<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, 1999.
or
( ) Transition report pursuant to section
13 or 15(d) of the Securities Exchange Act of
1934. For the transition period from to .
Commission File Number: 1-11920
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 19,148,869 shares outstanding of the registrant's common
stock, $0.10 par value, as of August 10, 1999.
</PAGE>
<PAGE>
<PAGE>
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 4
Income
Consolidated Statements of 5
Stockholders' Equity
Consolidated Statements of 6
Cash Flows
Notes to Consolidated 7-9
Financial Statements
Item 2. Management's Discussion 9-12
and Analysis of
Financial Condition and
Results of Operations
Part II. Other Information
Item 2. Changes in Securities 13
and Use of Proceeds
Item 4. Submission of Matters to
a Vote of Security Holders
Item 6. Exhibits and Reports on
Form 8-K
Signatures 14
EXHIBITS:
10.1 MMI Companies, Inc. 1993
Employee Stock Option Plan.
10.2 MMI Companies, Inc.
1996 Non-Employee Director
Stock and Deferred Cash
Compensation Plan
27. Financial Data Schedule.
</TABLE>
</PAGE>
<PAGE>
MMI Companies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS
Short-term investments...... $40,937 $50,819
Fixed maturities............ 1,068,635 1,150,622
Preferred stocks............ 54,004 57,981
1,163,576 1,259,422
OTHER ASSETS
Cash........................ 21,909 13,323
Premium and fees receivable. 209,465 161,000
Reinsurance receivables..... 345,358 336,518
Prepaid reinsurance premiums 36,229 21,232
Accrued investment income... 17,248 17,375
Cost in excess of net
assets of purchased subsidiaries,
less accumulated amortization 43,512 43,018
Furniture and equipment -
at cost, less accumulated
depreciation................ 10,523 14,702
Deferred income taxes....... 59,996 44,093
Other....................... 59,074 48,726
$1,966,890 $1,959,409
LIABILITIES AND STOCKHOLDERS'
EQUITY LIABILITIES
Policy liabilities:
Loss and loss adjustment
expense reserves:
Medical malpractice liability. $ 650,537 $ 672,647
International................. 457,093 484,170
Other......................... 26,600 19,256
1,134,230 1,176,073
Unearned premium reserves..... 197,812 141,939
Future life policy benefits... 8,403 8,326
1,340,445 1,326,338
Accrued expenses and other
liabilities................... 54,664 50,136
Amounts due to reinsurers..... 59,397 51,190
Company-obligated, mandatorily
redeemable preferred capital
securities of subsidiary trust
holding solely junior
subordinated debentures
of the Company................ 118,922 118,817
1,573,428 1,546,481
STOCKHOLDERS' EQUITY
Common Stock, par value $.10
per share:
Authorized shares: - 30,000
Issued and outstanding
shares: 1999 - 19,149;
1998 - 19,059............... 1,915 1,906
Additional paid-in capital.. 222,457 221,649
Retained earnings........... 164,376 160,226
Accumulated other comprehensive
income, net of taxes:
1999 - $2,540; 1998 - $15,091. 4,714 29,147
393,462 412,928
$1,966,890 $1,959,409
See notes to consolidated financial statements.
