<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report under section 13 or 15(d) of the Securities Exchange Act
of 1934.For the quarter 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: 1-11920
MMI COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3263253
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
540 Lake Cook Road, Deerfield, Illinois 60015-5290
(Address of principal executive offices)
(847) 940-7550
(Registrant's telephone number, including area code)
Not applicable
---------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
There were 9,864,714 shares outstanding of the registrant's common
stock, $0.10 par value, as of June 30, 1996.
Page 1 of 15.
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MMI COMPANIES, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Pro Forma Condensed Consolidated Statement of Income 12
Notes to Pro Forma Financial Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
EXHIBITS:
3.1 Certificate of Incorporation of the Registrant, as amended
10.1 Employment Agreement dated as of April 17, 1996
between the Registrant and Ms. Anna M. Hajek.
10.2 Employment Agreement dated as of April 17, 1996
between the Registrant and Mr. Gerald McManis.
10.3 Employment Agreement dated as of April 17, 1996
between the Registrant and Mr. Paul Orzech.
11. Statement Re Computation of Per Share Earnings.
27. Financial Data Schedule.
</TABLE>
2
<PAGE>
MMI COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS
Short-term investments.............................................. $ 30,769 $ 33,550
Fixed maturities.................................................... 668,583 710,072
Other............................................................... 12,320 -
----------- ------------
711,672 743,622
OTHER ASSETS
Cash................................................................ 3,673 439
Premiums receivable................................................. 52,947 36,316
Reinsurance receivables............................................. 109,558 105,554
Prepaid reinsurance premiums........................................ 15,061 9,925
Accrued investment income........................................... 11,167 11,628
Cost in excess of net assets of purchased subsidiaries,
less accumulated amortization...................................... 15,942 8,965
Furniture and equipment - at cost, less accumulated depreciation.... 8,317 6,610
Deferred income taxes............................................... 48,890 41,203
Other............................................................... 26,972 18,416
----------- ------------
$ 1,004,199 $ 982,678
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Policy liabilities:
Loss and loss adjustment expense reserves:
Medical malpractice liability................................... $ 614,239 $ 623,220
Life and health................................................. 8,255 11,401
Other........................................................... 3,846 4,194
----------- ------------
626,340 638,815
Unearned premium reserves......................................... 76,692 52,951
Future life policy benefits....................................... 8,635 8,982
----------- ------------
711,667 700,748
Accrued expenses and other liabilities.............................. 18,430 21,015
Amounts due to reinsurers........................................... 28,156 24,702
Notes payable to stockholders....................................... - 750
Long-term notes payable............................................. 58,000 49,000
----------- ------------
816,253 796,215
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share:
Authorized shares: 1996 and 1995 - 30,000
Issued and outstanding shares: 1996 - 9,865; 1995 - 9,675........... 986 967
Additional paid-in capital............................................ 85,995 82,645
Retained earnings..................................................... 96,941 84,361
Unrealized gains on investments, net of taxes:
1996 - $2,167; 1995 - $9,957......................................... 4,024 18,490
----------- ------------
187,946 186,463
----------- ------------
$ 1,004,199 $ 982,678
=========== ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MMI COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ------------------------
1996 1995 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Insurance premiums earned:
Medical malpractice liability.................. $ 37,690 $ 34,629 $ 77,870 $ 65,900
Life and health................................ 1,814 1,826 3,954 3,672
-------- -------- -------- --------
39,504 36,455 81,824 69,572
Consulting and fee income........................ 9,258 6,059 15,628 11,651
Net investment income............................ 10,680 9,623 21,653 17,818
Net realized gains (losses) on investments....... (546) 669 1,002 344
-------- -------- -------- --------
Total revenues............................. 58,896 52,806 120,107 99,385
LOSSES AND EXPENSES
Losses and loss adjustment expenses:
Medical malpractice liability.................. 31,560 30,084 65,439 57,029
Life and health................................ 1,059 1,058 2,286 1,876
-------- -------- -------- --------
32,619 31,142 67,725 58,905
Insurance and administrative expenses............ 18,793 14,856 35,786 28,408
Interest expense................................. 852 646 1,602 1,098
-------- -------- -------- --------
Total losses and expenses.................. 52,264 46,644 105,113 88,411
-------- -------- -------- --------
Income before income taxes................. 6,632 6,162 14,994 10,974
Income taxes..................................... 284 524 1,235 926
-------- -------- -------- --------
Net income................................. $ 6,348 $ 5,638 $ 13,759 $ 10,048
======== ======== ======== ========
Earnings per common and common equivalent share:
Primary........................................ $ .62 $ .62 $ 1.35 $ 1.12
Fully diluted.................................. .62 .60 1.34 1.09
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MMI COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- ----------------- ADDITIONAL
NUMBER PAR NUMBER PAR PAID-IN RETAINED
OF SHARES VALUE OF SHARES VALUE CAPITAL EARNINGS
--------- -------- --------- ----- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.................. - $ - 8,677 $ 868 $ 66,381 $ 63,787
Year ended December 31, 1995:
Net income.................................. 22,695
Issuance of Preferred Stock in connection
with acquisition of subsidiary............ 903 18,061 (2,709)
Conversion of Preferred to Common Stock..... (903) (18,061) 941 94 17,967
Issuance of Common Stock in connection
with employee benefit plans and exercise
of employee stock options................. 110 10 1,577
Change in unrealized gains, net of taxes
of $13,853................................
Retirement of Treasury Stock................ (62) (6) (734)
Common cash dividends ($.20 per share)...... (1,827)
Preferred stock dividend ($.18 per share)... 9 1 163 (164)
Preferred cash dividend ($.14 per share).... (130)
--------- -------- --------- ----- -------- --------
Balance at December 31, 1995.................. - - 9,675 967 82,645 84,361
Six months ended June 30, 1996 (unaudited)....
