SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MMI Companies, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
{logo}
MMI COMPANIES, INC.
540 Lake Cook Road
Deerfield, IL 60015
NOTICE OF ANNUAL STOCKHOLDERS MEETING
March 20, 1997
The Annual Meeting of Stockholders of MMI Companies, Inc., a Delaware
corporation (the "Company"), will be held on April 17, 1997, at 9:00 A.M. at 540
Lake Cook Road, Deerfield, Illinois, for the following purposes:
1. To elect three Directors to the class whose term expires at the Annual
Meeting of Stockholders in 2000 and one Director to the class whose
term expires at the Annual Meeting of Stockholders in 1999.
2. To consider and vote upon a proposal to amend the 1993 Employee Stock
Plan, increasing by 500,000 the maximum number of shares that may be
issued under the plan to 1,737,500 shares.
3. To consider and vote upon a proposal to amend the 1993 Non-Employee
Directors' Formula Stock Option Plan, increasing by 50,000 the maximum
number of shares that may be issued under the plan to 187,500 shares.
4. To consider and vote upon the ratification of the appointment of Ernst
& Young LLP as independent auditors of the financial statements of the
Company for the fiscal year ending December 31, 1997.
5. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
All stockholders are invited to attend, although only those stockholders of
record at the close of business March 3, 1997 will be entitled to notice of and
to vote at the meeting or any adjournment thereof. Your attention is directed to
the Proxy Statement accompanying this Notice for a more complete statement
regarding the matters proposed to be acted upon at the meeting.
PLEASE SIGN AND DATE THE ACCOMPANYING PROXY FORM AND RETURN IT IN THE
STAMPED, SELF-ADDRESSED ENVELOPE ENCLOSED FOR YOUR USE.
Wayne A. Sinclair
Secretary
<PAGE>
PROXY STATEMENT
MMI COMPANIES, INC.
540 LAKE COOK ROAD
DEERFIELD, ILLINOIS 60015
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
board of directors (the "Board of Directors") of MMI Companies, Inc. (the
"Company") of proxies for use at the Annual Meeting of Stockholders to be held
on April 17, 1997 (the "Annual Meeting"). At the Annual Meeting, stockholders
will be asked to elect directors, approve an amendment to the 1993 Employee
Stock Plan, approve an amendment to the 1993 Non-Employee Directors' Formula
Stock Option Plan, ratify the appointment of Ernst & Young LLP as the auditors
of the financial statements of the Company for 1997 and transact such other
business as may properly come before the Annual Meeting.
Only holders of shares of the Company's Common Stock, par value $.10 per
share (the "Common Stock"), are entitled to vote at the Annual Meeting. As of
December 31, 1996, the Company had 11,625,000 shares of Common Stock
outstanding. Only stockholders of record at the close of business on March 3,
1997, will be entitled to vote at the Annual Meeting. Each stockholder will be
entitled to one vote for each share of Common Stock outstanding in his or her
name on the records of the Company. Item 1 - Election of Directors, requires the
affirmative vote of a plurality of the shares of Common Stock represented in
person or by proxy at the Annual Meeting. Item 2 - Amendment of the 1993
Employee Stock Plan, Item 3 - Amendment of the 1993 Non-Employee Directors'
Formula Stock Option Plan and Item 4 - Ratification of Appointment of
Independent Auditors, require an affirmative vote of a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting.
Abstentions and broker non-votes will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. For
purposes of determining the approval of any matter submitted to the stockholders
for a vote, abstentions will be treated as votes against, and if a broker
indicates on a proxy that it does not have discretionary authority to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
All proxies duly executed and received will be voted on all business
properly presented at the Annual Meeting. Proxies that specify a vote on a
proposal will be voted in accordance with such specification. Proxies that do
not specify a vote on a proposal will be voted in favor of the proposal. The
Board of Directors knows of no other business to be brought before the Annual
Meeting. However, if other business is properly brought before the Annual
Meeting, the holders of the proxies will vote on those proposals at their
discretion. However, a stockholder voting by means of a proxy has the power to
revoke it at any time before it is exercised by submitting another proxy bearing
a later date, by notifying the Secretary of the Company in writing of such
revocation, or by voting in person at the Annual Meeting.
The Company will pay the expense of soliciting proxies. Proxies will be
solicited by mail. Proxies may also be solicited by telephone calls or personal
calls by officers, directors, or employees of the Company, none of whom will be
specially compensated for soliciting proxies. In addition, the Company may
retain the services of a proxy soliciting firm to assist in the solicitation.
This Proxy Statement and the accompanying proxy were mailed on or about March
20, 1997. The Company's 1996 Annual Report to Stockholders accompanies this
Proxy Statement.
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors has nominated three persons for election at the
Annual Meeting to serve in the class of directors whose term expires at the
annual meeting of stockholders to be held in 2000 and one person for election at
the Annual Meeting to serve in the class of directors whose term expires at the
annual meeting of stockholders to be held in 1999. The four nominees, K. James
Ehlen, M.D., William M. Kelley, Gerald L. McManis, and Joseph D. Sargent, are
currently serving as directors. Dr. Ehlen was appointed to the Board of
Directors in January 1997, and is nominated for a two year term. Marshall
Whisnant and Anthony J. Perry are retiring from the Board of Directors at the
Annual Meeting. James A. Block, M.D., who has been a director since 1994 and
whose term is expiring, became an employee of the Company in February 1997, and
has not been nominated for election to the Board of Directors.
1
<PAGE>
The persons named on the accompanying proxy intend to vote in favor of all
nominees, all of whom have agreed to serve. If any nominee should, before the
meeting, become unavailable for election, the holders of the proxy may exercise
their discretion to vote for the election of such substitute person as the Board
of Directors may recommend.
The size of the Board of Directors is currently fifteen members. The
Restated Certificate of Incorporation permits the Board of Directors to adopt a
resolution from time to time establishing the size of the Board of Directors. A
resolution was adopted by the Board of Directors establishing the size at
fifteen directors upon the appointment of K. James Ehlen, M.D. to the Board of
Directors. The number of directors is set at twelve effective as of the Annual
Meeting.
Nominations of persons for election to the Board of Directors of the Company
may be made at the Annual Meeting only (i) by or at the direction of the Board
of Directors or (ii) by a stockholder of the Company entitled to vote for the
election of Directors at the meeting who complies with the following procedures.
The Nominating Committee will consider nominations made in accordance with
procedures set forth below. Nominations by stockholders must be made by timely
notice in writing to the Secretary of the Company. To be timely, a stockholder's
notice must be delivered or mailed to and received at the principal executive
offices of the Company not later than the close of business on March 31, 1997.
Such stockholder's notice shall set forth (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Company's books, of
such stockholder and (y) the number of shares of Common Stock the stockholder
beneficially owns. The officer of the Company or other person presiding at the
Annual Meeting will, if the facts so warrant, determine and declare to the
Annual Meeting that a nomination was not made in accordance with such provisions
and, if he or she should so determine, he or she will so declare to the Annual
Meeting and the defective nomination will be disregarded. In any event, only
four directors will be elected at the Annual Meeting. Directors need not be
stockholders.
NOMINEES FOR ELECTION
K. James Ehlen, M.D. age 52, is President of Allina Health System in
Minneapolis, Minnesota. He served as Chief Executive Officer of Medica from 1991
to 1994. Dr. Ehlen was appointed to the Board of Directors in 1997.
William M. Kelley, age 61, became Chairman and Chief Executive Officer of
Hill-Rom in Batesville, Indiana in 1995. He served as President of Hill-Rom from
1992 to 1995 and Senior Vice President from 1980 to 1992. Mr. Kelley has been a
director of the Company since 1993.
Gerald L. McManis, age 60, is President of McManis Associates, Inc.
("McManis Associates"), a subsidiary of the Company. He joined the Company in
1993 when the Company acquired McManis Associates. Prior to the acquisition, Mr.
McManis was President of McManis Associates, which he co-founded in 1964. Mr.
McManis is a director of Magellan Health Services, Inc. Mr. McManis has been a
director of the Company since 1994.
Joseph D. Sargent, age 67, is the Chairman and Chief Financial Officer of
Connecticut Surety Company. Mr. Sargent is also a director of Trenwick Group,
Inc., Executive Risk, Inc., Policy Management Systems Corp., Mutual Risk
Management Ltd. and E. W. Blanch Holdings, Inc. Mr. Sargent has been a director
of the Company since 1985.
CONTINUING AS DIRECTORS
Richard R. Barr, age 57, retired in 1995 as President of Presbyterian
Healthcare Services in Albuquerque, New Mexico. He is currently Executive Vice
President of Rust Tractor Co. Mr. Barr has been a director of the Company since
1986 and his term ends in 1998.
B. Frederick Becker, age 50, is Chairman and Chief Executive Officer. Mr.
Becker joined the Company as its President in 1985. Mr. Becker has been a
director of the Company since 1985 and his term ends in 1999.