</TABLE>
</PAGE>
<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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES
Insurance premiums earned:
Medical malpractice
liability...................... $40,680 $40,975 $79,941 $110,236
International.................. 36,857 30,573 75,005 60,715
Life and health................ 6,210 3,543 10,059 6,686
83,747 75,091 165,005 177,637
Consulting and fee income...... 16,234 11,816 31,287 22,816
Net investment income.......... 17,931 18,966 36,391 37,738
Net realized gains (losses) on
investments.................... (97) 204 92 1,033
TOTAL REVENUES................. 117,815 106,077 232,775 239,224
LOSSES AND EXPENSES
Losses and loss adjustment
expenses:
Medical malpractice liaiblity.. 34,848 35,959 68,956 98,011
International.................. 26,124 19,704 50,178 38,265
Life and health................ 6,229 2,548 9,886 5,036
67,201 58,211 129,020 141,312
Insurance and administrative
expenses....................... 42,170 34,741 86,376 70,889
Interest expense............... 2,755 2,462 5,291 4,897
TOTAL LOSSES AND EXPENSES...... 112,126 95,414 220,687 217,098
INCOME BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS........ 5,689 10,663 12,088 22,126
Income taxes................... 311 1,538 844 3,583
INCOME FROM CONTINUING
OPERATIONS..................... 5,378 9,125 11,244 18,543
Discontinued operations:
Loss from operations, net
Of tax: 3 months 1998 - $345;
6 months 1999 - $372;
6 months 1998 - $735........... - 641 691 1,364
Loss on sale, net of tax of
$1,590......................... - - 2,952 -
NET INCOME..................... $5,378 $8,484 $7,601 $17,179
Earnings per common and common
equivalent share:
Basic:
Income from continuing
operations..................... $ 0.28 $ 0.48 $ 0.59 $ 0.98
Loss from discontinued
operations..................... - (0.03) (0.19) (0.07)
NET INCOME..................... $ 0.28 $ 0.45 $ 0.40 $ 0.91
Diluted:
Income from continuing
operations..................... $ 0.28 $ 0.47 $ 0.58 $ 0.95
Loss from discontinued
operations..................... - (0.03) (0.19) (0.07)
NET INCOME..................... $ 0.28 $ 0.44 $ 0.39 $ 0.88
</TABLE>
</PAGE>
See notes to consolidated financial statements.
<PAGE>
MMI Companies, Inc. and Subsidiaries
Consolidated Statements of
Stockholders' Equity
(In thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated Other
Common Stock Additional Comprehensive Total
Number Par Paid-In Retained Income, Stockholders'
of Shares Value Capital Earnings Net of Taxes Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1997: 18,857 $1,886 $217,855 $154,929 $24,332 $399,002
Year ended
December 31,
1998:
Net income: 11,364 11,364
Change in
unrealized gains
(losses) on
investments,net
of taxes of
$2,279 and
reclassification
adjustment: 4,815 4,815
Comprehensive
income: 16,179
Issuance of Common
Stock in connection
with acquisition
of subsidiary: 66 6 1,394 1,400
Issuance of Common
Stock in connection
with employee
benefit plans and
and exercise of
employee stock
options: 146 15 2,553 2,568
Common Stock
repurchased: (10) (1) (153) (154)
Common cash
dividends ($.32
per share): (6,067) (6,067)
Balance at
December 31,
1998: 19,059 1,906 221,649 160,226 29,147 412,928
Six months
ended June
30, 1999
(unaudited):
Net income 7,601 7,601
Change in
unrealized
gains (losses)
on investments,
net of taxes
of ($12,551)
and
reclassification
adjustment: (24,433) (24,433)
Comprehensive loss (16,832)
Issuance of Common
Stock in connection
with acquisition
of subsidiary: 117 12 1,813 1,825
Issuance of Common
Stock in connection
with employee
benefit plans and
exercise of
employee stock
options: 113 11 1,168 1,179
Common Stock
repurchased: (140) (14) (2,173) (2,187)
Common cash
dividends ($.18
per share): (3,451) (3,451)
Balance at
June 30, 1999
(unaduited): 19,149 $1,915 $222,457 $164,376 $4,714 $393,462
</TABLE>
See notes to consolidated financial statements. </PAGE>
<PAGE>
MMI Companies, Inc. and
Subsidiaries Consolidated Statements
of Cash Flows
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................... $ 7,601 $ 17,179
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Increase in policy liabilities... 14,107 79,671
Change in reinsurance
balances......................... (15,630) (13,000)
Increase in premium and fees
receivable....................... (45,828) (44,036)
Increase in deferred income
taxes............................ ( 3,352) (2,128)
Increase in accrued investment
income and other assets.......... (8,380) (15,580)
Change in accrued expenses and
other liabilities................ (3,436) 1,468
Net realized gains on
investments...................... (92) (1,033)
Depreciation and amortization on
investments and goodwill......... 4,899 4,249
Loss on sale of discontinued
operations...................... 4,542 -
Net cash (used) provided by
operating activities............ (45,569) 26,790
INVESTING ACTIVITIES
Net sale (purchase) of short-term
investments..................... 13,469 (4,624)
Purchases of available-for-
sale investments................ (201,211) (345,962)
Sales of available-for-sale
investments..................... 212,131 301,731
Maturities of available-for-
sale investments................ 38,669 35,831
Acquisitions of subsidiaries.... (7,222) -
Disposition of subsidiary....... 4,299 -
Furniture and equipment
additions....................... (1,368) (3,248)
Net cash provided (used) by
investing activities............ 58,767 (16,272)
FINANCING ACTIVITIES
Issuance of Common Stock........ 1,026 923
Repurchase of Common Stock...... (2,187) -
Dividends....................... (3,451) (3,041)
Net cash used by financing
activities...................... (4,612) (2,118)
Increase in cash................ 8,586 8,400
Cash at beginning of period..... 13,323 6,698
Cash at end of period........... $ 21,909 $ 15,098
See notes to consolidated financial statements.