Net income.................................. 13,759
Issuance of Common Stock in connection
with acquisition of subsidiary............ 28 3 462
Issuance of Common Stock in connection
with employee benefit plans and exercise
of employee stock options................. 162 16 2,888
Change in unrealized gains,
net of taxes of $7,790....................
Common cash dividends ($.12 per share)...... (1,179)
--------- -------- --------- ----- -------- --------
Balance at June 30, 1996 (Unaudited).......... - $ - 9,865 $ 986 $ 85,995 $ 96,941
========= ======== ========= ===== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gains (Losses) Total
Treasury on Investments, Stockholders'
Stock Net of Taxes Equity
-------- --------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994.................. $ (740) $ (7,237) $ 123,059
Year ended December 31, 1995:
Net income.................................. 22,695
Issuance of Preferred Stock in connection
with acquisition of subsidiary............ 15,352
Conversion of Preferred to Common Stock..... -
Issuance of Common Stock in connection
with employee benefit plans and exercise
of employee stock options................. 1,587
Change in unrealized gains, net of taxes
of $13,853................................ 25,727 25,727
Retirement of Treasury Stock................ 740 -
Common cash dividends ($.20 per share)...... (1,827)
Preferred stock dividend ($.18 per share)... -
Preferred cash dividend ($.14 per share).... (130)
------ --------- ---------
Balance at December 31, 1995.................. - 18,490 186,463
Six months ended June 30, 1996 (unaudited):
Net income.................................. 13,759
Issuance of Common Stock in connection
with acquisition of subsidiary............ 465
Issuance of Common Stock in connection
with employee benefit plans and exercise
of employee stock options................. 2,904
Change in unrealized gains,
net of taxes of $7,790.................... (14,466) (14,466)
Common cash dividends ($.12 per share)...... (1,179)
------ --------- ---------
Balance at June 30, 1996 (unaudited).......... $ - $ 4,024 $ 187,946
====== ========= =========
</TABLE>
See notes to Consolidated Financial Statements.
5
<PAGE>
MMI COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 13,759 $ 10,048
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Increase in policy liabilities................................. 10,919 46,090
Change in reinsurance balances................................. (5,686) (6,801)
Increase in premiums receivable................................ (16,631) (17,077)
Deferred income taxes.......................................... (42) (1,949)
Increase in accrued investment income and other assets......... (6,112) (4,111)
Decrease in accrued expenses and other liabilities............. (3,987) (1,288)
Net realized gains on investments.............................. (1,002) (344)
Depreciation and amortization on investments and goodwill...... 1,549 1,226
--------- ---------
Net cash provided (used) by operating activities.............. (7,233) 25,794
INVESTING ACTIVITIES
Net sale of short-term investments............................... 5,181 4,256
Purchases of available-for-sale investments...................... (162,268) (283,537)
Sales of available-for-sale investments.......................... 134,530 125,264
Maturities of available-for-sale investments..................... 33,819 131,839
Acquisition of subsidiary........................................ (7,958) (15,372)
Furniture and equipment additions................................ (2,812) (1,913)
--------- ---------
Net cash provided (used) by investing activities.............. 492 (39,463)
FINANCING ACTIVITIES
Issuance of Common Stock......................................... 2,904 344
Payments on notes payable........................................ (750) -
Proceeds from notes payable...................................... 9,000 15,000
Dividends........................................................ (1,179) (993)
--------- ---------
Net cash provided by financing activities..................... 9,975 14,351
--------- ---------
Increase in cash.............................................. 3,234 682
Cash at beginning of period....................................... 439 498
--------- ---------
Cash at end of period......................................... $ 3,673 $ 1,180
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
MMI COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
notes thereto included in the Company's 1995 Annual Report.
2. ACQUISITION OF MANAGEMENT SCIENCE ASSOCIATES, INC.
Effective April 1, 1996 the Company purchased substantially all of the
net assets of Management Science Associates, Inc. (MSA). MSA provides
employee relations and human resource consulting services to healthcare
organizations and had revenues of approximately $6.6 million in 1995. The
purchase price for MSA, including expenses, was $8,353,000 in cash which
was funded principally by an increase in borrowings under the Company's
credit agreement.
Assets acquired, liabilities assumed, and the excess of cost over net
assets purchased were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Excess of cost over net assets purchased............... $6,403
Cash................................................... 395
Other assets, principally receivables.................. 2,133
Other liabilities...................................... (578)
-----
$8,353
======
</TABLE>
The operations of MSA are included in MMI's consolidated financial
statements since the date of acquisition.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
Revenues. Gross premiums written increased by 10.6% to $131,408,000 for
the six months ended June 30, 1996 from $118,769,000 for the 1995 period. Net
premiums written increased by 9.2% to $100,225,000 from $91,821,000, and net
premiums earned increased by 17.6% to $81,824,000 from $69,572,000. For the
three months ended June 30, 1996 gross premiums written increased by 13.5% to
$37,186,000 from $32,765,000 for the three months ended June 30, 1995, net
premiums written increased by 14.7% to $27,025,000 from $23,555,000, and net
premiums earned increased by 8.4% to $39,504,000 from $36,455,000.
Medical malpractice premiums earned increased by 18.2% to $77,870,000 for
the six months ended June 30, 1996 from $65,900,000 for the 1995 period and
increased by 8.8% to $37,690,000 from $34,629,000 for the three month period. A
substantial percentage of the Company's business renews during the first
quarter. The Company's quarterly written and earned premiums can vary
significantly from quarter to quarter due to one-time premiums, such as prior
acts coverage for new insureds. Of the increase in premiums earned in the first
six months of 1996, approximately ten percentage points of the 18% growth
resulted from increases in such one-time premiums. Healthcare system premium
rates were generally unchanged, and pricing for physician groups increased
modestly. Pricing of healthcare system insurance is strongly influenced by the
loss experience of the insured. Life and health premiums earned increased by
7.7%, to $3,954,000 for the six months ended June 30, 1996 from $3,672,000 for
the 1995 period and decreased by .7% to $1,814,000 from $1,826,000 for the three
month period.
