<PAGE>
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 Section240.14a-11(c) or
Section240.14a-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/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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:
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(4) Date Filed:
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<PAGE>
[LOGO]
MMI COMPANIES, INC.
540 LAKE COOK ROAD
DEERFIELD, IL 60015
NOTICE OF ANNUAL STOCKHOLDERS MEETING
March 23, 1999
The Annual Meeting of Stockholders of MMI Companies, Inc., a Delaware
corporation (the "Company"), will be held on April 22, 1999, at 9:00 A.M. at 540
Lake Cook Road, Deerfield, Illinois, for the following purposes:
1. To elect five Directors to the class whose term expires at the Annual
Meeting of Stockholders in 2002 as more fully described in the
accompanying Proxy Statement.
2. To approve the proposed 1999 Stock Option Plan, including the issuance
of up to 1,500,000 shares pursuant to the plan. The plan is intended to
replace the 1993 Non-Employee Directors' Formula Stock Option Plan and
the 1993 Employee Stock Plan which as of December 31, 1998 have
respectively, 13,000 and 212,000 shares available for grant.
3. To approve a proposed amendment to the 1993 Employee Stock Plan that
would limit the number of options granted to an employee in a single year
to 250,000. The Board believes that the amendment is desirable for the
prior grant of performance options to satisfy the deductibility
requirements of Section 162(m) of the Internal Revenue Code.
4. To vote upon a stockholder proposal concerning the Company's Shareholder
Rights Plan.
5. To ratify the appointment of Ernst & Young LLP as independent auditors
of the financial statements of the Company for the fiscal year ending
December 31, 1999.
6. 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 1, 1999 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.
[SIG]
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. (singly, or
where the context requires, with its subsidiaries, the "Company") of proxies for
use at the Annual Meeting of Stockholders to be held on April 22, 1999 (the
"Annual Meeting"). At the Annual Meeting, stockholders will be asked to elect
directors, approve the 1999 Stock Option Plan, amend the 1993 Employee Stock
Plan, vote upon a stockholder proposal, ratify the appointment of Ernst & Young
LLP as the auditors of the financial statements of the Company for 1999, 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
March 1, 1999, the Company had 19,000,589 shares of Common Stock outstanding.
Only stockholders of record at the close of business on March 1, 1999, 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--Approval of the 1999 Stock Option Plan,
Item 3-- Amendment to the 1993 Employee Stock Plan, Item 4--Stockholder Proposal
Concerning Shareholder Rights Plan and Item 5--Ratification of Appointment of
Independent Auditors, all 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 accordance with the
recommendation of the Board of Directors. 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. 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. The Company has retained the
services of ChaseMellon Shareholder Services to assist in the solicitation. Fees
for such services are estimated to be approximately $7,500. This Proxy Statement
and the accompanying proxy were mailed on or about March 23, 1999. The Company's
1998 Annual Report on Form 10-K accompanies this Proxy Statement.
1
<PAGE>
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors has nominated five persons for election at the Annual
Meeting. B. Frederick Becker, K. James Ehlen, M.D., Andrew D. Kennedy, Edward C.
Peddie and Joseph D. Sargent are nominated for the class of directors whose term
expires at the annual meeting of stockholders to be held in 2002. Each of the
nominees is currently serving as a director.
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 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. The size of the Board of Directors is now set at
fourteen members.
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 April 2, 1999.
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
five directors will be elected at the Annual Meeting.
NOMINEES FOR ELECTION
B. Frederick Becker, age 52, 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. Mr. Becker is also
a director of Transcend Services, Inc.
K. James Ehlen, M.D. age 54, has been President of Allina Health System in
Minneapolis, Minnesota since 1994. He served as Chief Executive Officer of
Medica Health Plans from 1991 to 1994. Dr. Ehlen has been a director since 1997.
Andrew D. Kennedy, age 55, is a Partner with Beachcroft Stanleys, London
solicitors, with whom he has been affiliated since 1970. Mr. Kennedy has been a
director of the Company since 1996.
Edward C. Peddie, age 57, has been President of SantaFe Healthcare in
Gainesville, Florida since 1978. Mr. Peddie has served as President and CEO of
AvMed, Inc. since 1986. Mr. Peddie has been a director of the Company since
1990.
Joseph D. Sargent, age 69, has been Chairman of Bradley, Foster & Sargent,
Inc. since 1994. He has been the Vice Chairman and Treasurer of Connecticut
Surety Corporation since February 1998 and was Chairman from 1993 to 1998. Mr.
Sargent is also a director of Trenwick Group, Inc., Executive Risk, Inc., Policy
Management Systems Corporation, Mutual Risk Management Ltd., E. W. Blanch
Holdings, Inc. and Command Systems Inc. Mr. Sargent has been a director of the
Company since 1985.
2
<PAGE>
CONTINUING AS DIRECTORS
Richard R. Barr, age 59, retired in 1995 as President of Presbyterian
Healthcare Services in Albuquerque, New Mexico. He is presently President of
Rust Tractor Company in Albuquerque, New Mexico. Mr. Barr has been a director of
the Company since 1986 and his term ends in 2000.
George B. Caldwell, age 68, has been Chairman of the Collier Company since
1990 and was President Emeritus of Lutheran General Health System in Park Ridge,
Illinois from 1990 to 1995. Mr. Caldwell is a director of Transcend Services,
Inc. Mr. Caldwell has been a director of the Company since 1983 and his term
ends in 2001.
F. Laird Facey, M.D., age 67, 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 2000.
Alan C. Guy, age 51, has been President and Chief Executive Officer of
Covenant Health since 1996. He was President and Chief Executive Officer of Fort
Sanders Alliance from 1985 to 1996. Mr. Guy has been a director since 1998 and
his term ends in 2001.
William M. Kelley, age 63, has been Chairman of Hill-Rom in Batesville,
Indiana since 1995. He served as President of Hill-Rom from 1992 to 1995. Mr.
Kelley has been a director of the Company since 1993 and his term ends in 2000.
Timothy R. McCormick, age 53, has been President of the Unity Health System
in Rochester, New York since 1977. Mr. McCormick has been a director of the
Company since 1986 and his term ends in 2001.
Gerald L. McManis, age 62, 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, 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 and his term ends in 2000.
Scott S. Parker, age 64, has been President and Chief Executive Officer of
Intermountain Health Care, Inc. in Salt Lake City, Utah since 1975. Mr. Parker
is also a director of First Security Corporation, Questar Corporation and First
Consulting Group Inc. Mr. Parker has been a director of the Company since 1986
and his term ends in 2001.
Robert A. Spass, age 43, has served as Managing Partner of Capital Z
Partners, L.P. since 1998 and has served as Managing Partner of Insurance
Partners Advisors, L.P. since 1994. He is also a director of Superior National
Insurance Group, Inc., Highlands Insurance Group, Inc. and Ceres Group, Inc. Mr.
Spass has been a director since 1998 and his term ends in 2001.
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 six times in 1998. The Audit Committee
is composed of five non-employee directors, Messrs. Guy, McCormick and Peddie,
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 1998. The Investment Committee determines
the Company's investment policy and reviews the actions of the Company and its
investment
3
<PAGE>
advisors. The Investment Committee consists of Messrs. Barr, Kennedy, McManis
and Spass, and met four times in 1998. The Personnel and Compensation Committee
is composed of four non-employee directors, Messrs. Kelley, Parker, Sargent and
Dr. Facey, and fixes the compensation and benefits of the Chief Executive
Officer and such other officers or staff persons employed by the Company or its
subsidiaries who report directly to its Chief Executive Officer. The Personnel
and Compensation Committee met seven times in 1998. 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.
Kelley, McCormick and Parker and met three times in 1998.
During 1998, the Board of Directors met six times. Each director, except for
Dr. Ehlen and Mr. Spass, 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 $15,000 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 may receive annual and meeting fees in lieu
of cash 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 ("Retirement Plan").