</TABLE>
</PAGE>
<PAGE>
MMI Companies, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements June 30, 1999
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, 1999 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to
the consolidated financial statements and notes thereto
included in the Company's 1998 Annual Report.
2. Discontinued Operations
Effective March 31, 1999, MMI sold the net assets of Healthcare
Credentials Management Services, its credentials verification organization
subsidiary. MMI received $4,000,000 in cash proceeds. There was a loss
on this transaction of $3,643,000, net of taxes of $1,962,000. Revenues
for the three months ended March 31, 1999 and six months ended June 30,
1999 were $889,000 and for the three and six months ended June 30, 1998
were $1,245,000 and $2,557,000, respectively.
MMI will continue to service credentialing clients during a transition
period. MMI will incur expenses and receive a service fee from the
purchaser during this period of time. These amounts have been estimated
and are included in the loss calculation.
3. Acquisitions
In February 1999, MMI acquired Applied Risk Management (ARM), Inc., a
privately held third party administrator and consulting firm that
specializes in workers' compensation. Subsequent to the acquisition,
ARM was integrated into Professional Risk Management (PRM), Inc., an
MMI subsidiary that provides third party administration and consulting
related to professional and general liability risks and claims primarily
for self-insured organizations. The purchase price for ARM, including
expenses, was $7,724,000 in cash. This acquisition was accounted for
as a purchase.
In April 1999, MMI issued 117,143 shares of common stock in
connection with the acquisition of a 20% minority interest in
MMedica Insurance Limited, now a wholly owned subsidiary of MMI
Companies, Inc.
4. Earnings Per Share
The following table sets forth the computation of net earnings per common
share and net earnings per common and common equivalent share (in
thousands, except per share data):
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings............... $ 5,378 $ 8,484 $ 7,601 $17,179
Weighted average number of
common shares outstanding.. 19,102 18,927 19,054 18,893
Dilutive effect of stock
options using the
treasury stock method...... 197 504 230 538
Weighted average number
of common and common
equivalent shares
outstanding............... 19,299 19,431 19,284 19,431
Net earnings per common
share..................... $ 0.28 $ 0.45 $ 0.40 $ 0.91
Net earnings per common
and common equivalent
share.................... $ 0.28 $ 0.44 $ 0.39 $ 0.88
</TABLE>
5. Effect of New Pronouncements
As of January 1, 1999, the Company adopted Statement of Position 98-1
(SOP 98-1), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires specific accounting
treatment for internal use software. The adoption of SOP 98-1 did not
have a material effect on consolidated operating results or financial
position.
In December 1997, the AcSEC issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance Related Assessments." SOP 97-3
provides guidance on when an insurance enterprise should recognize a
liability for guaranty fund or other assessments and how to measure
the liability. SOP 97-3 was effective January 1, 1999. The adoption
of SOP 97-3 did not have a significant impact on MMI's consolidated
operating results or financial position.
6. Industry Segments
Presentation of MMI's operations has been classified and summarized
into three reportable segments: domestic insurance, international
insurance, and consulting and fees. Reportable segments are classified
by the product lines of insurance and consulting and fees with insurance
segments classified along geographic lines of domestic and international.
Segment revenues and segment income (loss) exclude realized gains on
investments. Intersegment reveues are not material. There are no
individual customers that account for ten percent or more of MMI's
revenues (in thousands).
