<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 333-3138
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
(Exact name of registrant as specified in its charter)
Michigan 38-3273911
(State of Incorporation) (I.R.S. Employer
Identification No.)
4295 Okemos Road, Okemos,
Michigan 48805
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (517) 349-6500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes / / No /X/
(The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports).
However, the registrant has been subject to such filing requirements for less
than 90 days.)
The number of shares of common stock, no par value per share, outstanding as of
August 9, 1996 was one (1).
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TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3-7
Consolidated Balance Sheet at
June 30, 1996 3
Consolidated Statement of Income
and Retained Earnings for the quarter
ended June 30, 1996 and the period
from January 31, 1996, date of
inception, through June 30, 1996 4
Consolidated Statement of Cash
Flows for the period from January 31,
1996, date of inception, through
June 30, 1996 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 5. Other Information 9-10
Item 6. Exhibits and Reports on Form 8-K 10-12
(Exhibit index also follows the
signature page.)
Signatures 13
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Consolidated Balance Sheet
June 30, 1996
Assets
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Cash $ 44,988
Short-term investments, at cost, which
approximates market 1,471,297
----------
Total assets $1,516,285
==========
Liability and Shareholder's Equity
----------------------------------
Liability - note and accrued interest payable to
affiliate (note 2) $1,516,260
Shareholder's equity:
Preferred stock, no par value; 5,000,000
shares authorized; no shares issued and
outstanding --
Common stock, no par value; 25,000,000 shares
authorized; 1 share issued and outstanding 25
----------
Total shareholder's equity 25
----------
Total liability and shareholder's equity $1,516,285
==========
</TABLE>
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PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Consolidated Statement of Income and Retained Earnings
Quarter ended June 30, 1996 and the period from January 31, 1996,
date of inception, through June 30, 1996
<TABLE>
<S> <C>
Revenue - interest $16,260
Expense - interest 16,260
-------
Net income --
-------
Retained earnings:
Beginning of period --
-------
End of period $ --
=======
</TABLE>
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PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Consolidated Statement of Cash Flows
Period from January 31, 1996, date of inception,
through June 30, 1996
<TABLE>
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Cash flows from operating activities - net income $ --
Adjustment to reconcile net income to net cash provided
by operating activities -
Discount accretion (15,827)
Increase in accrued interest payable 16,260
----------
Cash provided by operating activities 433
Cash flows used in investing activities - purchase of
short-term investment (1,455,470)
----------
Cash flows from financing activities:
Increase in note payable to affiliate 1,500,000
Issuance of common stock 25
----------
Cash provided by financing activities 1,500,025
----------
Net increase in cash 44,988
Cash - beginning of period --
----------
Cash - end of period $ 44,988
==========
</TABLE>
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PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996
(1) Basis of Presentation
The Company is an insurance holding company incorporated under the
laws of the State of Michigan on January 31, 1996. The Company owns
100 percent of PICOM Interim Insurance Company, a Michigan-domiciled
insurance company ("INSCO") that was incorporated on April 12, 1996
for the sole purpose of merging with and into PICOM Insurance Company,
a Michigan-domiciled insurance company ("PICOM"), and establishing
PICOM as a wholly owned subsidiary of the Company.
The accompanying unaudited consolidated financial statements of
Professionals Insurance Company Management Group (together with its
subsidiaries, the "Company") have been prepared in conformity with
generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. All significant
intercompany transactions have been eliminated in consolidation.
In the opinion of the Company's management, all necessary adjustments
(consisting of normal recurring adjustments) considered necessary for
a fair presentation have been included. The operating results for
the quarter ended June 30, 1996 and the period from January 31, 1996,
date of inception, through June 30, 1996 are not necessarily
indicative of the results to be expected for the year ending
December 31, 1996.
(2) Note Payable to Affiliate
Under a promissory note dated April 15, 1996, the Company borrowed
$1,500,000 from PICOM for the purpose of forming and capitalizing
INSCO. This note bears interest at a rate equal to the rate earned on
INSCO's investments acquired with such funds and is due at the earlier
of the date the aforementioned merger is consummated or December 31,
1996.