The Retirement Plan was suspended as of February 26, 1998. All current
non-employee directors, upon retirement from the board, who completed at least
one year of service as of February 26, 1998 are entitled to receive a benefit of
$15,000 per year served on the Board of Directors prior to February 26, 1998,
with a maximum benefit of $150,000. Benefits payable under the Retirement Plan
are payable in the form of either (i) a lump-sum cash payment, or (ii) a number
of shares of MMI Common Stock equal to a director's account balance that would
be paid in cash divided by 85% of the fair market value of MMI Common Stock on
the last trading date before the Company receives an irrevocable election that
the director elects to receive stock, rather than cash. Retirement benefits may
also be deferred for a period of up to ten years beginning with retirement from
the Board of Directors. All ten directors entitled to receive benefits under the
Retirement Plan elected in 1998 to receive stock in lieu of cash.
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. In addition, commencing in 1998, due to
suspension of the Retirement Plan, directors may also receive 2,500 performance
share options annually if the Company meets performance goals for the fiscal
year. 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. Performance targets for 1998 were not met and therefore
performance options granted in 1998 were forfeited.
EXECUTIVE OFFICERS
The following section provides information about the executive officers of
the Company. Mr. Becker is also an executive officer.
Ian G. Sinclair, age 54, has been Chief Executive Officer of Unionamerica
Insurance Company Limited ("Unionamerica"), a subsidiary of the Company, since
1997. He was Managing Director-Underwriting of Unionamerica from 1984 to 1996.
4
<PAGE>
Paul M. Orzech, age 56, has been Executive Vice President and Chief
Financial Officer of the Company since 1993.
Anna Marie Hajek, age 50, is Executive Vice President of the Company and was
named President of the MMI Healthcare Risk Services Group in 1998. She was
President of the Healthcare Services Group from 1995 to 1998 and was President
of the Company's risk management services subsidiary, MMI Risk Management
Resources, Inc. from 1992 to 1997. Ms. Hajek joined the Company in 1985.
Wayne A. Sinclair, age 52, is Senior Vice President, Secretary and General
Counsel of the Company. He joined the Company in 1987.
Mr. Ian Sinclair and Mr. Wayne Sinclair are not related.
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, 1998, or as noted below,
by each person or entity known by the Company to beneficially own more than 5%
of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Franklin Resources, Inc. (1) ...................................... 1,879,700 9.9%
777 Mariners Island Blvd.
San Mateo, California 94404
The Prudential Insurance Company of America (2) ................... 1,697,097 8.9
751 Broad Street
Newark, New Jersey 07102
FMR Corp. (3) ..................................................... 1,395,000 7.3
82 Devonshire Street
Boston, Massachusetts 02109
Wellington Management Company, LLP (4) ............................ 1,057,100 5.5
75 State Street
Boston, Massachusetts 02109
Tweedy, Browne Company LLC (5) .................................... 951,606 5.0
52 Vanderbilt Avenue
New York, New York 10017
</TABLE>
- ------------------------
(1) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
Franklin Resources, Inc. had the sole power to vote 1,656,900 shares, and
the sole power to direct the disposition of 1,879,700 shares.
(2) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
The Prudential Insurance Company of America had the sole power to vote
956,330 shares, shared power to vote 740,767 shares, the sole power to
direct the disposition of 956,330 shares, and shared power to direct the
disposition of 740,767 shares.
(3) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
FMR Corp. had the sole power to direct the disposition of 1,395,000 shares
and neither sole nor shared power to vote the shares.
5
<PAGE>
(4) These figures were reported in a Schedule 13G filed with the Securities and
Exchange Commission as of December 31, 1998. With respect to those shares,
Wellington Management Company, LLP had shared power to vote 855,100 shares,
and shared power to direct the disposition of 1,057,100 shares.
(5) These figures were reported in a Schedule 13D filed with the Securities and
Exchange Commission as of February 24, 1999. With respect to those shares,
Tweedy, Browne Company LLC had sole power to vote 853,513 shares, sole power
to direct the disposition of 14,815 shares, and shared power to direct the
disposition of 936,691 shares.
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of December 31, 1998 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.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
- ------------------------------------------------------------------ -------------- -------------
<S> <C> <C>
DIRECTORS AND DIRECTOR NOMINEES
Richard R. Barr (2)............................................. 25,400 *
B. Frederick Becker (3) (4)..................................... 325,481 1.7%
George B. Caldwell (2).......................................... 44,284 *
K. James Ehlen, M.D. (2)........................................ 7,014 *
F. Laird Facey, M.D. (2)........................................ 59,765 *
Alan C. Guy (2)................................................. 4,994 *
William M. Kelley (2)........................................... 21,513 *
Andrew D. Kennedy (2)........................................... 17,524 *
Timothy R. McCormick (2)........................................ 36,067 *
Gerald L. McManis (3)........................................... 210,263 1.1%
Scott S. Parker (2)............................................. 33,691 *
Edward C. Peddie (2)............................................ 25,766 *
Joseph D. Sargent (2)........................................... 22,992 *
Robert A. Spass (2)............................................. 59,926 *
CERTAIN EXECUTIVE OFFICERS
Anna Marie Hajek (3)............................................ 82,507 *
Paul M. Orzech (3).............................................. 87,713 *
Ian G. Sinclair (3)............................................. 286,653 1.5%
Wayne A. Sinclair (3)........................................... 61,431 *
ALL DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS AS A GROUP
(18) persons.................................................... 1,412,984 6.9%
</TABLE>
- ------------------------
* 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. Except as noted below, 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 Director Stock Option Plan as
follows: Messrs. Guy and Spass--4,125 options; Dr. Ehlen--5,500 options; Mr.
Kennedy--6,875 options; each other noted director, 11,000 options.
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(3) Includes options granted under the 1993 Employee Stock Plan, and in the case
of Mr. Sinclair, replacement options received in connection with the
acquisition of Unionamerica, as follows: Mr. Becker--274,875 options; Mr.
McManis--20,000 options; Mr. I. Sinclair--185,517 options; Ms. Hajek--76,250
options; Mr. Orzech--51,000 options; Mr. W. Sinclair--57,375 options.
(4) Does not include 114,000 shares that Mr. Becker may be deemed to own
indirectly by virtue of an interest in a private investment limited
partnership. Mr. Becker disclaims beneficial ownership of such shares.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
DIRECTORS, DIRECTOR NOMINEES AND THEIR AFFILIATES
Certain directors of the Company and the health systems and employers with
which they are affiliated obtained insurance or consulting services in 1998 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; Alan C. Guy, President
and Chief Executive Officer of Covenant Health; Timothy R. McCormick, President
of Unity Health System; Scott S. Parker, President and Chief Executive Officer
of Intermountain Health Care, Inc. and Edward C. Peddie, President and CEO of
SantaFe HealthCare. Premiums and consulting and fee revenues from these
healthcare institutions were not material to the Company's operations in 1998.
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 to the Company in 1998 at their standard rates. Such
legal fees were nominal, and amounted to less than 5% of Beachcroft Stanleys'
total revenues in 1998.
Dr. Facey's director fees in 1998 were paid to F. Laird Facey M.D., Inc.
Such director fees exceeded 5% of the revenues for such corporation. In
addition, medical malpractice premiums paid to the Company by such corporation
exceeded 5% of its revenues.
LOAN STOCK PROGRAM
On August 13, 1998, the Personnel and Compensation Committee approved a Loan
Stock Program to encourage directors and certain senior executives to purchase
Company Stock. The Company has made $2,000,000 available to loan to such persons
to purchase MMI shares in the open market. The maximum amount which may be
borrowed by any person is $250,000.
All loans are evidenced by promissory notes bearing an interest rate equal
to the five year U.S. treasury note yield on the date of the loan. The loans
have a five year term with interest only payments due once a year at
anniversary. Principal is payable upon an officer leaving the Company for any
reason, a Director retiring from the Board of Directors or a sale of the stock
which is purchased by proceeds from a loan. Loans may be renewed at maturity for
a second five year term at an interest rate equal to the five-year U.S. treasury
note yield at that time. Loans are not collateralized, however, the Company is
holding the stock certificates for the purchased shares as custodian.
The amounts originally loaned, which are the principal amounts outstanding
as of December 31, 1998, are as follows: Mr. Barr $70,000; Mr. Becker $115,000;
Dr. Facey $248,000; Mr. Kelley $87,000; Mr. Kennedy $98,000; Mr. McCormick
$249,000; Mr. Orzech $249,000; Mr. Parker $200,000; Mr. Peddie $75,000; and Mr.
Spass $250,000. Interest on the notes ranges from a low of 4.23% to a high of
5.19%. A total of 100,000 shares have been purchased under the program.