</Page>
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Domestic insurance segment:
Total segment revenues $ 58,952 $ 56,633 $114,308 $140,582
Segment income (loss) 2,479 5,074 5,161 9,522
International insurance
segment:
Total segment revenues $ 42,726 37,424 $ 87,088 74,793
Segment income 3,483 4,554 7,539 10,978
Consulting and fee segment:
Total segment revenues $ 16,234 $ 11,816 $ 31,287 $ 22,816
Segment income (loss) (176) 831 (704) 593
Total:
Total segment revenues $117,912 $105,873 $232,683 $238,191
Net realized gains on
investments (97) 204 92 1,033
Total Revenues 117,815 106,077 232,775 239,224
Segment income 5,786 10,459 11,996 21,093
Net realized gains on
investments (97) 204 92 1,033
Income from continuing
operations before income taxes $ 5,689 $ 10,663 $ 12,088 $ 22,126
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998.
Revenues. Gross premiums written decreased by 4.4% to $266,715,000 for
the six months ended June 30, 1999 from $279,000,000 for the 1998 period.
Net premiums written decreased by 8.1% to $206,195,000 from $224,430,000,
and net premiums earned decreased by 7.1% to $165,005,000 from $177,637,000.
For the three months ended June 30, 1999 gross premiums written increased
by 18.3% to $81,131,000 from $68,551,000, net premiums written increased
by 18.4% to $62,224,000 from $52,565,000 and net premiums earned increased
by 11.5% to $83,747,000 from $75,091,000.
Medical malpractice premiums earned decreased by 27.5% to $79,941,000
for the six months ended June 30, 1999 from $110,236,000 for the 1998
period and decreased by 0.7% to $40,680,000 from $40,975,000 for the
three month period. International premiums earned increased 23.5% to
$75,005,000 from $60,715,000 for the 1998 period and increased by
20.6% to $36,857,000 from $30,573,000 for the three month period. Life
and health premiums earned increased by 50.4%, to $10,059,000 for the
six months ended June 30, 1999 from $6,686,000 for the 1998 period
and increased by 75.3% to $6,210,000 from $3,543,000 for the three month
period. The Company's written and earned premiums can vary significantly
from quarter to quarter due to one-time premiums, such as for prior acts
coverage for new insureds. During the first six months of 1999, the
Company's medical malpractice premiums earned included $5,534,000 in such
one time premiums, a decrease of $27,003,000 in one-time premiums from the
first six months, 1999. The decrease in one time premiums occurred
during the first quarter, 1999. International premiums increased
in the three and six month periods due primarily to growth in the Company's
participation in Lloyd's syndicates.
Consulting and fee income increased 37.1% to $31,287,000 for the six
months ended June 30, 1999 from $22,816,000 for the 1998 period and
increased 37.4% to $16,234,000 from $11,816,000 for the three month period.
Included in the 1999 three and six month periods are revenues related to
ARM totaling $6,500,000 and $11,500,000, respectively, from the date of
acquisition in February 1999.
</PAGE>
<PAGE>
Net investment income decreased by 3.6% to $36,391,000 for the six months
ended June 30, 1999 from $37,738,000 for the 1998 period and decreased 5.5%
to $17,931,000 compared to $18,966,000 for the three month period. The
decrease in investment income is due to a decrease in invested assets.
For the three months ended June 30, 1999 and 1998, the Company had net
realized losses on investments of $97,000 in 1999 and net realized gains of
$204,000 in 1998. For the six months ended June 30, 1999 and 1998, the
Company had net realized gains of $92,000 and $1,033,000, respectively.
Losses and expenses. Losses and loss adjustment expenses ("LAE")
decreased by 8.7% to $129,020,000 for the six months ended June 30, 1999
from $141,312,000 for the 1998 period and increased by 15.4% to $67,201,000
from $58,211,000 for the three month period. Medical malpractice
liability losses and LAE decreased by 29.6% to $68,956,000 for the six
months ended June 30, 1999 from $98,011,000 for the 1998 period, due to
the increase in one-time premiums in the first quarter 1998 and decreased
by 3.1% to $34,848,000 from $35,959,000 for the three month period.
