO of
NMC Holdings, Inc. and National Motor Club of America, Inc. (subsidiaries of the
Company from 1997 until July 2000), and from 1997 until July 2000 he served as
Chairman of the Board of National Motor Club of America. Effective January 1,
2001, Mr. Gedwed again became Chairman and CEO of NMC Holdings Inc. and
Chairman, President and CEO of National Motor Club of America, Inc. Until
February 1, 2001, Mr. Gedwed served as Chairman and Director of The MEGA Life
and Health Insurance Company, Mid-West National Life Insurance Company of
Tennessee, The Chesapeake Life Insurance Company and Fidelity First Insurance
Company (subsidiaries of the Company).
Glenn W. Reed (age 48) has served as Executive Vice President and General
Counsel of the Company since July 1999. Prior to joining the Company, Mr. Reed
was a partner in the Chicago, Illinois law firm of Gardner, Carton & Douglas.
Mr. Reed also serves as a Director and Vice President of The MEGA Life and
Health Insurance Company, Mid-West National Life Insurance Company of Tennessee,
The Chesapeake Life Insurance Company and Fidelity First Insurance Company. He
has served as a director of The Pepper Companies, Inc. (a Chicago-based general
contractor) since 1990, and as a director of Peoples Bankcorp, Inc. (a bank
holding company located in Arlington Heights, Illinois) since 1999. Mr. Reed is
a graduate of Dartmouth College and Harvard Law School.
Certain affiliations exist between the Company and certain directors and
nominees. See "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION;
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
GENERAL INFORMATION
The Board has responsibility for establishing broad corporate policies and
for the overall performance of the Company, although it is not involved in
day-to-day operations. Members of the Board are kept informed of the Company's
businesses by various reports and documents sent to them, as well as by
operating and financial reports made at Board and committee meetings. Regular
meetings of the Board are held each quarter, and special meetings are held as
necessary. The annual organizational meeting follows immediately after the
Annual Meeting of Stockholders. During the fiscal year ended December 31, 2000,
the Board of Directors of the Company met thirteen times and took action on
other occasions by unanimous consent of its members. Each member of the Board of
Directors who held such position in 2000 (other than Mr. Jensen) attended at
least 75% in the aggregate of all meetings of the Board and any committee on
which such Board Member served.
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COMMITTEES OF THE BOARD
Various committees of the Board have been established to assist it in the
discharge of its responsibilities. Those committees are described below.
The Audit Committee recommends to the Board the engagement of the Company's
independent accountants, discusses with the independent accountants their audit
procedures, including the proposed scope of the audit, the audit results and the
related management letters and, in connection with determining their
independence, reviews the services performed by the independent accountants. The
Committee meets with management, the Company's independent accountants and
internal accounting staff to consider the adequacy of the Company's internal
controls and other financial reporting matters. The Audit Committee (of which
Richard T. Mockler (Chairman), George H. Lane III and Stuart D. Bilton are
members) held seven meetings during 2000. The Committee's Report appears
elsewhere in this proxy statement. The Audit Committee has adopted a charter, a
copy of which is attached hereto as Appendix A. The Company's securities are
listed on the New York Stock Exchange ("NYSE") and are governed by its listing
standards; all of the members of the Audit Committee meet the independence
requirements of these standards.
The Executive Committee has all of the authority of the full Board of
Directors in the management of the business and affairs of the Company, except
that the Committee may not effect certain fundamental corporate actions such as
(a) declaring a dividend, (b) amending the Certificate of Incorporation or
By-Laws, (c) adopting an agreement of merger or consolidation or (d) imposing a
lien on substantially all the assets of the Company. In practice, the Executive
Committee meets infrequently and does not act except on matters that are not
sufficiently important to require action by the full Board of Directors. The
Executive Committee (of which Gregory T. Mutz (Chairman) and Patrick J.
McLaughlin are members) met once during 2000 and took action on selected
occasions by unanimous consent of its members.
The Stock Option Plan Committee administers the various stock option plans
of the Company. The Committee (of which Richard T. Mockler has been a member
since January 1999 and George H. Lane III has been a member since May 1999) did
not meet during 2000, but took action on several occasions by unanimous written
consent of its members.
The Investment Committee of the Board of Directors, of which Messrs. Mutz,
McLaughlin and Gedwed are members, was established in November 1994. The
Committee coordinates with the Investment/Finance Committees of its insurance
subsidiaries in supervising and implementing the investment of the funds of the
Company and its subsidiaries. Mr. McLaughlin, representing the Committee, also
serves as an advisory member of each of the insurance company's
Investment/Finance Committee.
The Nominating Committee of the Board of Directors was established on
February 3, 2000 and is generally responsible for making recommendations to the
Board regarding nominees for election as directors; structure, size and
composition of the Board; and organization and responsibilities of Board
committees. The Committee consists of Stuart D. Bilton and Patrick J.
McLaughlin. During 2001, the Director nominees were proposed by existing Board
members and Company management and approved by the Nominating Committee.
The functions of the Nominating Committee are to nominate directors, make
recommendations concerning the structure and membership of the various
committees of the Board of Directors, consider questions of management,
organization, and succession and to act on such other matters as from time to
time may be requested by the Board of Directors. In carrying out its
responsibilities to nominate directors, the Nominating Committee will consider
candidates recommended by the Board of Directors and by stockholders of the
Company. All suggestions by stockholders for nominees for director must be made
in writing and received by the Secretary of the Company, 4001 McEwen Drive,
Suite 200, Dallas, Texas 75244 no later than December 6, 2001 (see "Deadline for
Submission of Stockholder Proposals and Nominations for Director"). Such writing
must set forth (i) the name and address of the stockholder who intends to make
the nomination and of each person to be nominated, (ii) a representation that
the stockholder is a holder of record of the Company's stock entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person named, (iii) a description of all arrangements or
understandings between the stockholder
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and each nominee and any other person pursuant to which the nomination is to be
made by the stockholder, (iv) the consent of each proposed nominee to serve as a
director of the Company if so elected and (v) such other information regarding
each proposed nominee as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission.
The Executive Compensation Committee of the Board of Directors was
established February 3, 2000 and is responsible for administering the Company's
compensation programs and remuneration arrangements for its highest-paid
executives, including the chief executive officer. The Committee consists of
Stuart D. Bilton, George H. Lane III and Patrick J. McLaughlin. The Committee's
Report on Executive Compensation appears elsewhere in this proxy statement.
The Special Litigation Committee of the Board of Directors was constituted
in August 1999 to investigate and assess on behalf of the Company the underlying
claims made in a purported shareholder derivative action captioned Richard
Schappel v. UICI, Ronald Jensen, Richard Estell, Vernon Woelke, J. Michael
Jaynes, Gary Friedman, John Allen, Charles T. Prater, Richard Mocklerand Robert
B. Vlach, which was filed and is pending in the District Court of Dallas County,
Texas. The Committee consists of George H. Lane III and Stuart D. Bilton.
The Privacy Committee of the Board of Directors was established February
28, 2001 to oversee the Company's implementation of the privacy and security
requirements recently imposed under the federal Gramm Leach Bliley Act ("GLBA")
and Health Insurance Portability and Accountability Act ("HIPAA"). The Committee
consists of William J. Gedwed and Patrick J. McLaughlin. Glenn W. Reed,
Executive Vice President and General Counsel of the Company and a nominee for
director of the Company, has been designated as the liaison between the
Committee and the Company's internal privacy task force.
COMPENSATION OF DIRECTORS
Commencing May 5, 1999 and ending on December 31, 2000, the non-employee
directors of the Company received an annual retainer of $3,000, plus $3,000 for
each Board meeting attended, plus reimbursement for travel and incidental
expenses incurred in attending meetings and carrying out their duties as
directors. The non-employee directors were entitled to elect to receive UICI
stock, in whole or in part, in lieu of cash, at a 15% discount to the market
price. During 2000, all non-employee directors elected to receive 100% of their
director compensation in stock (except Mr. Mockler, who elected to receive 50%
of his director compensation in stock). Directors are required to hold all
shares received in lieu of cash compensation for a period of not less than two
years.
Commencing February 28, 2001, the non-employee directors of the Company
will receive an annual retainer of $5,000, plus $4,000 for each Board meeting
attended, plus reimbursement for travel and incidental expenses incurred in
attending meetings and carrying out their duties as directors. In addition, the
non-employee members of the Audit Committee, the Compensation Committee and the
Privacy Committee will receive an additional annual retainer of $2,000 per year,
and the members of the Special Litigation Committee will receive an additional
annual retainer of $10,000 for the year 2001. The non-employee directors may
elect to receive UICI stock, in whole or in part, in lieu of cash, at a 15%
discount to the market price. Each non-employee director participating in the
UICI stock program in lieu of cash will also receive an option to purchase one
share of UICI stock for each share of stock purchased pursuant to this stock
purchase incentive program.
For services rendered during 2000 in their capacity as members of the
Special Litigation Committee, Mr. Lane and Mr. Bilton each received a one-time
fee in the amount of $30,000, plus reimbursement of travel and other out of
pocket expenses.
Commencing May 1, 2001, each non-employee director will be entitled to
participate in an incentive compensation program under which each non-employee
director may purchase up to $60,000 worth of UICI stock at a 15% discount to the
market price. Non-employee directors participating under this program will
receive an option to purchase shares of UICI stock at the then market value on
the basis of one option for every two shares purchased.
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EXECUTIVE STOCK PURCHASE PROGRAM
Commencing May 5, 1999 and ending on December 31, 2000, each non-employee
director also was entitled to participate in the Company's Executive Stock
Purchase Program (the "ESPP"). See "MODIFICATIONS TO UICI EXECUTIVE STOCK
PURCHASE PROGRAM".
In June 2000, Mr. Lane elected to purchase in accordance with the ESPP
7,767 shares of Common Stock by delivering cash in the amount of $23,301 and a
promissory note payable to the Company in the amount of $26,699, of which, at
March 26, 2001, $26,699 was outstanding. The loan bears interest at the annual
rate of 6.51% and is due on or before June 19, 2005. In June 2000, Mr.
McLaughlin elected pursuant to the ESPP to purchase for cash 4,182 shares of
Common Stock at fair market value less a 15% discount. In June 2000, Mr. Mockler
elected to purchase pursuant to the ESPP 2,000 shares of Common Stock by
delivering cash in the amount of $6,000 and a promissory note payable to the
Company in the amount of $7,750, of which, at March 26, 2001, $7,750 was
outstanding. Mr. Mockler's loan bears interest at the annual rate of 6.51% and
is due on or before June 21, 2005.
As part of their participation in the ESPP, during 2000 Mr. Lane, Mr.
McLaughlin and Mr. Mockler received options to purchase 7,767, 4,182 and 2,000
shares of Common Stock at an exercise price per share of $6.4375, $6.875 and
$6.875, respectively. All such options granted to directors under the ESPP were
granted under and are governed by the UICI 1987 Amended and Restated Stock
Option Plan. The options become exercisable in annual cumulative installments of
20%, commencing one year from the date of grant, with full vesting occurring on
the fifth anniversary of the date of grant. Any shares received by the director
under this stock purchase incentive program must be held for a period of two
years.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation objectives include attracting and retaining the
best possible executive talent, motivating executive officers to achieve the
Company's performance objectives, rewarding individual performance and
contributions, and linking to the extent possible executive and stockholder
interests through equity-based (stock option and restricted stock) plans. The
Company's executive compensation consists of four key components: annual base
salary, annual cash incentive bonus compensation, stock option grants and
restricted stock grants. Each component of compensation is designed to
complement the other components and, when considered together, to meet the
Company's overall compensation objectives.
Historically, the Compensation Committee has approved base compensation for
senior executives (including Mr. Mutz) based on reference to base salaries of
comparable executive positions at a peer group of comparably sized insurance
holding and other financial services companies. Mr. Mutz's base compensation is
intended to be comparable with the 50th percentile of salaries within such peer
group. Mr. Mutz's 2000 base compensation represents a significant increase over
his base compensation for 1999, and was approved by the Compensation Committee
and Board of Directors based on a determination that Mr. Mutz's 1999
compensation was significantly below that of chief executive officers within the
peer group. Base salary compensation for a particular year is approved in
December of the prior year.
Executive officers have been awarded annual cash incentive bonus
compensation, based upon achievement of annual goals. The amount of the bonus
compensation for a particular year is typically determined in January/February
of the following year based upon Company and individual achievement for the
prior year. On December 22, 2000, the Compensation Committee (the "Committee")
of the UICI Board of Directors, composed of Stuart D. Bilton, George H. Lane III
and Patrick J. McLaughlin (Chairman), reviewed and approved incentive bonus
compensation for all Named Executive Officers below and approximately 30 other
officers and key employees of the Company. In allocating annual incentive bonus
compensation for 2000 to officers other than Mr. Mutz, the Committee considered
the recommendations of Mr. Mutz and approved, subject to any modifications it
deemed appropriate, bonus awards to executive officers. The recommendations of
the Compensation Committee were subsequently approved by the full Board of
Directors at a meeting held on January 2, 2001.
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The Committee awarded an incentive cash bonus for 2000 performance to Mr.
Mutz in the amount of $50,000, based on the Compensation Committee's assessment
of Mr. Mutz's performance during the year, including particularly his work
during the year to extricate UICI from the sub-prime credit card business.
The Company's executive officers are also entitled to participate in the
Company's 1987 Amended and Restated Stock Option Plan. Under the 1987 Plan,
nonqualified options to purchase Common Stock of the Company may be granted at
exercise prices not less than the fair market value of the Common Stock at the
date of grant. Options granted under the 1987 Plan become exercisable in annual
cumulative installments of 20% of the number of options granted over a five-year
period. With respect to 2000 performance, the Committee determined to award an
aggregate of 49,500 options to selected UICI officers (but no Named Executive
Officers) under the 1987 Plan, which options are exercisable at $5.9375 per
share (the fair market value of UICI Common Stock on January 2, 2001, the date
of grant). In light of the favorable treatment accorded to Mr. Mutz, Mr. Reed,
Mr. Prater and Mr. Arnold in connection with the modifications made to the
Company's Executive Stock Purchase Program (see discussion below), the
Compensation Committee determined not to award these executives with stock
options with respect to 2000 performance.
To provide an additional equity-based vehicle to incentivize officers and
other key employees, in February 2000 and January 2001, the Board of Directors
of the Company approved and adopted the UICI 2000 Restricted Stock Plan and 2001
Restricted Stock Plan, respectively, pursuant to which the Company may from time
to time and subject to the terms thereof make awards of restricted shares of the
Company's Common Stock to eligible participants in the Plan. Shares of Common
Stock granted to eligible participants fully vest on the second anniversary of
the date of grant and are otherwise forfeitable if the participant ceases to
provide material services to the Company as an employee, independent contractor,
consultant, advisor, director or otherwise for any reason other than death prior
to vesting. Shares of restricted stock also vest upon a Change of Control (as
defined) or upon the death of the participant. With respect to 2000 performance,
in January 2001 the Committee awarded to UICI officers under the 2001 Plan an
aggregate of 96,250 shares of restricted stock, of which 10,000 shares were
awarded to Mr. Mutz.
At meetings held in December 2000, the Compensation Committee also actively
considered and approved significant modifications to the Company's Executive
Stock Purchase Program (the "ESPP"). (See "MODIFICATIONS TO UICI EXECUTIVE STOCK
PURCHASE PROGRAM" below.) Following the significant decline in the price of UICI
common stock following UICI's announcement of losses at its United CreditServ
credit card unit in December 1999, the Compensation Committee sought means to
revise the ESPP in a manner that would better serve its intended objectives. The
Board became increasingly concerned that the ESPP had in fact contributed to
negative morale among a group of key UICI executives, none of whom had direct
involvement with the difficulties at United CreditServ.
The Compensation Committee recommended modifications to the ESPP that were
generally designed to restore executives economically to where they would have
been if the ESPP were implemented in January 2001 according to its original
design and the stock price in January 2001 had been $9.00 per share. The closing
price of UICI Common Stock on January 2, 2001 (the date of approval of the
modifications by UICI's Board of Directors) was in fact $5.9375 per share. The
modifications were designed to assure that the ESPP serves as reasonable
incentive on a going-forward basis to those executives who continue to serve the
Company and who will, as a result, be relied upon to assure the Company's future
success.
Compensation Committee:
Stuart D. Bilton
George H. Lane III
Patrick J. McLaughlin
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MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE PROGRAM
To encourage the ownership of UICI Common Stock among directors and key
executives, in December 1998 the Company adopted the UICI Executive Stock
Purchase Program (the "ESPP"). Pursuant to the ESPP, the directors and selected
executives of UICI were offered the opportunity, in the alternative, to either
purchase shares of UICI common stock at a purchase price equal to 85% of the
then-prevailing market price per share (the "Discount Option"), or purchase
shares of common stock at 100% of the then fair market value, such purchase to
be financed by the executive to the extent of $3.00 per share and by UICI to the
extent of the balance (the "Loan Option").