7
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and beneficial owners of more than ten percent of
any class of the Company's equity securities to file reports of ownership on
Forms 3, 4 and 5 with the Securities and Exchange Commission. Mr. Orzech did not
file a timely report on Form 4 with regard to the purchase of 500 shares on May
26, 1998. Such Form 4 was filed on June 17, 1998.
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 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER ANNUAL OPTION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) AWARDS PAYOUTS (2)
- -------------------------------------- --------- ---------- ---------- ------------------- --------- ------------
B. Frederick Becker 1998 $ 553,000 $ 151,000 -- 192,500 --
Chairman and Chief Executive 1997 519,000 275,000 -- 25,000 --
Officer 1996 467,000 240,000 -- -- --
Ian G. Sinclair 1998 627,000 380,000 $ 64,000 89,136 --
Chief Executive Officer 1997 542,000 394,000 273,000 -- $ 38,000
Unionamerica Insurance Co. Ltd. 1996 450,000 466,000 -- 96,000 77,000
Paul M. Orzech 1998 297,000 61,000 -- 25,500 --
Executive Vice President and 1997 283,000 87,000 -- 6,000 --
Chief Financial Officer 1996 271,000 72,000 -- 13,000 --
Anna Marie Hajek 1998 255,000 52,000 -- 22,500 --
Executive Vice President 1997 232,000 70,000 -- 4,000 --
President, MMI Healthcare 1996 218,000 60,000 -- 13,000 --
Risk Services Group
Wayne A. Sinclair 1998 214,000 36,000 -- 8,400 --
Senior Vice President, 1997 205,000 71,000 -- 1,000 --
General Counsel and Secretary 1996 197,000 35,000 -- 5,000 --
<CAPTION>
<S> <C>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION (3)
- -------------------------------------- -------------------
B. Frederick Becker $ 42,000
Chairman and Chief Executive 38,000
Officer 23,000
Ian G. Sinclair 7,000
Chief Executive Officer 24,000
Unionamerica Insurance Co. Ltd. 23,000
Paul M. Orzech 23,000
Executive Vice President and 22,000
Chief Financial Officer 15,000
Anna Marie Hajek 21,000
Executive Vice President 20,000
President, MMI Healthcare 15,000
Risk Services Group
Wayne A. Sinclair 19,000
Senior Vice President, 19,000
General Counsel and Secretary 15,000
</TABLE>
- ------------------------
(1) For Mr. I. Sinclair in 1998, includes taxable income of $59,000 related to
an auto allowance pursuant to his employment agreement. In connection with
the acquisition of Unionamerica, the Company terminated certain of
Unionamerica's executive compensation plans. Mr. Sinclair received $273,000
in 1997 related to accelerated payment of awards previously granted under
such plans.
(2) For Mr. I. Sinclair, amounts include payments received pursuant to
Unionamerica's Loan Stock Plan, which plan has been terminated.
(3) 1998 amounts include compensation as follows:
<TABLE>
<CAPTION>
RETIREMENT
401(K) PLAN LIFE INSURANCE EQUITY PLAN
------------- --------------- ------------
<S> <C> <C> <C>
Mr. Becker........................................... $ 15,000 $ 9,000 $ 18,000
Mr. I. Sinclair...................................... -- 7,000 --
Mr. Orzech........................................... 15,000 1,000 7,000
Ms. Hajek............................................ 15,000 1,000 5,000
Mr. W. Sinclair...................................... 15,000 1,000 3,000
</TABLE>
8
<PAGE>
The following table shows the total number of options granted to each of the
named executive officers during 1998 (both as a number of shares of Common Stock
and as a percentage of all options granted to employees during 1998) 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.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
PERCENT ASSUMED ANNUAL
OF TOTAL RATES OF SHARE
NUMBER OF OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERMS (1)
GRANTED EMPLOYEES PRICE ----------------------------
NAME IN 1998 IN 1998 PER SHARE EXPIRATION DATE 5% 10%
- ------------------------------- ----------- ------------- ----------- ---------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
B. Frederick Becker (2)........ 180,000 22.9% $ 24.38 April 14, 2008 $ 2,759,000 $ 6,993,000
12,500 1.6 15.69 December 8, 2008 123,000 313,000
Ian G. Sinclair................ 5,000 0.6 24.00 March 1, 2008 75,000 191,000
3,000 0.4 15.69 December 8, 2008 30,000 75,000
81,136 10.3 15.88 December 9, 2008 810,000 2,053,000
Paul M. Orzech................. 5,000 0.6 24.00 March 1, 2008 75,000 191,000
20,500 2.6 15.69 December 8, 2008 202,000 513,000
Anna Marie Hajek............... 5,000 0.6 24.00 March 1, 2008 75,000 191,000
17,500 2.2 15.69 December 8, 2008 173,000 438,000
Wayne A. Sinclair.............. 3,000 0.4 24.00 March 1, 2008 45,000 115,000
5,400 0.7 15.69 December 8, 2008 53,000 135,000
</TABLE>
- ------------------------
(1) 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%.
(2) Mr. Becker was granted 180,000 performance-based options in 1998 with an
exercise price of $24.38. Options vest in 2007. Vesting may accelerate if
certain financial targets of the Company are achieved. The options will also
become fully vested in the event any person acquires 25% or more of the
Common Stock of the Company in an approved transaction, or in the event of a
change of control, death or disability. Financial targets were not achieved
in 1998. Consequently, no such performance-based options were earned in
1998. See "Report of the Personnel and Compensation Committee on Executive
Compensation."
All option grants set forth in the table above were granted under the 1993
Employee Stock Plan. Under the plan, all such options vest in the event of a
change of control and the plan includes a feature which permits repricing of
options.
9
<PAGE>
The following table shows, for each of the named executive officers, the
number of unexercised options held at December 31, 1998 and the aggregate dollar
value of unexercised options that are in-the-money based on the market value of
the Company's Common Stock as of December 31, 1998. There were no exercises of
options by named executive officers in 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ------------------------------------------------------- ------------------------- -----------------------------
<S> <C> <C>
B. Frederick Becker.................................... 274,875/192,500 $866,000/$13,000
Ian G. Sinclair........................................ 185,517/84,136 961,000/74,000
Paul M. Orzech......................................... 51,000/20,500 46,000/22,000
Anna Marie Hajek....................................... 76,250/17,500 144,000/19,000
Wayne A. Sinclair...................................... 57,375/5,400 155,000/6,000
</TABLE>
- ------------------------
(1) These values are calculated by determining the difference between the fair
market value of the Common Stock at December 31, 1998 which was determined
to be $16.75 per share, the closing price on the New York Stock Exchange at
such date, and the exercise price of the option.
UNIONAMERICA PENSION PLAN
The following table sets forth the estimated annual pension benefits payable
upon retirement to Unionamerica employees under the Unionamerica (1993) Pension
Scheme (the "Pension Plan") formula to persons in the specified remuneration and
years of service classifications.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION FOR REPRESENTATIVE YEARS OF CREDITED
SERVICE
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PENSIONABLE SALARY 15 20 25 30 35
- ----------------------------------------- ----------- ----------- ----------- ----------- -----------
$125,000................................. $ 31,250 $ 41,667 $ 52,083 $ 62,500 $ 72,917
150,000.................................. 37,500 50,000 62,500 75,000 87,500
175,000.................................. 43,750 58,333 72,917 87,500 102,083
200,000.................................. 50,000 66,667 83,333 100,000 116,667
225,000.................................. 56,250 75,000 93,750 112,500 131,250
250,000.................................. 62,500 83,333 104,467 125,000 145,883
300,000.................................. 75,000 100,000 125,000 150,000 175,000
400,000.................................. 100,000 133,333 166,667 200,000 233,333
450,000.................................. 112,500 150,000 187,500 225,000 262,500
500,000.................................. 125,000 166,667 208,333 250,000 291,667
</TABLE>
Pension Plan benefits are based on an employee's pensionable salary and
years of credited service with the Company. Under the terms of the Pension Plan,
the pensionable salary used to determine benefits shown in the table above is
the greater of the employee's pensionable salary on the date of retirement or
the highest pensionable salary for such employee in the last five years.
Pensionable salary for the purpose of determining benefits means solely
compensation listed in the "Salary" column of the Summary Compensation Table. As
of December 31, 1998, the number of years of credited service for Mr. Sinclair
was 25 years.