International losses and LAE increased 31.1% to $50,178,000 from
$38,265,000 in the 1998 six month period and increased by 32.6% to
$26,124,000 from $19,704,000 for the three month period. Life and health
losses and LAE increased to $9,886,000 from $5,036,000 in the six months
and increased to $6,229,000 in the three months ended June 30, 1999 from
$2,548,000 in the prior year. Life and health losses and LAE increased
due to the increase in life and health earned premiums. The consolidated
loss ratio decreased to 78.2% from 79.6% for the respective six month
periods due to a higher loss ratio associated with the one-time premiums
in 1998.
Insurance and administrative expenses increased by 21.8% to $86,376,000
for the six months ended June 30, 1999 from $70,889,000 for the 1998 period
and increased by 21.4% to $42,170,000 from $34,741,000 for the three month
period. The increase in administrative expenses is principally due to the
inclusion of ARM since its date of acquisition in 1999 and, for the
three month period were favorably impacted in 1998 by an adjustment to
reinsurance recoverables of $2,383,000.
Interest expense increased by 8.0% to $5,291,000 for the six months ended
June 30, 1999 from $4,897,000 for the 1998 period and increased by 11.9% to
$2,755,000 from $2,462,000 for the three month period. Debt outstanding
totaled $118,922,000 at June 30, 1999 compared to $118,817,000 at December
31,1998.
Income taxes. Income taxes were $844,000 for the six months ended
June 30, 1999 compared to $3,583,000 for the 1998 period and for the three
month period were $311,000 in 1999 compared to $1,538,00 in the prior year.
Income taxes decreased for the three and six months due to lower pre-tax
income in 1999.
Net income. Net income decreased by 55.8% to $7,601,000 for the six
months ended June 30, 1999 from $17,179,000 for the 1998 period and
decreased 36.6% to $5,378,000 from $8,484,000 for the three month period.
Net income per share. Diluted net income per common and common
equivalent share decreased to $0.39 for the six months ended June 30,
1999 from $0.88 for the 1998 period. For the three months ended June 30,
diluted net income per share was $0.28 in 1999 and $0.44 per share in
1998. Included in the three and six month 1998 amounts are $.01
and $.03, respectively, related to after-tax realized gains on investments.
Also included is a loss of $.19 and $.07 per share in the six months
ended June 30, 1999 and 1998, respectively, as well as a loss of $.03
in the three months ended June 30, 1998 from discontinued operations.
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 periods ended
June 30, 1999 and June 30, 1998, the Company received dividends of
$3,000,000 from its subsidiaries. The Company received management
fees from its subsidiaries of $12,000,000 for the six months ended
June 30 1999, compared to $11,975,000 in 1998.
On a consolidated basis, the Company's principal sources of operating
funds are premiums, net 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 $45,569,000 for the six months
ended June 30, 1999 compared with cash provided of $26,790,000 for the six
months ended June 30, 1998. 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 used was impacted by an
increase in paid losses and loss adjustment expenses for the quarter ended
June 30, 1999.
</PAGE>
<PAGE>
Cash provided by investing activities was $58,767,000 for the six
months ended June 30, 1999 compared to cash used of $16,272,000 for the six
months ended June 30, 1998.
Cash used by financing activities was $4,612,000 for the six months ended
June 30, 1999 compared to $2,118,000 for the six months ended June 30, 1998.
The Company invests in investment grade fixed income securities and
preferred stocks. The estimated fair value of preferred stocks was 4.6% of
fair value of total invested assets as of June 30 1999. The estimated fair
value of the Company's investment portfolio was $1,163,576,000 as of
June 30, 1999 compared to $1,259,422,000 as of December 31, 1998. The
June 30, 1999 amount includes net unrealized gains of $7,254,000 which
represent the amount by which the estimated fair value of the investment
portfolio exceeds amortized cost. Net unrealized gains as of December 31,
1998 were $44,238,000. The decrease in the unrealized gain is due to an
increase in interest rates during the first six months of 1999. 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 $40,937,000 or 3.5% of invested assets at June 30,
1999. The Company believes that all of its invested assets are readily
marketable.
Long-term debt consisting of Capital Securities totaled $118,922,000 at
June 30, 1999. This amount relates to the Company's issuance of
$125,000,000 of 30-year, non-callable Capital Securities in December, 1997.