George B. Caldwell, age 66, is President Emeritus of Lutheran General
Health System in Park Ridge, Illinois and is Chairman of the Collier Company in
Park Ridge, Illinois. Mr. Caldwell has been a director of the Company since 1983
and his term ends in 1998.
2
<PAGE>
F. Laird Facey, M.D., age 65, is a general surgeon affiliated with Daniel
Freeman Hospitals, Inc. in Inglewood, California. Dr. Facey has been a director
of the Company since 1983 and his term ends in 1998.
Andrew D. Kennedy, age 53, is a Partner with Beachcroft Stanleys, London
solicitors. Mr. Kennedy has been a director of the Company since 1996 and his
term ends in 1999.
Timothy R. McCormick, age 51, is President of the Park Ridge Health System
in Rochester, New York. Mr. McCormick has been a director of the Company since
1986 and his term ends in 1998.
Scott S. Parker, age 62, is President and Chief Executive Officer of
Intermountain Health Care, Inc. in Salt Lake City, Utah. Mr. Parker is a
director of First Security Corporation and has been a director of the Company
since 1986 and his term ends in 1998.
Edward C. Peddie, age 55, is President of AvMed-Santa Fe in Gainesville,
Florida. Mr. Peddie has been a director of the Company since 1990 and his term
ends in 1999.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has appointed an Executive and Finance
Committee, an Audit Committee, an Investment Committee, a Personnel and
Compensation Committee and a Nominating Committee. The Executive and Finance
Committee has, during the interim between meetings of the Board of Directors,
all of the authority of the Board of Directors, except such authority denied
such committee by the Company's Restated Certificate of Incorporation and bylaws
or by law. The Executive and Finance Committee consists of Messrs. Barr, Becker,
Caldwell, Sargent and Dr. Facey, and met five times in 1996. The Audit Committee
is composed of five non-employee directors, Messrs. McCormick, Peddie, and Perry
and Drs. Ehlen and Facey, and oversees the selection and retention of an
independent auditor and has responsibility for the content and oversight of the
audit program, including review of the effectiveness of the Company's corporate
accounting and financial practices and the adequacy of its internal controls.
The Audit Committee met six times in 1996. The Investment Committee determines
the Company's investment policy and reviews the actions of the Company and its
investment advisors. The Investment Committee consists of Messrs. Barr, Kennedy
and McManis and, and met three times in 1996. The Personnel and Compensation
Committee is composed of five non-employee directors, Messrs. Kelley, Parker,
Whisnant, Sargent and Dr. Facey, and fixes the compensation and benefits of the
President and such other officers or staff persons employed by the Company or
its subsidiaries who report directly to its President. The Personnel and
Compensation Committee met six times in 1996. The Nominating Committee prepares
and presents to the Board of Directors a slate of directors which such committee
proposes for election. The Nominating Committee consists of Messrs. Caldwell,
Parker, Peddie and Perry, and met five times in 1996.
During the fiscal year ended December 31, 1996, the Board of Directors met
eight times. Each director was present at seventy-five percent or more of the
aggregate number of meetings of the Board of Directors and the total number of
meetings held by committees of the Board of Directors on which such director
served.
DIRECTOR COMPENSATION
Non-employee directors receive an annual fee of $12,000 and $1,100 per
meeting day attended. Chairmen of committees of the Board of Directors receive
an additional annual fee of $2,000. Annual and meeting fees may be received in
cash or may be deferred. Directors also may receive annual and meeting fees in
the form of stock issued at 85% of fair market value. In addition, non-employee
directors receive life insurance under a group universal life insurance policy
with a death benefit of $100,000, receive travel and accident insurance for
Company related trips with variable benefits ranging from $62,500 to $250,000,
participate in the 1993 Non-Employee Directors' Formula Stock Option Plan (the
"1993 Director Stock Option Plan") and participate in the Board of Directors
Retirement Plan. Under the 1993 Director Stock Option Plan, non-employee
directors of the Company are granted an initial non-qualified option to purchase
4,125 shares of Common Stock and annually thereafter are granted a non-qualified
option to purchase 1,375 shares of Common Stock. Each such option will be
exercisable for ten years from the date of the grant. The exercise price of each
such option will be the fair market value on the date of the grant. Under the
Board of Directors Retirement Plan, a director who leaves the Board of Directors
after serving at least one three-year term as a non-employee director is
eligible after reaching age 59 1/2 to receive annual benefit payments equivalent
to the retainer fee at the time of retirement. A participating director is
eligible to receive benefit payments for the number of
4
<PAGE>
years equivalent to the number of years of Board of Directors service, with a
maximum of ten payments. Benefits may be paid in the form of an annual lump sum,
a straight life annuity, or a 50%, 75% or 100% joint survivorship annuity.
EXECUTIVE OFFICERS
The following section provides information about the executive officers of
the Company. Mr. Becker is also an executive officer.
Paul M. Orzech, age 54, is Executive Vice President and Chief Financial
Officer of the Company. Before joining the Company in 1993, Mr. Orzech served as
Vice President - Finance for Security Life of Denver Insurance Company since
1990.
Anna Marie Hajek, age 48, is Executive Vice President of the Company and
has been President of the MMI Healthcare Services Group since 1995 and was
President of the Company's risk management services subsidiary, MMI Risk
Management Resources, Inc. from 1992 to 1997. She joined the Company in 1985.
Steve A. Schleisman, age 52, is Executive Vice President of the Company and
President of the MMI Insurance Group. Prior to joining the Company in 1995, he
served as President of American International Underwriters-North America, a
subsidiary of American International Group.
Wayne A. Sinclair, age 50, is Senior Vice President, Secretary and General
Counsel of the Company. He joined the Company in 1987.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of December 31, 1996, by each person or
entity known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock.
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
- ------------------------------------ ----------- ----------
J.P. Morgan & Co., Inc. (1) ................ 1,081,820 9.3%
60 Wall Street
New York, New York 10260
Franklin Resources, Inc. (2) ............... 667,400 5.7
777 Mariners Island Blvd.
San Mateo, California 94404
(1) These figures were reported in a Schedule 13G filed with the Securities
and Exchange Commission as of December 31, 1996. With respect to those
shares, J.P. Morgan & Co. had the sole power to vote 619,100 shares
and the sole power to direct the disposition of 1,081,820 shares.
(2) These figures were reported in a Schedule 13G filed with the Securities
and Exchange Commission as of December 31, 1996. With respect to those
shares, Franklin Resources, Inc. had the sole power to vote 667,400
shares and the sole power to direct the disposition of 667,400 shares.
4
<PAGE>
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of December 31, 1996, by each director,
director nominee and named executive officer of the Company and all directors,
director nominees and executive officers of the Company as a group.
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Ownership (1) of Class
- ------------------------ ------------- ----------
DIRECTORS AND DIRECTOR NOMINEES
Richard R. Barr (4) ...................... 8,250 *
B. Frederick Becker (2)(3) ............... 363,999 3.1%
James A. Block, M.D. ..................... 8,875 *
George B. Caldwell (4) .................. 23,807 *
K. James Ehlen, M.D. ..................... - -
F. Laird Facey, M.D. (4). ................ 30,842 *
William M. Kelley (4) .................... 8,550 *
Andrew D. Kennedy ........................ 4,551 *
Timothy R. McCormick (4) ................. 10,326 *
Gerald L. McManis (2)(3) ................. 202,279 1.7
Scott S. Parker (4) ...................... 8,250 *
Edward C. Peddie (4) ..................... 10,560 *
Anthony J. Perry (4) ..................... 14,877 *
Joseph D. Sargent (4) .................... 12,670 *
Marshall Whisnant (4) .................... 18,902 *
CERTAIN EXECUTIVE OFFICERS
Anna Marie Hajek (2)(3) .................. 67,625 *
Paul M. Orzech (2)(3) .................... 52,321 *
Steve A. Schleisman (2)(3) ............... 23,125 *
Wayne A. Sinclair (2)(3) ................. 56,267 *
ALL DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE
OFFICERS AS A GROUP
(19 persons) 926,076 7.6
- ------------------------
* Represents less than 1% of the Common Stock.
(1) Includes shares of Common Stock and options, exercisable within sixty
days, to purchase shares of Common Stock. Each of the persons identified
above holds exclusive voting and investment power over the shares of
Common Stock beneficially owned.
(2) Includes options granted under the 1993 Employee Stock Plan as follows:
Mr. Becker - 214,125 options; Mr. McManis - 13,000 options; Ms. Hajek -
64,250 options; Mr. Orzech - 38,000 options; Mr. Schleisman - 22,000
options; Mr. Sinclair - 53,375 options.
(3) Includes shares under the Company's Amended and Restated Savings and
Profit Share Plan (401(k)) as follows: Mr. Becker - 2,567 shares; Mr.