(3) Stock Options and Awards
The Company has established the 1996 Long Term Stock Incentive Plan
("Incentive Plan") under which, subject to adjustment, 300,000 shares
of the Company's common stock are available to grant incentive and
non-qualified stock options, stock appreciation rights (SARs),
restricted stock, restricted stock units, performance awards, dividend
equivalents, and other stock-based awards to employees of, including
any officer or
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officer-director, or consultants to the Company and its subsidiaries.
All terms and conditions of any grants under the Incentive Plan are at
the discretion of the Compensation Committee of the Company's Board of
Directors. As of June 30, 1996, no grants had been made under the
Incentive Plan.
The Company has also established the 1996 Non-Employee Directors Stock
Option Plan ("Directors Plan") under which non-qualified options for
50,000 shares of the Company's common stock may be granted to
non-employee directors (maximum of 5,000 shares to one individual) of
the Company. Options become exercisable one year from the date of
grant and expire seven years from the date of grant. As of June 30,
1996, no stock options had been granted under the Directors Plan.
(4) Subsequent Events
The Company, INSCO and PICOM are parties to a Reorganization Agreement
dated May 13, 1996 (the "Reorganization Agreement"), and an Agreement
and Plan of Merger dated May 13, 1996 (the "Plan of Merger"), that
provide for the merger of INSCO with and into PICOM (the "Merger").
Following consummation of the Merger, INSCO will cease to exist, PICOM
will be the surviving corporation in the Merger and a wholly-owned
subsidiary of the Company, and each issued and outstanding share of
common stock of PICOM will be converted into one share of common stock
of the Company. On July 31, 1996, the stockholders of PICOM and the
sole stockholder of INSCO approved the Reorganization Agreement, the
Plan of Merger and the Merger.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General:
Professionals Insurance Company Management Group is a Michigan business
corporation incorporated under the laws of the State of Michigan on January
31, 1996 for the purpose of serving as the holding company for PICOM Insurance
Company and its subsidiaries ("PICOM"). The Company has one subsidiary, PICOM
Interim Insurance Company ("INSCO"), a Michigan stock insurance company
incorporated under the laws of the State of Michigan solely for the purpose of
merging with and into PICOM and establishing PICOM as a wholly-owned subsidiary
of the Company. At the present time neither the Company nor INSCO has any
business operations.
PICOM Insurance Company is a stock insurance company incorporated under
the laws of the State of Michigan and is licensed as a property and casualty
insurer in Michigan, Illinois, Indiana and Ohio. The principal product
currently offered by PICOM is professional liability insurance for providers of
health care services in Michigan and Illinois; although PICOM has offered
professional liability insurance to lawyers and law firms since 1994.
The Company, INSCO and PICOM are parties to a Reorganization Agreement
dated May 13, 1996 (the "Reorganization Agreement"), and an Agreement and Plan
of Merger dated May 13, 1996 (the "Plan of Merger"), providing for the merger
of INSCO with and into PICOM (the "Merger"). Following consummation of the
Merger, INSCO will cease to exist, PICOM will be the surviving corporation in
the Merger and a wholly-owned subsidiary of the Company, and each issued and
outstanding share of common stock of PICOM will be converted into one share of
common stock of the Company. On July 31, 1996, the stockholders of PICOM and
the sole stockholder of INSCO approved the Reorganization Agreement, the Plan
of Merger and the Merger.
Results of Operations - Quarter ended June 30, 1996 and the period from January
31, 1996 (date of inception) to June 30, 1996:
For the quarter ended June 30, 1996 and the period from January 31, 1996
(date of inception) to June 30, 1996, the Company had total revenue of $16,260
and total expense of $16,260.
All of the Company's revenues consist of interest generated by the "INSCO
Investment" (as hereinafter defined). All of the Company's expenses consist of
interest accrued on, and payable with respect to, the "Note" (as hereinafter
defined).