In the case of the Loan Option, UICI agreed to finance the balance of the
purchase price by accepting delivery of a full recourse, five-year promissory
note bearing interest at the rate of the greater of the then -- prevailing Fed
funds rate or 5% per annum to be paid quarterly in arrears. In addition to the
foregoing, with respect to each of the Discount Option and the Loan Option, UICI
offered to issue to the executives on a one-for-one basis stock options to
purchase UICI common stock exercisable at the then-prevailing market price per
share. Options so issued were to be governed by the terms of UICI's Amended and
Restated 1987 Stock Option Plan.
A total of 24 current executives and outside directors elected in 1998 and
1999 pursuant to the ESPP to purchase an aggregate of 308,422 shares of UICI
common stock, of which an aggregate of 9,878 shares were purchased pursuant to
the Discount Option at a weighted average purchase price of $22.67 per share and
298,544 shares were purchased pursuant to the Loan Option at a weighted average
purchase price of $21.26 per share. As part of the ESPP, the Company issued an
aggregate of 308,422 options to purchase UICI common stock at a weighted average
exercise price of $21.40 per share. Current executives and directors had
indebtedness outstanding owing to the Company under the Loan Option at December
31, 2000 in the aggregate amount of $4.4 million (including $2.8 million payable
by Gregory T. Mutz, the Company's President and Chief Executive Officer).
Following the significant decline in the price of UICI common stock
following UICI's announcement of losses at its United CreditServ credit card
unit in December 1999, the Board of Directors sought means to revise the ESPP in
a manner that would better serve its intended objectives. The Board became
increasingly concerned that the ESPP had in fact contributed to negative morale
among a group of key UICI executives, none of whom had direct involvement with
the difficulties at United CreditServ.
Following a recommendation of the Board's Compensation Committee, the Board
of Directors of the Company (including all of the outside disinterested members
of the Board), at a meeting held on January 2, 2001, approved modifications to
the ESPP that were generally designed to restore executives economically to
where they would have been if the ESPP were implemented in January 2001
according to its original design and the stock price in January 2001 had been
$9.00 per share. The closing price per share of UICI Common Stock on January 2,
2001 (the date of approval by the Board of the modifications to the ESPP) was
$5.9375. These modifications only applied to current officers of the Company who
participated in the ESPP. For outside directors and executives no longer with
the Company, the terms of the ESPP were not changed. The modifications were
designed to assure that the ESPP serves as reasonable incentive on a
going-forward basis to those executives who continue to serve the Company and
who will, as a result, be relied upon to assure the Company's future success.
In particular, in January 2001 UICI issued an aggregate of 11,054 shares of
UICI common stock to the five executives (none of whom were Named Executive
Officers) who purchased shares pursuant to the Discount Option. Giving effect to
such issuance, the executives have an average cost in shares purchased pursuant
to the Discount Option of $9.00 per share. In addition, UICI discharged an
aggregate of $997,000 of indebtedness owed by 13 current executives (including
Named Executive Officers other than Mr. Mutz) who elected to purchase shares
pursuant to the Loan Option, representing 73% of the indebtedness previously
owing by such persons. See "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Other Loans to
Management." Giving effect to this debt discharge, these individuals have
acquired pursuant to the ESPP an
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aggregate of 62,934 shares at a cost of $566,000 ($378,000 of indebtedness plus
$188,000 of cash invested), or $9.00 per share.
Mr. Mutz initially purchased pursuant to the ESPP a total of 220,000 shares
of UICI stock at an aggregate purchase price of $4.4 million, or $19.95 per
share, which purchase was initially financed with $660,000 ($3.00 per share) in
cash and by indebtedness owing to UICI in the amount of $3.7 million. Mr. Mutz
subsequently paid down principal on his loan in the amount of $960,000.
Accordingly, through December 31, 2000, Mr. Mutz had paid a total of $1.6
million in cash and had outstanding against his 220,000 shares a total of $2.8
million in indebtedness.
In January 2001 UICI discharged indebtedness owing by Mr. Mutz in the
amount of $1.5 million. Giving effect to such forgiveness, Mr. Mutz currently
owes UICI $1.3 million, or $6.00 per share initially purchased. In addition,
UICI issued to Mr. Mutz 107,104 shares of UICI common stock. Giving effect to
the debt forgiveness and the issuance of the shares, Mr. Mutz pursuant to the
ESPP holds an aggregate of 327,104 shares of UICI common stock at a cost to Mr.
Mutz of $2.9 million ($1.3 million of indebtedness plus $1.6 million of cash
invested), or $9.00 per share.
UICI cancelled the 290,404 options that were issued to executives pursuant
to the ESPP at a weighted average option price of $21.17 per share (including
options to purchase 220,000, 20,000, 7,500 and 10,000 shares held by Messrs.
Mutz, Reed, Prater and Arnold, respectively). In addition, the maturity of the
promissory notes delivered in connection with the Loan Option was extended to
January 1, 2007. All other terms and conditions of the original notes remain in
effect.
Upon the issuance of the UICI shares and the discharge of indebtedness in
January 2001, executives recognized immediate income for federal tax purposes
and UICI became entitled to an immediate deduction and tax benefit in a
corresponding amount. In order to afford participants a means to pay their tax,
UICI transferred to participants the benefit of UICI's tax savings by paying a
cash tax "gross-up" payment to affected participants in the aggregate amount of
$1.7 million.
In connection with the January 2001 modifications to the ESPP, for
financial reporting purposes UICI recorded in the quarter ended December 31,
2000 compensation expense in the amount of $4.8 million pre-tax, or $4.1 million
net of tax. The 118,158 shares of UICI common stock issued to participants were
issued from treasury shares.
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SUMMARY COMPENSATION TABLE
The following table summarizes all compensation for services to the Company
and its subsidiaries for the fiscal years ended December 31, 2000, 1999 and
1998, earned by or awarded or paid to the persons who were the Chairman of the
Board, the chief executive officer, the four other most highly compensated
executive officers of the Company serving as such at December 31, 2000, and one
former executive officer who would have been one of the four most highly
compensated executive officers if he had not resigned prior to December 31, 2000
(the "Named Executive Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------- -------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(a) ($)(b) ($)(c) (#)(d) ($)(e)
--------------------------- ---- --------- ----------- ------------ ------------ ---------- ------------
Ronald L. Jensen........ 2000 1 -- -- -- -- --
Chairman of the 1999 1 -- -- -- -- --
Board(f) 1998 1 -- -- -- -- --
Gregory T. Mutz......... 2000 500,000 50,000 -- 59,375 -- 3,233,700(g)
CEO and 1999 225,469 -- -- 58,300 255,000 11,600
Director(f)(h) 1998 179,674 25,000 -- -- 212,000 --
Glenn W. Reed........... 2000 375,000 85,000 -- 59,375 -- 492,320(i)
Executive Vice 1999 170,964 75,000 -- 53,000 51,000 4,846
President & General 1998 -- -- -- -- -- --
Counsel(j)
William J. Gedwed....... 2000 321,250 100,000 -- 59,375 -- 13,705
Executive Vice 1999 200,000 62,500 -- 44,653 48,650 9,231
President and 1998 200,000 75,000 -- -- 6,640 12,369
Director(k)
William P. Benac........ 2000 326,145 -- -- -- -- 11,867
Executive Vice 1999 241,152 252,500 -- -- 10,000 7,033
President(l) 1998 -- -- -- -- -- --
Steven K. Arnold........ 2000 280,000 30,000 -- 59,375 -- 273,303(m)
Vice President(n) 1999 148,846 87,500 -- 46,375 38,750 6,092
1998 -- -- -- -- -- --
Charles T. Prater....... 2000 247,700 -- -- -- -- 185,644(o)
Vice President(p) 1999 158,269 164,622 -- 43,063 40,000 10,925
1998 148,385 105,594 -- -- 6,000 11,600
---------------
(a) Reflects cash bonuses accrued for the year presented. Pursuant to the
Company's 1999 bonus plan, Named Executive Officers had the right to elect
to receive all or a portion of their 1999 bonus in the form of restricted
stock and stock options. For 1999, Messrs. Mutz, Reed, Gedwed, Benac,
Arnold and Prater elected to forego receipt of $250,000, $25,000, $62,500,
$-0-, $37,500 and $50,000 of their cash bonuses, respectively, and in lieu
thereof received restricted stock and options to purchase Common Stock. The
cash bonus amounts foregone are not included in the bonus column for 1999,
but restricted shares and options awarded in lieu thereof are included in
the restricted stock award column and the securities underlying options
column, as appropriate.
(b) No Named Executive Officer received perquisites or other personal benefits
in excess of the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for the Named Executive Officer.
(c) With respect to 2000, reflects the market value of restricted stock granted
on January 2, 2001. With respect to 1999, reflects the market value of
restricted stock issued on March 10, 2000. The number of shares awarded for
2000 and 1999 was as follows: Mr. Mutz, 10,000 shares and 8,800 shares; Mr.
Reed,
10
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10,000 shares and 8,000 shares; Mr. Gedwed, 10,000 shares and 6,740 shares;
Mr. Benac, -0- shares and -0- shares; Mr. Arnold, 10,000 shares and 7,000
shares; and Mr. Prater, -0- shares and 6,500 shares. Dividends are paid, if
any, to holders with respect to restricted stock at the same rate paid to
all stockholders. The restricted stock vests on the second anniversary of
the date of grant. At December 31, 2000, the number of shares and market
value of all restricted stock (including shares of restricted stock granted
on January 2, 2001) held by Messrs. Mutz, Reed, Gedwed, Benac, Arnold and
Prater was 18,800 shares and $111,625; 18,000 shares and $106,875; 16,740
shares and $99,394; -0- shares and $-0-; 17,000 shares and $100,938; and
6,500 shares and $38,594, respectively.
(d) With respect to 1999, includes for Mr. Mutz, Mr. Reed, Mr. Gedwed, Mr.
Arnold and Mr. Prater options to purchase 235,000, 22,500, 39,950, 28,750
and 32,500 shares, respectively. All such options were granted on March 10,
2000, in lieu of cash bonus otherwise payable by the Company and are
exercisable at $6.625 per share.
(e) Amounts for 2000 include Company contributions to its Employee Stock
Ownership and Savings Plan in the amount of $9,232, $11,013, $13,705,
$10,200, $9,929 and $8,801 for the benefit of Messrs. Mutz, Reed, Gedwed,
Benac, Arnold and Prater, respectively. Also includes contributions to the
Company's Medical Savings Account Health Insurance Plan in the amount of
$2,000, $833, $-0-, $1,667, $2,000 and $2,000 for the benefit of Messrs.
Mutz, Reed, Gedwed, Benac, Arnold and Prater, respectively. Amounts for Mr.
Gedwed reflect contributions to the National Motor Club Retirement Savings
Plan. Amounts for Mr. Mutz and Mr. Reed in 2000 also include reimbursement
of housing expenses in the amount of $20,846 and $23,040, respectively.
(f) Ronald L. Jensen resigned as President and CEO effective January 28, 1999,
at which date Mr. Mutz was elected as President and CEO.
(g) Includes $3,201,623 associated with modifications to the Company's
Executive Stock Purchase Program, consisting of forgiveness of indebtedness
in the amount of $1,445,125, the value ($635,930) of 107,104 shares of UICI
Common Stock granted on January 2, 2001, and a tax gross-up payment in the
amount of $1,120,568. See "MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE
PROGRAM."
(h) Annual compensation amount shown for 1998 reflects salary and bonus paid to
Mr. Mutz by AMLI Realty Co. (a subsidiary of the Company), of which Mr.
Mutz served as Chairman.
(i) Includes $457,434 associated with modifications to the Company's Executive
Stock Purchase Program, consisting of forgiveness of indebtedness in the
amount of $297,332 and a tax gross-up payment in the amount of $160,102.
See "MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE PROGRAM."
(j) Mr. Reed commenced employment with the Company on July 1, 1999.
(k) Mr. Gedwed resigned as Executive Vice President of the Company effective
December 31, 2000 and as an officer and director of various UICI
subsidiaries as of February 1, 2001. Mr. Gedwed continues to serve as a
director of UICI and as a consultant to the Company. See "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS -- Other Transactions with Certain Members of
Management."
(l) Mr. Benac resigned as Executive Vice President of the Company and as an
officer and director of various UICI subsidiaries effective October 27,
2000. Mr. Benac continues to serve as a consultant to the Company. See
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Other Transactions with Certain
Members of Management."
(m) Includes $261,374 associated with modifications to the Company's Executive
Stock Purchase Program, consisting of forgiveness of indebtedness in the
amount of $169,893 and a tax gross-up payment in the amount of $91,481. See
"MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE PROGRAM."
(n) During 1998 and through February 1999, Mr. Arnold served as a consultant to
the Company, for which he was paid a fee in the aggregate amount of
$77,750. The Company employed Mr. Arnold effective March 1, 1999, and on
August 4, 1999, Mr. Arnold was elected as a Vice President of the Company.
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Amounts reflected in 1999 represent actual compensation received by Mr.
Arnold in all employment capacities.
(o) Includes $174,520 associated with modifications to the Company's Executive
Stock Purchase Program, consisting of forgiveness of indebtedness in the
amount of $113,438 and a tax gross-up payment in the amount of $61,082. See
"MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE PROGRAM". Also includes
$323 paid to Mr. Prater pursuant to a Company bonus plan tied to the value
of UICI common stock.
(p) Mr. Prater resigned as Vice President of the Company and as an officer and
director of various UICI subsidiaries effective February 1, 2001. Mr.
Prater continues to serves as a consultant to the Company. See
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Other Transactions with Certain
Members of Management."
The following table summarizes for each of the named executive officers the
total number of unexercised stock options held at December 31, 2000, and the
aggregate dollar value of in-the-money, unexercised stock options held at
December 31, 2000.
AGGREGATE STOCK OPTION EXERCISES
IN 2000 AND YEAR-END VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED STOCK IN-THE-MONEY STOCK
OPTIONS AT YEAR OPTIONS AT YEAR
END(#)(a) END($)(b)
--------------------------- ---------------------------
NAME SHARES EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ACQUIRED ON VALUE ----------- ------------- ----------- -------------
EXERCISE(#) REALIZED($)
----------- -----------
Ronald L. Jensen..... -- -- -- -- 0 0
Gregory T. Mutz...... 107,337 233,200 0 0
Glenn W. Reed........ -- -- 5,700 35,300 0 0
William J. Gedwed.... -- -- 4,396 60,894 0 0
Steven K. Arnold..... 2,000 36,750 0 0
William P. Benac..... -- -- 2,000 0 0 0
Charles T. Prater.... -- -- 3,900 44,600 0 0
---------------
(a) Reflects cancellation of options to purchase 220,000, 20,000, 7,500 and
10,000 shares formerly held by Messrs. Mutz, Reed, Prater and Arnold,
respectively, in connection with modifications to the Company's ESPP. See
"MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE PROGRAM."
(b) The closing stock price per share at December 31, 2000 was $5.9375.
12
15
COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph compares the cumulative total stockholder return on
UICI Common Stock for the last five years with the cumulative return for the
same period of the S&P 600 Small Cap Market Index and the S&P Insurance Index.
The graph assumes the investment of $100 at the beginning of the period in the
Company's Common Stock.
[PERFORMANCE GRAPH]
----------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
----------------------------------------------------------------------------------------------------------------
UICI 100 172 185 130 56 31
S&P 600 Small Cap Market Index 100 120 150 146 163 181
S&P Insurance Index 100 122 176 180 185 253
13
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EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
The Company maintains for the benefit of its and its subsidiaries'
employees the UICI Employee Stock Ownership and Savings Plan (the "Employee
Plan"). The Employee Plan through its 401(k) feature enables eligible employees
to make pre-tax contributions to the Employee Plan in an amount not in excess of
15% of compensation (subject to overall limitations) and to direct the
investment of such contributions among several investment options, including
UICI common stock. A second feature of the Employee Plan constitutes an employee
stock ownership plan (the "ESOP"), contributions to which are invested primarily
in shares of UICI common stock. The ESOP feature allows participants to receive
from UICI and its subsidiaries discretionary matching contributions and to share
in certain supplemental contributions made by UICI and its subsidiaries. Shares
contributed to the ESOP or purchased with the Company's contributions are
allocated to the participant's account on a monthly basis, and forfeitures are
allocated to employees who are participants on the last day of the plan year
based upon the ratio of each participant's annual credited compensation (up to
$40,000) to the total annual credited compensation of all participants entitled
to share in such contributions for such Plan Year. Contributions by UICI and its
subsidiaries to the Employee Plan under the ESOP feature currently vest in
prescribed increments over a seven-year period.
On August 11, 2000, the Company issued to the Employee Plan 1,610,000
shares of UICI common stock at a purchase price of $5.25 per share, or $8.5
million in the aggregate. The purchase price for the shares was paid by delivery
to UICI of the Employee Plan's $8.5 million promissory note (the "Plan Note"),
which matures in three years and is secured by a pledge of the purchased shares.
The shares of UICI common stock purchased with the Plan Note (the "$5.25 ESOP
Shares") are held in a suspense account for allocation among participants as and
when the Company's matching and supplemental contributions to the ESOP are made.