McManis - 2,868 shares; Ms. Hajek - 1,258 shares; Mr. Orzech - 1,991
shares; Mr. Schleisman - 221 shares; Mr. Sinclair - 1,320 shares.
Messrs. Becker, Orzech and Schleisman and Ms. Hajek have voting and
dispositive power for 139,253 shares solely in their capacities as
trustees.
(4) Includes options granted under the 1993 Director Stock Option Plan
as follows: Dr. Block - 6,875 options; Mr. Kennedy - 4,125 options;
each other noted director, 8,250 options.
5
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Certain directors of the Company and the hospitals with which they are
affiliated obtain insurance or consulting services from the Company's
subsidiaries in the ordinary course of business at the Company's customary and
standard rates. These directors and their affiliated hospitals are K. James
Ehlen, M.D., President of Allina Health System; Timothy R. McCormick, President
of Park Ridge Health System; Scott S. Parker, President and Chief Executive
Officer of Intermountain Health Care, Inc.; and Edward C. Peddie, President and
CEO of AvMed-Santa Fe. Premiums from these healthcare institutions constituted
less than 5% of the Company's gross premiums written in 1996. See also
"Compensation Committee Interlocks and Insider Participation in Compensation
Decisions."
Beachcroft Stanleys, London solicitors, of which Mr. Kennedy is a Partner,
provided legal services at their standard rates to the Company in 1996. Such
legal fees amounted to less than 5% of Beachcroft Stanleys' total revenues in
1996.
Dr. Block, whose term as a director expires at the Annual Meeting, became
an employee of the Company in February 1997. Prior to accepting an offer
of employment, Dr. Block resigned from the Audit Committee.
6
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION AND OPTION TABLES
The following table summarizes the compensation of the Company's chief
executive officer and the next most highly compensated executive officers of the
Company for 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term
Compensation All Other
Name and Principal Position Year Salary Bonus Option Awards Compensation(2)
- --------------------------- ---- -------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
B. Frederick Becker 1996 $467,250 $239,622 - $22,506
Chairman and Chief Executive 1995 408,498 346,793 - 22,099
Officer 1994 365,497 202,255 143,000 21,978
Paul M. Orzech 1996 270,626 71,749 13,000 15,340
Executive Vice President and 1995 255,622 91,705 17,000 15,186
Chief Financial Officer 1994 246,254 54,750 3,000 15,001
Steve A. Schleisman (1) 1996 249,984 17,000 2,000 67,334
Executive Vice President; 1995 57,293 16,616 50,000 -
President, MMI Insurance Group 1994 - - - -
Anna Marie Hajek 1996 217,602 60,347 13,000 14,829
Executive Vice President; 1995 187,266 94,713 13,000 14,722
President, MMI Healthcare 1994 156,909 43,633 2,000 14,598
Services Group
Wayne A. Sinclair 1996 196,602 34,880 5,000 15,012
Senior Vice President, General 1995 184,616 81,624 1,000 14,898
Counsel and Secretary 1994 177,105 46,778 2,000 14,763
<FN>
(1) Mr. Schleisman was named Executive Vice President and President, MMI Insurance Group in 1995.
(2) 1996 amounts include contributions by the Company of $14,242 under the Company's Savings and Profit Sharing Plan
(401(k)), the value of insurance premiums paid by the Company for universal life insurance in the amounts of
$8,264, $1,098, $892, $587 and $770, for Mr. Becker, Mr. Orzech, Mr. Schleisman, Ms. Hajek and Mr. Sinclair,
respectively. For Mr. Schleisman, the 1996 amount includes premiums in the amount of $52,200 paid by the Company
for a flexible premium adjustable life insurance policy to fund a deferred payment to be made to Mr. Schleisman
when he reaches age 65. The remaining payments under the policy total $678,600.
</FN>
</TABLE>
7
<PAGE>
The following table shows the total number of options granted to each of the
named executive officers during 1996 (both as a number of shares of Common Stock
and as a percentage of all options granted to employees during 1996) and, for
each of these grants, the exercise price per share of Common Stock, option
expiration date and potential realizable value at the termination date.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Percent Realizable Value at
of Total Assumed Annual
Number of Options Rates of Share
Options Granted to Exercise Price Appreciation
Granted Employees Price for Option Term(2)
Name in 1996 in 1996 Per Share (1) Expiration Date 5% 10%
- ---- -------- -------- ------------- -------------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
B. Frederick Becker - - - - - -
Paul M. Orzech 8,000 $24.25 February 28, 2006
5,000 30.25 September 19, 2006
------
13,000 6.4% $217,126 $550,240
Steve A. Schleisman 2,000 1.0 24.25 February 28, 2006 30,501 77,297
Anna Marie Hajek 8,000 24.25 February 28, 2006
5,000 30.25 September 19, 2006
------
13,000 6.4 217,126 550,240
Wayne A. Sinclair 5,000 2.5 24.25 February 28, 2006 76,253 193,241
- -------------------------------
<FN>
(1) Options granted on February 28, 1996 having an exercise price of $24.25
are immediately exercisable. Options granted on September 19, 1996 having
an exercise price of $30.25 vest on the six-month anniversary of the
grant date.
(2) The potential realizable values were calculated by assuming that the
value of the Common Stock appreciates from the exercise price on the date
of grant to the expiration date of the options at the alternate assumed
annual rates of 5% and 10%.
</FN>
</TABLE>
The following table shows, for each of the named executive officers, the
number of unexercised options held at December 31, 1996 and the aggregate dollar
value of these unexercised options that are in-the-money based on the market
value of the Company's Common Stock as of December 31, 1996. There were no
exercises of options by named executive officers in 1996.
<TABLE>
<CAPTION>
AGGREGATED FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of In-the-Money
Options at Options at
December 31, 1996 December 31, 1996
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- ------------------------- ----------------------------
<S> <C> <C>
B. Frederick Becker .................................... 214,125/35,750 $4,055,063/$683,719
Paul M. Orzech ......................................... 38,000/5,000 464,360/10,000
Steve A. Schleisman .................................... 22,000/30,000 176,000/240,000
Anna Marie Hajek ....................................... 64,250/5,000 1,001,178/10,000
Wayne A. Sinclair ...................................... 53,375/- 944,771/-
- -----------------
<FN>
(1) These values are calculated by determining the difference between the
fair market value of the Common Stock at December 31, 1996 which was
determined to be $32.25 per share, the closing price on the New York
Stock Exchange at such date, and the exercise price of the option.
</FN>
</TABLE>
8
<PAGE>
REPORT OF THE PERSONNEL AND COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Introduction
The Company's executive compensation program is administered by the
Personnel and Compensation Committee of the Board of Directors (the
"Committee"). The Committee consists of no fewer than three non-employee
Directors, who are appointed by the Board of Directors to serve a one year term.
The Committee functions to:
o establish, approve, and review annually the terms of employment
including the compensation for the Chief Executive Officer of the
Company, based upon an appraisal of the performance of the Chief
Executive Officer;
o approve and review periodically compensation process, programs,
incentives, and other employee benefit plans;
o monitor and oversee the establishment of employment contracts made with
other executive officers or other key employees;
o review and recommend action by the Board of Directors with respect to
the compensation of directors;
o administer the Company's Return on Equity Plan ("ROE Plan"), 1993
Employee Stock Plan ("Stock Plan"), 1995 Employee Stock Investment Plan
("ESIP") and Long Term Incentive Plan of 1997; and
o perform other duties with regard to the compensation of officers and
other key executives of the Company as the Board of Directors may
request or are appropriate.
As outlined above, the Committee specifically determines the total
compensation for the Company's Chief Executive Officer, B. Frederick Becker, and
considers for approval recommendations made by the Chief Executive Officer with
regard to other officers and key employees, including the Company's next most
highly paid executive officers; Paul M. Orzech, Steve A. Schleisman, Anna Marie
Hajek and Wayne A. Sinclair, who are collectively referred to as the "Named
Executives."
Compensation Policies for the Named Executives
The Committee's compensation policies and programs are designed to: 1)
reward performance, 2) attract and retain qualified executives, and 3)
integrate pay with the Company's long-term and annual performance goals.
The Company's compensation package consists of base compensation, an annual
bonus based upon the achievement of annually established goals, stock options
and other long-term compensation strategies.
Annual Base Pay
The base pay of each executive officer is set at the level that the
Committee believes is appropriate with consideration for industry standards,
performance, and scope of responsibility in relation to other officers and key
employees within the Company. Salaries for executive officers are reviewed
annually by the Committee.
Annual Incentive (Bonus) Program
The Company's Officer Incentive Plan (the "Incentive Plan") is designed to
attract and retain well qualified executives and to focus executives' attention
on key business objectives, while rewarding individual performance results.