Consulting and fee income increased by 34.1% to $15,628,000 for the six
months ended June 30, 1996 from $11,651,000 for the 1995 period and increased by
52.8% to $9,258,000 from $6,059,000 for the three month period. The growth in
consulting and fee income is attributable to growth in fees generated by the
Healthcare Services Group and the inclusion of the results of Management Science
Associates, Inc. (MSA) from the date of its acquisition, April 1, 1996.
Consulting and fee income as a percentage of net premiums earned and consulting
and fee income was 16.0% for the six months ended June 30, 1996 compared to
14.3% in 1995.
Net investment income increased by 21.5% to $21,653,000 for the six months
ended June 30, 1996 from $17,818,000 for the 1995 period and increased by 11.0%
to $10,680,000 from $9,623,000 for the three month period. Net investment income
attributable to Health Providers Insurance Company (HPIC) was $3,536,000 for the
six months ended June 30, 1996 compared to $1,037,000 for the 1995 period and
for the three month period was $1,761,000 in 1996 compared to $1,037,000 in
1995. Net investment income, excluding the growth attributable to HPIC,
increased by 8.0% for the six month period and 3.9% for the three month period,
and is due to growth in invested assets. The Company had net realized gains on
investments of $1,002,000 for the six months ended June 30, 1996 compared to
gains of $344,000 for the 1995 period. For the three month period, the Company
had net realized losses of $546,000 in 1996 compared to gains of $669,000 in
1995.
Losses and expenses. Losses and loss adjustment expenses ("LAE") increased
by 15.0% to $67,725,000 for the six months ended June 30, 1996 from $58,905,000
for the 1995 period and increased by 4.7% to $32,619,000 from $31,142,000 for
the three month period. Medical malpractice liability losses and LAE increased
by 14.7% to $65,439,000 for the six months ended June 30, 1996 from $57,029,000
for the 1995 period and increased by 4.9% to $31,560,000 from $30,084,000 for
the three month period due to an increase in premiums earned partially offset by
a decrease in the property and casualty loss ratio. The property and casualty
loss ratio decreased to 83.1% from 86.0% for the respective six month periods
and decreased to 83.0% from 86.2% for the three month period. Life and health
benefit costs increased by $410,000 or 21.9% to $2,286,000 for the six months
ended June 30, 1996 from $1,876,000 for the 1995 period. Underwriting results
for the Company's life and health segment are variable due to the relatively
small volume of business written.
Insurance and administrative expenses increased by 26.0% to $35,786,000 for
the six months ended June 30, 1996 from $28,408,000 for the 1995 period and
increased by 26.5% to $18,793,000 from $14,856,000 for the three month period.
The increase in administrative expense is attributable to increased premiums and
consulting and fee income, increased commission expense due to a greater
percentage of business acquired through brokers and the inclusion of the results
of
8
<PAGE>
acquired businesses, including HPIC from its acquisition in May 1995 and MSA in
April 1996.
Interest expense increased by 45.9% to $1,602,000 for the six months ended
June 30, 1996 from $1,098,000 for the 1995 period and increased by 31.9% to
$852,000 from $646,000 for the three month period and is due principally to an
increase in outstanding debt.
Income taxes. Income taxes were $1,235,000 for the six months ended June
30, 1996 compared to $926,000 for the 1995 period and for the three month period
were $284,000 in 1996 compared to $524,000 in 1995.
Net income. Net income increased by 36.9% to $13,759,000 for the six
months ended June 30, 1996 from $10,048,000 for the 1995 period and increased
12.6% to $6,348,000 from $5,638,000 for the three month period. Operating
income, which excludes net realized gains (losses) on investments, net of taxes,
increased by 33.4% to $13,108,000 for the six months ended June 30, 1996 from
$9,824,000 for the 1995 period and increased 28.8% for the three month period to
$6,703,000 from $5,203,000.
Net income per share. Fully diluted net income per common and common
equivalent share increased to $1.34 for the six months ended June 30, 1996 from
$1.09 for the 1995 period. Included in these amounts are $.06 in 1996 and $.02
in 1995 related to net realized gains on investments. Fully diluted earnings per
common and common equivalent share before realized gains (losses), net of taxes,
increased to $1.28 for the six months ended June 30, 1996 from $1.07 for the
1995 period. Fully diluted weighted average shares and equivalents outstanding
increased due to the issuance of capital stock in connection with the
acquisition of HPIC in May, 1995.
For the three month period fully diluted net income per common and common
equivalent share increased to $.62 from $.60. Included in these amounts are
losses of $.03 in 1996 and gains $.05 in 1995 related to net realized gains
(losses) on investments. Fully diluted earnings per common and common equivalent
share before realized gains (losses), net of taxes, increased to $.65 from $.55.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, the Company's assets consist primarily of the stock
of its subsidiaries. The principal sources of funds are management fees and
dividends from subsidiaries. In the six month period ended June 30, 1996 the
Company received dividends of $5,500,000 from its subsidiaries, compared to
$2,500,000 in 1995. The Company received management fees from its subsidiaries
of $10,100,000 for the six months ended June 30, 1996, compared to $8,050,000 in
1995.
On a consolidated basis, the Company's principal sources of operating funds
are premiums, investment income, fees and recoveries from reinsurers. Funds are
used to pay claims, operating expenses, reinsurance premiums, acquisition
related expenses, debt service requirements, taxes and dividends to
stockholders.