It is expected that the Plan Note will be extinguished over a period of
approximately two years by crediting UICI's matching and supplemental
contribution obligations under the ESOP feature of the Employee Plan against
principal and interest due on the Plan Note.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth the number of shares of Common Stock
beneficially owned and the percentage of Common Stock so owned, as of March 26,
2001, by (a) each person known by management to own beneficially five percent or
more of the Company's Common Stock, (b) each director of the Company and each
Named Executive Officer and (c) all directors and executive officers as a group:
COMMON SHARES PERCENT
BENEFICIALLY OF COMMON
NAME & ADDRESS OF BENEFICIAL OWNER OWNED STOCK
---------------------------------- ------------- ---------
Ronald L. Jensen......................................... 7,843,986(1) 16.4%
4001 McEwen Dr., Suite 200
Dallas, TX 75244
President and Fellows of Harvard College................. 3,788,100 7.9%
c/o Harvard Management Co.
600 Atlantic Avenue
Boston, MA 02210
FMR Corp................................................. 2,360,500 5.0%
82 Devonshire Street
Boston, MA 02109-3614
Dimensional Fund Advisors................................ 2,858,700 6.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Comerica Bank, as Trustee(2)............................. 3,639,251 7.6%
One Detroit Center
Detroit, MI 48275
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COMMON SHARES PERCENT
BENEFICIALLY OF COMMON
NAME & ADDRESS OF BENEFICIAL OWNER OWNED STOCK
---------------------------------- ------------- ---------
Onward and Upward, Inc................................... 3,103,657 6.5%
2121 Precinct Line Road
Hurst, TX 76054
Gregory T. Mutz.......................................... 1,120,618(3)(6) 2.3%
Richard T. Mockler....................................... 18,438(4) (5)
Patrick J. McLaughlin.................................... 24,547(7) (5)
Stuart D. Bilton......................................... 6,804(8) (5)
George H. Lane III....................................... 14,639(8) (5)
William J. Gedwed........................................ 40,255(9) (5)
William P. Benac......................................... 11,546(10) (5)
Steven K. Arnold......................................... 37,410(3)(13) (5)
Charles T. Prater........................................ 130,218(3)(11) (5)
Glenn W. Reed............................................ 47,586(3)(12) (5)
All executive officers and directors (15 individuals) as
a group................................................ 9,387,391 19.6%
---------------
(1) Includes 4,100,000 shares held by Mr. Jensen's spouse. Does not include
shares held directly or indirectly by Mr. Jensen's five adult children, as
to which Mr. Jensen disclaims beneficial ownership. Mr. Jensen's adult
children directly hold in the aggregate approximately 5.6% of the
outstanding Common Stock. Mr. Jensen's adult children are also the
stockholders of Onward and Upward, Inc., which holds approximately 6.5% of
the outstanding Common Stock. Does not include 943,800 (2%) shares owned by
various foundations and trusts controlled by Mr. Jensen's adult children,
as to which Mr. Jensen disclaims beneficial ownership.
(2) Represents shares held as Trustee under the Company's Employee Stock
Ownership and Savings Plan. See "EMPLOYEE STOCK OWNERSHIP AND SAVINGS
PLAN."
(3) Includes shares of Common Stock held by the Trustee under the Company's
Employee Stock Ownership and Savings Plan. The shares of Common Stock held
by the Trustee under the Plan that are purchased with contributions made by
the Company are subject to the vesting requirements of the Plan.
(4) Includes 481 shares subject to options exercisable within 60 days granted
under the Company's 1987 Amended and Restated Stock Option Plan.
(5) Represents less than 1% of the outstanding common stock.
(6) Includes 41,995 shares held by a partnership in which Mr. Mutz has a 33.3%
ownership interest; 200 shares held by a partnership in which Mr. Mutz has
a 20% ownership interest; 200 shares held by a partnership owned by Mr.
Mutz's children; 9,437 shares held by Mr. Mutz as custodian for his minor
children; 669 shares held in IRAs for minor children; and 131,220 shares
held by several family trusts, of which Mr. Mutz serves either as the
Trustee or the investment advisor, and of which Mr. Mutz is a beneficiary.
Also includes 85,337 shares subject to options exercisable within 60 days.
(7) Includes 10,837 shares subject to options exercisable within 60 days.
(8) Includes 963 shares subject to options exercisable within 60 days.
(9) Includes 14,386 shares subject to options exercisable within 60 days.
(10) Includes no shares subject to options exercisable within 60 days.
(11) Includes 10,900 shares subject to options exercisable within 60 days.
(12) Includes 8,200 shares subject to options exercisable within 60 days.
(13) Includes 7,750 shares subject to options exercisable within 60 days.
15
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
executive and certain officers, and any persons holding more than ten percent of
the Company's common stock are required to report their ownership of the
Company's common stock and any changes in that ownership to the Securities and
Exchange Commission (the "Commission") and, in the Company's case, The New York
Stock Exchange. Specific due dates for these reports have been established and
the Company is required to report in this proxy statement any failure to file by
these dates during 2000. Based solely upon a review of Reports on Forms 3, 4 and
5 and any amendments thereto furnished to the Company pursuant to Section 16 of
the Securities Exchange Act of 1934, as amended, and written representations
from the executive officers and directors that no other reports were required,
the Company believes that all of such reports were filed on a timely basis by
executive officers and directors during 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION;
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTRODUCTION
Historically, the Company and its subsidiaries have engaged from time to
time in transactions and joint investments with executive officers and entities
controlled by executive officers, particularly Ronald L. Jensen (the Company's
Chairman) and entities in which Mr. Jensen and his adult children have an
interest ("Jensen Affiliates").
Under the Company's by-laws, any contract or other transaction between the
Company and any director (or company in which a director is interested) is valid
for all purposes if the interest of such director is disclosed or known and such
transaction is authorized by a majority of directors not interested in the
transaction. Prior to March 2000, the Board of Directors had adopted a policy
requiring that, where Mr. Jensen was the interested director, a contract or
transaction with Mr. Jensen or other company in which Mr. Jensen had a
substantial ownership interest (i.e., at least 30% of the outstanding equity of
such company) be approved by a majority of the directors of the Company who were
not employees of the Company or its subsidiaries. While the Company believes
that during 1999 the Board of Directors was apprised of and reviewed in advance
all significant transactions between all Jensen Affiliates and the Company, the
formal Board policy governing independent approval did not strictly apply to a
contract or transaction involving payments of less than $500,000 in any twelve
month period or less than $2.5 million over the life of such contract or
transaction. Mr. Jensen has never voted with respect to any matter, in which he
or his children have or have had an interest.
On March 20, 2000, the Board of Directors accepted the recommendations of
its Special Litigation Committee to amend the Company's policy for related-party
transactions (1) to require (i) until March 20, 2001, prospective review and
approval by a majority of the "Disinterested Outside Directors" of any contract
or transaction with a related party involving payments of $60,000 or more over
the life of any contract, and (ii) after March 20, 2001, review and approval of
any contract or transaction with a related party involving payments of $250,000
or more in any twelve-month period or $1.0 million over the life of the contract
and (2) defining a "related-party" as a person or entity that is an "affiliate"
of the Company or any entity in which any officer or director of the Company has
a 5% or greater equity interest. A "Disinterested Outside Director" is any
director of UICI who is an employee of neither the Company nor any affiliate of
the Company and otherwise holds no interest in any person or entity with which
the Company proposes to enter into a transaction in question. Formal amendments
to the Company's related party transactions policies and procedures,
incorporating the Special Litigation Committee's recommendations, were adopted
and approved by the Board of Directors of UICI at the Board's annual meeting
held on June 8, 2000.
The Company believes that the terms of all such transactions with all
related parties, including all Jensen Affiliates, are and have been on terms no
less favorable to the Company than could have been obtained in arms' length
transactions with unrelated third parties.
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TRANSACTIONS WITH MEMBERS OF THE COMPENSATION COMMITTEE
The members of the Company's Compensation Committee are Messrs. Stuart D.
Bilton, George H. Lane III and Patrick J. McLaughlin. During 2000, each of these
individuals engaged in certain transactions with the Company as described below.
The Company receives investment management services from investment
advisory firms affiliated with two of its directors. During 2000, the Company
paid investment advisory fees in the amount of $231,000 to Emerald Capital
Group, Ltd., for which Patrick J. McLaughlin (a Director of the Company) serves
as a managing director and owner. During 2000, the Company paid investment
advisory fees in the amount of $145,000 to The Chicago Trust Company, of which
Stuart D. Bilton (a Director of the Company) serves as President and Chief
Executive Officer.
From time to time the Company has also retained Emerald Capital Group, Ltd.
to perform investment banking and insurance advisory services. In accordance
with the terms of a Consulting Agreement dated September 14, 1999, the Company
formally retained the services of Emerald Capital Group, Ltd. for an annual fee
of $400,000, payable in monthly installments. During 2000, the Company paid an
aggregate of $237,000 in fees and expenses to Emerald Capital Group, Ltd. for
investment banking and insurance advisory services. Effective March 10, 2000,
Mr. McLaughlin elected to forego $100,000 of cash payments otherwise due and
owing under the Consulting Agreement in exchange for options to purchase 50,000
shares of Company Common Stock at $6.625 per share.
In accordance with the Company's Executive Stock Purchase Program (the
"ESPP") (see "MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE PROGRAM"), during
1999 the Company extended a loan to Mr. McLaughlin in the amount of $44,000, the
proceeds of which were used to purchase Company Common Stock. The loan bears
interest at 5.22% per annum. The loan has a six-year term, requires quarterly
interest payments, is full recourse to the borrower, and is payable in full upon
the occurrence of certain events. The outstanding balance under the loan,
including accrued interest, at December 31, 2000 was $44,000. In June 2000, Mr.
McLaughlin elected pursuant to the ESPP to purchase for cash 4,182 shares of
Common Stock at fair market value less a 15% discount.
In June 2000, in accordance with the terms of the Company's ESPP, Mr. Lane
purchased 7,767 shares of UICI common stock in exchange for cash in the amount
of $23,301 and a promissory note in the amount of $26,699. At December 31, 2000,
the amount outstanding on Mr. Lane's note was $26,699.
As part of their participation in the ESPP, during 2000 Mr. Lane and Mr.
McLaughlin received options to purchase 7,767 and 4,182 shares of Common Stock
at an exercise price per share of $6.4375 and $6.875, respectively. All such
options granted to directors under the ESPP were granted under and are governed
by the UICI 1987 Amended and Restated Stock Option Plan.
TRANSACTIONS WITH MR. JENSEN AND JENSEN AFFILIATES
Special Investment Risks, Ltd.
From the Company's inception through 1996, Special Investment Risks, Ltd.
("SIR") (formerly United Group Association, Inc. ("UGA")) sold health insurance
policies that were issued by AEGON USA and coinsured by the Company or policies
issued directly by the Company. SIR is owned by Mr. Jensen. Effective January 1,
1997, the Company acquired the agency force of SIR and certain tangible assets
of SIR for a price equal to the net book value of the tangible assets acquired
and assumed certain agent commitments of $3.9 million. The tangible assets
acquired consisted primarily of agent debit balances, a building, and related
furniture and fixtures having a net book value of $13.1 million.
In accordance with the terms of the asset sale to the Company, SIR retained
the right to receive all renewal commissions on policies written prior to
January 1, 1997, including the policies previously issued by AEGON and coinsured
by the Company and the policies previously issued directly by the Company. The
renewal commissions paid to SIR on the coinsured policies issued by AEGON are
based on commission rates negotiated and agreed to by AEGON and SIR at the time
the policies were issued prior to 1997, and the
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commission rates paid on policies issued directly by the Company are
commensurate with the AEGON renewal commission rates. The Company expenses its
proportionate share of renewal commissions payable to SIR on co-insured policies
issued by AEGON. During 2000, SIR received insurance renewal commissions of $7.7
million on the policies previously issued by AEGON prior to January 1, 1997 and
coinsured by the Company. During 2000, SIR received renewal commissions of $2.9
million on policies issued prior to January 1, 1997 and issued directly by the
Company.
In accordance with the terms of an amendment, dated July 22, 1998, to the
terms of the sale of the UGA assets to the Company, SIR was granted the right to
retain 10% of net renewal commissions on any new business written by the UGA
agency force after January 1, 1997. During the years ended December 31, 2000,
the Company paid to SIR the amount of $1.1 million pursuant to this arrangement.
In 1986 and 1996, respectively, SIR established, for the benefit of its
independent insurance agents, independent sales representatives and independent
organizations associated with SIR, the Agency Matching Total Ownership Plan I
and the Agency Matching Total Ownership Plan II (collectively, the "Plans"),
entitling participants to purchase and receive Company Common Stock. In
connection with SIR's transfer to the Company of SIR's agency operations
effective January 1, 1997, SIR agreed to retain the liability to fund the Plans
to the extent of 922,587 shares of UICI Common Stock, representing the
corresponding number of unvested AMTOP Credits (as defined in the Plans) at
January 1, 1997. As of August 30, 1999, the liability of SIR to fund the Plans
remained undischarged to the extent of 369,174 shares of UICI Common Stock (the
"Unfunded Obligation").
Effective September 15, 1999, SIR and the Company entered into an
Assumption Agreement, pursuant to which UICI agreed to assume and discharge the
Unfunded Obligation, in consideration of a cash payment made by SIR to the
Company in the amount of $10.1 million representing the dollar value of 369,174
shares of UICI Common Stock at $27.4375 per share (the closing price of UICI
common stock at September 15). On October 29, 1999, SIR funded the cash payment.
Mr. Jensen's five adult children hold in the aggregate 100% of the equity
interest in Onward & Upward, Inc. ("OUI"), which is the holder of approximately
6.5% of the Company's outstanding Common Stock. To ensure that the dollar value
of the Unfunded Obligation will not exceed the dollar proceeds received from SIR
plus a reasonable allowance for the cost of funds, effective September 15, 1999,
the Company and OUI entered into a Put/Call Agreement. Pursuant to the Put/Call
Agreement, for a thirty day period commencing on July 1 of each year (commencing
in 2000 through 2006), the Company has an option to purchase from OUI, and OUI
has a corresponding right to require the Company to purchase, up to 369,174
shares of Common Stock at an initial purchase price in 2000 of $28.50 per share.
The call/put price escalates over time in annual dollar increments to recognize
an increase in value of the underlying UICI stock based upon historical past
performance (an approximate 6.0% annual rate of appreciation). In July 2000, the
Company extended until October 31, 2000 the period during which OUI may exercise
its initial put right under the Put/ Call Agreement. In November 2000, the
Company extended until March 31, 2001 the period during which OUI may exercise
its initial put right under the Put/Call Agreement.
During 2000, the Company received $2,000 from SIR as reimbursement of
office supply and occupancy expenses.
Richland State Bank
Richland State Bank ("RSB") is a state-chartered bank in which Mr. Jensen
holds a 100% equity interest. Prior to the chartering of United Credit National
Bank in February 1997, the Company's United CreditServ subsidiary (formerly the
Company's Credit Services division) utilized RSB to issue credit cards bearing
the name of RSB for the Company's ACE and AFCA credit card programs. The
agreement governing the terms of the issuance of such credit cards provided that
UICI would pay to RSB a fee in the amount of $0.50 per card issued for each
month a credit card bearing the RSB name remained outstanding. In 2000, the
Company paid fees in the amount of $33,000 pursuant to this agreement. The
agreement terminated on June 30, 2000.
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Until September 30, 2000, the Company's United CreditServ unit processed
and serviced credit cards issued by RSB, at a monthly rate of $5.25 per account.
The Company received $856,000 from RSB for services performed in connection with
processing and marketing of credit cards in 2000.
RSB has also originated student loans for Academic Management Services
Corp. ("AMS") and resold originated loans to AMS at par less an origination fee
of 31 basis points (0.31%). During 2000, RSB originated $80.9 million aggregate
principal amount of student loans for AMS, for which it received $245,000 in
origination fees. The agreement governing the terms of RSB's origination
services for AMS expires on January 20, 2002.
RSB has also historically provided student loan origination services for
the Company's College Fund Life Division. Pursuant to a Loan Origination and
Purchase Agreement, dated June 12, 1999, RSB originated student loans and resold
such loans to UICI Funding Corporation ("Funding") (a wholly owned subsidiary of
UICI) at par (plus accrued interest) less an origination fee of 31 basis points
(0.31%). Effective June 12, 2000, RSB and Funding amended the agreement to
provide that student loans originated by RSB would be resold to Funding at par
(plus accrued interest). Funding, in turn, resells the loans to the College Fund
Life Division of The MEGA Life and Health Insurance Company (a wholly-owned
subsidiary of UICI) ("MEGA") and to the College Fund Life Division of Mid-West
National Life Insurance Company of Tennessee (a wholly-owned subsidiary of UICI)
("Mid-West"). During 2000, RSB originated $19.5 million aggregate principal
amount of student loans for MEGA and Mid-West, for which it received origination
fees in the amounts of $12,000.
During 2000, RSB collected on behalf of, and paid to, Funding $1.7 million
in guarantee fees paid by student borrowers in connection with the origination
of student loans.