At the beginning of each Incentive Plan year, the Committee recommends an
aggregate annual award budget and establishes a profit target. Individual
performance goals, both quantitative and qualitative, are established for each
participant. Potential awards range between 15% to 35% of base salary, with the
percentage determined by level within the organization. Individual performance
determines 67% of the employee's incentive award; the Company's performance
determines 33% of an employee's award.
At year end, both Company and individual performance are assessed. If the
Company does not achieve the profit target, the 33% Company component will not
be paid. If the Company records a loss, neither the individual component nor the
Company component will be paid. In 1996, the Company did not reach its operating
profit target; therefore, the 1996 incentive awards reflected only the 67%
individual component. If Company
9
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profits equal or exceed the predetermined profit target, the Committee may
recommend that the Board of Directors increase the amount for each participant
by a factor of up to 25% of the total award. The maximum amount that can be paid
under the Incentive Plan is 125% of the budgeted incentive amount. No such award
was made for 1996.
Employee Stock Plan
The purpose of the Stock Plan is to promote the long-term growth of the
Company by rewarding key management employees with a proprietary interest in the
Company for outstanding long-term performance and to attract, motivate and
retain highly qualified and capable management employees.
The Committee may, at its discretion, make awards to participants under the
Stock Plan in the form of non-qualified stock options, incentive stock options,
or restricted stock, or a combination thereof. The maximum number of shares
which the Committee may issue under the Stock Plan is 1,237,500 shares. As of
December 31, 1996, there were 839,184 stock options outstanding pursuant to the
Stock Plan.
Return on Equity Incentive Plan
The Company's ROE Plan is maintained by the Company to assist in attracting
and retaining management personnel for the Company and to encourage executives
to strive for outstanding results in the operation of the Company from year to
year. The ROE Plan is intended to provide an incentive comparable to equity
participation in the performance of the Company.
The Committee designates participants and their class of participation in
the ROE Plan. All of the Named Executives participate in the ROE Plan. Awards
under the ROE Plan are calculated by multiplying a participant's base salary by
an ROE factor which is a function of the Company return on equity and the
participant's class of participation. Return on equity, as defined in the ROE
Plan, is the ratio of operating earnings per share to book value per share. ROE
factors may range from zero, if ROE is less than 14%, to a maximum of 40% to 60%
of base salary if ROE exceeds 14%. Awards vest over a period of 40 months
following the end of a ROE Plan year, and may be adjusted over the vesting
period based on the development, if any, of the Company's loss reserves.
The Company's return on equity for 1996 was less than the target specified
in the ROE Plan. In 1996, the Company paid awards relating to the 1993 and 1994
ROE Plan years.
1996 Compensation for the Chief Executive Officer
Mr. Becker is eligible to participate in all of the Company's compensation
programs. The Committee considers industry standards and annual performance with
respect to goals established by the Committee in determining his base
compensation. In 1996, the Company increased Mr. Becker's salary by 14% to
$467,250. The increase related to accomplishment of performance objectives in
1995, continued success in achieving long-term corporate objectives and industry
compensation standards. The Committee established performance goals for Mr.
Becker for 1996 that consisted of financial, operational and management
objectives, with heaviest weighting given to financial objectives. The Committee
determined that Mr. Becker had achieved 67% of his goals and objectives relative
to his bonus target for 1996. The Company awarded Mr. Becker a bonus of 67% of
his 60% target, or 40.2% of his current base salary, such amount being $194,166,
under the Incentive Plan as compensation for this achievement. Mr. Becker
received $45,456 pursuant to the ROE Plan in 1996.
The Committee believes the compensation to the Company's Chief Executive
Officer and Named Executives to be reflective of Company performance within the
scope of industry standards.
Personnel and Compensation Committee of the MMI Companies, Inc. Board of
Directors:
Joseph D. Sargent F. Laird Facey, M.D. William M. Kelley
(Chairman)
Scott S. Parker Marshall Whisnant
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Personnel and Compensation Committee consists of Messrs. Sargent,
Kelley, Parker, Whisnant and Dr. Facey. No executive officer of the Company
served as a director or member of the compensation committee of any entity
whose executive officers served on the Board of Directors or Personnel and
Compensation Committee of the Company.
EMPLOYMENT AGREEMENTS
Mr. Becker
The Company is a party to an employment agreement dated September 17, 1988,
as amended, with its Chairman and Chief Executive Officer, B. Frederick Becker.
In that employment agreement, the Company agreed to pay Mr. Becker a salary of
not less than $225,000 per annum. In addition, the Company agreed that each
year, if the Company achieves the strategic and financial goals mutually agreed
to by Mr. Becker and the Personnel and Compensation Committee of the Board of
Directors, Mr. Becker will receive a bonus equal to 35% of his annual salary.
For outstanding achievement, the bonus would equal up to 60% of his annual
salary. Mr. Becker is also entitled to an annual perquisite allowance of $30,000
and to participate in any retirement, hospitalization, group life insurance or
similar program of the Company. The Company also agreed to pay Mr. Becker a lump
sum equal to one and one-half times his annual salary if the Company terminates
his employment without cause.
Mr. Becker's employment agreement provides that the Company will pay Mr.
Becker an amount equal to 270% of his annual salary if any of the following
events occur within twelve months of a Change of Control (as defined) of the
Company: (a) an involuntary termination of Mr. Becker's employment except for
death, disability or cause or (b) the voluntary termination of Mr. Becker's
employment within sixty days of either (i) a reduction in his responsibilities,
salary, bonus opportunity or benefits or (ii) a relocation of the Company's
principal place of business in excess of fifty miles from its existing location.
Such employment agreement defines a Change of Control as either (a) a
reconstitution of more than 50% of the Board of Directors of the Company within
any consecutive twelve month period or (b) an accumulation of more than 50% of
the Company'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 the Company.
Other Executive Officers
The Company is a party to agreements with Messrs. McManis, Schleisman and
Orzech and Ms. Hajek. In those agreements, the Company agrees to pay such
executive officers a lump sum equal to one and one-half times their annual
salary if any of the following events occur within twelve months of a Change of
Control (as defined) of the Company: (a) an involuntary termination of such
executive officer's employment except for death, disability or cause or (b) the
voluntary termination of such executive officer's employment within sixty days
of either (i) a reduction in their responsibilities or base salary or (ii) a
relocation of the Company's principal place of business in excess of fifty miles
from its existing location. Such employment agreement defines a Change of
Control as either (a) a reconstitution of more than 50% of the Board of
Directors of the Company within any consecutive twelve month period or (b) an
accumulation of more than 50% of the Company'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 the Company.
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STOCK PRICE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
Company, the S&P 500 index and an index of peer companies selected by the
Company, for the period from June 24, 1993, the date of the Company's initial
public offering of Common Stock, through December 31, 1996. The chart assumes an
initial investment of $100.00 and reinvestment of dividends.
GRAPHICAL REPRESENTATION OF THE CUMMULATIVE TOTAL RETURN INFORMATION
PRESENTED IN THE TABLE BELOW
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG MMI COMPANIES, INC., S&P 500 INDEX AND COMPANY PEER GROUP
6/24/93 12/31/93 12/31/94 12/31/95 12/31/96
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
MMI Companies, Inc. $100.00 $111.59 $119.67 $182.69 $247.49
S&P 500 100.00 106.75 108.11 148.74 182.89
Company Peer Group 100.00 93.35 94.27 139.62 169.51
</TABLE>
The Company's peer group consists of The Allstate Corporation, The Chubb
Corporation, Frontier Insurance Group, Inc., General Re Corporation, The
Hartford Steam Boiler Inspection and Insurance Company, Loews Corporation, MAIC
Holdings Inc., MGIC Investment Corporation, Mutual Risk Management Ltd., Safeco
Corporation, The St. Paul Companies, Inc. and USFG Corporation. The peer group
includes eight companies that comprise the S&P Property-Casualty Insurance Index
and publicly traded companies that are among the largest writers of medical
malpractice insurance or derive their revenues from a combination of insurance
premiums and related fee-for-service business. The companies in the peer group
are weighted by market capitalization as of the beginning of the measurement
period. The company peer group changed from the prior year due to the addition
of MGIC Investment Corporation to the S&P Property-Casualty Insurance Index. Had
the composition of the peer group remained unchanged from year to year, its
total return in 1996 would have been 20.6%, resulting in a cumulative total
return through 1996 of 68.3%.
12
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ITEM 2. AMENDMENT OF THE 1993 EMPLOYEE STOCK PLAN
The Board of Directors believes that the availability of an adequate number
of shares under the 1993 Employee Stock Plan has been and will be an important
factor in attracting and retaining highly qualified and capable employees. As of
December 31, 1996, there were 839,184 stock options outstanding pursuant to the
1993 Employee Stock Plan. The Board of Directors of the Company has amended,
subject to the approval of its stockholders, the 1993 Employee Stock Plan
increasing by 500,000 the maximum number of shares that may be issued under the
plan, from 1,237,500 shares to 1,737,500 shares. A copy of the 1993 Employee
Stock Plan is set forth as Exhibit A to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO
AMEND THE 1993 EMPLOYEE STOCK PLAN.