Cash used by operating activities was $7,233,000 for the six months ended
June 30, 1996 compared to cash provided by operating activities of $25,794,000
for the six months ended June 30, 1995. Cash from operations decreased primarily
due to increased paid losses during the first six months of 1996. Because of
variability related to the timing of payment of claims, cash from operations for
a casualty insurance company can vary substantially from quarter to quarter.
Cash provided by investing activities was $492,000 for the six months ended
June 30, 1996 compared to cash used by investing activities of $39,463,000 for
the six months ended June 30, 1995. The decrease in cash provided by operating
activities reduced cash available for investing activities. The Company has no
material commitments for capital expenditures.
Cash provided by financing activities was $9,975,000 for the six months
ended June 30, 1996 compared to $14,351,000 for the six months ended June 30,
1995 and is due principally to borrowings under the Company's credit facility
related to the acquisitions of MSA in 1996 and HPIC in 1995.
The Company invests in investment grade fixed income securities and
preferred stocks. The estimated fair value
9
<PAGE>
of preferred stocks was less than 2% of fair value of total invested assets as
of June 30, 1996. The carrying value of the Company's short-term, fixed maturity
and preferred stock investments was $711,672,000 as of June 30, 1996 compared to
$743,622,000 as of December 31, 1995. The June 30, 1996 amount includes net
unrealized gains of $6,191,000, which represent the amount by which the
estimated fair value of the fixed income portfolio exceeds amortized cost.
Unrealized gains as of December 31, 1995 were $28,447,000. The decrease in
unrealized gains during the first six months of 1996 was due to an increase in
the general level of interest rates in 1996. The Company maintains a portion of
its investment portfolio in high quality, short-term securities to meet its
short-term operating liquidity requirements, including the payment of claims and
expenses. Short-term investments totaled $30,769,000 or 4.3% of invested assets
at June 30, 1996. The Company believes that all of its invested assets are
readily marketable.
Long-term and short-term debt totaled $58,000,000 as of June 30, 1996
compared to $49,750,000 as of December 31, 1995. In January 1996, the Company
obtained an increase in its available credit line to $85,000,000. The loan bears
interest at a fixed rate equal to the London Interbank Offered Rate for periods
of up to one year plus a margin ranging from 5/8% to 7/8%. The Company has
entered into interest rate swap agreements that result in a fixed interest rate
of 5.4% through 1997 on the LIBOR component for $44,500,000 of the $58,000,000
in outstanding principal. The loan is secured by the capital stock of American
Continental Insurance Company and HPIC. As of June 30, 1996, the unused
commitment under the credit facility was $27,000,000.
Stockholders' equity was $187,946,000 as of June 30, 1996 compared to
$186,463,000 as of December 31, 1995. Changes in stockholders' equity are
primarily attributable to net income of the Company and issuances of Common
Stock, reduced by dividends to stockholders and the decrease in unrealized gains
on investments, net of taxes, in 1996 of $14,466,000. Dividends to stockholders
were $1,179,000 for the six months ended June 30, 1996.
ACQUISITION OF MANAGEMENT SCIENCE ASSOCIATES, INC.
Effective April 1, 1996 the Company purchased substantially all of the net
assets of MSA. MSA provides employee relations and human resource consulting
services to healthcare organizations and had revenues of approximately
$6,600,000 in 1995. The purchase price for MSA, including expenses, was
$8,353,000 in cash which was funded principally by an increase in borrowings
under the Company's credit agreement.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual stockholders meeting on April 18, 1996. The
following directors were elected at the meeting: B. Frederick Becker, Andrew
David Kennedy, Esq., Edward C. Peddie and Marshall Whisnant. The following
additional matters were voted upon and passed at the meeting: i) proposal to
approve the MMI Companies, Inc. 1996 Non-Employee Director Stock and Deferred
Cash Compensation Plan, and ii) ratification of Ernst & Young LLP as independent
auditors.
The following table sets forth the number of votes cast for, against or
withheld, and number of abstentions and broker non-votes for each matter voted
upon at the meeting (in thousands):
<TABLE>
<CAPTION>
ABSTENTIONS
AGAINST OR AND BROKER
MATTER FOR WITHHELD NON-VOTES
--- -------- -----------
<S> <C> <C> <C>
Election of directors:
B. Frederick Becker...................... 5,923 11 -
Andrew David Kennedy, Esq................ 5,900 34 -
Edward C. Peddie......................... 5,928 6 -
Marshall Whisnant........................ 5,928 6 -
Approval of 1996 Non-Employee Director Stock
and Deferred Cash Compensation Plan.......... 5,900 21 13
Ratification of Ernst & Young LLP............. 5,930 1 3
</TABLE>
ITEM 5. OTHER INFORMATION
On May 9, 1995 the Company acquired all of the outstanding capital stock of
HPIC from American Hospital Association Services, Inc. The following unaudited
pro forma condensed consolidated statement of income for the year ended December
31, 1995 gives effect to the acquisition of HPIC as if it had occurred at the
beginning of the period. The pro forma adjustments are based on available
information and certain assumptions that management of the Company believes are
reasonable. The financial information pertaining to the Company should be read
in conjunction with the consolidated financial statements of the Company and
notes thereto included in Form 10-K dated December 31, 1995. The financial
information pertaining to HPIC should be read in conjunction with the
consolidated financial statements of HPIC and notes thereto included in Form 8-
K, as amended, dated May 9, 1995. The pro forma financial information is not
necessarily indicative of results that would have occurred if the acquisition
had been in effect for the entire period presented or of the consolidated
results that may be achieved in periods subsequent to the acquisition.