Annual pension amounts shown in the table above are not subject to any
offset or deduction for U.K. government-provided benefits. Total pension
benefits shown in the table are subject to certain limitations imposed by the
Inland Revenue. Benefits therefore will be restricted should any participating
employee's total benefits exceed such limitations.
10
<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 four non-employee Directors, who are
appointed by the Board of Directors to serve a one year term.
The Committee functions to:
- 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, and
where appropriate, negotiate and execute contracts with such employee;
- approve and review periodically compensation process, programs,
incentives, and other employee benefit plans;
- monitor and oversee the establishment of employment contracts made with
other executive officers or other key employees;
- review and recommend action by the Board of Directors with respect to the
compensation of directors;
- administer the Company's Return on Equity Plan ("ROE Plan"), 1993 Employee
Stock Plan ("Stock Plan"), 1995 Employee Stock Investment Plan ("ESIP"),
Long Term Incentive Plan of 1997, Retirement Equity Plan ("REP");
Unionamerica Annual Incentive Plan and the Executive Deferred Compensation
Scheme;
- and 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 within the intention of the foregoing.
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: Ian G. Sinclair, Paul M. Orzech, 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.
11
<PAGE>
ANNUAL INCENTIVE (BONUS) PROGRAMS
The Company maintains bonus plans that are designed to attract and retain
well qualified executives and to focus executives' attention on key corporate,
business unit and individual objectives. Such plans include performance targets
established at the beginning of the fiscal year, with awards granted based on
actual performance as compared to targets. Each of the Named Executives
participates in certain of the Company's annual incentive programs. Awards are
approved annually by the Committee.
DOMESTIC. The Company's principal incentive plan for domestic employees is
its Officer Incentive Plan (the "Incentive Plan"). 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
generally range between 15% to 35% of base salary, with the percentage
determined by level within the organization. Individual performance and an
earnings per share baseline determine 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
its profit target, it is intended but not required that the 33% Company
component will not be paid. In 1998, neither the Company's earnings target nor
earnings per share baseline was achieved. The 33% portion was not paid. The
Committee determined, however, to grant discretionary bonuses to certain key
employees in consideration of their accomplishments during the year.
INTERNATIONAL. The Company's principal incentive plans for its
international operations include the Unionamerica Annual Incentive Plan and the
Executive Deferred Compensation Scheme. The purpose of these plans is to promote
the financial success of Unionamerica and retain key employees. Annually, the
Committee approves the participants in each of the plans and a target incentive
pool and deferred compensation pool as a sliding-scale percentage of pre-tax
operating earnings of Unionamerica. At year end, actual results are compared to
plan and bonus targets and awards, if any, are made accordingly. For the
Executive Deferred Compensation Scheme, awards are paid over a three year
period, and a participant must be employed to receive payments.
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 2,308,000 shares. As of
December 31, 1998, there were 1,824,000 stock options outstanding, and 212,000
stock options available for grant 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. Messrs. Becker, Orzech, W. Sinclair and Ms. Hajek 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. Awards vest in
three installments
12
<PAGE>
over a period of 40 months following the end of an 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 1998 was less than the target specified
in the ROE Plan. In 1998, the Company paid awards relating to the 1994, 1995 and
1996 ROE Plan years.
1998 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Mr. Becker is eligible to participate in all of the Company's compensation
programs except those not available to executive officers. The Committee
considers industry standards and annual performance with respect to goals
established by the Committee in determining his base compensation. In 1998, the
Company increased Mr. Becker's base salary by 7% to $553,000. The increase
related to accomplishment of performance objectives in 1997, continued success
in achieving long-term corporate objectives and industry compensation standards.
The Committee established performance goals for Mr. Becker for 1998 that
consisted of consolidated earnings objectives, and specific business segment
revenue and expense control objectives. The Committee granted Mr. Becker 180,000
performance stock options which vest in 2007. Vesting of these performance
options may accelerate, however, if annual financial performance targets are
met. Up to 60,000 performance options may be earned in any single year, vesting
over the subsequent three-year period.
The Committee determined that Mr. Becker did not achieve the financial goals
and objectives relative to his target for 1998. Consequently, no performance
options were deemed earned. However, in consideration of other achievements and
accomplishments during the year, the Committee awarded Mr. Becker a bonus of
$100,000 under the Incentive Plan. Mr. Becker received $51,000 pursuant to the
ROE Plan in 1998 relating to the 1994, 1995 and 1996 ROE Plan years.
POLICY ON DEDUCTIBILITY OF COMPENSATION EXPENSES
The Company is not allowed a deduction for certain compensation paid to its
chief executive officer and next four most highly compensated executive officers
in excess of $1 million, except to the extent such compensation constitutes
performance-based compensation. The Committee considers that its primary goal is
to design compensation strategies that further the best interests of the Company
and its shareholders. To the extent they are consistent with that goal, the
Committee attempts where practical to use compensation policies and programs
that preserve the deductibility of compensation expenses. If the proposed
amendment to the 1993 Employee Stock Plan is approved by the stockholders,
performance options granted in 1998 to Mr. Becker should qualify as
performance-based compensation. If approved by the stockholders, awards under
the 1999 Stock Option Plan should also qualify provided that the maximum annual
grant to any individual in any year as set forth in the plan is not exceeded.
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 Scott S. Parker
(Chairman)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Personnel and Compensation Committee consists of Messrs. Sargent, Kelley
and Parker 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.
13
<PAGE>
EMPLOYMENT AGREEMENTS
MR. BECKER
The Company is a party to an employment agreement dated May 1, 1997, 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 $531,300 per annum. If the Company achieves the financial, operational and
managerial goals mutually agreed to by Mr. Becker and the Personnel and
Compensation Committee of the Board of Directors, Mr. Becker will receive a
bonus of up to 65% of his annual salary or such higher amount as may be
determined if circumstances warrant. Mr. Becker is also entitled to an annual
perquisite allowance of $35,000 and to participate in any employee benefits
available to senior executives, including 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 two times his annual salary and maximum bonus 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, permanent disability or cause or (b) the voluntary
termination of Mr. Becker's employment within sixty days following either (i) a
significant reduction in his responsibilities or title, or any reduction of
salary, bonus opportunity or benefits or (ii) a relocation of the Company's
principal place of business in excess of seventy-five miles from its existing
location. Such employment agreement defines a Change of Control as either (a)
the acquisition of beneficial ownership of more than 50% of the Company's
outstanding stock or the combined voting power of the Company's then outstanding
securities by any individual, entity, controlled group of entities, or group of
individuals or entities acting in concert for the purpose of controlling the
Company, or (b) the approval of the stockholders of the Company of i) a
reorganization, merger or consolidation, in each case where stockholders
immediately prior to such reorganization, merger or consolidation do not
immediately thereafter own more than 50% of the reorganized, merged or
consolidated Company's then outstanding securities, ii) a liquidation or
dissolution of the Company, or iii) the sale of all or substantially all of the
Company's assets.
MR. I. SINCLAIR
The Company has entered into an employment contract with Mr. I. Sinclair, as
Chief Executive Officer of Unionamerica. The Company has agreed to employ Mr. I.
Sinclair until the earlier to occur of i) the termination of his employment by
the Company upon not less than three months' written notice or ii) the day upon
which he attains the age of 65 years or such other age as may be determined by
the Board of Directors as the retirement age.
The base salary of Mr. I. Sinclair is $519,000, or such salary as may from
time to time be agreed in writing. He is also entitled to participate in the
Company's pension, health insurance, profit sharing and incentive plans from
time to time, to be reimbursed for out-of-pocket expenses incurred in the course
of employment and to receive use of company automobiles.
Mr. I. Sinclair can terminate his employment upon not less than two months'
written notice to the Company. The Company can terminate his employment at any
time with or without cause. If the Company terminates his employment with cause,
Mr. I. Sinclair is entitled to receive only accrued but unpaid salary as of the
date of termination. If the Company terminates his employment without cause, Mr.
I. Sinclair is entitled to receive a payment in lieu of salary and other
benefits for three months. In addition, Mr. I. Sinclair has agreed i) for a
period of six months after termination of his employment not to entice certain
employees of the Company away from the Company and not to solicit certain
clients of the Company and ii) for a period of four months after termination of
employment, not to engage in any competing business in the London Market.