ITEM 3. AMENDMENT OF THE 1993 NON-EMPLOYEE DIRECTORS' FORMULA STOCK OPTION PLAN
The Board of Directors believes that the availability of an adequate number
of shares under the 1993 Non-Employee Directors' Formula Stock Option Plan has
been and will be an important factor in attracting and retaining highly
qualified non-employee directors. As of December 31, 1996, there were 101,750
stock options outstanding pursuant to the 1993 Non-Employee Directors' Formula
Stock Option Plan.
The Board of Directors of the Company has amended, subject to the approval
of its stockholders, the 1993 Non-Employee Directors' Formula Stock Option Plan
increasing by 50,000 the maximum number of shares that may be issued under the
plan, from 137,500 shares to 187,500 shares. A copy of the 1993 Non-Employee
Directors' Formula Stock Option Plan is set forth as Exhibit B to this Proxy
Statement. The following summary is qualified in its entirety by reference to
Exhibit B.
DESCRIPTION OF THE 1993 NON-EMPLOYEE DIRECTOR'S FORMULA STOCK OPTION PLAN
The purpose of the 1993 Non-Employee Directors' Formula Stock Option Plan is
to promote the interests of the Company by providing an incentive for
non-employee directors to join and remain of the Board of Directors of the
Corporation.
As of the date that any new non-employee director is elected or appointed to
the Board of Directors, such non-employee director will be granted a
non-qualified option to purchase 4,125 shares of the Company's Common Stock at
an exercise price equal to the fair market value of the Company's Common Stock
on the date of such appointment or election. Each non-employee director who is
serving on the Board of Directors on December 31 of any year shall be granted a
non-qualified option to purchase 1,375 shares of the Company's Common Stock. The
grant date of such options shall be the date of the annual meeting of
shareholders for the next year. The option exercise price shall equal the fair
market value per share of the Company's Common Stock on the date immediately
prior to the grant date. Although a non-employee director must be serving as a
director on December 31 of a given year to be eligible to receive an option with
respect to such year, a director need not be serving as a director on the grant
date to be granted such option. Options granted under the 1993 Non-Employee
Directors' Formula Stock Option Plan shall be exercisable for a term of ten
years from the date of grant. Options shall not be contingent on continued board
service and shall remain exercisable following resignation or removal from the
Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO AMEND
THE 1993 NON-EMPLOYEE DIRECTORS' FORMULA STOCK OPTION PLAN.
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<PAGE>
ITEM 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors and its Audit Committee recommend the ratification of
the appointment of Ernst & Young LLP, independent auditors, to audit the
Company's financial statements for the fiscal year ending December 31, 1997. An
appropriate resolution ratifying such appointment will be submitted to the
stockholders at the Annual Meeting. The shares represented by the accompanying
proxy will be voted for the ratification of the appointment of Ernst & Young
LLP, which has served as independent auditor of the Company since 1983. If such
resolution is not adopted, management will reconsider such appointment. A
representative of Ernst & Young LLP will be present at the Annual Meeting, will
have the opportunity to make a statement if he or she wishes, and will be
available to respond to appropriate questions of stockholders.
STOCKHOLDER PROPOSALS
If any stockholder wishes to propose a matter for consideration at the
Company's annual meeting to be held in April 1998, the proposal should be sent
to the Secretary of the Company, Wayne A. Sinclair, at the principal executive
offices of the Company. A proposal must be received by the Company by November
20, 1997 in order to be considered for inclusion in the Company's 1998 annual
meeting Proxy Statement and form of Proxy which is expected to be mailed in
March of 1998.
By order of the Board of Directors
Wayne A. Sinclair
Secretary
March 20, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1996, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, IS AVAILABLE WITHOUT CHARGE TO STOCKHOLDERS
UPON WRITTEN REQUEST ADDRESSED TO PAUL M. ORZECH, EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, MMI COMPANIES, INC., 540 LAKE COOK ROAD, DEERFIELD,
ILLINOIS 60015.
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<PAGE>
EXHIBIT A
MMI COMPANIES, INC.
1993 EMPLOYEE STOCK PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the MMI Companies, Inc. 1993 Employee Stock Plan is to promote
the long-term growth of MMI Companies, Inc. by rewarding key management
employees with a proprietary interest in MMI Companies, Inc. for outstanding
long-term performance and to attract, motivate and retain highly qualified and
capable management employees.
ARTICLE II
DEFINITIONS
2.1 "Award" means an award granted to a Participant under the Plan in the
form of an Option or Restricted Stock, or any combination of the
foregoing.
2.2 "Board" means the Board of Directors of MMI Companies, Inc.
2.3 "Committee" shall mean the Personnel and Compensation Committee of the
Board.
2.4 "Corporation" means MMI Companies, Inc.
2.5 "Disability" means total disability as defined from time to time
under the MMI Companies, Inc. Long-Term Disability Plan.
2.6 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.7 "Fair Market Value" means (i) if the Shares are listed for trading on a
national securities exchange, the closing price per Share on such
exchange on the Option Grant Date, or, (ii) if the Shares are not
listed on any securities exchange, but are publicly traded and reported
by the National Association of Securities Dealers through their
Automated Quotation System ("NASDAQ"), then the closing price as
reported by NASDAQ on the Option Grant Date, or (iii) if the Shares are
not publicly traded, then the fair market value of a Share shall be as
determined by the Committee.
2.8 "Incentive Stock Option" means an Option which meets the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended, or any
successor law.
2.9 "Option" means an option awarded under Article VIII to purchase
Shares. An Option may be either an Incentive Stock Option or a
Non-Qualified Stock Option.
2.10 "Option Exercise Period" means the period from the Option Grant Date to
the date on which an Option expires.
2.11 "Option Grant Date" means the date upon which the Option is granted to
the Optionee.
2.12 "Optionee" means the employee of the Corporation to whom an Option has
been granted.
2.13 "Non-Qualified Stock Option" means an Option which does not meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as
amended, or any successor law.
2.14 "Participant" means an employee of the Corporation or any Subsidiary to
whom an Award has been granted which has not terminated, expired or
been fully exercised.
2.15 "Plan" means the MMI Companies, Inc. 1993 Employee Stock Plan, as it
may be amended and restated from time to time.
2.16 "Restriction Period" means the period of time, which may be a single
period or multiple periods, during which Restricted Stock awarded to a
Participant remains subject to the restrictions imposed on such Shares,
as determined by the Committee.
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<PAGE>
2.17 "Restrictions" means the restrictions and conditions imposed on
Restricted Stock awarded to a Participant, as determined by the
Committee, which must be satisfied in order for the Restricted Stock to
vest, in whole or in part, in the Participant.
2.18 "Restricted Stock" means Shares awarded under the Plan subject to
Restriction Period(s) and Restrictions which constitute a "substantial
risk of forfeiture" as defined in Section 83 of the Internal Revenue
Code of 1986, as amended, or any successor law.
2.19 "Restricted Stock Agreement" means a written agreement between a
Participant and the Corporation evidencing an Award of Restricted
Stock.
2.20 "Restricted Stock Award Date" means the date on which the Restricted
Stock is granted to the Participant.
2.21 "Retirement" means retirement from active employment with the
Corporation or any Subsidiary.
2.22 "Shares" means shares of Common Stock, par value $0.10 per share, of
the Corporation.
2.23 "Stock Option Agreement" means a written agreement between a
Participant and the Corporation evidencing an Award of an Option.
2.24 "Subsidiary" means any domestic or foreign corporation or entity of
which the Corporation owns, directly or indirectly, at least 51% of the
total combined voting power of such corporation or other entity.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administrator of the Plan. The Plan shall be administered by the
----------------------------
Committee. The Committee shall be comprised of directors who are
"disinterested persons" as defined in Rule 16b-3 or any successor rule
of the Securities and Exchange Commission.
3.2 Authority of Committee. The Committee shall have full power and
-----------------------
authority to:
(i) exercise all of the powers granted to it under the Plan;
(ii) designate the Participants to whom Options or Restricted Stock
may be granted from time to time;
(iii) determine the type of Award to be granted to each Participant
under the Plan and the number of Shares subject thereto;
(iv) determine the duration of the Restriction Period and the
Restrictions to be imposed with respect to each Award of
Restricted Stock;
(v) interpret and construe the Plan and adopt and rescind such rules
and regulations as it shall deem necessary and advisable to
implement and administer the Plan and to correct any defect,
supply any omission and reconcile any inconsistency in the Plan;
(vi) approve the form and terms and conditions of each Restricted
Stock Agreement and Stock Option Agreement; and
(vii) designate persons other than members of the Committee to carry
out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe, provided that
the Committee may not delegate its authority (a) with respect to
the granting of Awards to persons subject to Sections 16(a) and
16(b) of the Exchange Act or (b) if such delegation would cause
the Plan not to comply with the requirements of Rule 16b-3 or any
successor rule of the Securities and Exchange Commission; such
determinations to be made in accordance with the Committee's best
business judgment as to the best interests of the Corporation and
its stockholders and in accordance with the purposes of the Plan.