11
<PAGE>
MMI COMPANIES INC. AND HEALTH PROVIDERS INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year ended December 31, 1995
In thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
COMPANY HPIC ADJUSTMENTS CONSOLIDATED
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Insurance premiums earned........................... $ 155,191 $ 3,995 $ $ 159,186
Consulting and fee income........................... 22,336 22,336
Net investment income............................... 39,850 2,858 42,708
Net realized and unrealized gains
(losses) on investments............................ 1,367 (1,084) 283
--------- -------- ---------
Total revenues................................... 218,744 5,769 224,513
LOSSES AND EXPENSES
Losses and loss adjustment expenses................. 130,088 3,290 (9) (a) 133,369
Insurance and administrative expenses............... 61,055 3,928 (2,050) (b) 62,933
Interest expense.................................... 2,767 378 (c) 3,145
--------- -------- ------- ---------
Total losses and expenses........................ 193,910 7,218 (1,681) 199,447
--------- -------- ------- ---------
Income (loss) before income taxes................... 24,834 (1,449) 1,681 25,066
Income taxes (credit).................................... 2,139 (499) 588 (d) 2,228
-------- --------- ------- --------
Net income (loss)................................... 22,695 (950) 1,093 22,838
Preferred stock dividends................................ 293 322 (e) 615
-------- -------- ------- --------
Net income (loss) available to
common stockholders................................ $ 22,402 $ (950) $ 771 $ 22,223
======== ======== ======= ========
Primary:
Net income per common and common
equivalent share................................. $ 2.42 $ 2.40
Weighted average number of common
and common equivalent shares..................... 9,243 9,243
Fully diluted:
Net income per common and common
equivalent share................................. $ 2.34 $ 2.28
Weighted average number of common
and common equivalent shares..................... 9,683 334 10,017
</TABLE>
See notes to pro forma financial information.
12
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
1. Adjustments for Pro Forma Condensed Consolidated Statement of Income for
the year ended December 31, 1995:
(a) To eliminate the effect on loss and loss adjustment expenses
related to a reduction of $9,000 in HPIC's loss reserve discount.
(b) To eliminate employee severance expense of $2,050,000 recorded in
connection with the acquisition.
(c) To record interest expense of $378,000 on additional debt of
$15,000,000 at a rate of 7.2% which approximates interest rates
during the period calculated in accordance with the terms of the
Company's credit facility.
(d) To record the effect of (a), (b), and (c) on income taxes.
(e) To record dividends of $322,000 on the 5% Convertible Preferred
Stock.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - ------------------------------------------
A. Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended.
10.1 Employment Agreement dated as of April 17, 1996 between the
Registrant and Ms. Anna M. Hajek.*
10.2 Employment Agreement dated as of April 17, 1996 between the
Registrant and Mr. Gerald McManis.*
10.3 Employment Agreement dated as of April 17, 1996 between the
Registrant and Mr. Paul Orzech.*
11. Statement Re Computation of Per Share Earnings.
27. Financial Data Schedule.
B. Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter.
=====================
*Compensatory plans or agreements.
14
<PAGE>
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.
MMI Companies, Inc.
-----------------------------------------
(Registrant)
Date: August 8, 1996 /s/ B. Frederick Becker
-------------- -----------------------------------------
B. Frederick Becker
Chairman and Chief Executive Officer
Date: August 8, 1996 /s/ Paul M. Orzech
-------------- -----------------------------------------
Paul M. Orzech
Executive Vice President and
Chief Financial Officer
15
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE
--------------------
OF INCORPORATION
----------------
OF
--
MMI COMPANIES. INC.
-------------------
The undersigned hereby adopt the following Restated Certificate of
Incorporation of MMI COMPANIES, INC., originally incorporated as Hospital Shared
Services, Inc. (the "Corporation"), which filed its original Certificate of
Incorporation with the Secretary of State of Delaware on May 5, 1983 and filed
its Restated Certificate of Incorporation with the Secretary of State of
Delaware on December 12, 1984. The Restated Certificate of Incorporation of MMI
Companies, Inc. is amended to add Article Ninth included in the Restated
Certificate of Incorporation hereinafter set forth. This Restated Certificate of
Incorporation and the amendment herein specified were duly adopted by the
stockholders in accordance with the provisions of Sections 242 and 245 of
Delaware Corporation law on April 16, 1987. The Restated Certificate of
Incorporation of MMI COMPANIES, INC., as amended, now reads in full as follows:
FIRST
-----
The name of the Corporation is MMI COMPANIES, INC.
SECOND
------
The address of the Corporation's registered office in the State of Delaware
is 32 Loockerman Sq., Suite L-100 in the City of
<PAGE>
Dover, County of Kent. The name of its registered agent at such address is
United States Corporation company.
THIRD
-----
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH
------
The total number of shares of stock which the Corporation shall have
authority to issue is 20,000,000 shares common stock with 10 cent par value and
1,000,000 shares of preferred stock with $20 par value, which may have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights
qualifications, limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors of the Corporation pursuant to authority expressly vested in
it by the provisions of this Restated Certificate of Incorporation.
Any and all right, title, interest and claim in or to any dividends
declared by the Corporation, whether in cash, stock or otherwise, which are
unclaimed by the stockholder entitled thereto for a period of six years after
the close of business on the
-2-
<PAGE>
payment date, shall be and be deemed to be extinguished and abandoned, and such
unclaimed dividends in the possession of the Corporation, its transfer agents or
other agents or depositories, shall at such time become the absolute property of
the Corporation, free and clear of any and all claims of any persons whatsoever.
FIFTH
-----
The business of the Corporation shall be managed and controlled by the
Board of Directors which may do all such lawful acts and things as are not by
statute, or the Certificate of Incorporation or the Corporation's By-Laws
directed or required to be exercised or done by the stockholders. In furtherance
and not in limitation of the powers conferred by statute, the Board of Directors
of the Corporation is expressly authorized:
(1) To make, alter or repeal the by-laws of the Corporation; and
(2) To provide for the indemnification of directors, officers, management,
employees and agents of the Corporation, and of persons who serve
other enterprises in such or similar capacities at the request of the
Corporation, to the full extent permitted by the General Corporation
Law of Delaware or any other applicable laws, as may from time to time
be in effect.