14
<PAGE>
OTHER OFFICERS
The Company is a party to agreements with Messrs. McManis, Orzech, and W.
Sinclair and Ms. Hajek. In those agreements, the Company agrees to pay Messrs.
McManis and Orzech and Ms. Hajek a lump sum equal to one and one-half times
their annual salary, and to Mr. W. Sinclair, a lump sum equal to one times his
annual salary, if any of the following events occur within twelve months
following a Change of Control (as defined) of the Company: (a) an involuntary
termination of such officer's employment except for death, disability or cause
or (b) the voluntary termination of such officer's employment within sixty days
of either (i) a reduction in their responsibilities, title, 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.
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 five-year period from December 31, 1993 through December 31,
1998. The chart assumes an initial investment of $100.00 and reinvestment of
dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN
<S> <C> <C> <C>
AMONG MMI COMPANIES, INC., S&P 500 INDEX AND COMPANY PEER GROUP
MMI Companies, Inc. S&P 500 Index Company Peer Group
12/31/93 $100.00 $100.00 $100.00
12/31/94 $107.24 $101.27 $100.99
12/31/95 $163.72 $139.33 $149.57
12/31/96 $221.79 $171.33 $181.59
12/31/97 $174.71 $228.49 $258.96
12/31/98 $118.40 $293.79 $235.37
DOLLARS
</TABLE>
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MMI Companies, Inc.................................. $ 100.00 $ 107.24 $ 163.72 $ 221.79 $ 174.71 $ 118.40
S&P 500 Index....................................... 100.00 101.27 139.33 171.33 228.49 293.79
Company Peer Group.................................. 100.00 100.99 149.57 181.59 258.96 235.37
</TABLE>
15
<PAGE>
The Company's peer group includes the companies that comprise the S&P
Property-Casualty Insurance Index: The Allstate Corporation, The Chubb
Corporation, Cincinnati Financial Corporation, Loews Corporation, MGIC
Investment Corporation, Progressive Corporation, Safeco Corporation and The St.
Paul Companies, Inc. 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 removal of General Re Corporation
and USFG Corporation from the S&P Property-Casualty Insurance Index because both
were acquired in 1998.
ITEM 2. PROPOSAL TO APPROVE THE 1999 STOCK OPTION PLAN
On February 25, 1999 the Board of Directors adopted and recommended for
stockholder approval, the Company's 1999 Stock Option Plan. Following is a
summary of certain features of the 1999 Stock Option Plan. The complete text of
the 1999 Stock Option Plan is included in Appendix A.
PURPOSE
The purpose of the 1999 Stock Option Plan is to benefit the Company by
providing directors, officers and key employees with the opportunity to become
holders of Common Stock, thereby giving them a long-term stake in the growth and
prosperity of the Company and encouraging their continued involvement with the
Company. The 1999 Stock Option Plan permits the grants of options, stock
appreciation rights and issuance of restricted stock. The 1999 Stock Option Plan
is intended to replace the 1993 Employee Stock Plan and the 1993 Director Stock
Option Plan when shares are no longer available under the existing plans. As of
December 31, 1998, such plans had 212,000 and 13,000 shares, respectively,
available for grant.
ELIGIBILITY AND ADMINISTRATION
Options may be granted to directors, officers, employees, or consultants and
advisors of the Company. The 1999 Stock Option Plan will be administered by a
committee ("Committee") or subcommittee of the Board of Directors of the Company
consisting of two or more members of the Board, each of whom is a non-employee
director.
GRANTING OF OPTIONS
NON-EMPLOYEE DIRECTORS. Each non-employee director shall be granted an
option to purchase 1,375 shares of Common Stock annually on the annual meeting
date provided such director is serving on such date and on the preceding annual
meeting date. New directors will receive an option to purchase 4,125 shares of
Common Stock at the time they become a director. Beginning in 2000, each
non-employee director shall be granted a performance option for 2,500 shares of
Common Stock annually on January 1(st) which vests if the Company achieves the
earnings per share goal incorporated in the Chief Executive Officer's
performance objectives for that year and the director is still serving as a
director at year end. These provisions are substantially the same as currently
in effect under the 1993 Director Stock Option Plan. See "Director
Compensation."
OTHERS. Options may be granted to any other eligible person at the sole
discretion of the Committee.
SHARES AVAILABLE UNDER THE 1999 STOCK OPTION PLAN. The total number of
shares of Common Stock for which options may be granted pursuant to this plan is
1,500,000. No more than 400,000 shares subject to options may be granted to a
participant in a single year. Options may be either incentive stock options or
non-qualified options. Incentive stock options enable the recipient to enjoy a
special tax treatment upon exercise which is not available to holders of
non-qualified stock options. The plan also permits the issuance of restricted
stock and stock appreciation rights.
16
<PAGE>
TERMS OF OPTIONS
The Committee shall determine the exercise price of an option, which shall
be not less than fair market value at the time of grant. After the date of
grant, an option's exercise price may not be decreased and the plan may not be
amended to permit repricing. Each option shall be for a term of ten years, or
shorter as the Committee may determine, and become exercisable one year after
grant. In addition, the Committee may provide that a participant's right to
exercise an option may be subject to conditions precedent, which may include
continued employment, achievement of specified performance goals or other
conditions the Committee may determine. In the event an employee participant's
employment terminates for cause, options expire on the date of termination. If
an employee participant is terminated other than for cause, an option will
expire thirty days after termination. In the event of death, permanent
disability, or normal retirement, options may not be exercised more than one
year after such events. Options generally are not transferable or assignable.
The Committee can vary the terms of vesting. The authority to make new award
grants under the plan will expire on February 24, 2009.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM 2.
ITEM 3. PROPOSAL TO AMEND THE 1993 EMPLOYEE STOCK PLAN
The proposed amendment to the 1993 Employee Stock Plan provides that the
maximum number of shares of Common Stock with respect to which options may be
granted to any optionee in any one fiscal year of the Company shall not exceed
250,000 shares. The Board believes that the amendment is desirable for the grant
of performance options for 180,000 shares granted to Mr. Becker in 1998 to
comply with Section 162(m) of the Internal Revenue Code of 1986, as amended,
which imposes a limit on the deductibility, for federal income tax purposes, of
certain compensation payments in excess of $1 million. The limitation on
deductibility applies to that portion of compensation (including compensation
attributable to the exercise of stock options) for a taxable year in excess of
$1 million to the corporation's chief executive officer and the four other most
highly compensated executive officers. Certain kinds of performance-based
compensation, including certain stock options, are not subject to the limit on
deductibility if certain conditions are met. For grants made under the 1993
Employee Stock Plan to qualify as performance-based compensation, the 1993
Employee Stock Plan must state the maximum number of shares with respect to
which grants may be made during the fiscal year. Each proxy will be voted for
the amendment to the 1993 Employee Stock Plan if no contrary instructions are
given in the proxy.
As of December 31, 1998, approximately 1,824,000 shares of Common Stock were
subject to outstanding options and approximately 212,000 shares of Common Stock
were available for future grant of options under the 1993 Plan.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM 3.
ITEM 4. STOCKHOLDER'S PROPOSAL CONCERNING RIGHTS PLAN
SEIU Master Trust, of the Service Employees International Union AFL-CIO, CLC
("SEIU"), 1313 L Street, N.W., Washington, D.C., which owns 18,000 shares of the
Company's Common Stock, has submitted the resolution set forth below for
inclusion in this Proxy Statement for the Company's 1999 Annual Meeting of
Shareholders.
"RESOLVED: That the shareholders of MMI Companies Inc. ("Company") request
the Board of Directors to redeem the shareholder rights issued in June 1997
unless such issuance is approved by the affirmative vote of the outstanding
shareholders, to be held as soon as is practicable."
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THE STOCKHOLDER'S SUPPORTING STATEMENT
On June 14, 1997, the Board of Directors of MMI Companies issued, without
shareholder approval, certain shareholder rights pursuant to a Shareholder
Rights Plan. These rights are a type of anti-takeover device, commonly referred
to as a "poison pill," which injure shareholders by reducing management
accountability and adversely affecting shareholder value.