In June 1999, RSB entered into a service agreement with the College Fund
Life Division of MEGA and Mid-West pursuant to which MEGA and Mid-West provide
underwriting services to permit RSB to approve prospective student loans. During
2000, RSB paid to MEGA and Mid-West administrative fees for such services in the
amounts of $149,000 and $328,000, respectively.
During 2000, the Company received from RSB interest income in the amount of
$37,000 on money market reserve accounts maintained at RSB by the Company.
Specialized Association Services, Inc.
Pursuant to an agreement entered into in July 1998, Specialized Association
Services, Inc. ("SAS") (which is owned by Mr. Jensen's adult children) regularly
pays UICI Marketing for certain benefits (e.g., National Motor Club memberships)
provided to association members. UICI Marketing, in turn, purchases such
benefits from third parties (including, in some cases, the Company). The Company
believes that the fees earned by UICI Marketing as a percentage of UICI
Marketing's cost of benefits during 2000 was approximately 29%, which is prior
to any allocation of overhead. During 2000, SAS paid to MEGA $9.7 million,
pursuant to this arrangement.
During 2000, the Company paid to SAS $176,000, for various services and
reimbursement of expenses. The Company received from SAS $7,000 during 2000 for
reimbursement of expenses. During 2000, SAS paid to MEGA $325,000 for leased
office facilities.
Healthcare Management Administrators, Inc.
In 1997, pursuant to the terms of a Sale and Administration Agreement, the
Company sold certain tangible assets associated with its third party
administrator business to Healthcare Management Administrators, Inc. ("HMA")
(which is owned by Mr. Jensen) and also agreed to assign associated rights and
benefits of licenses of third party administrator business. The purchase price
received by the Company was $641,000, which approximated book value of the net
assets sold.
During 2000, the Company provided to HMA leased facilities and data
processing, accounting, management and administrative services, for which the
Company received fees of $34,000 in 2000.
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During 2000, Insurdata Marketing Services received commissions from HMA in
the amount of $38,000.
In accordance with the terms of a Management and Option Agreement, dated as
of April 1, 1999, HMA and Mr. Jensen granted to the Company an option to
purchase certain assets, subject to certain corresponding liabilities,
associated with the third party administration business of HMA. The option was
exercisable on or before January 30, 2000 at an option price equal to the book
value of the net tangible assets of HMA to be purchased plus assumption of an
obligation to pay WinterBrook VSO, LLC (a company controlled by Mr. Jensen)
certain commissions payable over a five year term in an amount not to exceed
$4.2 million. The Company delivered notice of exercise of the option on January
25, 2000, and the Company completed the purchase of the assets associated with
HMA's third party administration business on February 3, 2000, at a renegotiated
purchase price equal to approximately $4.0 million (representing the recorded
net book value of the assets purchased) plus $500,000, representing repayment to
Mr. Jensen of cash advances made to HMA subsequent to December 31, 1999.
NetLojix Communications, Inc. (formerly AvTel Communications, Inc.)
NetLojix Communications, Inc. ("NetLojix") provides long distance voice
telecommunications services to the Company and its subsidiaries, pursuant to a
series of agreements originally executed in 1998 and most recently renegotiated
and extended in September 2000. Mr. Jensen and his adult children own
beneficially in the aggregate approximately 59% of the issued capital stock of
NetLojix.
The Company's current agreement with NetLojix expires on October 31, 2002
and requires UICI to purchase a minimum of $86,000 in service per month at a
rate of $0.0299 per minute for interstate calls and $0.070 per minute, or $0.075
per minute, depending on the state, for intrastate calls. The Company's prior
agreement (which was effective August 1, 1999 and terminated on October 31,
2000) required UICI to purchase a minimum of $200,000 in service per month at a
rate of $0.035 per minute for interstate calls and $0.075 per minute for
intrastate calls. Effective August 1, 1998, UICI and NetLojix entered into a one
year long distance service agreement (the "1998 NetLojix Agreement"), which
required UICI to purchase a minimum of $120,000 in service per month at a rate
of $0.052 per minute for interstate calls and $0.088 per minute for intrastate
calls. Pursuant to the terms of a separate agreement, dated March 1, 1999,
NetLojix also provided UICI Marketing (a division of UICI) with long distance
service for a period of five months ended July 31, 1999, which agreement
required UICI Marketing to purchase a minimum of $4,209 in service per month at
rate of $0.048 per minute for interstate calls and either $0.081 per minute or
$0.084 per minute, depending on the state, for intrastate calls.
The Company (including UICI Marketing) paid NetLojix in the aggregate $4.0
million in 2000 for long distance telecommunications services.
At December 31, 2000, the Company had accounts payable owing to NetLojix
under the service agreement in the amount of approximately $270,000.
Excell Global Services, Inc.
Excell Global Services, Inc. ("Excell Global") (in which Mr. Jensen,
Chairman of the Company, Mr. Mutz, President and Chief Executive Officer of the
Company, and an officer of United CreditServ serve or served as directors and in
which Mr. Jensen and Mr. Mutz are beneficial holders of 57.2% and 14.6%,
respectively, of the outstanding equity) is a holding company, the principal
subsidiary of which is Excell Agent Services, LLC ("Excell"). Excell Global and
members of management of Excell Global hold, in the aggregate, 99% of the equity
interest in Excell, and Mr. Jensen holds the remaining 1% equity interest.
Excell provides telephone directory assistance services.
Excell paid to the Company $53,000 in 2000 for medical administration fees.
Onward and Upward, Inc. and Other Entities Owned by the Jensen Adult Children
Mr. Jensen's five adult children hold in the aggregate 100% of the equity
interest in Onward & Upward, Inc. ("OUI"), the holder of approximately 6.5% of
the Company's outstanding Common Stock.
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During 1998, the Company acquired from OUI and Mr. Jensen's adult children
a 15.9% interest and 5.6% interest, respectively, in the Company's subsidiary,
The Chesapeake Life Insurance Company, for a purchase price of $4.5 million (of
which $2.0 million and $2.5 million was paid to OUI and Mr. Jensen's adult
children, respectively). The purchase price was based on a predetermined formula
that approximated GAAP book value. OUI also holds a 21% equity interest in U.S.
Managers Life Insurance Company, Ltd., a subsidiary of the Company. The Company
has a right-of-first-offer to purchase from OUI, and OUI has a corresponding put
right to sell to the Company, OUI's 21% equity interest in U.S. Managers Life
Insurance Company, Ltd. at a price equal to 21% of the book value of U.S.
Managers Life Insurance Company, Ltd. (determined in accordance with generally
accepted accounting principles) at the date of purchase.
In 2000, the Company paid $144,000 to Small Business Ink (a division of
Specialized Association Services, in which the adult children of Mr. Jensen own
99%) for printing services.
Tesia Corporation (formerly Paperless Adjudication Ltd.)
During 1993, Mr. Jensen and the Company agreed to jointly invest in Tesia
Corporation ("Tesia"), which seeks to develop a paperless system for insurance
claims administration and adjudication. Mr. Jensen holds a 34.6% and Mr.
Jensen's five adult children hold in the aggregate a 7.9% equity interest in
Tesia. At December 31, 1998, the Company had written off its aggregate
investment of $6.1 million made prior to 1999, of which $-0- was made during
1998. In September 1999, the Company invested an additional $119,000 in Tesia in
exercise of its preemptive rights as part of a private placement offering of
equity interests by Tesia. During 2000, the Company made no additional
investment in Tesia.
At December 31, 2000, the Company held a 16.1% equity interest in Tesia.
After recognizing its share (16.1% in 2000) of Tesia's operating losses, at
December 31, 2000, the Company's carrying value of its investment in Tesia was
$-0-.
Impact Productions, Inc.
In 1998, the Company acquired a 90% interest in Impact Productions, Inc.
("Impact") from one of Mr. Jensen's adult children for a total price of
$236,000, which approximated the net book value of the assets as of the purchase
date. The adult child of Mr. Jensen retains a 10% equity interest in Impact.
During 2000, Impact paid the Company $79,000 as reimbursement of expenses.
Small Business Showcase, Inc. ("SBS")
Cornerstone Marketing of America (a division of Mid-West) paid to Small
Business Showcase, Inc. ("SBS") (which was owned by one of Mr. Jensen's adult
children until March 2000) $333 in 2000 for lead generation services, and in
2000 SBS paid to subsidiaries of the Company $13,000 for generating Internet
leads.
Purchase of Series B Certificates
On December 31, 1999, the Company sold to Mr. Jensen for an aggregate of
$10.0 million in cash (representing 100% of the principal amount thereof) (a) a
Class B 8.25% Asset Backed Certificate, Series 1998-1, in the outstanding
principal amount of $4.1 million; (b) a Class B 10.00% Asset Backed Certificate,
Series 1997-1, in the outstanding principal amount of $3.0 million; and (c) a
Class B 10.00% Asset Backed Certificate, Series 1996-1, in the outstanding
principal amount of $2.9 million (collectively the "Series B Certificates"). The
Series B Certificates were created as part of the Company's securitizations of
credit card receivables issued in 1996, 1997 and 1998 generated by the Company's
credit card operations. The Class B Certificates were liquidated and paid off at
par from a portion of the proceeds of the September 2000 sale of the non-cash
assets associated with the Company's credit card unit.
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Sale of SunTech Processing Systems, LLC
In 1996, the Company invested $4.0 million in exchange for a 100% Class A
and a 40% Class B membership interest in Cash Delivery Systems, LLC ("CDS"),
formerly known as Sun Network Technologies. The remaining 60% Class B membership
interest was held by Sun Communications, Inc. ("Sun"). At the time of the
Company's investment, CDS was engaged in the business of owning and placing
automated teller machines ("ATMs") and processing ATM transactions. In
connection with the Company's investment in CDS, Mr. Jensen executed an
agreement pursuant to which Mr. Jensen agreed to indemnify the Company for any
loss or reduction in value of the Company's Class A membership contribution and
granted an option to the Company to put the Class A membership interest to Mr.
Jensen for $4.0 million. CDS and Mr. Jensen then invested $80,000 and $20,000 in
Sun Tech Processing Systems, LLC ("STP") in exchange for an 80% and 20%
membership interest, respectively. In addition, Mr. Jensen agreed to loan up to
$6.0 million to STP, secured by all property acquired with the funds advanced.
No funds were drawn down on this commitment.
In accordance with an Agreement dated March 1997 and effective December 31,
1996 (the "March 1997 Agreement"), the Company, Mr. Jensen, Sun, CDS, and STP
restructured these investments as follows:
- CDS and Mr. Jensen withdrew their membership contributions from STP and
the agreement to advance up to $6.0 million to CDS was canceled.
- STP issued to the Company and Sun a new 80% and 20% Class B membership
interest for $800 and $200, respectively.
- The Company invested an additional $2.0 million in STP in exchange for a
100% Class A membership interest.
- The Company sold its entire Class A and Class B membership interests in
CDS to Mr. Jensen for $854,000, which represented the net book value of
the Company's interest in CDS before the transfer of the ATM transaction
processing business to STP. In addition, Sun transferred a 40% interest
in CDS to Mr. Jensen. Giving effect to these transactions, Mr. Jensen and
Sun owned 80% and 20% of the Class B membership interests of CDS,
respectively, and Mr. Jensen owned 100% of the Class A membership
interests of CDS.
- Mr. Jensen agreed to provide financing to CDS in the total amount of
approximately $12.0 million to pay off outstanding CDS indebtedness,
approximately $2.0 million of which was to be unsecured. As of March
1997, Mr. Jensen had paid on behalf of CDS approximately $10.3 million.
In connection with the sale of UICI's interests in CDS to Mr. Jensen, CDS
distributed processing assets with approximately $1.3 million in book value to
Mr. Jensen and Sun, which at the time owned 80% and 20% of the Class B
membership interests in CDS, respectively. Sun contributed its share of those
processing assets to STP, and Mr. Jensen contributed his $1.1 million share of
the book value of those processing assets to STP on behalf of UICI.
The March 1997 Agreement also provides, in part, that (i) there will be no
distributions to Class B members of STP or CDS until all Class A preferred
interests in both STP and CDS have been paid or redeemed in full and (ii) if
funds are available to any parties from either STP or CDS, such funds will be
loaned to the other company until the preferred interests are retired. The
agreements governing the organization and governance of STP and CDS both
require, upon liquidation, the payment of the respective outstanding debt of
each company before the equity holders of that company receive a distribution.
After the sale of CDS's ATMs and use of the proceeds to repay these loans in
part, approximately $6.2 million of Mr. Jensen's loans to CDS remained
outstanding as of December 31, 2000. These loans bear interest at an annual rate
of 2.5% plus the prime rate, payable monthly, and have a maturity date of July
1, 2001.
In February 1998, the assets of STP were sold to an unrelated party for
$17.5 million, and in 1998 the Company recognized a gain in the total amount of
$9.7 million on the sale. As discussed below, the ultimate outcome of the
appeals in the Sun Litigation may have an impact on this recorded gain.
Consistent with its understanding of the March 1997 Agreement, in the first
quarter of 1998 the Company recorded a gain of $2.3 million (representing the
distribution due to its Class A and Class B interests in STP, assuming funds
were
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advanced to CDS to retire Mr. Jensen's debt and redeem his Class A interest in
CDS). In April 1998, Sun filed certain claims in District Court in Dallas
County, Texas concerning the distribution of the proceeds from the sale of the
STP assets. The core issue of the suit was whether the provisions of the March
1997 Agreement would require that STP make a loan or advance to CDS out of the
proceeds of the STP sale so that CDS could repay the loans made by Mr. Jensen to
CDS and redeem Mr. Jensen's Class A preferred membership interest in CDS. The
liquidator appointed to rule on the proper distribution ruled that the proceeds
should be distributed in a manner different than had previously been applied by
the Company in the first quarter of 1998.
While the net effect of any loan or advance to CDS would be to reduce the
funds available for STP to distribute to the Company and Sun, Mr. Jensen has
agreed, pursuant to an agreement reached with the Company in June 1998 (the
"Assurance Agreement"), that, if UICI receives less than $15.1 million in the
pending Sun Litigation, then Mr. Jensen will advance funds to UICI sufficient to
increase UICI's recovery to $15.1 million.
The Dallas County, Texas District Court ruled in December 1998 that, as a
matter of law, the March 1997 agreement governing the distribution of the cash
proceeds of the STP sale should be read in the manner urged by Sun and
consistent with the court-appointed liquidator's previous ruling. The District
Court entered a judgment directing distribution of the sales proceeds in the
manner urged by Sun. The District Court also entered a finding that UICI
violated Texas securities disclosure laws and breached a fiduciary duty owed to
Sun, and the District Court awarded the plaintiff $1.7 million in attorneys'
fees, which amount could be increased to $2.1 million under certain
circumstances.
On August 1, 2000, the Court of Appeals for the Fifth District of Texas at
Dallas reversed the trial court's judgment as to UICI's liability for attorneys'
fees and its finding that UICI violated Texas securities laws and breached a
fiduciary duty. The Appeals Court also reversed the trial court's judgment that
directed distribution of the STP sales proceeds in the manner urged by Sun. On
December 8, 2000, the Appeals Court affirmed its earlier decision and denied the
Company's, Mr. Jensen's and Sun's respective motions for rehearing.
In the brief filed in his appeal of the District Court's December 1998
finding, Mr. Jensen reasserted that the March 1997 agreement requires that,
before STP can make a distribution to UICI and Sun, it must advance
approximately $10.0 million to CDS to allow CDS to satisfy certain creditor and
preferred equity claims, owed primarily to Mr. Jensen. If and to the extent that
Mr. Jensen's interpretation of the March 1997 agreement is ultimately adopted in
the Sun Litigation after all rights to appeal have been exhausted, the amount of
such proceeds which UICI may ultimately receive directly from STP may be
reduced. However, in such event and in accordance with the Assurances Agreement,
Mr. Jensen has agreed that, if UICI receives less than $15.1 million in the
lawsuit, then Mr. Jensen will advance funds to UICI sufficient to increase
UICI's recovery to $15.1 million. The Assurance Agreement also restricts the
manner in which UICI can seek funds in satisfaction of Mr. Jensen's previously
unconditional agreement (the "Jensen 1996 Guaranty") to indemnify the Company
for any loss or reduction in value of the Company's Class A investment in CDS.
By letter dated July 7, 2000, Mr. Jensen submitted a formal proposal to
purchase the Company's 80% interest in STP for $15.6 million ("Proposal A") or,
alternatively, to purchase for $15.1 million the Company's rights and claim of
rights to receive funds held in the registry of the Court in the Sun Litigation
("Proposal B"). As part of either proposal, the Company would agree to terminate
and release Mr. Jensen from any and all obligations arising under the Jensen
1996 Guaranty and the Assurance Agreement. As part of Mr. Jensen's proposals,
Mr. Jensen has offered to indemnify and hold the Company harmless from and
against, among other things, (a) the breach of fiduciary duty claim asserted by
Sun against the Company and Sun's related claim for attorneys' fees, (b) Sun's
claim for attorneys' fees arising out of the distribution issue in the Sun
Litigation, and (c) any and all other claims of any nature asserted by Sun
against the Company in the Sun Litigation arising out of or relating directly to
the March 1997 agreement governing the distribution of cash proceeds from the
sale and liquidation of STP.