The Committee's determinations under the Plan need not be uniform
and may be made selectively among persons who receive, or are
eligible to receive, Awards under the Plan (whether or not such
persons are similarly situated).
16
<PAGE>
3.3 Determinations of Committee. A majority of the Committee shall
constitute a quorum at any meeting of the Committee, and all
determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made
without notice or a meeting of the Committee by a written consent
signed by all members of the Committee. The determination of the
Committee on all matters relating to the Plan or any Stock Option
Agreement or Restricted Stock Agreement shall be conclusive.
3.4 Delegation. The Committee may delegate such non-discretionary
administrative duties under the Plan to one or more agents as it shall
deem necessary or advisable.
3.5 Effect of Committee Determinations. No member of the Committee or the
Board shall be personally liable for any action or determination made
in good faith with respect to the Plan, any Award, or any Restricted
Stock or Stock Option Agreement or any settlement of any dispute
between a Participant and the Corporation. Any decision made or action
taken by the Committee or the Board with respect to an Award or the
administration or interpretation of the Plan or a Restricted Stock
Agreement or Stock Option Agreement shall be conclusive and binding
upon all persons.
ARTICLE IV
AWARDS UNDER THE PLAN
The Committee may, in its discretion, make Awards to Participants under the
Plan in the form of Non-Qualified Stock Options, Incentive Stock Options or
Restricted Stock, or a combination thereof. Each Award of an Option shall be
evidenced by a Stock Option Agreement. If an Option is designated as an
Incentive Stock Option, the terms of such Option and the related Option
Agreement shall be in conformance with Section 422 of the Internal Revenue Code
of 1986, as amended, or any successor law. Each Award of Restricted Stock shall
be evidenced by a Restricted Stock Agreement. Every Stock Option Agreement and
Restricted Stock Agreement shall be consistent with the terms and provisions of
the Plan and contain such provisions as the Committee deems necessary or
desirable.
ARTICLE V
PARTICIPANTS
The Participants in the Plan shall be such officers and key management
employees of the Corporation and its Subsidiaries as are designated by the
Committee. A Participant who has been granted an Award under the Plan may be
granted additional Awards under the Plan under such circumstances and at such
times as the Committee may determine.
ARTICLE Vl
SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Article XIV, the aggregate number of
Shares which may be issued under the Plan shall not exceed 900,000* Shares. Such
Shares may be authorized but unissued Shares or treasury Shares. Shares issued
or subject to issuance pursuant to Awards which expire, are cancelled or
otherwise terminate prior to the vesting or issuance (as applicable) of the
Shares, shall again be available for future Awards.
ARTICLE Vll
NON-TRANSFERABILITY OF AWARDS
Awards granted under the Plan shall not be transferable by the Participant
during his or her lifetime and may not be assigned, exchanged, pledged,
transferred or otherwise encumbered or disposed of except by will or by the laws
of descent and distribution or by a qualified domestic relations order as
defined by the Internal
* 1,237,500 after 1993 stock split of 1.375 for 1.
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Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. Options shall be exercisable during the
Optionee's lifetime only by the Optionee or by the Optionee's guardian or legal
representative.
Notwithstanding the foregoing, from and after March 1, 1997, a Participant
who is a Senior Vice President of the Company, or who has a higher elected
office with the Company, or is President of any Subsidiary, may transfer all or
a portion of the options granted to such Participant (including options
outstanding on the date thereof) to (i) the spouse, descendants (including
adopted descendants and grandchildren), or the spouses of children or
grandchildren of the Participant ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (iii) a
partnership or limited liability company in which such Immediate Family Members
are the only partners or members, provided that (x) there may be no
consideration for any such transfer (except issuance of a partnership or limited
liability company interest in case of transfer to a family limited partnership
or limited liability company), (y) the stock option agreement pursuant to which
such options are granted must be approved by the Committee, and must expressly
provide, or be amended to provide, for transferability in a manner consistent
with this Article, and (z) subsequent transfers of transferred options shall be
prohibited except by will or the laws of descent and distribution. Following
transfer, any such options shall continue to be subject to the same terms and
conditions as applicable immediately prior to transfer, provided that for
purposes of Article VIII(b) hereof the term "Optionee" shall be deemed to refer
to the transferee. The events relating to termination of employment of Article
VIII(e) hereof shall continue to be applied with respect to the original
Participant, following which the options shall be exercisable by the transferee
only to the extent, and for the periods applicable to the transferor. The
Committee may, in its discretion, permit transfers to other persons or entities
on substantially the same terms.
ARTICLE VIII
OPTIONS
Each Option granted under the Plan shall be subject to such terms and
conditions as the Committee may, in its sole discretion, determine and to the
following terms and conditions:
(a) Option Price. The option price per Share shall be not less than the
Fair Market Value on the Option Grant Date.
(b) Exercise of Options. Each Option shall be exercisable in the manner, on
the dates and for the number of Shares as shall be provided in the
Stock Option Agreement evidencing such Option, provided that no Option
shall be exercisable earlier than six months after its Option Grant
Date or later than the tenth anniversary of its Option Grant Date.
Shares shall be issued to the Optionee pursuant to the exercise of an
Option only upon receipt by the Corporation from the Optionee of
payment in full of the option price of the Shares being purchased.
Payment of such option price shall be made (a) by certified or official
bank check payable to the Corporation (or the equivalent thereof
acceptable to the Committee), or (b) with the consent of the Committee,
by delivery (either singularly or sequentially by "pyramiding") of
previously-acquired Shares or the withholding of a portion of the
Shares due upon exercise having a Fair Market Value (determined as of
the date such Option is exercised) equal to all or part of the option
price and, if applicable, of a certified or official bank check (or the
equivalent acceptable to the Committee) for any remaining portion of
such option price. As soon as practicable after receipt of such
payment, the Corporation shall, subject to the provisions of Article X,
deliver to the Participant a certificate or certificates for Shares.
To the extent permitted by the regulations of the Federal Reserve Board
governing margin requirements in effect at the time of exercise of any
Option (including any exemption from margin requirements for employee
stock option plans if such exemption is available), the Corporation may
extend credit, or arrange for the extension of credit, to each Optionee
who exercises an Option, at the time of such exercise, to assist the
Optionee in the purchase of Shares pursuant to such exercise. Such
credit will be collateralized by the Shares purchased and will be in an
amount not greater than the lesser of (i) the option price of the
Shares or (ii) the amount of credit permitted by regulations of the
Federal Reserve Board. The rate of interest, terms of repayment and
provisions for release of collateral with respect to each
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<PAGE>
such credit will be as determined by the Committee at the time the
credit is extended, but in any event shall be in accordance with any
applicable regulations of the Federal Reserve Board. In this
connection, the Committee may also, in its sole discretion, permit
payment of the option price upon exercise of any Option to be made by
the delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the
Corporation the amount of sale or loan proceeds to pay the option
price. To facilitate the foregoing, the Corporation may enter into
agreements for coordinated procedures with one or more brokerage
firms.
(c) Replacement Options. The Committee may provide either at the time of
grant or subsequently that an Option include the right to acquire a
replacement option. An Option which provides for the grant of a
replacement option shall entitle the Participant, upon exercise of the
Option (in whole or in part) prior to termination of employment of the
Participant and upon payment of the option price through the delivery
of previously acquired Shares, to receive a replacement option. In
addition to any other terms and conditions the Committee deems
appropriate, the replacement option shall be subject to the following
terms: the number of Shares shall not exceed the number of whole
Shares used to satisfy the option price of the original Option and the
number of whole shares, if any, withheld by the Corporation as payment
for withholding taxes in accordance with Article X hereof; the Option
Grant Date of the replacement option will be the date of the exercise
of the original Option; the option price per share of the replacement
option shall be not less than the Fair Market Value on its Option
Grant Date; the replacement option shall be exercisable no earlier
than six months after the Option Grant Date and no later than the end
of the term of the original Option; and the replacement option shall
be a Non-Qualified Option and shall otherwise meet all conditions of
this Article VIII. The Committee may, without the consent of the
Participant, rescind any replacement option at any time before it
becomes exercisable.
(d) Compliance with Rule 16b-3. To the extent that the provisions in
subparagraph (b) and (c) above on the number of Shares that can be
issued under the Plan do not conform with Rule 16b-3 under the Exchange
Act as adopted and interpreted by the Securities and Exchange
Commission, and any successor rule, the Committee shall conform the
Plan and any Options granted hereunder to the requirements of such Rule
16b-3, provided, however, that any such modification shall not increase
the number of Shares beyond the Shares specified in Article VI.