While management and the Board of Directors should have the appropriate
tools to ensure that all shareholders benefit from any proposal to acquire the
Company, the future possibility of takeover does not justify the unilateral
imposition of a poison pill. As Nell Minow and Robert Monks note in their book
POWER AND ACCOUNTABILITY, poison pills "amount to major de facto shifts of
voting rights away from shareholders to management, on matters pertaining to the
sale of the corporation. They give target boards of directors absolute veto
power over any proposed business combination, no matter how beneficial it might
be for the shareholders."
Rights plans like ours have become increasingly unpopular in recent years.
In 1998, a majority of shareholders at Consolidated Natural Gas, CSX, J.C.
Penney and Quaker Oats, among others, voted in favor of proposals asking
management to redeem or repeal poison pills. In addition, the Council of
Investors--an organization of large corporate and public pension plans--calls
for the shareholder approval of all poison pills in its Shareholder Bill of
Rights.
To assure shareholders that management and Board of Directors respect the
right of shareholders to participate in the fundamental decisions that affect
the Company's governance and performance, we urge the Company to redeem the
Shareholder Rights Plan or subject it to a vote as soon as may be practical.
MANAGEMENT'S COMMENTS
The Board of Directors unanimously adopted its Rights Plan in June 1997
because it believes the Rights Plan best serves the interests of MMI's
stockholders and is an effective tool to maximize the value of the Company's
stock in the context of an offer to purchase the Company. In approving the
Rights Plan, the Directors took into account that over 2,000 publicly-traded
companies, including many insurance companies, have such plans in place. The
Rights Plan encourages potential acquirors to negotiate directly with the Board,
which is in the best position to negotiate on behalf of all stockholders, to
evaluate the adequacy of any potential offer, and to protect stockholders
against potential abuses during the takeover process which unfairly discriminate
among stockholders. The Rights Plan is also designed to provide the Board with
adequate time and flexibility to negotiate on behalf of all the Company's
stockholders and enhances the Board's ability to negotiate the highest possible
offer from a potential acquiror, develop alternatives which may better maximize
stockholder values, and preserve the long-term value of the Company for all of
the stockholders.
The Rights Plan is not intended to prevent a takeover of the Company. The
Rights Plan does not diminish the fiduciary obligations of the Company's Board
of Directors. Because the Board, prior to the acquisition of 15% of the
Company's Common Stock by an acquiror, has the power to redeem the rights issued
under the Rights Plan and thereby remove the impediment to the completion of an
acquisition of the Company, a prospective acquiror seeking to persuade the Board
to redeem the Rights may propose a higher takeover price, an offer for all the
stock rather than a partial offer or better takeover terms than would be
proposed in the absence of the Rights Plan. The Rights Plan is intended, in
part, to discourage creeping acquisitions of control whereby an acquiror may
accumulate a controlling block of stock in the open market without paying a
control premium, attempt to unfairly pressure stockholders, potentially squeeze
them out of their investment without any real choice and deprive them of the
full value of their stock. Small stockholders are particularly vulnerable to
creeping acquisitions. Several studies have determined that rights plans do not
deter takeovers, but have shown that higher premiums have been paid for
companies with rights plans in place.
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Many companies with a rights plan have received unsolicited offers and a
number of companies have redeemed the rights in connection with the transactions
that their directors determined to be in the best interests of the company's
stockholders. Through the use of rights plans, many companies have been able to
negotiate successfully on behalf of their stockholders for prices higher than
those originally offered by the potential acquiror. The Board seeks to retain
that same ability and believes that the fact that twelve of the fourteen
directors of the Company are outside directors ensures that the Rights Plan will
not be misused. In such a situation, the Board has an obligation to meet its
fiduciary duties and exercise its business judgment in the best interests of the
Company and its stockholders.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST ITEM 4, AND THE
ACCOMPANYING PROXY WILL BE SO VOTED, UNLESS A CONTRARY SPECIFICATION IS MADE.
ITEM 5. 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 year ending December 31, 1999. 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 2000, 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
22, 1999 in order to be considered for inclusion in the Company's 2000 annual
meeting Proxy Statement and form of Proxy which is expected to be mailed in
March of 2000.
By order of the Board of Directors
[SIG]
Wayne A. Sinclair
SECRETARY
March 23, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998, 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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APPENDIX A
MMI COMPANIES, INC.
1999 STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1999 Stock Option Plan (the "Plan") is to
benefit MMI Companies, Inc. (the "Company") by offering certain present and
future employees and officers of the Company and its subsidiaries, as well as
non-employee directors, a favorable opportunity to become holders of the common
stock, $.10 per share par value, of the Company ("Common Stock") over a period
of years, thereby giving them a long-term stake in the growth and prosperity of
the Company and encouraging the continuance of their involvement with the
Company.
2. ADMINISTRATION. The Plan shall be administered under the supervision of a
committee (the "Committee"), which shall consist of a committee or subcommittee
of the Board of Directors of the Company (the "Board") appointed by the Board
and consisting of two or more members of the Board, each of whom is an "outside
director" as defined in Treasury Regulations Section1.162-27 issued under
Section162(m) of the Internal Revenue Code (the "Code"). The Committee shall
have the exclusive right to determine eligibility, grant options, determine the
terms of options and issue restricted stock, all as provided herein. The
appropriate officers of the Company shall have the right to make all
determinations necessary for the routine administration of the Plan, subject to
the supervision of the Committee.
3. ELIGIBILITY. Options may be granted to employees, officers, directors,
consultants or advisors of the Company or its subsidiaries, whose contributions
are key to the success of the Company or its subsidiaries (collectively, the
"Companies") as determined by the Committee in its sole discretion; provided
that options may be granted to directors who are not also employees or
consultants solely in accordance with Section 4(a) and (b). For purposes of this
Plan, the term "subsidiaries" means any entity in which the Company owns,
directly or through a chain of subsidiaries, a substantial voting interest, as
determined by the Committee; provided, however, that such term shall mean any
corporation in which the Company owns, directly or through a chain of
subsidiaries, 50% of the total combined voting power of all classes of stock, as
determined under Section424(f) of the Code, where such alternative definition
must be used to comply with any Code provision relating to ISOs (as defined
below). Eligible individuals may be selected individually or by groups or
categories, as determined by the Committee in its discretion. Any person who is
granted an option under this Plan shall be referred to herein as a
"Participant." In the case of a Participant who is not an employee, all
references in this Plan to "employment" or "termination of employment" shall be
deemed to refer to the relationship between such Participant and the Company or
its subsidiaries which was the basis for such Participant's eligibility to
receive an option.
4. GRANTING OF OPTIONS.
(a) Beginning in 1999, each non-employee director shall be granted an option
for 1,375 shares of Common Stock at each Annual Meeting of Stockholders of the
Company provided that such director was serving as a non-employee director since
the preceding Annual Meeting and on the grant date, and that the Plan is
approved by the Company's stockholders. Upon approval of the Plan by the
Company's stockholders, each person who thereafter becomes a non-employee
director shall, at the time he or she becomes a director, also receive a grant
of 4,125 shares of Common Stock.
(b) Each director who is not an employee of the Company or any of its
subsidiaries shall be granted a nonqualified Performance Option on January 1 of
each year commencing January 1, 2000 to purchase 2,500 shares of the Company's
common stock at fair market value on such grant date. Notwithstanding the
foregoing, (i) if the minimum Earnings Per Share goal incorporated into the
Chief Executive Officer's
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objective for the target performance year is not achieved, or (ii) if the
director is not also serving as a director on December 31 of the target
performance year, the Performance Options for that year will be forfeited.
(c) Options may be granted to any eligible person other than a nonemployee
director described in Section 4(a) at such times and in such amounts and with
such terms as the Committee shall determine in its sole discretion, subject to
the remaining provisions of this Plan.
(d) The total of shares of Common Stock for which options may be granted
pursuant to this Plan shall be 1,500,000 shares, subject to adjustment as
provided in Section 10. In the event that an option expires or is terminated or
canceled unexercised as to any shares, such released shares may again be
optioned (including a grant in substitution for a canceled option). Shares
subject to options may be made available from unissued or reacquired shares of
Common Stock. No option shall be granted after the expiration of the term of the
Plan pursuant to Section 15.