-3-
<PAGE>
(3) To designate by resolution or resolutions the voting powers full or
limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights,
qualifications, limitations or restrictions on authorized, preferred
shares.
SIXTH
-----
1. The number of Directors which shall constitute the entire Board shall
be as provided from time to time by resolution of the Board of Directors. The
Directors shall be elected at the Annual Meeting of the stockholders to three
year staggered terms. The Directors shall be divided into three classes of
nearly equal size, the term of office of those of the first class to expire at
the next annual meeting of the stockholders; the term of office of the second
class one year thereafter; and the term of office of the third class two years
thereafter. At each annual election held after the classification and election
of Directors, Directors shall be elected for a full three-year term. The number
of Directors and the classification thereof may be increased, decreased and
changed from time to time by resolution of the Board of Directors. Each Director
elected shall hold office for the number of years elected and upon the
anniversary date of his election, his term shall expire unless terminated
earlier by his death, resignation or removal in a manner permitted by statute or
this Certificate of
-4-
<PAGE>
Incorporation. Vacancies and newly-created directorships resulting from any
increase in the authorized number of Directors, may be filled by the vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so chosen shall hold office until the next annual election of Directors
and until his successor is duly elected and qualified or until his earlier
death, resignation or removal in a manner permitted by this Certificate of
Incorporation. Directors need not be stockholders.
2. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided by the
By-laws of the Corporation.
3. Newly created directorships resulting from any increase in the number
of directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall only be filled by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Any director elected
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
-5-
<PAGE>
SEVENTH
-------
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
section 291 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement, and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
-6-
<PAGE>
EIGHTH
------
The Corporation reserves the right to amend its Restated Certificate of
Incorporation, and to thereby change or repeal any provision therein contained
from time to time, in the manner prescribed at the time by statute, and all
rights conferred upon stockholders by such Restated Certificate of Incorporation
are granted subject to this reservation.
NINTH
-----
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, or any corresponding provision of the General
Corporation Law of the State of Delaware.
TENTH
-----
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at an annual or duly called special meeting of such
holders and may not be effected by any consent in writing by such holders.
Except as otherwise required by law, special meetings of stockholders of the
Corporation may be called at any time and only by the Board of Directors
pursuant to a resolution approved by a majority of the
-7-
<PAGE>
entire Board of Directors. Each special meeting shall be held at such date, time
and place either within or without the State of Delaware as shall be designated
by the Board of Directors at least ten days prior to such meeting. At any
special meeting of the stockholders, only such business shall be conducted as
shall have been brought before the meeting by or at the direction of the Board
of Directors.
IN WITNESS WHEREOF, we have signed this Amended and Restated Certificate
this 20th day of March, 1992.
MMI COMPANIES, INC.
By: /s/ B. Frederick Becker
--------------------------
Its: President
-------------------------
ATTEST:
/s/ Wayne A. Sinclair
- - --------------------------
, Secretary
-8-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MMI COMPANIES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter the "Corporation") is MMI
Companies, Inc.
2. The Restated Certificate of Incorporation of the Corporation is hereby
amended by amending Article Fourth in its entirety to read as follows:
"FOURTH
The total number of shares of stock which the Corporation shall have
authority to issue is 30,000,000 shares of common stock, 10 cents par value
per share, and 5,000,000 shares of preferred stock, $20 par value per
share, which may be issued in one or more classes or series, from time to
time, and which may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
adopted by the Board of Directors of the Corporation providing for the
issue of such stock, and the Board of Directors is hereby expressly vested
with authority to the full extent now or thereafter provided by law to
adopt such resolution or resolutions."
3. The amendment of the Restated Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
Signed as of April 20, 1995.
MMI COMPANIES, INC.
By: /s/ George S. Rosic
-------------------------
George S. Rosic
Assistant Secretary
<PAGE>
EXHIBIT 10.1 - EMPLOYMENT AGREEMENT DATED AS OF APRIL 17, 1996
BETWEEN THE REGISTRANT AND MS. ANNA HAJEK
April 17, 1996
Ms. Anna M. Hajek
917 Merry Lane
Oak Brook, Illinois 60521
RE: CHANGE OF CONTROL SEVERANCE AGREEMENT
Dear Anna:
At today's meeting of the Personnel and Compensation Committee, it was
determined that you and several other key executives should be granted certain
payments in the event of a Change of Control of MMI Companies, Inc. ("MMI"). A
"Change of Control" will be defined as:
. A reconstitution of more than 50% of the Board of Directors of MMI
within any consecutive twelve (12) month period; or
. An accumulation of more than 50% of MMI's outstanding stock by any
individual, entity, controlled group of entities, or group of
individuals or entities acting in concert for the purpose of
controlling MMI.
In the event of a Change of Control while you are employed by MMI, and the
occurrence of any one or more of the four events described in the next paragraph
within twelve (12) months following such Change of Control, you shall be
entitled to a payment equal to 1.5 times your annual base salary as in effect
immediately prior to such Change of Control. In addition, unvested options will
vest in accordance with the provisions of your options.
Occurrences resulting in payments to you shall be:
(i) Involuntary termination of employment, except for death,
disability or Cause (as hereinafter defined);
(ii) Voluntary termination of employment within 60 days following a
reduction in your responsibilities or title as in effect immediately prior
to such Change of Control;
(iii) Voluntary termination of employment within 60 days following a
reduction in your base salary as in effect immediately prior to such Change
of Control; or
(iv) Voluntary termination of employment within 60 days following
relocation of MMI's principal place of business in excess of fifty miles
from its existing location at 540 Lake Cook Road, Deerfield, Illinois.