(e) Termination of Employment of Optionee. The Committee shall have
authority to determine the circumstances under which each Option will
either vest or be forfeited upon termination of employment of the
Optionee. Such provisions will be contained in the Option Agreement.
ARTICLE IX
RESTRICTED STOCK
9.1 Terms of Restricted Stock Awards.
----------------------------------
Subject to and consistent with the
provisions of the Plan, with respect to each Award of Restricted Stock
to each Participant, the Committee shall determine:
(i) the terms and conditions of the Restricted Stock Agreement evidencing
the Award including, among other things, the election to be made by the
Participant under Section 83(b) of the Internal Revenue Code of 1986,
as amended;
(ii) the Restriction Period for all or a portion of the Restricted Stock;
(iii) the Restrictions applicable to the Award, including, but not limited
to, continuous employment with the Corporation or any of its
Subsidiaries for a specified term or the attainment of specific
corporate, divisional or individual performance standards or goals;
(iv) whether dividends and other distributions declared and paid to the
holders of the Shares during the Restriction Period shall be paid to
the Participant with respect to the Restricted Stock or shall be
withheld by the Corporation for the account of the Participant until
the Restriction Period has expired or the Restrictions have been
satisfied, and whether interest shall be paid on any dividends and
other distributions so withheld, and if so, the rate of interest to be
paid, or whether such dividends may be reinvested in Shares; and
19
<PAGE>
(v) the percentage of the Award which shall vest in the Participant in the
event of death, Disability or Retirement prior to the expiration of the
Restriction Period or the satisfaction of the Restrictions applicable
to an award of Restricted Stock.
Notwithstanding the Restriction Period and the Restrictions imposed on
any Restricted Shares, as set forth in a Restricted Stock Agreement,
the Committee shall have the right to shorten the Restriction Period or
waive any Restrictions, if the Committee concludes that it is in the
best interests of the Corporation to do so.
9.2 Delivery of Shares.
-------------------
Upon an Award of Restricted Stock to a Participant,
the stock certificate representing the Restricted Stock shall be issued
and transferred to and in the name of the Participant, whereupon the
Participant shall become a stockholder of the Corporation with respect
to such Restricted Stock and shall be entitled to vote the Shares. Such
stock certificates shall be held in custody by the Corporation,
together with stock powers executed by the Participant in favor of the
Corporation, until the Restriction Period expires and the Restrictions
imposed on the Restricted Stock are satisfied.
ARTICLE X
WITHHOLDING OF TAXES
Federal, state or local law may require the withholding of taxes applicable
to or resulting from an Award. The Committee may, in its discretion and subject
to such rules as it may adopt, permit or require the Participant to pay all or a
portion of the federal, state or local withholding taxes arising in connection
with an Award by (i) having the Corporation withhold Shares, (ii) tendering back
Shares received in connection with such Award or (iii) delivering other
previously owned Shares. In each of the foregoing instances, such Shares shall
have a Fair Market Value on the date specified in the rules adopted by the
Committee equal to the amount to be withheld. The Corporation shall also be
entitled to require as a condition of delivery of Shares, that the Participant
remit an amount sufficient to satisfy all federal, state and other governmental
withholding tax requirements related thereto.
ARTICLE XI
NO RIGHT TO CONTINUED EMPLOYMENT
Neither the establishment of the Plan nor the granting of an Award shall
confer upon any Participant any right to continue in the employ of the
Corporation or any of its Subsidiaries or interfere in any way with the right of
the Corporation or any of its Subsidiaries to terminate such employment at any
time. No Award or income arising from the exercise of an Option or the lapse of
any Restrictions on any Restricted Stock shall be deemed to be salary or
compensation for the purpose of computing benefits under any employee benefit,
pension or retirement plans of the Corporation or any of its Subsidiaries,
unless the Committee shall determine otherwise.
ARTICLE XII
INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and reasonably incurred in connection with the defense
of any action, suit or proceeding (or in connection with any appeal therein), to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Award granted under
the Plan, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceedings that such Committee member is
liable for gross negligence or intentional misconduct in the performance of his
duties; provided that within 60 days after institution of any such action, suit
or proceeding, such Committee member shall in writing offer the Corporation the
opportunity, at its own expense, to handle and defend the same.
20
<PAGE>
ARTICLE XIII
AMENDMENT AND TERMINATION
The terms and conditions applicable to any Award may thereafter be amended
or modified by mutual agreement between the Corporation and the Participant or
such other persons as may then have an interest therein. Also, by mutual
agreement between the Corporation and a Participant in the Plan or under any
other present or future plan of the Corporation, Awards may be granted to a
Participant in substitution and exchange for, and in cancellation of, any Awards
previously granted such Participant under the Plan, or under any other present
or future plan of the Corporation. The Board may amend the Plan from time to
time or suspend or terminate the Plan at any time, provided, however, that any
amendment which would:
(i) materially increase the benefits accruing to Participants under the
Plan;
(ii) materially increase the number of securities which may be issued under
the Plan;
(iii) materially modify the requirements as to eligibility for Participants
in the Plan; or
(iv) require approval by stockholders under Rule 16b-3 or any successor rule
of the Securities and Exchange Commission
shall only become effective upon approval by the affirmative vote of the holders
of a majority of the securities of the Corporation present, or represented, and
entitled to vote at a meeting duly held in accordance with the laws of the State
of Delaware. However, no action authorized by this Article shall reduce the
amount of any existing Award or adversely change the terms and conditions of any
existing Award without the Participant's consent.
ARTICLE XIV
ADJUSTMENT PROVISIONS
14.1 If the Corporation shall at any time change the number of issued Shares
without new consideration to the Corporation (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate structure
affecting the Shares) or make a distribution of cash or property which
has a substantial impact on the value of issued Shares, the total
number of Shares reserved for issuance under the Plan shall be
appropriately adjusted and the number of Shares covered by each
outstanding Award and the option price for each outstanding Option
shall be adjusted so that the aggregate consideration payable to the
Corporation and the value of each such Award shall not be changed.
14.2 Notwithstanding any other provision of the Plan, and without affecting
the number of Shares reserved or available hereunder, the Committee may
authorize the issuance, continuation or assumption of Awards or provide
for other equitable adjustments after changes in the Shares resulting
from any merger, consolidation, sale of assets, acquisition of property
or stock, recapitalization, reorganization or similar occurrence in
which the Corporation is the continuing or surviving corporation, upon
such terms and conditions as it may deem equitable and appropriate.
14.3 If the Corporation agrees to a merger, consolidation, sale of assets or
similar transaction, or if any transaction is proposed which, in the
Committee's discretion, may result in a change in control of the
Corporation, the Committee may, but shall not be required to, provide
that all outstanding Options will become immediately exercisable and
provide for the acceleration of any or all Restrictions which relate to
outstanding shares of Restricted Stock. The Committee may make any such
actions contingent on the consummation of such transaction.
ARTICLE XV
RESTRICTIONS
If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any Award, the issuance or purchase of Shares
or the taking of any other action under the Plan (each such event being referred
to as a "Plan Action"), then such
21
<PAGE>
Plan Action shall not be taken, in whole or in part, until such Consent shall
have been obtained. The term "Consent" shall mean (i) any and all listings,
registrations or qualifications upon any securities exchange or under any
federal, state or local law, rule or regulation, (ii) any and all written
Agreements and representations by the Participant with respect to the
disposition of Shares or with respect to any other matter, which the Committee
shall deem necessary or desirable to comply with the terms of any such listing,
registration or qualification or to obtain an exemption from the requirement
that any such listing, qualification or registration be made, and (iii) any and
all consents, clearances and approvals in respect of a Plan Action by any
governmental or other regulatory bodies.
ARTICLE XVI
EFFECTIVE DATE
The Plan shall become effective on January 15, l993, subject to the approval
of a majority of Shares represented and entitled to vote at the 1993 annual
meeting of stockholders. The Plan, unless terminated sooner by the Committee,
shall terminate on January 15, 2003 and no Awards shall thereafter be made under
the Plan. Notwithstanding the foregoing, all Awards made under the Plan prior to
such date shall remain in effect until such Awards have been satisfied or
terminated in accordance with the terms and provisions of the Plan.
Adopted by the Board of Directors on January 15, 1993.
As amended through February 27, 1997.
22
<PAGE>
EXHIBIT B
MMI COMPANIES, INC.
1993 NON-EMPLOYEE DIRECTORS'
FORMULA STOCK OPTION PLAN
1. The Purpose of the Plan.
-------------------------
The purpose of the MMI Companies, Inc. 1993 Non-Employee Directors' Formula
Stock Option Plan (the "Plan") is to promote the interests of MMI
Companies, Inc. (the "Corporation") and its subsidiaries by providing an
incentive for non-employee directors to join and remain on the Board of
Directors of the Corporation.