(e) The maximum number of shares subject to all options granted to a
Participant in any calendar year shall in no event exceed 400,000 (the
"Individual Cap"), subject to adjustment as provided in Section 10. For purposes
of this subparagraph (e), an option that is canceled shall continue to restrict
the number of shares for which options may be granted in the same year, and any
modification to the purchase price of an option shall be treated as the
cancellation of the old option and the grant of a new option.
(f) Options granted under the Plan to employees may either be incentive
stock options as defined in Section422 of the Code ("ISOs"), or options that are
not ISOs ("nonqualified options"), as determined by the Committee at the time of
grant; provided that the total value of shares of Common Stock with respect to
which ISOs may be granted to any Participant in any calendar year (or, in the
case of options that are not vested at the time of grant, the value, determined
at the date of grant, of shares of Common Stock with respect to which ISOs first
become exercisable in any calendar year), under this Plan and all other plans
maintained by the Company, its subsidiaries, and any parents (as defined in
Section424(e) of the Code) shall not exceed $100,000. A single option may
constitute an ISO with respect to some shares and a nonqualified option with
regard to the remaining shares. An option that meets the requirements of an ISO,
in whole or in part, shall constitute an ISO to the extent that it meets such
requirements, unless otherwise provided by the Committee. Options granted to
directors or consultants who are not employees shall be nonqualified options. An
option granted to an employee who owns more than 10% of the stock of the Company
shall not constitute an ISO unless the purchase price is at least 110% of the
fair market value of the stock and the term of the option does not exceed five
years.
(g) Each option shall be evidenced by a written option agreement, in the
form as the Company may provide (subject to the Committee's approval). All terms
and conditions of this Plan shall be deemed incorporated into each such option
agreement, except as otherwise specifically provided therein.
5. OPTION PRICE. The options shall be granted at an exercise price determined
by the Committee which shall only be equal to or greater than the fair market
value at the time the option is granted, of the shares of Common Stock subject
to the option. If not otherwise specified by the Committee, the exercise price
shall be the fair market value. The exercise price for all options granted to
nonemployee directors pursuant to Section 4(a) and (b) shall only be the fair
market value. The fair market value of the Common Stock shall be determined by
the price at which the Common Stock trades on the principal exchange or
over-the-counter market in which the Common Stock is traded, using a method
determined by the Committee, and without regard to any restriction that may be
imposed on the sale of stock by a Participant under the securities laws or
otherwise. After the date of grant, the option price of an option shall not be
decreased except as may be permitted by the adjustment provisions of Section 10.
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6. DURATION OF OPTIONS AND VESTING. Subject to the provisions of Section 8
hereof, each option shall be for a term of ten years, or such shorter duration
as the Committee may determine at the time of grant. Unless otherwise determined
by the Committee as provided in the following sentence, all options shall be
fully vested one year after the date of grant and may be exercised in whole or
in part at any time during their term after the first year. The Committee may,
at the time of grant of any option (other than an option granted to a
nonemployee director pursuant to Section 4(a) and (b)) provide that the
Participant's right to exercise such option in whole or in part is subject to
conditions precedent, which may be based upon the Participant's continued
employment for a specified period of time, the achievement of specified
performance goals by the Company, the Participant, or both, or such other
conditions as the Committee may determine. For all purposes of this Plan, an
option which is subject to such conditions shall be referred to as "vested",
either in whole or with respect to certain shares, and shall be exercisable,
only when the conditions have been satisfied, and until vested shall be
considered forfeitable. Performance options granted to a non-employee director
pursuant to Section 4(b) shall be vested only when the conditions described in
Section 4(b) have been satisfied.
7. EXERCISE OF OPTION. An option that is vested may be exercised by giving
written notice to the Company, specifying the number of shares to be purchased,
accompanied by the full purchase price for the shares to be purchased which may
be paid in any combination of the following methods, provided that payment in
any form other than cash or check shall only be as permitted by the Committee in
its sole discretion: in cash, by check, by surrendering other shares of Common
Stock owned by the Participant equal in fair market value (as of the exercise
date) to the purchase price (which surrender of shares shall comply with
Section16(b) of the Exchange Act), by withholding such number of shares of
Common Stock from the number purchased (which withheld shares shall be treated
as having been purchased by the Participant and sold back to the Company) or by
a promissory note in a form and on terms specified by the Committee. A
Participant may also arrange for a "cashless exercise", subject to such
restrictions as the Company may determine. The Participant shall pay at the time
of exercise, by any combination of the same methods, an amount equal to any tax
that the Company is required to withhold from the Participant upon exercise
(less any amount withheld from the Participant's regular compensation in
connection with such exercise). The Participant shall be solely responsible for
any tax which is due as a result of the grant, exercise or expiration of an
option. The Participant also shall execute such agreements or documents as the
Company may determine to be necessary or appropriate to comply with any
securities or other applicable laws or regulations.
8. TERMINATION OF RELATIONSHIP--EXERCISE THEREAFTER.
(a) In the event a Participant's employment with any of the Companies is
terminated for any reason other than death, permanent disability, or retirement
and such Participant no longer is employed by any of the other Companies, such
Participant's option shall expire and all rights to purchase shares pursuant
thereto shall terminate on the date of termination of employment, except that,
unless the termination is for cause, such option, to the extent vested and
exercisable on the date of termination, may be exercised for a period of thirty
days after termination of employment (or until the scheduled termination of the
option, if earlier); provided, however, that with respect to all or any portion
of any option held by such Participant, the Committee may, in its sole
discretion, accelerate exercisability or permit such option to remain
exercisable for a term after the thirty-day period specified above (but in no
event beyond its specified term), subject to such terms and conditions, if any,
as determined by the Committee in its sole discretion. The Committee may also
accelerate exercisability or permit such option to remain exercisable in the
event of a change of control or other material corporate transaction, as
determined by the Committee in its sole discretion. A person receiving an option
as a nonemployee director pursuant to Section 4(a) or (b) shall not be subject
to the termination provisions of this Section 8(a).
(b) In the event the employment of a Participant with any of the Companies
is terminated for cause, or that the Company determines that grounds for
termination for cause exist but permits the Participant
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to resign, or discovers after termination but before an option is exercised that
such grounds existed at the time of termination, all unexercised options shall
be forfeited, regardless of whether they were otherwise considered vested and
exercisable at the time of termination, and any notice of exercise that has been
given, but as to which the Common Stock has not been issued, shall be rescinded.
For purposes of this paragraph (b), "cause" shall include theft or
misappropriation of property (including intellectual and intangible property) of
any of the Companies, commission of any crime involving any of the Companies,
violation of (or manifestation of a clear intent to violate) the terms of any
noncompetition or confidentiality agreement to which the Participant is a party,
or gross insubordination or dereliction of the Participant's duties. "Cause"
shall be determined by the Committee, whose decision shall be final, and in the
case of cause that involves commission of a crime shall not require arrest or
conviction. Temporary absence from employment because of illness, vacation, and
approved leaves of absence and transfer among the Companies shall not be
considered to terminate employment or to interrupt continuous employment.
(c) In the event of termination of employment because of death or permanent
disability (as that term is defined in the Company's long term disability plan
for which the Participant is eligible, if any, and otherwise as defined in
Section22(e)(3) of the Code), the option may be exercised in full (to the extent
not previously exercised) without regard to the vesting of the option, by the
Participant or, if he or she is not living, by his or her heirs, legatees, or
legal representative, as the case may be, during its specified term prior to one
year after the date of death or permanent disability.
(d) In the event of termination of employment because of early, normal or
deferred retirement under the retirement program of the Company for which the
Participant is eligible, if any (or such other plan or arrangement as may be
approved by the Committee, in its discretion, for this purpose), the option may
be exercised by the Participant (or, if he or she dies after such retirement, by
his or her heirs, legatees, or legal representative, as the case may be), to the
extent that any portion thereof would be exercisable on the date of such
retirement (or with respect to such greater portion as determined by the
Committee), at any time during its specified term prior to one year after the
date of such retirement.
(e) The Committee will have authority to determine the circumstances under
which options will be forfeited upon termination of employment of the
Participant. Such provisions will be contained in the Participant's option
agreement or will otherwise be communicated in writing to the Participant.