Stockholders' equity was $393,462,000 as of June 30, 1999 compared to
$412,928,000 as of December 31, 1998. Dividends to stockholders were
$3,451,000 for the six months ended June 30, 1999. The decrease is
principally a result of the change in Accumulated Other Comprehensive
Income, Net of Taxes emanating from the increase in interest rates.
Year 2000
The Company has implemented an enterprise-wide plan to address Year
2000 ("Y2K") issues across all of its technology platforms as well as to
reasonably assure that its critical business partners are prepared for
business continuity. The phases of the Company's work plan were
assessment, role definition, inventory and analysis, coding, testing
and implementation/confirmation. All system modifications and conversions
have been completed and we believe all mission critical applications are
now Y2K compliant. Additionally, system-wide Y2K simulations have been
completed for these systems. The cost to address all Y2K issues
through June 30, 1999 has totaled $637,000. At this time the Company
believes that it has incurred all material expenses related to Y2K.
A. State of Readiness:
The Company has thoroughly completed the assessment, role
definition, and inventory and analysis phases which
encompass hardware, software (third-party and internally-
developed), embedded technologies, and non-IT systems.
All of the identified critical internally-developed information
technologies (IT) have been modified, tested and implemented.
The Company is addressing Y2K compliance of third-party IT vendors
through a combination of written correspondence and internal
testing. All identified critical third-party IT vendors have
been contacted and asked to document compliance. All
Y2K compliance by material third-party vendors has been either
internally tested by MMI or documented by the third-party.
MMI is currently planning the implementation for any necessary
modifications based on vendor comments.
The Company has contacted related non-IT parties to ensure Y2K
compliance. The Company believes failure of non-IT systems
would not have a material effect on the Company's operations.
</PAGE>
<PAGE>
B. Material Third Party Relationships:
The Company relies on continued normal operations of entities such
as brokers, reinsurers, banks, money managers and benefit plan
administrators. Diligent action is underway to ensure alignment
with these business partners, even though the Company believes
disruption relating to these institutions would not have a
material effect on operations or financial performance.
C. Contingency Plans:
MMI plans to leverage existing disaster recovery plans relating
to technology and business continuity. Both sets of plans have
been reviewed as to their application to the Y2K issue and any
necessary changes will be made by October 31, 1999. In addition,
contingency plans are being developed in conjunction with the
scheduled 1999 simulations of critical information technologies.
D. Other:
MMI has conducted a comprehensive review of its underwriting
guidelines and will, where appropriate, exclude Y2K exposures.
MMI believes, as a basic principle of insurance, that
nonfortuitous losses are not covered under its policies of
insurance even without specific exclusions. With respect
to its domestic insurance operations, if underwriting reveals
an acceptable risk, an endorsement will be attached that
affirmatively grants Y2K coverage under the professional
liability coverage part and excludes Y2K under the general
liability coverage part. With respect to reinsurance
contracts, it is unusual to apply specific Y2K exclusions to
these contracts and there may or may not be such exclusions in
the original policies, depending on exposure, class of service
or industry, and original coverage. For these reasons, MMI
believes that its exposure to Y2K claims is not material.
However, because of lack of legal precedent, it is impossible
to predict what, if any, exposure insurance ompanies may
ultimately have for Y2K claims, whether coverage for the
issue is included or specifically excluded.
Forward-Looking Information:
Certain matters referred to herein contain forward-looking statements
that involve risks and uncertainties. Forward looking statements include the
information concerning possible or assumed future results of operations
and adequacy of reserves. To that extent, MMI claims the protection of
the disclosure liability safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
MMI assumes no duty to update such forward-looking statements. These
factors include successful execution of the Company's operating plans,
the level of continued demand for its products and services, actions
of competitors with respect to products and pricing, future reserve
development, levels of future expenses, evolution of the healthcare
industry, the Company's principal market, general equity market conditions,
and regulatory and legal uncertainties.
</PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) 117,143 shares of common stock were issued on April 30, 1999 to VMD
Gesellschaft fur VersicherungsVermittlung mbH in connection with the
acquisition of such entity's 20% interest in MMedica Insurance Limited,
now a wholly owned subsidiary of MMI Companies, Inc.