"Cause" shall be defined to include, without limitation:
. The commission of fraud, embezzlement, dishonesty, immoral acts or
acts of similar character; and
<PAGE>
EXHIBIT 10.1 - EMPLOYMENT AGREEMENT DATED AS OF APRIL 17, 1996
BETWEEN THE REGISTRANT AND MS. ANNA M. HAJEK - PAGE 2
Ms. Anna M. Hajek
April 17, 1996
Page Two
. Your substantial default in the performance of your then job
obligations over a period of time, your refusal to follow the
reasonable directions or orders of the Chairman of the Board and Chief
Executive Officer of MMI, chronic alcoholism, drug abuse, misconduct
or malfeasance of office, or acts of a similar character.
In case of any dispute arising out of or connected with the terms of your
severance, we agree to submit said dispute to the American Arbitration
Association in the City of Chicago, Illinois, for a resolution within 120 days.
Any decision or award by said arbitrators shall be binding on us and, except in
cases of gross fraud or misconduct by one or more of the arbitrators, the
decision or award rendered with respect to such dispute or disagreement shall
not be appealable. The arbitrator shall be empowered to award attorney's fees,
out-of-pocket costs or disbursements, and any and all charges which may be made
for the cost of the arbitration and the fees of the arbitrator to be paid by the
losing party or to be borne equally by the parties in his discretion.
The rights and obligations of MMI hereunder shall inure to the benefit of and
shall be binding upon the successors of MMI. This Agreement may be assigned by
MMI only to an affiliate of MMI, provided that no such assignment shall relieve
MMI of its obligation to provide the severance benefits to you as outlined in
this letter.
Please sign below to formalize our agreement to these terms.
Sincerely,
B. Frederick Becker
Chairman & CEO
ACCEPTED
/s/ ANNA M. HAJEK
- - -------------------
<PAGE>
EXHIBIT 10.2 - EMPLOYMENT AGREEMENT DATED AS OF APRIL 17, 1996
BETWEEN THE REGISTRANT AND MR. GERALD MCMANIS
April 17, 1996
Mr. Gerald McManis
6206 Luckey Court
Falls Church, VA 22041
RE: CHANGE OF CONTROL SEVERANCE AGREEMENT
Dear Jerry:
At today's meeting of the Personnel and Compensation Committee, it was
determined that you and several other key executives should be granted certain
payments in the event of a Change of Control of MMI Companies, Inc. ("MMI"). A
"Change of Control" will be defined as:
. A reconstitution of more than 50% of the Board of Directors of MMI
within any consecutive twelve (12) month period; or
. An accumulation of more than 50% of MMI's outstanding stock by any
individual, entity, controlled group of entities, or group of
individuals or entities acting in concert for the purpose of
controlling MMI.
In the event of a Change of Control while you are employed by MMI, and the
occurrence of any one or more of the four events described in the next paragraph
within twelve (12) months following such Change of Control, you shall be
entitled to a payment equal to 1.5 times your annual base salary as in effect
immediately prior to such Change of Control. In addition, unvested options will
vest in accordance with the provisions of your options.
Occurrences resulting in payments to you shall be:
(i) Involuntary termination of employment, except for death,
disability or Cause (as hereinafter defined);
(ii) Voluntary termination of employment within 60 days following a
reduction in your responsibilities or title as in effect immediately prior
to such Change of Control;
(iii) Voluntary termination of employment within 60 days following a
reduction in your base salary as in effect immediately prior to such Change
of Control; or
(iv) Voluntary termination of employment within 60 days following
relocation of MMI's principal place of business in excess of fifty miles
from its existing location at 540 Lake Cook Road, Deerfield, Illinois.
"Cause" shall be defined to include, without limitation:
. The commission of fraud, embezzlement, dishonesty, immoral acts or
acts of similar character; and
<PAGE>
EXHIBIT 10.2 - EMPLOYMENT AGREEMENT DATED AS OF APRIL 17, 1996
BETWEEN THE REGISTRANT AND MR. GERALD MCMANIS - PAGE 2
Mr. Gerald McManis
April 17, 1996
Page Two
. Your substantial default in the performance of your then job
obligations over a period of time, your refusal to follow the
reasonable directions or orders of the Chairman of the Board and Chief
Executive Officer of MMI, chronic alcoholism, drug abuse, misconduct
or malfeasance of office, or acts of a similar character.
The foregoing payments are in addition to, and not in lieu of, any other rights
and payments to which Gerald McManis is entitled by law or the terms and
conditions of the merger agreement and related agreements dated December 1993.
In case of any dispute arising out of or connected with the terms of your
severance, we agree to submit said dispute to the American Arbitration
Association in the City of Chicago, Illinois, for a resolution within 120 days.
Any decision or award by said arbitrators shall be binding on us and, except in
cases of gross fraud or misconduct by one or more of the arbitrators, the
decision or award rendered with respect to such dispute or disagreement shall
not be appealable. The arbitrator shall be empowered to award attorney's fees,
out-of-pocket costs or disbursements, and any and all charges which may be made
for the cost of the arbitration and the fees of the arbitrator to be paid by the
losing party or to be borne equally by the parties in his discretion.
The rights and obligations of MMI hereunder shall inure to the benefit of and
shall be binding upon the successors of MMI. This Agreement may be assigned by
MMI only to an affiliate of MMI, provided that no such assignment shall relieve
MMI of its obligation to provide the severance benefits to you as outlined in
this letter.
Please sign below to formalize our agreement to these terms.