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Liquidity and Capital Resources
In connection with the transactions contemplated by the Reorganization
Agreement and the Plan of Merger, PICOM loaned $1,500,000 to the Company for
the purpose of enabling the Company to form and capitalize INSCO in accordance
with the Michigan Insurance Code of 1956, as amended (the "Michigan Insurance
Code"). The Company invested all of that sum in INSCO in exchange for all of
the issued and outstanding shares of capital stock of INSCO. INSCO invested
the $1,500,000 in United States government obligations with maturities of less
than one year (the "INSCO Investment"). The loan from PICOM to the Company is
evidenced by a short-term, non-renewable, interest bearing promissory note
having a stated principal amount of $1,500,000 and a stated maturity date that
is the earlier of the effective time of the Merger or December 31, 1996 (the
"Note"). The Note is secured by a pledge of all of the issued and outstanding
shares of INSCO. Interest on the Note accrues at a rate equivalent to the rate
of interest paid on the INSCO Investment.
Upon consummation of the Merger, the INSCO Investment, and all interest
accrued thereon, will become and be the property of PICOM. Following
consummation of the Merger, PICOM will declare and pay to the Company certain
cash dividends. One of these dividends will be in the amount of $2,000,000 and
will be used primarily to pay certain anticipated operating costs of the
Company, such as legal and accounting costs, investment banking fees and
expenses, and directors fees. (It is anticipated that the proceeds of this
dividend will be reinvested by the Company until so expended.) The other
dividend will be in an amount equal to the amount then outstanding under the
Note, and the Company will then repay the proceeds of such dividend to PICOM in
full satisfaction of the Note. It is to be noted that on April 12, 1996 the
Financial Analysis Division of the Michigan Insurance Bureau determined (i)
that the $1,500,000 loan from PICOM to the Company was not material, (ii) that
such post-Merger dividends were not extraordinary, and (iii) that neither such
loan nor such post-Merger dividends required the prior approval of the
Commissioner of Insurance of the State of Michigan (the "Michigan Insurance
Commissioner").
PART II. OTHER INFORMATION
Item 5. Other Information.
On May 6, 1996, the Michigan Insurance Commissioner issued and entered an
Order of Acquisition Exemption and Preliminary Approval of Merger granting
preliminary approval of the Merger in accordance with the Reorganization
Agreement and the Plan of Merger. On July 31, 1996 the stockholders of PICOM
and the sole stockholder of INSCO approved the Reorganization Agreement, the
Plan of Merger and the Merger. In light of the Preliminary Order, such
stockholder approval, and the proceedings before the Michigan Insurance
Commissioner, the Company anticipates that the Michigan Insurance
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<PAGE> 10
Commissioner will grant final approval of the Merger. However, there can be no
assurance that the Michigan Insurance Commissioner will in fact issue and enter
an Order of Acquisition Exemption and Final Approval of Merger ("a Final Order")
granting final approval of the Merger. In the event that the Michigan
Insurance Commissioner does not issue and enter such a Final Order, then the
Merger will not be consummated and the Reorganization Agreement and the Plan of
Merger will be terminated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
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(2)(a)/(10)(a) Reorganization Agreement dated May 13, 1996
among the registrant, PICOM Interim Insurance
Company and PICOM Insurance Company (incorporated by
reference to Exhibit (2)(a)/(10)(a) of Amendment No.
1 to the registrant's Registration Statement on
Form S-4 as filed with the Securities and
Exchange Commission on June 11, 1996 (registration
no. 333-3138)).
(2)(b)/(10)(b) Agreement and Plan of Merger dated May 13, 1996 among
the registrant, PICOM Interim Insurance Company and
PICOM Insurance Company (incorporated by reference to
Exhibit (2)(b)/(10)(b) of Amendment No. 1 to
the registrant's Registration Statement on Form
S-4 as filed with the Securities and Exchange
Commission on June 11, 1996 (registration no.
333-3138)).
(2)(c)/(99)(k) Order of Acquisition Exemption and Preliminary
Approval of Merger issued and entered May 6,
1996 by the Commissioner of Insurance of the State
of Michigan (incorporated by reference to Exhibit
(2)(c)/(99)(k) of Amendment No. 1 to the
registrant's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on
June 11, 1996 (registration no. 333-3138)).