Mr. Jensen's proposal to purchase UICI's 80% interest in STP contemplated
by Proposal A may be subject to the consent of Sun. The Company solicited the
consent of Sun to the transfer so that it might accept Proposal A, but Sun was
unwilling to grant such consent and objected to Proposal B, claiming that Sun's
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consent is required to consummate either Proposal. Following approval of the
disinterested outside directors of UICI in accordance with the related party
transactions policies and procedures adopted by the UICI Board, on July 21,
2000, the Company formally accepted Proposal A and, in the alternative, Proposal
B. On November 22, 2000, the Court in the Company's pending Shareholder
Derivative Litigation (see Note N of Notes to Consolidated Financial Statements)
approved the alternative settlements between Mr. Jensen and the Company, subject
to any alleged right on the part of Sun to consent to Proposal A and/or Proposal
B. The Company subsequently sued Sun separately (UICI v. Sun Communications,
Inc., pending in 134th Judicial District Court of Dallas County, Texas, Cause
No. 009353), seeking to resolve the consent issue. Sun subsequently moved to
abate the separate suit.
The Company cannot at this time predict how, when or in what fashion the
Sun Litigation will ultimately be resolved. However, for financial reporting
purposes, any cash ultimately received by the Company from Mr. Jensen pursuant
to the Assurance Agreement may be treated as a capital contribution to the
Company, and the gain would be reduced by a corresponding amount. In such case,
however, the Company's consolidated stockholders' equity would not be adversely
affected. In 1998, the Company's results of operations reflected a pre-tax gain
from the STP sale of $9.7 million ($6.7 million after-tax, or $0.15 per share).
March 2000 Loan
On March 14, 2000, a limited liability company controlled by Mr. Jensen
("Lender LLC") loaned $70.0 million (the "Lender LLC Loan") to a newly formed
subsidiary of the Company. The proceeds of the Lender LLC Loan, together with
$5.0 million of cash on hand, were used to reduce indebtedness outstanding under
the Company's Bank Credit Facility from $100.0 million to $25.0 million. The
Lender LLC Loan bore interest at the prevailing prime rate, was guaranteed by
UICI, was due and payable in July 2001 and was secured by a pledge of investment
securities and shares of the Company's National Motor Club unit.
In connection with the March 2000 paydown of indebtedness outstanding under
the Bank Credit Facility, the Bank Credit Facility was amended to provide, among
other things, that the $25.0 million balance outstanding would be due and
payable on July 10, 2000, amounts outstanding under the facility would be
secured by a pledge of investment securities and shares of Mid-West National
Life Insurance Company of Tennessee ("Mid-West"), and the restrictive covenants
formerly applicable to UICI and its restricted subsidiaries (primarily the
Company's insurance companies) were made applicable solely to Mid-West. Amounts
outstanding under the Bank Credit Facility continued to bear interest at LIBOR
plus 100 basis points per annum. On April 11, 2000 and June 28, 2000, the
Company made principal payments of $11.0 million and $8.0 million, respectively,
under the Bank Credit Facility, and on June 30, 2000, Lender LLC, against
payment to the banks of $6.0 million, assumed 100% of the banks' remaining $6.0
million position in the Bank Credit Facility.
June -- July 2000 Transactions
In June and July 2000, the Company entered into a series of transactions
(the "July 2000 Transactions") with Mr. Jensen and affiliates of Mr. Jensen, the
proceeds of which were utilized, in part, to fund the Company's cash and other
obligations under the Consent Order, dated June 29, 2000, issued by the OCC to
memorialize the terms of the UCNB Capital Plan approved by the OCC. See Note B.
In accordance with the policies and procedures of the Board of Directors,
each of the July 2000 Transactions was approved by the disinterested outside
directors of the Company at a meeting of the Board of Directors held on July 21,
2000, as being fair to UICI and its shareholders. The Board's determination was
made, in part, in reliance upon the opinion of an independent financial advisor
that the July 2000 Transactions, in their totality, were fair to the public
shareholders of UICI (consisting of non-Jensen affiliated shareholders) from a
financial point of view.
Restructuring of Lender LLC Loan. Effective July 27, 2000, the Company and
the Lender LLC completed a restructuring of the terms of the Lender LLC Loan. As
part of the restructuring, the Company paid to Lender LLC principal owing on the
Lender LLC Loan in the amount of $6.0 million and amended the
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terms of the Lender LLC Loan to provide that the aggregate principal amount of
$70.0 million then owing by the Company would consist of a $32.0 million
unsecured tranche and a $38.0 million tranche secured by a pledge of 100% of the
capital stock of Mid-West (the "Amended Lender LLC Loan"). The Amended Lender
LLC Loan (a) matured on January 1, 2002, (b) continued to bear interest at the
prevailing prime rate from time to time, with interest accruing but not payable
until the earlier to occur of full prepayment of the Lender LLC Loan or January
1, 2002, and (c) was mandatorily prepayable monthly to the extent of 1% of the
outstanding principal balance of the Amended Lender LLC Loan. The security
interest in all remaining collateral previously pledged to secure payment of the
Lender LLC Loan and indebtedness outstanding under the bank credit facility
(including all investment securities and shares of the Company's National Motor
Club unit) was released in full.
In addition to scheduled payments of principal made during the course of
2000, on October 20, 2000, the Company prepaid the unsecured tranche of the
Amended Lender LLC Loan in the amount of $12.5 million, and on November 2, 2000,
the Company prepaid an additional $17.4 million of the unsecured tranche and
$17.6 million of the secured tranche. Accordingly, at December 31, 2000, the
Company had no indebtedness outstanding under the unsecured tranche and $19.0
million outstanding under the secured tranche of the Amended Lender LLC Loan.
On January 30, 2001, the Company prepaid in full principal and accrued
interest on the secured tranche of the Amended Lender LLC Loan in the amount of
$21.1 million, utilizing a portion of the proceeds received in liquidation of
UCNB, and Lender LLC's security interest in 100% of the capital stock of
Mid-West was released in full.
Sale of NMC Holdings, Inc. On July 27, 2000, the Company sold to an
investor group consisting of Jensen family members (including Mr. Jensen) (the
"NMC Buyer") its 97% interest in NMC Holdings, Inc. ("NMC"), the parent company
of its National Motor Club of America unit, for a purchase price of $56.8
million, representing 97% of the value of NMC as determined by independent
appraisal. The purchase price was paid at closing in cash in the amount of $21.8
million and by delivery of a promissory note (the "NMC Note") issued by the NMC
Buyer in the principal amount of $35.0 million. For financial reporting
purposes, the $12.6 million, net of tax, received by the Company in excess of
the net book value of NMC was reflected in additional paid in capital.
The NMC Note was an unsecured, full recourse obligation of the NMC Buyer
and was unconditionally guaranteed by Mr. Jensen. The NMC Note bore interest at
the per annum rate of prime fluctuating from time to time, and was initially
payable in three equal installments of principal in the amount of $11.7 million
due on each of October 1, November 1 and December 1, 2000, respectively.
Effective October 1, 2000, the NMC Note was amended to provide for three equal
installments of principal in the amount of $11.7 million due on each of November
1 and December 1, 2000 and January 1, 2001, respectively. In accordance with the
terms of the June Consent Orders, the Company pledged the NMC Note to UCNB to
secure, in part, the Company's obligations under the Capital Plan. On October
31, 2000, the OCC consented to the release by UCNB of its security interest in
the NMC Note. On November 2, 2000, the NMC Buyer prepaid the NMC Note in its
entirety. Under the terms of the NMC Note, the Company received $875,000 in
interest in 2000.
On July 27, 2000, UICI, NMC Buyer and NMC entered into a Management
Agreement, the terms of which governed the provision by UICI to NMC of
management and administrative services, information technology services,
telephone services and other services formerly provided to NMC by UICI. The
Management Agreement was terminable (a) by UICI at any time upon not less than
60 days' notice to NMC and the NMC Buyer, and (b) by NMC at any time following
the payment in full of the NMC Note upon not less than 30 days' notice to UICI.
Pursuant to the Management Agreement, UICI agreed to allow William Gedwed
(formerly an Executive Vice President of the Company and currently a Director of
the Company and the holder of approximately 3% of the equity interest in NMC) to
serve as a consultant to NMC for the term of the Management Agreement. As of
December 31, 2000, the Company was owed by NMC $50,000 pursuant to the terms of
the Management Agreement.
Mr. Gedwed resigned as an executive officer of UICI effective December 31,
2000, and NMC terminated the Management Agreement effective January 31, 2001.
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Jensen Indemnity Agreement. To secure in part the Company's obligations
under the Capital Plan, effective June 29, 2000 Mr. Jensen pledged to UCNB $7.1
million face amount of Series B Certificates created as part of the Company's
securitizations of credit card receivables issued in 1997 and 1998 generated by
UICI's credit card operations. As a condition to Mr. Jensen's pledge of the
Series B Certificates, on June 29, 2000 the Company executed and delivered an
Indemnity Agreement, pursuant to which the Company agreed, among other things,
to indemnify and hold Mr. Jensen harmless from and against (A) loss, cost,
expense, or liability incurred by Mr. Jensen arising from, in respect of or in
connection with, a default by the Company of its obligations under the June
Consent Orders, the UCNB Capital Plan or the Liquidity and Capital Assurances
Agreement, and (B) any and all losses, costs and expenses (including reasonable
attorneys' fees and expenses) incurred by Mr. Jensen in enforcing any rights
under the Indemnity Agreement.
Sale of UICI Shares to NMC. Pursuant to the terms of an agreement, dated
July 13, 2000, between the Company and NMC, on July 24, 2000, the Company issued
to NMC 175,000 treasury shares of common stock at a purchase price of $5.25 per
share. It is anticipated that the 175,000 shares will be used to fund incentive
stock programs for the benefit of NMC employees.
National Motor Club
As discussed above, on July 27, 2000, the Company sold its 97% interest in
NMC Holdings, Inc., the parent company of its National Motor Club of America
("NMC") unit, to an investor group consisting of Jensen family members
(including Mr. Jensen) for a purchase price of $56.8 million, representing 97%
of the value of NMC as determined by independent appraisal. William J. Gedwed (a
director of the Company) holds 3% of the issued and outstanding common stock of
NMC Holdings, Inc. The Chesapeake Life Insurance Company ("CLICO") (formerly a
direct wholly owned subsidiary of the Company) and National Motor Club of
America ("NMCA") were previously parties to an administrative service agreement,
pursuant to which CLICO agreed to issue life, accident and health insurance
polices to NMCA for the benefit of NMCA members in selected states. NMCA, in
turn, agreed to provide to CLICO certain administrative and recordkeeping
services in connection with the NMCA members for whose benefit the policies have
been issued. Following the acquisition in July 2000 of CLICO by The MEGA Life
and Health Insurance Company ("MEGA") (a wholly-owned insurance subsidiary of
the Company), MEGA and NMCA entered into a similar administrative service
agreement for a two year term ending in December 31, 2002. During the year ended
December 31, 2000, NMCA paid to MEGA and Chesapeake insurance premiums in the
amount of $2.6 million pursuant to such arrangements.
In connection with the sale of NMC in July 2000, NMC entered into a
sublease agreement with MEGA, pursuant to which NMC subleases from MEGA
approximately 17,000 square feet of office space. During the year ended December
31, 2000, NMC paid to MEGA $144,000 pursuant to the sublease. NMC has notified
MEGA that it intends to terminate the sublease arrangement effective July 1,
2001.
Other Transactions
Effective July 1, 1998, the Company sold to IPN Acquisitions, Inc. (in
which Mr. Jensen held a 100% equity interest) its equity interest in IPN, LLC (a
healthcare solutions company) for cash in the amount of $3.5 million. The
purchase price represented the net book value of the net assets of IPN, LLC. As
part of the sale transaction, IPN Acquisitions, Inc. agreed to indemnify the
Company against future obligations to be incurred by IPN, LLC and granted to the
Company the right to repurchase up to 80% of IPN, LLC on or before January 1,
2000, at an option price equal to 80% of the $3.5 million selling price,
adjusted for any capital contributions or distributions after the sale, plus a
premium depending on when the option was exercised. The Company did not exercise
the repurchase option.
Effective July 1, 1998, the Company sold to HAI Acquisitions, Inc. (in
which Mr. Jensen holds a 100% equity interest) its equity interest in HealthCare
Automation, Inc. (a healthcare solutions company) for cash in the amount of $1.9
million. The purchase price represented the net book value of the net assets of
Healthcare Automation, Inc. As part of the sale transaction, HAI Acquisitions,
Inc. granted to the Company the right to repurchase up to 80% of HealthCare
Automation, Inc. on or before January 1, 2000, at an option
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price equal to 80% of the $1.9 million selling price, adjusted for any capital
contributions or distributions after the sale, plus a premium depending on when
the option was exercised. The Company did not exercise the repurchase option.
In 2000, the Company received $9,000 from United Group Service Center, Inc.
(in which Mr. Jensen holds a 100% equity interest), which amount represents a
premium on a stop loss policy issued by MEGA and reimbursement of certain office
expenses.
OTHER TRANSACTIONS WITH CERTAIN MEMBERS OF MANAGEMENT
Transactions with Mr. Mutz
In January 1999, Gregory T. Mutz was elected President and Chief Executive
Officer of the Company. During 1999, Mr. Mutz continued to serve as Chairman of
the Board of AMLI Residential Properties Trust, a publicly-traded real estate
investment trust ("AMLI"). At December 31, 2000, the Company held a 10.4% fully
diluted interest in AMLI. As Chairman of the Board of AMLI, Mr. Mutz received
certain compensation and participated in various option and deferred
compensation programs, all of which are described in the AMLI proxy statement.
In addition, as of December 31, 2000, AMLI had outstanding secured loans owing
from Mr. Mutz in the aggregate amount of $2.1 million, the proceeds of which
were used to purchase 108,891 shares of AMLI beneficial interest.
Mr. Mutz also serves as chairman of the board of AMLI Commercial Properties
Trust ("ACPT"), a private real estate investment trust in which the Company
holds a 20% equity interest. Mr. Mutz is the beneficial holder of less than one
percent of the issued and outstanding shares of beneficial interest of ACPT. At
December 31, 2000, ACPT had an outstanding loan owing from Mr. Mutz (or
companies affiliated with Mr. Mutz) in the amount of $508,000, the proceeds of
which were used to purchase stock in ACPT.
On August 4, 1999, the Company entered into an indemnification agreement
with Mr. Mutz, pursuant to which the Company agreed to indemnify Mr. Mutz to the
fullest extent permitted by Delaware law from certain liabilities and expenses
incurred in his capacity as an officer of the Company and/or as an officer and/
or director of the Company's subsidiaries.
UICI Executive Stock Purchase Program. In accordance with the Company's
Executive Stock Purchase Program (the "ESPP") (see "MODIFICATIONS TO UICI
EXECUTIVE STOCK PURCHASE PROGRAM"), in December 1998 the Company extended a loan
to Mr. Mutz in the amount of $3.3 million, the proceeds of which were used to
purchase 200,000 shares of Common Stock of the Company at a purchase price of
$19.50 per share. The loan bore interest at the rate of 5% per annum, payable
quarterly, had a six-year term, and is full recourse to Mr. Mutz. In June 1999,
the Company extended an additional loan to Mr. Mutz pursuant to the ESPP in the
amount of $429,000, the proceeds of which were used to purchase 20,000 shares of
Company Common Stock at a purchase price of $24.45 per share. The loan bore
interest at 5.37%, payable quarterly, had a six-year term, and was full recourse
to Mr. Mutz.
The amount outstanding under Mr. Mutz's ESPP loans at December 31, 2000 and
1999, including accrued interest, was $2.8 million and $3.3 million,
respectively.
As part of modifications to the ESPP adopted by the Company's Board of
Directors on January 2, 2001, the Company granted to Mr. Mutz 107,104 shares of
UICI common stock, discharged $1.5 million principal amount of the ESPP loan,
and paid to Mr. Mutz a one-time cash bonus in the amount of $1.1 million (which
was calculated to reimburse Mr. Mutz for income and other taxes payable upon
receipt of the UICI stock and discharge of the portion of the ESPP loan). The
terms of the ESPP loan were modified to extend the maturity date to January 1,
2007. Giving effect to the discharge of the indebtedness, at January 2, 2001 the
amount outstanding under Mr. Mutz' ESPP loan was $1.3 million.
Other Loans to Management
In accordance with the Company's Executive Stock Purchase Program (the
"ESPP") (see "MODIFICATIONS TO UICI EXECUTIVE STOCK PURCHASE PROGRAM"), during
1999 the Company
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extended loans to Messrs. Reed, Gedwed, Prater, Arnold and Benac (all Named
Executive Officers) in the amounts of $417,000, $203,000, $158,000, $229,893 and
$204,000, respectively, the proceeds of which were used to purchase Company
Common Stock. The loans to Messrs. Benac and Prater bear interest at 5.22% per
annum and the loans to Messrs. Reed, Gedwed and Arnold bear interest at 5.37%
per annum. The six-year term loans require quarterly interest payments, had a
six-year term, are full recourse to the borrower and are payable in full upon
the occurrence of certain events, including the termination of employment.