9. NON-TRANFERABILITY OF OPTIONS. During the lifetime of a Participant,
options shall be exercisable only by the Participant, and options shall not be
assignable or transferable by the Participant otherwise than by will or by the
laws of descent and distribution. The Committee, in its discretion, may permit
the assignment or transfer of a nonqualified option to members of the
Participant's family, to a trust for family members, to a nonprofit
organization, or to such other transferee as the Committee may approve, on such
terms and subject to such conditions as the Committee may deem necessary or
appropriate.
10. ADJUSTMENT. The number of shares subject to the Plan and to options granted
under the Plan (and the Individual Cap) shall be adjusted as follows: (a) in the
event that the outstanding shares of Common Stock of the Company are changed by
any stock dividend, stock split or combination of shares, the number of shares
subject to the Plan and to options granted thereunder and the Individual Cap
shall be proportionately adjusted; (b) in the event of any merger, consolidation
or reorganization of the Company with any other corporation or corporations,
there shall be substituted, on an equitable basis as determined by the
Committee, for each share of Common Stock then subject to the Plan, whether or
not at the time subject to outstanding options, and for each share of Common
Stock included in the Individual Cap the number and kind of shares of stock or
other securities to which the holders of shares of Common Stock of the Company
will be entitled pursuant to the transaction; and (c) in the event of any other
relevant change in the capitalization of the Company, the Board shall provide
for an equitable adjustment in the number of shares of Common Stock then subject
to the Plan, whether or not then
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subject to outstanding options, and in the Individual Cap. In the event of any
such adjustment the purchase price per share shall be proportionately adjusted.
11. AMENDMENT OR TERMINATION OF PLAN. The Board may amend or discontinue the
Plan at any time, except, that:
(a) no amendment or discontinuance shall change or impair any options
previously granted without the consent of the Participant;
(b) no amendment shall cause Options to be repriced at a price lower than
their original exercise price unless otherwise permitted by Section 10; and
(c) no amendment shall, without the affirmative vote of the holders of a
majority of the outstanding shares of all of the classes of stock of the Company
present and voting in person or by proxy, and entitled to vote at a duly held
stockholders meeting, or without the written consent of the holders of a
majority of the outstanding shares of all of the classes of stock present and
entitled to vote, (i) increase the number of securities which may be issued
under the Plan, (ii) modify the requirements as to eligibility for participation
in the Plan, (iii) extend the term of the Plan beyond the latest date specified
in Section 15, or (iv) cause any option that would otherwise have qualified for
an exception under Rule 16b-3 under the Exchange Act or that would otherwise
have qualified as incentive compensation under Section162(m) of the Code to fail
to so qualify.
12. STOCK APPRECIATION RIGHTS. At the time of granting any option (other than
an option to a nonemployee director pursuant to Section 4(a) or (b)), the
Committee may also grant stock appreciation rights in tandem with such options,
which shall provide that the Participant has the right, in lieu of purchasing
Common Stock pursuant to such option, to require the Company to pay an amount
equal to the difference between the fair market value of the number of shares of
Common Stock with respect to which such right is exercised and the exercise
price therefor, subject to such terms and conditions as the Committee may
determine.
13. RESTRICTED STOCK. Subject to the limitations of the Plan, the Committee may
grant awards of Restricted Stock to employees, shall determine the time when
each such awards shall be granted and whether shares of Common Stock covered by
awards of Restricted Stock will be issued at the beginning or the end of the
Restriction Period, and shall designate (or set forth the basis for determining)
the vesting date or vesting dates for each award of Restricted Stock and may
prescribe other restrictions, terms and conditions applicable to such Restricted
Stock in addition to those provided in the Plan. The Committee shall determine
the price, if any, to be paid by the holder for the Restricted Stock. All
determinations made by the Committee pursuant to this Section 13 shall be
specified in the Agreement relating to such Restricted Stock.
The vesting of any award of Restricted Stock may, in the Committee's
discretion, be conditioned in whole or in part upon the attainment, or the
extent of attainment, by the Company, a division or unit of the Company, or the
Participant of objective performance goals pre-established by the Committee,
based on one or more of the following criteria: (a) return on total shareholder
equity; (b) earnings per share of Common Stock; (c) net income (before or after
taxes); (d) earnings before interest, taxes, depreciation and amortization; (e)
revenues; (f) return on assets; (g) market share; (h) cost reduction goals; (i)
cash flow; (j) stock price; (k) margins; (l) increase in revenues and (m) any
combination of, or a specified increase in, any of the foregoing; in each case,
as determined in accordance with generally accepted accounting principles. Such
performance goals shall be established by the Committee prior to the expiration
of 25% of the time period to which the performance goal relates, and the vesting
of any award of Restricted Stock subject to such performance goals shall be
conditioned upon certification by the Committee that the performance goals have
been attained. Awards that are made subject to performance
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goals described in this Section are intended to qualify as performance based
compensation under Section162(m) of the Code, and the provisions of this Section
shall be so interpreted and applied.
14. EMPLOYMENT AND CONSULTING AGREEMENTS. Anything contained in the Plan to the
contrary notwithstanding, in the event that an employment agreement entered into
by the Company or a subsidiary of the Company provides that options shall be
granted under the Plan to an employee on terms and conditions that differ from
the terms and conditions set forth herein, the terms and conditions set forth in
such employment agreement shall control.
15. APPROVAL AND TERM. The Plan was adopted by the Board on February 25, 1999,
and shall be effective as of such date, subject to the following. The Plan shall
be submitted to the stockholders for approval at the first annual meeting of the
stockholders held subsequent to its effective date, and no option may be
exercised until the Plan has been so approved. If the Plan for any reason is not
approved by the stockholders by the first anniversary of its effective date, the
Plan, and all options granted pursuant to the Plan, shall be null and void and
neither the Company nor any Participant shall have any rights or obligations
with respect thereto. The Plan, if not previously terminated by the Board
pursuant to Section 11, shall terminate on February 24, 2009, and no options
shall be granted after such date.
16. MISCELLANEOUS PROVISIONS.
(a) Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any Participant any right to be continued in the employment of
the Company, or interfere in any way with the right of the Company to terminate
his or her employment at any time.
(b) No employee or other person shall have any claim or right to be granted
an option under the Plan. Determinations made by the Committee under the Plan
need not be uniform and may be made selectively among eligible individuals under
the Plan, whether or not such eligible individuals are similarly situated.
(c) No Participant or other person shall have any right with respect to the
Plan, the Common Stock reserved for issuance under the Plan or any option,
contingent or otherwise, until all the terms, conditions and provisions of the
Plan and the option applicable to such recipient (and each person claiming under
or through him) have been met.
(d) No shares of Common Stock shall be issued hereunder with respect to any
option unless counsel for the Company shall be satisfied that such issuance will
be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.
(e) It is the intent of the Company that options granted under the Plan to
Participants who are subject to Section16(b) of the Exchange Act comply in all
respects with Rule 16b-3 under the Exchange Act, and that options granted to
persons who may be subject to Section162(m) of the Code comply in all respects
with the restrictions on payments of incentive compensation in Treasury
Regulations Section1.162-27, and that any ambiguities or inconsistencies in
construction of the Plan be interpreted to give effect to such intention and
that if any provision of the Plan is found not to be in compliance with such
requirements, such provision shall be deemed null and void to the extent
required to permit the Plan to comply with such requirement.
(f) The expenses of the Plan shall be borne by the Company.
(g) By accepting any option or other benefit under the Plan, each
Participant and each person claiming under or through such person shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company or the Committee.
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[LOGO]
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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 22, 1999, 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 5, AND
RECOMMENDS A VOTE "AGAINST" ITEM 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.
[_] [_]
*B. Frederick Becker, K. James Ehlen, M.D., Andrew D. Kennedy, Edward C. Peddie,
Joseph D. Sargent
*EXCEPTIONS
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- - ----------------------------------------------
ITEM 2. PROPOSAL TO APPROVE THE 1999 STOCK OPTION PLAN
FOR AGAINST ABSTAIN
[_] [_] [_]
ITEM 3. PROPOSAL TO AMEND THE 1993 EMPLOYEE STOCK PLAN
FOR AGAINST ABSTAIN
<PAGE>
[_] [_] [_]
ITEM 4. STOCKHOLDER'S PROPOSAL CONCERNING THE SHAREHOLDER RIGHTS PLAN
FOR AGAINST ABSTAIN
[_] [_] [_]
ITEM 5. 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:_______________, 1999
- ----------------------------
Signature
- ----------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