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Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
- ------------------- -------------------
(3)(a)/(4)(a) First Amended and Restated Articles of Incorporation
of the registrant and all amendments thereto
(incorporated by reference to Exhibit (3)(a)/(4)(a)
of the initial filing of the registrant's
Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on April 3, 1996
(registration no. 333-3138)).
(3)(b)/(4)(b) By-laws of the registrant (incorporated by reference
to Exhibit (3)(b)/(4)(b) of the initial filing of the
registrant's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission
on April 3, 1996 (registration no. 333-3138)).
(4)(c) Specimen certificate for the registrant's common
stock (incorporated by reference to Exhibit 4(c) of
the initial filing of the registrant's Registration
Statement on Form S-4 as filed with the Securities
and Exchange Commission on April 3, 1996
(registration no. 333-3138)).
(10)(c) Professionals Insurance Company Management Group
1996 Long Term Incentive Plan (incorporated by
reference to Exhibit 10(c) of Amendment No. 1 to the
registrant's Registration Statement on Form S-4
as filed with the Securities and Exchange Commission
on June 11, 1996 (registration no. 333-3138)).
(10)(d) Professionals Insurance Company Management Group
1996 Non-Employee Directors Stock Option Plan
(incorporated by reference to Exhibit 10(d) of
Amendment No. 1 to the registrant's Registration
Statement on Form S-4 as filed with the Securities
and Exchange Commission on June 11, 1996
(registration no. 333-3138)).
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Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
- ------------------- -------------------
(10)(e) Professionals Insurance Company Management Group
Stock Purchase Plan (incorporated by reference to
Exhibit 10(e) of the initial filing of the
registrant's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission
on April 3, 1996 (registration no. 333-3138)).
(10)(f) Form of Non-Negotiable Promissory Note (incorporated
by reference to Exhibit (10)(f) of the initial
filing of the registrant's Registration Statement
on Form S-4 as filed with the Securities and Exchange
Commission on April 3, 1996 (registration no.
333-3138)).
(10)(g) Form of Pledge Agreement (incorporated by reference
to Exhibit (10)(g) of the initial filing of the
registrant's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission
on April 3, 1996 (registration no. 333-3138)).
(21)(a) List of subsidiaries of the registrant (incorporated
by reference to Exhibit (21)(a) of Amendment No.
1 to the registrant's Registration Statement on
Form S-4 as filed with the Securities and
Exchange Commission on June 11, 1996 (registration
no. 333-3138)).
(27) Financial Data Schedule of registrant and PICOM
Insurance Company.*
- --------------------------
* Filed herewith.
(b) Reports on Form 8-K. None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROFESSIONALS INSURANCE COMPANY
MANAGEMENT GROUP
DATE: August 12, 1996 /s/ R. Kevin Clinton
--------------------------------
R. Kevin Clinton
Vice President, Treasurer
Chief Financial Officer and
Chief Accounting Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
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<S> <C>
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PROFESSIONALS INSURANCE COMPANY MANAGEMENT
GROUP AND SUBSIDIARY AS OF JUNE 30, 1996, AND FOR THE QUARTER ENDED JUNE 30,
1996 AND THE PERIOD FROM JANUARY 31, 1996, DATE OF INCEPTION, THROUGH JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,471,297
<CASH> 44,988
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,516,285
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,516,260
0
0
<COMMON> 25
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,516,285
0
<INVESTMENT-INCOME> 16,260
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 16,260
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PICOM INTERIM INSURANCE COMPANY AS OF JUNE 30, 1996
AND FOR THE PERIOD FROM APRIL 12, 1996, DATE OF INCEPTION, THROUGH JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-12-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,471,297
<CASH> 44,988
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,516,285
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 1,000,000
<OTHER-SE> 510,732
<TOTAL-LIABILITY-AND-EQUITY> 1,516,260
0
<INVESTMENT-INCOME> 16,260
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 16,260
<INCOME-TAX> 5,528
<INCOME-CONTINUING> 10,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,732
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