At December 31, 2000, Messrs. Reed, Gedwed, Prater, Arnold and Benac had
outstanding loans payable to the Company under the ESPP in the amounts of
$421,000, $206,000, $158,000, $229,893 and $206,000, respectively, including
accrued interest.
As part of modifications to the ESPP adopted by the Company's Board of
Directors on January 2, 2001, the Company discharged $297,000, $169,900 and
$113,000 principal amount of indebtedness under the ESPP owing by Mr. Reed, Mr.
Arnold and Mr. Prater, respectively, and paid to Mr. Reed, Mr. Arnold and Mr.
Prater a one-time cash bonus in the amount of $160,000, $91,000 and $61,000,
respectively (which was calculated to reimburse Mr. Reed, Mr. Arnold and Mr.
Prater for income and other taxes payable upon discharge of the portion of their
ESPP loan). The terms of Mr. Reed's, Mr. Arnold's and Mr. Prater's ESPP loans
were modified to extend the maturity date to January 1, 2007. Giving effect to
the discharge of the indebtedness, at January 2, 2001 the amount outstanding
under Mr. Reed's, Mr. Arnold's and Mr. Prater's ESPP loan was $120,000, $60,000
and $45,000, respectively. On March 14, 2001, the Company subsequently entered
into an agreement with Mr. Prater, pursuant to which Mr. Prater resigned as an
executive officer of the Company and as an officer of various UICI affiliates
effective February 1, 2001. In accordance with the agreement, the Company agreed
to forgive the indebtedness owing by Mr. Prater under the ESPP in the amount of
$45,000.
OTHER TRANSACTIONS
On September 1, 1999, the Company entered into separate indemnification
agreements with each of Messrs. Reed, Gedwed and Prater, pursuant to which the
Company agreed to indemnify such officers to the fullest extent permitted by
Delaware law from certain liabilities and expenses incurred in their respective
capacities as officers of the Company and/or officers and directors of the
Company's subsidiaries.
Effective December 31, 2000, the Company entered into an agreement with
William J. Gedwed (a director of the Company), pursuant to which Mr. Gedwed
resigned as an executive officer of the Company effective December 31, 2000 and
as an officer of various UICI affiliates effective February 1, 2001. In
accordance with the agreement, Mr. Gedwed has also agreed to provide consulting
services to MEGA for a two-year term ending December 31, 2002 for an annual fee
of $120,000.
In October 2000, the Company entered into an agreement with William P.
Benac (formerly an Executive Vice President of the Company), pursuant to which
Mr. Benac resigned as an executive officer of the Company and various UICI
affiliates effective October 27, 2000. In accordance with the agreement, Mr.
Benac received a one-time severance payment of $50,000, and Mr. Benac has also
agreed to provide consulting services to UICI for a term ending January 15, 2003
for an aggregate fee of $120,000.
On March 14, 2001, the Company entered into an agreement with Charles T.
Prater, pursuant to which Mr. Prater resigned as an executive officer of the
Company and as an officer of various UICI affiliates effective February 1, 2001.
In accordance with the agreement, the Company agreed to forgive indebtedness
owing by Mr. Prater in the amount of $45,000, and Mr. Prater has agreed to
provide consulting services to MEGA for a one-year term ending March 31, 2002
for an annual fee of $135,000.
In accordance with the terms of the Company's ESPP, in June 2000 Mr.
Mockler (a director of the Company), purchased 2,000 shares of UICI common stock
in exchange for cash in the amount of $6,000 and a promissory note in the amount
of $7,750. At December 31, 2000, the amount outstanding on Mr. Mockler's note
was $7,750.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process, including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed with management the audited financial statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The Committee reviewed with representatives of Ernst & Young LLP, the
Company's independent auditors, who are responsible for expressing an opinion on
the conformity of those audited financial statements with generally accepted
accounting principles, their judgments as to the quality, not just the
acceptability, of the Company's accounting principles and such other matters as
are required to be discussed with the Committee under Statement on Auditing
Standards No. 61, Communications with Audit Committees. In addition, the
Committee has discussed with the independent auditors the auditors' independence
from management and the Company, including the matters in the written
disclosures required by the Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and considered the compatibility
of nonaudit services with the auditors' independence.
The Committee discussed with the Company's independent auditors the overall
scope and plans for their audits. The Committee meets with the internal and
independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting. The
Committee held seven meetings during fiscal year 2000.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the year ended December 31, 2000, for filing with the Securities and
Exchange Commission. The Committee and the Board have also recommended, subject
to shareholder ratification, the selection of the Company's independent
auditors.
Richard T. Mockler, Audit Committee
Chairman
George H. Lane III, Audit Committee
Member
Stuart D. Bilton, Audit Committee
Member
2. APPROVAL OF UICI 2000 RESTRICTED STOCK PLAN
The Board of Directors adopted the UICI 2000 Restricted Stock Plan (the
"2000 Plan") in February 2000 and made awards of restricted stock under the 2000
Plan in March 2000, subject to approval by the stockholders of the Company. In
2001, the Board adopted a new restricted stock plan (see Proposal 3 below) and
it is not expected that any additional awards will be made under the 2000 Plan.
In light of the cash flow problems that the Company was experiencing in early
2000, the Board determined to grant restricted stock to executives in lieu of a
portion of cash bonuses to which they were otherwise entitled. In this respect,
the 2000 Plan was intended to enable the Company to retain executives and other
key employees with outstanding experience and ability while aligning the
interests of the Company, its stockholders, and its executives and key
employees. The Board believes the approval of the 2000 Plan is in the best
interests of the Company and its stockholders because it provides incentives to
executives and other key employees to devote their best efforts to pursue and
sustain the Company's growth and profitability, enhancing the financial success
of the Company and increasing stockholder value. The full text of the 2000 Plan
is attached to this proxy statement as Appendix B. Because the following
discussion is a summary and does not cover all aspects of the 2000 Plan,
stockholders may wish to review Appendix B in its entirety.
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PURPOSE
The purpose of the 2000 Plan is to promote the interests of the Company and
its stockholders by (a) attracting and retaining employees and other persons
providing services to the Company and its subsidiaries; (b) motivating the
executives, by means of appropriate incentives, to achieve long-range goals; (c)
providing incentive compensation opportunities that are competitive with those
of other major corporations; and (d) further identifying executives' interests
with those of the Company's other stockholders through compensation that is
based on the Company's Common Stock.
ADMINISTRATION
The 2000 Plan will be administered by the Board of Directors of the
Company, which has the sole and complete authority to determine which
individuals shall participate in the plan, to determine the number of shares to
be awarded, to establish the terms, conditions, performance criteria,
restrictions and other provisions of the awards, and to cancel or amend the
awards. The Board also will have complete authority and discretion to interpret
the 2000 Plan and to adopt, alter and repeal administrative rules, guidelines
and practices governing the operation of the plan. The Board may delegate any or
all of its authority under the 2000 Plan to a committee of the Board, which may,
in turn, allocate some of the responsibilities to selected individuals.
ELIGIBILITY
All employees of the Company or any of its subsidiaries, and other persons
providing material services to the Company or a subsidiary are eligible to
participate in the 2000 Plan. The Board has sole and complete discretion in
determining which individuals will participate in the 2000 Plan. In 2000, 23
officers and employees participated in the 2000 Plan.
NUMBER OF SHARES
A maximum of 100,000 shares of Common Stock may be awarded under the 2000
Plan. Any shares forfeited or reacquired by the Company pursuant to rights
reserved on the award will not be counted as shares awarded under the 2000 Plan
until used in a subsequent award. If there is any change in the outstanding
Common Stock by reason of a merger, consolidation, reorganization,
recapitalization, spinoff, stock dividend, stock split, reverse stock split,
exchange or other distribution with respect to shares of UICI Common Stock or
other change in the corporate structure or capitalization affecting the UICI
Common Stock, the type and number of shares of stock which are or may be subject
to awards under the Plan and the terms of any outstanding awards will be
equitably adjusted by the Board, in its sole discretion, to preserve the value
of benefits awarded or to be awarded to participants under the 2000 Plan.
However, if there is a merger or a sale of substantially all of the assets of
the Company, the Board, in its sole discretion, may substitute awards of equal
value for outstanding awards under the 2000 Plan or cancel outstanding awards,
provided that the participant receives an amount that the Board believes is
reasonable payment.
The shares of Common Stock with respect to which awards may be made under
the 2000 Plan may be shares currently authorized but unissued, or currently held
or subsequently acquired by the Company as treasury shares, including shares
purchased in the open market or in private transactions.
DESCRIPTION OF THE AWARDS
The Board will determine the participants to whom awards of restricted
stock are to be made, the number of shares of restricted stock to be granted to
each participant, the duration of the period (the "restricted period") during
which, and the conditions under which, the restricted stock may be forfeited to
the Company, and the other terms and conditions of such awards. Some or all of
the conditions to vesting of the awards may relate to events (such as
performance, satisfaction of Company performance targets established by lenders
or continued employment) occurring after the date of grant. The terms of the
restricted stock awards need not be the same for each participant.
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Shares of restricted stock may not be sold, assigned, transferred, pledged
or otherwise encumbered during the restricted period, except by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order.
During the restricted period, however, the holders may exercise full voting
rights relating to those shares and, unless otherwise provided by the Board, are
entitled to receive all dividends and other distributions paid with respect to
those shares. Except as may otherwise be determined by the Board, a participant
who, for any reason, ceases to perform services for the Company and the
subsidiaries prior to the end of the restricted period will forfeit all shares
of restricted stock still subject to a restricted period under the 2000 Plan.
The grant of an award will not be construed as giving a participant the right to
be retained in the employ of the Company.
DURATION; AMENDMENT
Unless terminated by the Board, the 2000 Plan will be unlimited in
duration. The Board of Directors generally may amend, suspend or terminate the
2000 Plan or any portion thereof at any time. However, no such amendment or
termination may adversely affect the rights of a participant under any award
made prior to the date of the amendment without the participant's consent. If
the 2000 Plan is terminated, any outstanding awards of restricted stock not yet
vested will remain outstanding.
CHANGE IN CONTROL
The 2000 Plan provides that if there is a change in control of the Company
(as defined), all restrictions on outstanding restricted stock awards will
lapse.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief discussion of the
federal income tax rules relevant to restricted stock. The laws governing the
tax aspects of awards are highly technical and such laws are subject to change.
A recipient of restricted stock normally will not recognize taxable income
at the time the stock is granted, unless his rights to part or all of the
restricted stock are immediately vested. Thereafter, the recipient will
recognize ordinary income as the restrictions lapse. The amount of such ordinary
income will be equal to the market value of the restricted stock (in excess of
any amount paid by the recipient) at the time of the lapse. However, the
recipient may elect pursuant to Section 83(b) of the Code to recognize ordinary
income in an amount equal to the market value of the restricted stock (in excess
of any amount paid by the recipient) at the time the stock is granted. Any
subsequent change in the value of the restricted stock would then be treated as
capital gain or loss when the stock is sold.
The Company will be entitled to a deduction for federal income tax purposes
at the same time and in the same amount as the receipt of stock is initially
treated as ordinary income to the recipient. Under generally accepted accounting
principles, compensation expense for restricted stock will be recorded ratably
over the restricted period.
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NEW PLAN BENEFITS
Subject to stockholder approval, the Board in January 2000 decided to make
awards of restricted stock to the following individuals and groups:
2000 PLAN
NUMBER OF
NAME AND POSITION DOLLAR VALUE ($) SHARES
----------------- ---------------- ---------
Ronald L. Jensen, Chairman of the Board................... 0 0
Gregory T. Mutz, CEO...................................... 58,300 8,800
Glenn W. Reed, Executive Vice President and General
Counsel................................................. 53,000 8,000
William J. Gedwed, former Executive Vice President........ 44,653 6,740
William P. Benac, former Executive Vice President......... 0 0
Steven K. Arnold, Vice President.......................... 46,375 7,000
Charles T. Prater, former Vice President.................. 43,063 6,500
All executive officers as a group(11)..................... 281,828 42,540
All employees (excluding executive officers).............. 92,213 13,919
The restricted period for the shares will expire two years from the date of
grant.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the total voting power
present in person or by proxy and entitled to vote at the Annual Meeting will be
required for approval of the 2000 Plan. Abstentions from voting on this matter
are treated as votes against, while broker non-votes are treated as shares not
present and entitled to vote. Proxies solicited by the Board of Directors will
be voted in favor of the proposal unless a different vote is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE UICI 2000 RESTRICTED STOCK PLAN.
3. APPROVAL OF UICI 2001 RESTRICTED STOCK PLAN
The Board of Directors adopted the UICI 2001 Restricted Stock Plan (the
"2001 Plan") and made awards of restricted stock under the 2001 Plan on January
2, 2001, subject to approval by the stockholders of the Company. The 2001 Plan
is virtually identical to the 2000 Plan discussed above. The 2001 Plan is
intended to enhance the Company's ability to attract and retain executives and
other key employees with outstanding experience and ability while aligning the
interests of the Company, its stockholders, and its executives and key
employees. Amended and Restated Stock Option Plan. The Board believes the
approval of the 2001 Plan is in the best interests of the Company and its
stockholders because it provides incentives to executives and other key
employees to devote their best efforts to pursue and sustain the Company's
growth and profitability, enhancing the financial success of the Company and
increasing stockholder value. The full text of the 2001 Plan is attached to this
proxy statement as Appendix C. Because the following discussion is a summary and
does not cover all aspects of the 2001 Plan, stockholders may wish to review
Appendix C in its entirety.
PURPOSE
The purpose of the 2001 Plan is to promote the interests of the Company and
its stockholders by (a) attracting and retaining employees and other persons
providing services to the Company and its subsidiaries; (b) motivating the
executives, by means of appropriate incentives, to achieve long-range goals; (c)
providing incentive compensation opportunities that are competitive with those
of other major corporations; and (d) further identifying executives' interests
with those of the Company's other stockholders through compensation that is
based on the Company's Common Stock.
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ADMINISTRATION
The 2001 Plan will be administered by the Board of Directors of the
Company, which has the sole and complete authority to determine which
individuals shall participate in the plan, to determine the number of shares to
be awarded, to establish the terms, conditions, performance criteria,
restrictions and other provisions of the awards, and to cancel or amend the
awards. The Board also will have complete authority and discretion to interpret
the 2001 Plan and to adopt, alter and repeal administrative rules, guidelines
and practices governing the operation of the plan. The Board may delegate any or
all of its authority under the 2001 Plan to a committee of the Board, which may,
in turn, allocate some of the responsibilities to selected individuals.
ELIGIBILITY
All employees of the Company or any of its subsidiaries, and other persons
providing material services to the Company or a subsidiary are eligible to
participate in the 2001 Plan. The Board has sole and complete discretion in
determining which individuals will participate in the 2001 Plan. In 2001, 26
officers and employees participated in the 2001 Plan. While the persons to whom
awards will be made in future years and the amounts and nature of such awards
cannot be determined at this time, it is anticipated that approximately 30
officers and employees will participate in the 2001 Plan in any year.
Participants may receive successive awards under the 2001 Plan while
restrictions on prior awards are still outstanding.
NUMBER OF SHARES
A maximum of 300,000 shares of Common Stock may be awarded under the 2001
Plan. Any shares forfeited or reacquired by the Company pursuant to rights
reserved on the award will not be counted as shares awarded under the 2001 Plan
until used in a subsequent award. If there is any change in the outstanding
Common Stock by reason of a merger, consolidation, reorganization,
recapitalization, spinoff, stock dividend, stock split, reverse stock split,
exchange or other distribution with respect to shares of UICI Common Stock or
other change in the corporate structure or capitalization affecting the UICI
Common Stock, the type and number of shares of stock which are or may be subject
to awards under the Plan and the terms of any outstanding awards will be
equitably adjusted by the Board, in its sole discretion, to preserve the value
of benefits awarded or to be awarded to participants under the 2001 Plan.
However, if there is a merger or a sale of substantially all of the assets of
the Company, the Board, in its sole discretion, may substitute awards of equal
value for outstanding awards under the 2001 Plan or cancel outstanding awards,
provided that the participant receives an amount that the Board believes is
reasonable payment.
The shares of Common Stock with respect to which awards may be made under
the 2001 Plan may be shares currently authorized but unissued, or currently held
or subsequently acquired by the Company as treasury shares, including shares
purchased in the open market or in private transactions.
DESCRIPTION OF THE AWARDS
The Board will determine the participants to whom awards of restricted
stock are to be made, the number of shares of restricted stock to be granted to
each participant, the duration of the period (the "restricted period") during
which, and the conditions under which, the restricted stock may be forfeited to
the Company, and the other terms and conditions of such awards. Some or all of
the conditions to vesting of the awards may relate to events (such as
performance, satisfaction of Company performance targets established by lenders
or continued employment) occurring after the date of grant. The terms of the
restricted stock awards need not be the same for each participant.
Shares of restricted stock may not be sold, assigned, transferred, pledged
or otherwise encumbered during the restricted period, except by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order.