2. Eligibility for Participation.
-------------------------------
Awards under the Plan shall be made to each non-employee director of the
Corporation in the form of a non-qualified stock option to acquire shares
of the Corporation's common stock. A non-employee director is a director
who is not an officer or employee of the Corporation or any of its
subsidiaries.
3. Shares Available.
------------------
Subject to adjustments as provided in Section 7, the Corporation shall
reserve for issuance under the Plan 100,000* shares of the Corporation's
common stock. Such shares may be authorized but unissued shares or treasury
shares. If any option granted hereunder shall expire or terminate for any
reason without having been exercised in full, the shares subject to such
option shall again be available for issuance under the Plan.
4. Awards Under the Plan.
----------------------
A. Initial One-Time Grant.
-----------------------
If the Corporation sells any of its securities to the public for its
own account pursuant to an effective registration statement under the
Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "initial public offering"), then, as of the date that
such registration statement is declared effective by the SEC, each
non-employee director shall be granted a non-qualified option to
purchase 3,000** shares of the Corporation's common stock at the
offering price of the Corporation's common stock in the initial public
offering. Thereafter, as of the date that any new non-employee
director is elected or appointed to the Board, such nonemployee
director shall be granted a non-qualified option to purchase 3,000**
shares of the Corporation's common stock at an exercise price equal to
the fair market value of the Corporation's common stock on the date of
such appointment or election.
B. Annual Grant.
-------------
From and after the initial public offering, each non-employee director
who is serving on the Board of Directors on December 31 of any year
shall be granted a nonqualified option to purchase 1,000*** shares of
the Corporation's common stock. The grant date of such options shall
be the date of the annual meeting of shareholders for the next year.
The option exercise price shall equal the fair market value per share
of the Corporation's common stock on the date immediately prior to the
grant date. Although a non-employee director must be serving as a
director on December 31 of a given year to be eligible to receive an
option with respect to such year, a director need not be serving as a
director on the grant date to be granted such option.
5. Option Terms.
--------------
Options granted under the Plan shall be exercisable for a term of 10 years
from the date of grant, except as set forth below, and shall be evidenced
by stock option agreements. As used herein, the fair market value of the
Corporation's common stock means either (i) if, on the date an option is
granted the common stock is traded on a national securities exchange, then
on the basis of the closing sale price on the exchange on which the
Corporation's common stock may then be traded or, if there is no such sale
on such date, then on the last previous day on which a sale was reported;
or (ii) if, on the date an option is granted, the Corporation's common
stock is not listed on any securities exchange, but is publicly traded and
reported on NASDAQ, then on the basis of the average between the closing
bid and asked quotations as reported by NASDAQ. Options shall not be
contingent on continued board service and shall remain exercisable
23
* 137,500 by virtue of 1993 stock split of 1.375 for 1.
** 4,125 by virtue of 1993 stock split of 1.375 for 1.
*** 1,375 by virtue of 1993 stock split of 1.375 for 1.
<PAGE>
following resignation or removal from the Board. Upon the death of a
non-employee director, his or her options may be exercised by the executor,
administrator, personal representative or distributee of the deceased
non-employee director through a period to be determined by the Board of
Directors of the Corporation, but not to exceed the date on which such
options expire or six months after the death of such non-employee director,
whichever is earlier. No option granted under the Plan shall be assignable
or transferable, other than by will, by the laws of descent and
distribution or by a qualified domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act, or the rules thereunder.
Notwithstanding the foregoing, from and after March 1, 1997, a Non-Employee
Director may transfer all or a portion of the options granted to such
Non-Employee Director (including options outstanding on the date thereof) to
(i) the spouse, descendants (including adopted descendants and
grandchildren), or the spouses of children or grandchildren of the
Non-Employee Director ("Immediate Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Immediate Family Members, or (iii) a
partnership or limited liability company in which such Immediate Family
Members are the only partners or members, provided that (x) there may be no
consideration for any such transfer (except issuance of a partnership or
limited liability company interest in case of transfer to a family limited
partnership or limited liability company), (y) the stock option agreement
pursuant to which such options are granted must be approved by the
Committee, and must expressly provide, or be amended to provide, for
transferability in a manner consistent with this Section, and (z) subsequent
transfers of transferred options shall be prohibited except by will or the
laws of descent and distribution. Following transfer, any such options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer. The Committee may, in its discretion, permit
transfers to other persons or entities on substantially the same terms.
6. Adjustments Upon Changes in Capitalization.
-----------------------------------------------
The number of shares of the Corporation's common stock with respect to
which stock options shall be granted under the Plan and the prices at which
such stock options may be exercised shall be appropriately adjusted for any
increase or decrease in the number of outstanding shares of common stock
resulting from the subdivision or combination of shares of common stock,
other capital adjustments, or the payment of a stock dividend. Adjustments
under this section shall be made by the Board of Directors and shall be
final, binding and conclusive.
7. Effective Date.
---------------
The Plan shall become effective on January 15, 1993, subject to the
approval thereof by the affirmative votes of the holders of a majority of
the shares of common stock of the Corporation present, in person or by
proxy, and entitled to vote at the 1993 annual meeting of the shareholders
of the Corporation, or any adjournment of such meeting.
8. Amendment.
----------
The Plan may be amended only by an effective resolution of the Board of
Directors of the Corporation. In addition, any amendment that would
materially increase the benefits accruing to participants under the Plan,
materially increase the number of securities which may be issued under the
Plan or materially modify the requirements as to eligibility for
participation in the Plan shall be subject to the approval of the holders
of a majority of the shares of common stock of the Corporation present, in
person or by proxy, at an annual or special meeting of the shareholders.
The provisions of the Plan shall not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code,
the Employee Retirement Security Act, or the rules thereunder.
9. Term of the Plan.
-----------------
The Plan shall terminate 10 years after the date on which it becomes
effective and no award shall thereafter be made under the Plan.
Notwithstanding the foregoing, all options issued and outstanding under the
Plan prior to such date shall remain in effect until such options have been
exercised or terminated in accordance with their terms.
As amended through February 27, 1997.
24
<PAGE>
PROXY PROXY
MMI COMPANIES, INC.
DEERFIELD, ILLINOIS, U.S.A.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints B. Frederick Becker and George B. Caldwell, or
any one of them, with power of substitution, attorneys and proxies to represent
the undersigned at the annual meeting of the stockholders of MMI Companies, Inc.
(the "Company") to be held on April 17, 1997, and at any adjournments thereof,
with all powers which the undersigned would possess if personally present, and
to vote, as and to the extent indicated below all shares of stock which the
undersigned may be entitled to vote at said meeting or any adjournments thereof,
upon all matters that may properly come before the meeting, including the
matters listed on the reverse side of this card which are more fully described
in the Notice of Annual Meeting and Proxy Statement relating to said meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS AND TO THE EXTENT DIRECTED
ON THE REVERSE SIDE HEREOF. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE:
(A) FOR THE ELECTION OF ALL LISTED DIRECTOR NOMINEES, (B) IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATION ON THE OTHER MATTERS LISTED ON THE REVERSE
SIDE OF THIS CARD, AND (C) AT THEIR DISCRETION ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE MEETING.
IF YOU DO NOT SIGN AND RETURN A PROXY CARD, OR ATTEND THE MEETING, YOUR SHARES
CANNOT BE VOTED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 AND 4.
ITEM 1. ELECTION OF ALL DIRECTOR NOMINEES:
FOR all nominees WITHHOLD
listed at right AUTHORITY to vote
*(except as marked for all nominees listed
to the contrary). at right.
_ _
|_| |_|
*K. James Ehlen, M.D., William M. Kelley, Gerald L. McManis, Joseph D. Sargent
*EXCEPTIONS
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below
<PAGE>
ITEM 2. APPROVAL OF THE AMENDMENT TO THE 1993 EMPLOYEE STOCK PLAN:
FOR AGAINST ABSTAIN
_ _ _
|_| |_| |_|
ITEM 3. APPROVAL OF THE AMENDMENT TO THE 1993 NON-EMPLOYEE DIRECTORS' FORMULA
STOCK OPTION PLAN:
FOR AGAINST ABSTAIN
_ _ _
|_| |_| |_|
ITEM 4. RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
FOR AGAINST ABSTAIN
_ _ _
|_| |_| |_|
_
I PLAN TO ATTEND THE MEETING |_|
Please sign this proxy and return it promptly whether or not you plan to attend
the meeting. If signing for a corporation or partnership or as agent, attorney
or fiduciary, indicate the capacity in which you are signing. If you do attend
the meeting and decide to vote by ballot, such vote will supersede this proxy.
Dated:________________________, 1997
____________________________________
Signature
____________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