Item 4. Submission of Matters to a Vote of Security Holders
The Company reported the results of its annual stockholders meeting
held on April 22, 1999, in Form 10Q for the quarter ended March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.1. MMI Companies, Inc. 1993
Employee Stock Option Plan
10.2. MMI Companies, Inc. 1996 Non- Employee Director Stock
and Deferred Cash Compensation Plan
27. Financial Data Schedule.
B. Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter.
</PAGE>
<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 12, 1999 /s/B. Frederick Becker
B. Frederick Becker
Chairman and Chief Executive Officer
Date: August 12, 1999
/s/Paul M. Orzech
Paul M. Orzech
Executive Vice President and
Chief Financial Officer
</PAGE>
1
<PAGE>
Exhibit 10.1
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.
</PAGE>
<PAGE>
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 Sto
ck 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.
2.17 "Restrictions" means the restrictions and conditions i
mposed 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.
</PAGE>
<PAGE>
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;
</PAGE>
<PAGE>
(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 C
ommittee 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 he 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).
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.
</PAGE>
<PAGE>
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 2,308,345 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. The maximum number of Shares subject to all options
granted in any fiscal year to any Participant under the Plan
shall be limited to 250,000 Shares.
</PAGE>
<PAGE>
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 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 hereof) 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.
</PAGE>
<PAGE>
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 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
</PAGE>
<PAGE>
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.
</PAGE>
<PAGE>
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
(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,
</PAGE>
<PAGE>
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
</PAGE>
<PAGE>
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.
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.
</PAGE>
<PAGE>
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 of 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 </PAGE>
<PAGE>
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 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 April 22, 1999.
</PAGE>
4
<PAGE>
MMI COMPANIES, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK
AND DEFERRED CASH COMPENSATION PLAN
I. PURPOSE
The purpose of the Non-Employee Board of Director Stock and
Deferred Cash Compensation Plan ("Plan") is to provide an
alternative to Participants to receive restricted stock as a
part of the reasonable compensation for services rendered by
them, comparable to the general prevailing practices of
similar size public companies.
II. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Account" means the Account established by the
Company for Participants who elect to defer cash
compensation.
(c) "Committee" means the Personnel and Compensation
Committee appointed by the Board.
(d) "Company" means MMI Companies, Inc.
(e) "Fair Market Value" of a share of Stock means the lower
of the New York Stock Exchange closing price on the
first or last day of the Offering Period. In the event
the Stock is not traded on the date as of which the
Fair Market Value is to be determined, Fair Market
Value shall be determined as of the next preceding date
on which the Stock is traded.
(f) "Offering Period" means quarterly periods of each year
commencing January 1, 1997 in which retainers and
meeting fees are paid.
(g) "Participant" means a non-employee director of the
Company who elects to participate in the Plan by filing
the appropriate election.
</PAGE>
<PAGE>
(h) "Stock" means the Common Stock of the Company.
(i) "Stock Plan Account" means the account established by
the Company for each Participant pursuant to the Plan
who elects to receive Stock in lieu of cash
compensation.
III. PAYMENT OPTIONS
Prior to the time retainers and meeting fees are
earned, each Participant may elect to receive payment
of applicable retainers and meeting fees in the
following forms:
Cash
Shares of Stock as described in Section B.
Deferral of payment as non-qualified deferred
compensation as described in Section E.
A combination of the above.
The payment election shall be made in writing to the
Secretary of the Company in the form provided by the
Company. In the absence of an election, all retainers
and meeting fees shall be paid in cash. Elections may
be changed no more than once in any fiscal year and may
be made only on a prospective basis. Once retainers or
meeting fees are earned, elections for such amounts
shall be irrevocable. The Company may appoint a
custodian for purposes of implementing the provisions
of this Plan.
A. Cash
Retainer paid semi-annually in advance; meeting
fees paid on meeting date.
B. Stock
The number of shares of Stock granted to a
Participant shall be calculated as of the end of
each Offering Period using eighty-five percent
(85%) of Fair Market Value of the Company's Stock
for the Offering Period. Shares granted under the
Plan are fully vested but are non-transferable
until the director departs from the Board or six
months following the date of grant, whichever is
later.