During the restricted period, however, the holders may exercise full voting
rights relating to those shares and, unless otherwise provided by the Board, are
entitled to receive all dividends and other distributions paid with respect to
those shares. Except as may otherwise be determined by the Board, a participant
who, for any reason, ceases to perform services for the Company and the
subsidiaries prior to the end of the restricted period will forfeit all shares
of restricted stock still subject to a restricted period under the
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2001 Plan. The grant of an award will not be construed as giving a participant
the right to be retained in the employ of the Company.
DURATION; AMENDMENT
Unless terminated by the Board, the 2001 Plan will be unlimited in
duration. The Board of Directors generally may amend, suspend or terminate the
2001 Plan or any portion thereof at any time. However, no such amendment or
termination may adversely affect the rights of a participant under any award
made prior to the date of the amendment without the participant's consent. If
the 2001 Plan is terminated, any outstanding awards of restricted stock not yet
vested will remain outstanding.
CHANGE IN CONTROL
The 2001 Plan provides that if there is a change in control of the Company
(as defined), all restrictions on outstanding restricted stock awards will lapse
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief discussion of the
federal income tax rules relevant to restricted stock. The laws governing the
tax aspects of awards are highly technical and such laws are subject to change.
A recipient of restricted stock normally will not recognize taxable income
at the time the stock is granted, unless his rights to part or all of the
restricted stock are immediately vested. Thereafter, the recipient will
recognize ordinary income as the restrictions lapse. The amount of such ordinary
income will be equal to the market value of the restricted stock (in excess of
any amount paid by the recipient) at the time of the lapse. However, the
recipient may elect pursuant to Section 83(b) of the Code to recognize ordinary
income in an amount equal to the market value of the restricted stock (in excess
of any amount paid by the recipient) at the time the stock is granted. Any
subsequent change in the value of the restricted stock would then be treated as
capital gain or loss when the stock is sold.
The Company will be entitled to a deduction for federal income tax purposes
at the same time and in the same amount as the receipt of stock is initially
treated as ordinary income to the recipient. Under generally accepted accounting
principles, compensation expense for restricted stock will be recorded ratably
over the restricted period.
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NEW PLAN BENEFITS
Apart from the award of restricted stock in January 2001 and described
below, it cannot be determined at this time what benefits or amounts, if any,
will be received by or allocated to any persons or group of persons under the
2001 Plan if such plan is approved. Such determinations are subject to the
discretion of the Board. Subject to stockholder approval, the Board in January
2001 decided to make awards of restricted stock to the following individuals and
groups:
2001 PLAN
NUMBER OF
NAME AND POSITION DOLLAR VALUE ($) SHARES
----------------- ---------------- ---------
Ronald L. Jensen, Chairman of the Board................... 0 0
Gregory T. Mutz, CEO...................................... 59,375 10,000
Glenn W. Reed, Executive Vice President and General
Counsel................................................. 59,375 10,000
William J. Gedwed, former Executive Vice President........ 59,375 10,000
William P. Benac, former Executive Vice President......... 0 0
Steven K. Arnold, Vice President.......................... 59,375 10,000
Charles T. Prater, former Vice President.................. 0 0
All executive officers as a group(8)...................... 383,188 58,500
All employees (excluding executive officers).............. 311,438 37,750
The restricted period for the shares will expire two years from the date of
grant.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the total voting power
present in person or by proxy and entitled to vote at the Annual Meeting will be
required for approval of the 2001 Plan. Abstentions from voting on this matter
are treated as votes against, while broker non-votes are treated as shares not
present and entitled to vote. Proxies solicited by the Board of Directors will
be voted in favor of the proposal unless a different vote is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE UICI 2001 RESTRICTED STOCK PLAN.
4. RATIFICATION OF APPOINTMENT OF AUDITORS
Although Delaware law does not require that the selection by the Board of
Directors of the Company's auditors be approved each year by the stockholders,
the Board of Directors believes it is appropriate to submit its selection to the
stockholders for their approval and to abide by the result of the stockholders'
vote. Subject to ratification by the stockholders, the Board of Directors
reappointed the firm of Ernst & Young LLP as the Company's independent auditors
to audit the financial statements of the Company for the fiscal year ending
December 31, 2001. In recommending ratification by the stockholders of the
appointment of Ernst & Young LLP, the Board of Directors has satisfied itself as
to that firm's professional competence and standing. Fees paid to Ernst & Young
LLP were $1.1 million for the fiscal year 2000 annual audit, $-0- for financial
information systems design and implementation and $746,000 for all other
non-audit services.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they so
desire. Such representatives will also be available to respond to appropriate
questions from stockholders at the meeting.
THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND THE STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2001.
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5. OTHER MATTERS
The Board of Directors knows of no other matters, which are likely to be
brought before the meeting. However, if any other matters should be properly
brought before the meeting, it is the intention of the persons named in the
accompanying form of proxy to vote, or otherwise act, with respect to any such
matters in accordance with their best judgment.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
AND NOMINATIONS FOR DIRECTOR
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD IN MAY 2002
In order for stockholder proposals which are submitted pursuant to Rule
14a-8 of the Securities Exchange Act of 1934 (the "Exchange Act") to be
considered by the Company for inclusion in the proxy material for the Annual
Meeting of Stockholders to be held in May 2002, they must be received by the
Secretary of the Company by December 6, 2001.
For proposals that stockholders intend to present at the Annual Meeting of
Stockholders to be held in May 2002 outside the processes of Rule 14a-8 of the
Exchange Act, unless the stockholder notifies the Secretary of the Company of
such intent by February 12, 2002, the proposal will be considered untimely, and
any proxy that management solicits for such Annual Meeting will confer on the
holder of the proxy discretionary authority to vote on the proposal if such
proposal is properly presented at the meeting.
In order for suggestions by stockholders for nominees for director to be
considered by the Nominating Committee, they must be received by the Secretary
of the Company by December 6, 2001. See "Meetings and Committees of the Board of
Directors -- Nominating Committee."
All such communications to the Secretary of the Company must be in writing
and must be received by the Company at its principal executive offices (4001
McEwen Drive, Suite 200, Dallas, Texas 75244) by the applicable date.
By Order of the Board of Directors
/s/ PEGGY G. SIMPSON
Peggy G.Simpson
Secretary
Date: April 5, 2001
------------------------
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, ALL STOCKHOLDERS ARE URGED TO
PROMPTLY COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
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APPENDIX A
UICI
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be constituted an Audit Committee of the Board of Directors of
UICI (the "Company") composed of three or more directors, selected by the board,
each of whom shall be independent of management and free of any relationships
that, in the opinion of the board, would interfere with the member's exercise of
his or her independent judgment. Each member of the Audit Committee shall be
financially literate (as defined in the applicable rules), and at least one
member shall have past employment experience in finance or accounting, requisite
professional certification in accounting, or some other comparable experience or
background that demonstrates that individual's financial sophistication and
expertise. The chairperson of the Audit Committee shall be selected by the Board
of Directors. The Audit Committee shall meet at least four times a year and more
often when circumstances so require.
PURPOSE
It shall be the fundamental purpose of the Audit Committee to assist the
Board of Directors in fulfilling its responsibility to oversee the Company's
system of financial reporting. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The Audit Committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The Audit
Committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices, and
ethical behavior.
RESPONSIBILITIES
It is hereby stated as a matter of policy and principle that the
independent outside audit firm engaged by the Company is ultimately accountable
to the Company's Board of Directors and the Audit Committee, as representatives
of the shareholders, and that the Audit Committee and Board of Directors, as
representatives of the shareholders, have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
audit firm (or to nominate the outside audit firm to be proposed for stockholder
approval at any annual or special meeting of the stockholders called for such
purpose).
In performing its oversight function, the Audit Committee shall undertake
those tasks that, in its judgment, would most effectively contribute to the
effectiveness and integrity of the Company's financial reporting system. In so
doing, the Audit Committee shall:
1. Encourage within senior management a corporate environment or
"tone at the top" that strives for integrity in financial reporting.
2. Make appropriate inquiry into the logistical capabilities of the
financial reporting system.
3. Make appropriate inquiry to assess the ability of the financial
reporting system to prevent financial misreporting and to detect financial
misreporting in the event it occurs.
4. Together with management develop a formal calendar of activities
related to those areas of responsibility prescribed in this Charter
5. Inquire into the independence of the outside auditor; receive from
the outside auditor a written statement, consistent with Independence
Standards Board Standard No. 1, delineating all relationships between the
auditor and the Company; engage in dialogue with the auditor and, to the
extent appropriate, the Board of Directors, with respect to any disclosed
relationships or services that may affect the objectivity and independence
of the auditor; and take, or recommend that the Board of Directors take,
appropriate action to ensure the independence of the auditor.
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6. The Audit Committee shall discuss with the internal auditors and
the independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation.
Approve in advance each engagement of the audit firm for all non-audit
services in excess of $100,000. In determining the appropriateness of a
particular non-audit service to be performed by the audit firm, consider
whether the services facilitate the performance of the audit, improves the
Company's financial reporting process or is otherwise in the public
interest.
7. Determine that the outside auditor, in addition to being engaged
to perform annual audits of the Company's financial statements, has been
engaged to perform quarterly reviews of the Company's Quarterly Reports on
Form 10-Q.
8. Discuss with management, the Company's chief financial officer,
the outside auditor, the director of internal audit, and/or others (as the
Audit Committee believes appropriate), the Company's financial statements
and financial reporting system, including potential weaknesses in the
system, with such discussion to take place jointly and/or separately as the
Audit Committee shall determine in its judgment. Obtain from management, at
least annually, a written report on the effectiveness of the Company's
system of internal controls over financial reporting
9. Discuss with the outside auditor, to the extent appropriate, the
items identified in Statement on Auditing Standards No. 61 (including the
auditor's judgment about the quality, not just the acceptability, of the
Company's accounting principles), with such discussion, to the extent it
takes place in conjunction with quarterly information, to take place prior
to the filing of each Form 10Q or, if such discussion cannot reasonably
take place prior to filing, as soon as practicable thereafter.
10. Make a recommendation to the Board of Directors as to whether the
Company's audited financial statements should be included in the Company's
Annual Report on Form 10-K.
11. Prepare an annual audit committee report, to be included in the
company's proxy statement, stating whether the Audit Committee has:
- reviewed and discussed the audited financial statements with
management;
- discussed with the outside auditor the matters required to be
discussed by Statement on Auditing Standards No. 61;
- received appropriate disclosures from the outside auditor regarding
the auditor's independence as required by Independence Standards Board
Standard No. 1 and discussed with the auditor the auditor's
independence;
- recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K.
12. Ensure that the Company's proxy statement includes a statement
that the Company has adopted this Charter, that the Company's proxy
statement includes information regarding the independence of Audit
Committee members, and that a copy of this Charter is included as an
appendix to the Company's proxy statement at least once every three years.
13. Investigate any matter brought to the Audit Committee's attention
within the scope of its duties which, in its judgment, warrants
investigation, and possess the power, without the consent of the Board of
Directors, to engage outside professionals for that purpose.
14. Review and assess the adequacy of this Charter on an annual
basis.
Adopted, as amended and restated, by the Board of Directors on March 29,
2001.
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APPENDIX B
UICI 2000 RESTRICTED STOCK PLAN
SECTION 1
GENERAL
1.1 Purpose. The UICI 2000 Restricted Stock Plan (the "Plan") has been
established by UICI, a Delaware corporation (the "Company") to:
(a) attract and retain employees and other persons providing services
to the Company and the Related Companies (as defined below);
(b) motivate Eligible Participants, by means of appropriate
incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive
with those of other major corporations; and
(d) further identify Eligible Participants' interests with those of
the Company's other stockholders through compensation that is based on the
Company's common stock;
and thereby promote the long-term financial interest of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term stockholder return. The term "Related Company" means
any company during any period in which it is a "subsidiary corporation" (as that
term is defined in Code section 434(f)) with respect to the Company.
1.2 Participation. Subject to the terms and conditions of the Plan, the
Board (as described in Section 4) shall determine and designate, from time to
time, from among the Eligible Individuals, those persons who will be granted one
or more Restricted Stock awards under Section 2 of the Plan, and thereby become
"Eligible Participants" in the Plan. For purposes of the Plan, the term
"Eligible Individual" shall mean any employee of the Company or a Related
Company and any other person providing material services to the Company or a
Related Company that is designated by the Board as eligible for participation in
the Plan.
SECTION 2
RESTRICTED STOCK AWARDS
2.1. Restricted Stock Awards. Subject to the following provisions of this
Section 2, awards of Restricted Stock under the Plan shall be made to persons
selected by the Board in accordance with subsection 1.2 and shall be subject to
the applicable provisions of subsection 2.2. For purposes of the Plan,
"Restricted Stock" awards under the Plan are grants of Stock to Eligible
Participants, the vesting of which is subject to such conditions as may be
established by the Board, with some or all of those conditions relating to
events (such as performance, satisfaction of Company performance targets
established by lenders or continued employment) occurring after the date of
grant. The period beginning on the date of a grant of Restricted Stock is
referred to as the "Restricted Period."
2.2. Terms and Conditions of Awards. In addition to any other terms and
conditions determined by the Board, all shares of Restricted Stock granted to
Eligible Participants under the Plan shall be subject to the following terms and
conditions, to the extent applicable:
(a) Except as otherwise provided, Restricted Stock granted to Eligible
Participants under the Plan may not be sold, assigned, transferred,
pledged, hypothecated or otherwise encumbered during the Restricted Period,
except as designated by the Eligible Participant by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code, Title I of the Employee
Retirement Income Security Act or the rules thereunder. During the
Restricted Period, the Eligible Participant shall have all the rights of a
stockholder, including but not limited to the
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right to vote such shares and, except as otherwise provided by the Board,
the right to receive all dividends paid on such shares.
(b) Except as otherwise determined by the Board, an Eligible
Participant who ceases to perform services for the Company and the Related
Companies prior to the end of the Restricted Period for any reason shall
forfeit all shares of Restricted Stock remaining subject to any outstanding
Restricted Stock award.
(c) The Company may require a written statement that the Eligible
Participant is acquiring shares of Restricted Stock for investment and not
with the intention of distributing the shares, except for a sale to a
purchaser who makes the same representation in writing, and that the holder
of the shares of Restricted Stock will not dispose of such shares in
violation of the registration requirements of the Securities Act of 1933,
as amended, or any other applicable law.
SECTION 3
OPERATION OF PLAN
3.1. Effective Date. The Plan shall be effective as of January 1, 2000,
subject to approval of the Company's stockholders. The Plan shall be unlimited
in duration and, in the event of Plan termination, shall remain in effect as
outstanding and not fully vested.
3.2. Shares Subject to Plan. The shares of Stock with respect to which
awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions. Subject to the provisions of subsection 4.4, the number of shares
of Stock, which may be issued with respect to awards under the plan shall not
exceed 100,000 shares in the aggregate. In the event that shares of Stock that
are delivered under the Plan are thereafter reacquired by the Company pursuant
to rights reserved upon the award thereof, such reacquired shares shall again be
available for awards under the Plan.
3.3. Adjustments to Shares. In the event of any merger, consolidation,
reorganization, recapitalization, spinoff, stock dividend, stock split, reverse
stock split, exchange or other distribution with respect to shares of Stock or
other change in the corporate structure or capitalization affecting the Stock,
the type and number of shares of stock which are or may be subject to awards
under the Plan and the terms of any outstanding awards shall be equitably
adjusted by the Board, in its sole discretion, to preserve the value of benefits
awarded or to be awarded to Eligible Participants under the Plan; provided,
however, in the event of a merger or a sale of substantially all of the assets
of the Company, the Board, in its sole discretion, may substitute awards of
equal value for outstanding awards under the Plan or cancel outstanding awards,
provided that the Eligible Participant receives an amount that the Board
believes is reasonable payment therefor.
3.4. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
(b) In the case of an Eligible Participant who is subject to Section
16(a) and 16(b) of the Securities Exchange Act of 1934, the Board may, at
any time, add such conditions and limitations to any award to such Eligible
Participant, or any feature of any such award, as the Board, in its sole
discretion, deems necessary or desirable to comply with Section 16(a) or
16(b) and the rules and regulations thereunder or to obtain any exemption
therefrom.
(c) To the extent that the Plan provides for issuance of certificates
to reflect the transfer of shares of Stock, the transfer of such shares may
be effected on a non-certificated basis, to the extent not prohibited by
applicable law or the rules of any stock exchange.
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3.5. Withholding. All awards under the plan are subject to withholding of
all applicable taxes, which withholding obligations may be satisfied, with the
consent of the Board, through the surrender of shares of Stock, which the
Eligible Participant already owns or to which a Participant is otherwise
entitled under the Plan.
3.6. Agreement With Company. At the time of an award to an Eligible
Participant under the Plan, the Board may require an Eligible Participant to
enter into an agreement with the Company (the "Agreement") in substantially the
form as attached hereto as Exhibit A or otherwise as specified by the Board,
agreeing to the terms and conditions of the Plan and to such additional terms
and conditions, not inconsistent with the Plan, as the Board may, in its sole
discretion, prescribe.