Sincerely,
B. Frederick Becker
Chairman & CEO
ACCEPTED
/s/ GERALD MCMANIS
- - --------------------
<PAGE>
EXHIBIT 10.3 - EMPLOYMENT AGREEMENT DATED OF AS APRIL 17, 1996
BETWEEN THE REGISTRANT AND MR. PAUL ORZECH
April 17, 1996
Mr. Paul Orzech
4850 S. Albion Street
Cherry Hills Village, CO 80121
RE: CHANGE OF CONTROL SEVERANCE AGREEMENT
Dear Paul:
At today's meeting of the Personnel and Compensation Committee, it was
determined that you and several other key executives should be granted certain
payments in the event of a Change of Control of MMI Companies, Inc. ("MMI"). A
"Change of Control" will be defined as:
. A reconstitution of more than 50% of the Board of Directors of MMI
within any consecutive twelve (12) month period; or
. An accumulation of more than 50% of MMI's outstanding stock by any
individual, entity, controlled group of entities, or group of
individuals or entities acting in concert for the purpose of
controlling MMI.
In the event of a Change of Control while you are employed by MMI, and the
occurrence of any one or more of the four events described in the next paragraph
within twelve (12) months following such Change of Control, you shall be
entitled to a payment equal to 1.5 times your annual base salary as in effect
immediately prior to such Change of Control. In addition, unvested options will
vest in accordance with the provisions of your options.
Occurrences resulting in payments to you shall be:
(i) Involuntary termination of employment, except for death,
disability or Cause (as hereinafter defined);
(ii) Voluntary termination of employment within 60 days following a
reduction in your responsibilities or title as in effect immediately prior
to such Change of Control;
(iii) Voluntary termination of employment within 60 days following a
reduction in your base salary as in effect immediately prior to such Change
of Control; or
(iv) Voluntary termination of employment within 60 days following
relocation of MMI's principal place of business in excess of fifty miles
from its existing location at 540 Lake Cook Road, Deerfield, Illinois.
"Cause" shall be defined to include, without limitation:
. The commission of fraud, embezzlement, dishonesty, immoral acts or
acts of similar character; and
<PAGE>
EXHIBIT 10.3 - EMPLOYMENT AGREEMENT DATED AS OF APRIL 17, 1996
BETWEEN THE REGISTRANT AND MR. PAUL ORZECH - PAGE 2
Mr. Paul Orzech
April 17, 1996
Page Two
. Your substantial default in the performance of your then job
obligations over a period of time, your refusal to follow the
reasonable directions or orders of the Chairman of the Board and Chief
Executive Officer of MMI, chronic alcoholism, drug abuse, misconduct
or malfeasance of office, or acts of a similar character.
In case of any dispute arising out of or connected with the terms of your
severance, we agree to submit said dispute to the American Arbitration
Association in the City of Chicago, Illinois, for a resolution within 120 days.
Any decision or award by said arbitrators shall be binding on us and, except in
cases of gross fraud or misconduct by one or more of the arbitrators, the
decision or award rendered with respect to such dispute or disagreement shall
not be appealable. The arbitrator shall be empowered to award attorney's fees,
out-of-pocket costs or disbursements, and any and all charges which may be made
for the cost of the arbitration and the fees of the arbitrator to be paid by the
losing party or to be borne equally by the parties in his discretion.
The rights and obligations of MMI hereunder shall inure to the benefit of and
shall be binding upon the successors of MMI. This Agreement may be assigned by
MMI only to an affiliate of MMI, provided that no such assignment shall relieve
MMI of its obligation to provide the severance benefits to you as outlined in
this letter.
Please sign below to formalize our agreement to these terms.
Sincerely,
B. Frederick Becker
Chairman & CEO
ACCEPTED
/s/ PAUL ORZECH
- - -----------------
<PAGE>
MMI Companies, Inc and Subsidiaries
Exhibit 11 - Statement re Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding............ 9,851 8,635 9,791 8,628
Net effect of dilutive stock options
based on the treasury stock method
using average market price................... 427 262 416 210
------- ------ ------- -------
Weighted average number of common
and common equivalent shares................. 10,278 8,897 10,207 8,838
======= ====== ======= =======
Net income..................................... $ 6,348 $5,638 $13,759 $10,048
Less preferred stock dividends................. - 130 - 130
------- ------ ------- -------
Net income available to common stockholders.... $ 6,348 $5,508 $13,759 $ 9,918
======= ====== ======= =======
Earnings per common and
common equivalent share...................... $ .62 $.62 $ 1.35 $ 1.12
======= ====== ======= =======
FULLY DILUTED
Weighted average shares outstanding............ 9,851 8,635 9,791 8,628
Net effect of dilutive stock options
based on the treasury stock method using
ending market price, if higher than average.. 464 302 485 302
Assumed conversion of dilutive
convertible preferred stock.................. - 538 - 270
------- ------ ------- -------
Weighted average number of common
and common equivalent shares................. 10,315 9,475 10,276 9,200
======= ====== ======= =======
Net income..................................... $ 6,348 $5,638 $13,759 $10,048
======= ====== ======= =======
Earnings per common and
common equivalent share...................... $ .62 $.60 $ 1.34 $ 1.09
======= ====== ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information extracted from
the consolidated financial statements of MMI Companies, Inc. and subsidiaries
for the six month period ended June 30, 1996, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 668,263
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 12,320
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 711,672
<CASH> 3,673
<RECOVER-REINSURE> 15,641
<DEFERRED-ACQUISITION> 5,945
<TOTAL-ASSETS> 1,004,199
<POLICY-LOSSES> 634,975
<UNEARNED-PREMIUMS> 76,692
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 58,000
<COMMON> 986
0
0
<OTHER-SE> 186,960
<TOTAL-LIABILITY-AND-EQUITY> 1,004,199
81,824
<INVESTMENT-INCOME> 21,653
<INVESTMENT-GAINS> 1,002
<OTHER-INCOME> 15,628
<BENEFITS> 67,725
<UNDERWRITING-AMORTIZATION> 6,510
<UNDERWRITING-OTHER> 29,276
<INCOME-PRETAX> 14,994
<INCOME-TAX> 1,235
<INCOME-CONTINUING> 13,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,759
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