Shares issued under the Plan to Participants will
be held by the Company in the Stock Plan Account
which shall only be in the name of the
Participant. The Participant may elect to receive
a stock certificate for the
</PAGE>
<PAGE>
number of shares acquired upon a written request
made to the Company or
custodian, however, such shares shall be subject
to the transferability restrictions set forth in
this Plan. Dividends will accrue on Stock held in
the Plan Account for Stock owned and Stock
equivalents shall be credited to the Stock Plan
Account in the amount of such dividends.
C. A Participant's right to receive Stock in lieu of
cash, if an election is made, shall not be transferable by
the Participant other than by will, the laws of descent and
distribution or pursuant to a qualified domestic relations
order.
D. The maximum number of shares which can be granted
under the Stock payment option of this Plan shall be Fifty
Thousand (50,000) shares. The number of shares subject to
this Plan shall be adjusted in the event of a stock dividend,
stock split, recapitalization, merger, consolidation,
reorganization or similar change.
E. Deferred Compensation
Through a properly executed election, the receipt
of retainers and/or meeting fees may be deferred.
Deferred compensation under this Plan shall be an
unsecured obligation of the Company, and not
evidenced by a note. All deferred amounts shall be
held as general assets of the Company.
For Participants who elect to defer cash
compensation, there shall be established and
maintained by the Company a Cash Account in the
name of each Participant electing to defer, which
shall be 100% vested. Credited to the Cash Account
shall be amounts equal to the amounts of
compensation deferred and interest equal to that
which would have been earned had the deferred
compensation account balance been invested at a
rate equal to the "prime rate" in effect on
January 1 and July 1 of each year at the First
National Bank of Chicago or such other bank as may
be designated the Company's principal bank.
Interest shall be calculated and credited semi-
annually.
The minimum deferral period shall be one year. The
deferral may be made to any date (over one year)
or to the date of departure from the Board.
Payment may be elected as a lump sum or in annual
installments up to 5 years. In the event of death
or disability, any deferred account balance shall
be paid in a lump sum.
</PAGE>
<PAGE>
F. Combination
Directors can elect to split their compensation,
i.e. entire retainer or meeting fees, among the
above options as set forth in the election form.
G. It is the intention of the Company that annual
payment elections under this Plan comply in all respects
with Rule 16b-3under Section 16(b) of the Securities Exchange
Act or its successor and that all Participants remain
Disinterested Persons.
Accordingly, if any Plan provision is later found
to cause such an annual election to fail to comply with
Rule 16b-3 or if any Plan provision would disqualify
Participants from remaining Disinterested Persons,
that provision shall be deemed null and
void, and in all events the Plan shall be
construed in favor of
its meeting the requirements of Rule 16b-3.
IV. ELIGIBILITY
Only non-employee directors of the Company shall be eligible
to participate in this Plan.
V. AMENDMENTS
This Plan and any provision of this Plan may be amended or
repealed by the Board except that any amendment which shall
require stockholder approval in order to comply with SEC
Rule 16b-3 or its successor shall be submitted to the stockholders
for their approval and, provided further, any such action shall
not adversely affect any Participant's rights under this Plan
relating to elections made prior to such action. Any issue
of interpretation under this Plan may be made by the Committee.
VI. EFFECTIVE DATE
As required by SEC Rule 16b-3, this Plan must be approved by
stockholders.
Adopted: February 29, 1996
Amended: December 5, 1996
Amended: June 18, 1999
</PAGE>
<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, 1999, and is qualified
in its entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 1,068,635
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 54,004
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,163,576
<CASH> 21,909
<RECOVER-REINSURE> 28,336
<DEFERRED-ACQUISITION> 37,084
<TOTAL-ASSETS> 1,966,890
<POLICY-LOSSES> 1,142,633
<UNEARNED-PREMIUMS> 197,812
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 118,922
<COMMON> 1,915
0
0
<OTHER-SE> 391,547
<TOTAL-LIABILITY-AND-EQUITY> 1,966,890
165,005
<INVESTMENT-INCOME> 36,391
<INVESTMENT-GAINS> 92
<OTHER-INCOME> 31,287
<BENEFITS> 129,020
<UNDERWRITING-AMORTIZATION> 27,790
<UNDERWRITING-OTHER> 58,586
<INCOME-PRETAX> 12,088
<INCOME-TAX> 844
<INCOME-CONTINUING> 11,244
<DISCONTINUED> (3,643)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,601
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.39
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