3.7. Limitation of Implied Rights.
(a) Neither an Eligible Participant nor any other person shall, by
reason of the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Related Company whatsoever, including,
without limitation, any specific funds, assets, or other property which the
Company or any Related Company, in its sole discretion, may set aside in
anticipation of a liability under the Plan. An Eligible Participant shall
have only a contractual right to the amounts, if any, payable under the
Plan, unsecured by any assets of the Company and any Related Company.
Nothing contained in the Plan shall constitute a guarantee by the Company
or any Related Company that the assets of such companies shall be
sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and
selection as an Eligible Participant will not give any employee the right
to be retained in the employ of the Company or any Related Company, nor any
right or claim to any benefit under the Plan, unless such right or claim
has specifically accrued under the terms of the Plan. Except as otherwise
provided in the Plan, no award under the Plan shall confer upon the holder
thereof any right as a stockholder of the Company prior to the date on
which he or she fulfills all service requirements and other conditions for
receipt of such rights and shares of Stock are registered in his or her
name.
3.8. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information, which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
3.9. Action by Company or Related Company. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of the
board (including a committee of the board) who are duly authorized to act for
the board or (except to the extent prohibited by applicable law or the rules of
any stock exchange) by a duly authorized officer of the company.
3.10. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
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SECTION 4
ADMINISTRATION
The authority to control and manage the operation and administration of the
Plan shall be vested in the Board of Directors of the Company, subject to the
following:
(a) Subject to the provisions of the Plan, the Board will have the
authority and discretion to select employees to receive awards, to
determine the time or times of receipt, to determine the number of shares
covered by the awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such awards, and to cancel
or suspend awards. In making such award determinations, the Board may take
into account the nature of services rendered by the respective employee,
his present and potential contribution to the Company's success and such
other factors as the Board deems relevant.
(b) The Board will have the authority and discretion to interpret the
Plan, to establish, amend and rescind any rules and regulations relating to
the Plan, to determine the terms and provisions of any agreements made
pursuant to the Plan and to make all other determinations that may be
necessary or advisable for the administration of the Plan.
(c) Any interpretation of the Plan by the Board and any decision made
by it under the Plan is final and binding on all persons.
(d) Except as otherwise expressly provided in the Plan, where the
Board is authorized to make a determination with respect to any award, such
determination shall be made at the time the award is made, except that the
Board may reserve the authority to have such determination made by the
Board in the future (but only if such reservation is made at the time the
award is granted and is expressly stated in the Agreement reflecting the
award);
provided, however, the Board, in its sole discretion, may delegate any or all of
its authority under the Plan to a committee of the Board and, to the extent so
delegated, references to the Board hereunder shall be deemed to refer such
committee. Except to the extent prohibited by applicable law or the rules of any
stock exchange, the Board or, if applicable, the committee of the Board, may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Board or committee, if applicable, at any time.
SECTION 5
CHANGE IN CONTROL
Except as otherwise provided in the Agreement reflecting the applicable
award, upon the occurrence of a Change in Control, all restrictions on
outstanding Restricted Stock awards shall lapse. For purposes of the Plan, a
"Change in Control" shall be deemed to occur on the earliest of the existence of
one of the following events:
(a) (i) any "person" (as such term is used in Sections 13(d) or 14(d)
of the Exchange Act), other than one or more Permitted Holders (as defined
below), is or becomes the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of more than 35% of
the total voting power of the Voting Stock (as defined below) of the
Company and (ii) the Permitted Holders "beneficially own" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in
the aggregate a lesser percentage of the voting power of the Voting Stock
of the Company than such other person an do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company;
(b) individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then
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comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in
connection with an actual or threatened "election contest" relating to the
election of the directors of the Company (as such term is used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) approval by the Company's shareholders of a reorganization, merger
or consolidation of the Company, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the common stock and voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 70% of, respectively, the then
outstanding shares of common stock or the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation, or of a complete liquidation or
dissolution of the Company or of the sale or other disposition of all or
substantially all of the assets of the Company.
For purposes of this Section 5, the term "Permitted Holders" means Ronald
L. Jensen, his spouse and any child of Ronald L. Jensen and any person or entity
controlled by, under common control with or controlling Ronald L. Jensen or any
of the foregoing persons. The term "Voting Stock" of the Company means all
classes of capital stock of the Company then outstanding and normally entitled
to vote in the election of directors.
SECTION 6
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 3.3 (relating to certain adjustments to shares), no
amendment or termination may materially adversely affect the rights of any
Participant or beneficiary under any award made under the Plan prior to the date
such amendment is adopted by the Board.
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APPENDIX C
UICI 2001 RESTRICTED STOCK PLAN
SECTION 1
GENERAL
1.3 Purpose. The UICI 2001 Restricted Stock Plan (the "Plan") has been
established by UICI, a Delaware corporation (the "Company") to:
(a) attract and retain employees and other persons providing services
to the Company and the Related Companies (as defined below);
(b) motivate Eligible Participants, by means of appropriate
incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive
with those of other major corporations; and
(d) further identify Eligible Participants' interests with those of
the Company's other stockholders through compensation that is based on the
Company's common stock;
and thereby promote the long-term financial interest of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term stockholder return. The term "Related Company" means
any company during any period in which it is a "subsidiary corporation" (as that
term is defined in Code section 434(f)) with respect to the Company.
1.4 Participation. Subject to the terms and conditions of the Plan, the
Board (as described in Section 4) shall determine and designate, from time to
time, from among the Eligible Individuals, those persons who will be granted one
or more Restricted Stock awards under Section 2 of the Plan, and thereby become
"Eligible Participants" in the Plan. For purposes of the Plan, the term
"Eligible Individual" shall mean any employee of the Company or a Related
Company and any other person providing material services to the Company or a
Related Company that is designated by the Board as eligible for participation in
the Plan.
SECTION 2
RESTRICTED STOCK AWARDS
2.3. Restricted Stock Awards. Subject to the following provisions of this
Section 2, awards of Restricted Stock under the Plan shall be made to persons
selected by the Board in accordance with subsection 1.2 and shall be subject to
the applicable provisions of subsection 2.2. For purposes of the Plan,
"Restricted Stock" awards under the Plan are grants of Stock to Eligible
Participants, the vesting of which is subject to such conditions as may be
established by the Board, with some or all of those conditions relating to
events (such as performance, satisfaction of Company performance targets
established by lenders or continued employment) occurring after the date of
grant. The period beginning on the date of a grant of Restricted Stock is
referred to as the "Restricted Period."
2.4. Terms and Conditions of Awards. In addition to any other terms and
conditions determined by the Board, all shares of Restricted Stock granted to
Eligible Participants under the Plan shall be subject to the following terms and
conditions, to the extent applicable:
(a) Except as otherwise provided, Restricted Stock granted to Eligible
Participants under the Plan may not be sold, assigned, transferred,
pledged, hypothecated or otherwise encumbered during the Restricted Period,
except as designated by the Eligible Participant by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code, Title I of the Employee
Retirement Income Security Act or the rules thereunder. During the
Restricted Period, the Eligible Participant shall have all the rights of a
stockholder, including but not limited to the
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right to vote such shares and, except as otherwise provided by the Board,
the right to receive all dividends paid on such shares.
(b) Except as otherwise determined by the Board, an Eligible
Participant who ceases to perform services for the Company and the Related
Companies prior to the end of the Restricted Period for any reason shall
forfeit all shares of Restricted Stock remaining subject to any outstanding
Restricted Stock award.
(c) The Company may require a written statement that the Eligible
Participant is acquiring shares of Restricted Stock for investment and not
with the intention of distributing the shares, except for a sale to a
purchaser who makes the same representation in writing, and that the holder
of the shares of Restricted Stock will not dispose of such shares in
violation of the registration requirements of the Securities Act of 1933,
as amended, or any other applicable law.
SECTION 3
OPERATION OF PLAN
3.11. Effective Date. The Plan shall be effective as of January 1, 2001,
subject to approval of the Company's stockholders. The Plan shall be unlimited
in duration and, in the event of Plan termination, shall remain in effect as
outstanding and not fully vested.
3.12. Shares Subject to Plan. The shares of Stock with respect to which
awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions. Subject to the provisions of subsection 4.4, the number of shares
of Stock, which may be issued with respect to awards under the plan shall not
exceed 300,000 shares in the aggregate. In the event that shares of Stock that
are delivered under the Plan are thereafter reacquired by the Company pursuant
to rights reserved upon the award thereof, such reacquired shares shall again be
available for awards under the Plan.
3.13. Adjustments to Shares. In the event of any merger, consolidation,
reorganization, recapitalization, spinoff, stock dividend, stock split, reverse
stock split, exchange or other distribution with respect to shares of Stock or
other change in the corporate structure or capitalization affecting the Stock,
the type and number of shares of stock which are or may be subject to awards
under the Plan and the terms of any outstanding awards shall be equitably
adjusted by the Board, in its sole discretion, to preserve the value of benefits
awarded or to be awarded to Eligible Participants under the Plan; provided,
however, in the event of a merger or a sale of substantially all of the assets
of the Company, the Board, in its sole discretion, may substitute awards of
equal value for outstanding awards under the Plan or cancel outstanding awards,
provided that the Eligible Participant receives an amount that the Board
believes is reasonable payment therefor.
3.14. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
(b) In the case of an Eligible Participant who is subject to Section
16(a) and 16(b) of the Securities Exchange Act of 1934, the Board may, at
any time, add such conditions and limitations to any award to such Eligible
Participant, or any feature of any such award, as the Board, in its sole
discretion, deems necessary or desirable to comply with Section 16(a) or
16(b) and the rules and regulations thereunder or to obtain any exemption
therefrom.
(c) To the extent that the Plan provides for issuance of certificates
to reflect the transfer of shares of Stock, the transfer of such shares may
be effected on a non-certificated basis, to the extent not prohibited by
applicable law or the rules of any stock exchange.
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3.15. Withholding. All awards under the plan are subject to withholding
of all applicable taxes, which withholding obligations may be satisfied, with
the consent of the Board, through the surrender of shares of Stock, which the
Eligible Participant already owns or to which a Participant is otherwise
entitled under the Plan.
3.16. Agreement With Company. At the time of an award to an Eligible
Participant under the Plan, the Board may require an Eligible Participant to
enter into an agreement with the Company (the "Agreement") in substantially the
form as attached hereto as Exhibit A or otherwise as specified by the Board,
agreeing to the terms and conditions of the Plan and to such additional terms
and conditions, not inconsistent with the Plan, as the Board may, in its sole
discretion, prescribe.
3.17. Limitation of Implied Rights.
(a) Neither an Eligible Participant nor any other person shall, by
reason of the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Related Company whatsoever, including,
without limitation, any specific funds, assets, or other property which the
Company or any Related Company, in its sole discretion, may set aside in
anticipation of a liability under the Plan. An Eligible Participant shall
have only a contractual right to the amounts, if any, payable under the
Plan, unsecured by any assets of the Company and any Related Company.
Nothing contained in the Plan shall constitute a guarantee by the Company
or any Related Company that the assets of such companies shall be
sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and
selection as an Eligible Participant will not give any employee the right
to be retained in the employ of the Company or any Related Company, nor any
right or claim to any benefit under the Plan, unless such right or claim
has specifically accrued under the terms of the Plan. Except as otherwise
provided in the Plan, no award under the Plan shall confer upon the holder
thereof any right as a stockholder of the Company prior to the date on
which he or she fulfills all service requirements and other conditions for
receipt of such rights and shares of Stock are registered in his or her
name.
3.18. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information, which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
3.19. Action by Company or Related Company. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of the
board (including a committee of the board) who are duly authorized to act for
the board or (except to the extent prohibited by applicable law or the rules of
any stock exchange) by a duly authorized officer of the company.
3.20. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
SECTION 4
ADMINISTRATION
The authority to control and manage the operation and administration of the
Plan shall be vested in the Board of Directors of the Company, subject to the
following:
(a) Subject to the provisions of the Plan, the Board will have the
authority and discretion to select employees to receive awards, to
determine the time or times of receipt, to determine the number of shares
covered by the awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such awards, and to cancel
or suspend awards. In making such award determinations, the Board may take
into account the nature of services rendered by the respective employee,
his present and potential contribution to the Company's success and such
other factors as the Board deems relevant.
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(b) The Board will have the authority and discretion to interpret the
Plan, to establish, amend and rescind any rules and regulations relating to
the Plan, to determine the terms and provisions of any agreements made
pursuant to the Plan and to make all other determinations that may be
necessary or advisable for the administration of the Plan.
(c) Any interpretation of the Plan by the Board and any decision made
by it under the Plan is final and binding on all persons.
(d) Except as otherwise expressly provided in the Plan, where the
Board is authorized to make a determination with respect to any award, such
determination shall be made at the time the award is made, except that the
Board may reserve the authority to have such determination made by the
Board in the future (but only if such reservation is made at the time the
award is granted and is expressly stated in the Agreement reflecting the
award);
provided, however, the Board, in its sole discretion, may delegate any or all of
its authority under the Plan to a committee of the Board and, to the extent so
delegated, references to the Board hereunder shall be deemed to refer such
committee. Except to the extent prohibited by applicable law or the rules of any
stock exchange, the Board or, if applicable, the committee of the Board, may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Board or committee, if applicable, at any time.
SECTION 5
CHANGE IN CONTROL
Except as otherwise provided in the Agreement reflecting the applicable
award, upon the occurrence of a Change in Control, all restrictions on
outstanding Restricted Stock awards shall lapse. For purposes of the Plan, a
"Change in Control" shall be deemed to occur on the earliest of the existence of
one of the following events:
(a) (i) any "person" (as such term is used in Sections 13(d) or 14(d)
of the Exchange Act), other than one or more Permitted Holders (as defined
below), is or becomes the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of more than 35% of
the total voting power of the Voting Stock (as defined below) of the
Company and (ii) the Permitted Holders "beneficially own" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in
the aggregate a lesser percentage of the voting power of the Voting Stock
of the Company than such other person an do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company;
(b) individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
"election contest" relating to the election of the directors of the Company
(as such term is used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act); or
(c) approval by the Company's shareholders of a reorganization, merger
or consolidation of the Company, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the common stock and voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 70% of, respectively, the then
outstanding shares of common stock or the combined voting power of the then
outstanding voting
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securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such reorganization, merger
or consolidation, or of a complete liquidation or dissolution of the
Company or of the sale or other disposition of all or substantially all of
the assets of the Company.
For purposes of this Section 5, the term "Permitted Holders" means Ronald
L. Jensen, his spouse and any child of Ronald L. Jensen and any person or entity
controlled by, under common control with or controlling Ronald L. Jensen or any
of the foregoing persons. The term "Voting Stock" of the Company means all
classes of capital stock of the Company then outstanding and normally entitled
to vote in the election of directors.
SECTION 6
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 3.3 (relating to certain adjustments to shares), no
amendment or termination may materially adversely affect the rights of any
Participant or beneficiary under any award made under the Plan prior to the date
such amendment is adopted by the Board.
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UICI VOTE BY INTERNET - www.proxyvote.com
C/O PROXY SERVICES Use the Internet to transmit your voting
P.O. BOX 9142 instructions and for electronic delivery of
FARMINGDALE, NY 11735 information up until 11:59 P.M. Eastern
Time the day before the cut-off date or
meeting date. Have your proxy card in hand
when you access the web site. You will be
prompted to enter your 12-digit Control
Number which is located below to obtain
your records and to create an electronic
voting instruction form.
VOTE BY MAIL -
Mark, sign, and date your proxy card and
return it in the postage-paid envelope we
have provided or return it to UICI, c/o
ADP, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [ ] UICI01 KEEP THIS PORTION FOR YOUR RECORDS
-------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
UICI
1. ELECTION OF DIRECTORS
01) Ronald L. Jensen 05) George H. Lane, III FOR WITHHOLD FOR ALL To withhold authority to vote, mark
02) Patrick J. McLaughlin 06) Glenn W. Reed ALL ALL EXCEPT "For All Except" and write the nominee's
03) William J. Gedwed 07) Stuart D. Bilton number on the line below.
04) Gregory T. Mutz 08) Richard T. Mockler [ ] [ ] [ ]
----------------------------------------
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE 2000 RESTRICTED STOCK PLAN [ ] [ ] [ ]
3. PROPOSAL TO APPROVE 2001 RESTRICTED STOCK PLAN [ ] [ ] [ ]
4. PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP as the independent
public accountants for the Company. [ ] [ ] [ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN PROXY CARD PROMPTLY.
------------------------------------------------ ------------------------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
52
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UICI
PROXY
4001 MCEWEN DRIVE, SUITE 200, DALLAS, TEXAS 75244
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Glenn W. Reed and Connie Palacios as Proxies,
each with the power to appoint his or her substitute, and hereby authorizes them
to represent and to vote as designated on the reverse side, all shares of common
stock of UICI held of record by the undersigned on March 26, 2001 at the annual
meeting of stockholders to be held May 16, 2001 or any adjournment thereof.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this Proxy will be voted
FOR Proposals 1, 2, 3 and 4. Please sign exactly as name appears on the reverse
side. When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. if a partnership, please sign in partnership name
by authorized person.